How fiscal drag saves the state
Billions of rand have been squeezed from consumers in hidden taxes, and the government could net a further R15-billion in the new tax year from employees' salaries through what is called fiscal drag
Billions of rand have been squeezed from consumers in hidden taxes, and the government could net a further R15-billion in the new tax year from employees' salaries through what is called fiscal drag. A rise in salaries and wages can attract a higher tax rate if an increase in remuneration pushes an employee into a higher tax bracket - the tax rate applied to these brackets or salary ranges varies so that higher earners pay more tax than lower earners. The state has in previous years made adjustments to income tax brackets and included rebates for inflation to ensure that the purchasing power of this income does not diminish for taxpayers. But in recent years the Treasury has provided only partial relief for fiscal drag, so inflation and growth in earnings have pushed taxpayers into higher tax brackets. Because of this, it is expected to collect about R15-billion more in income tax in the year to March 2018, enough to cover more than half of the R28-billion budget deficit projected f...
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