Economic Policy Paper for Public Comment

The Minister of Finance, Mr Tito Mboweni, is calling on members of the public to make comments on a paper titled: “Economic transformation, inclusive growth, and competitiveness: Towards an Economic Strategy for South Africa”.

The paper, prepared by the National Treasury, is an attempt to translate the broad outcomes of inclusive growth, economic transformation, and competitiveness into specific programmes and draw on a range of domestic and international literature to support these policy priorities.

 

This paper considers the contribution of specific growth reforms that can achieve the outcomes of economic transformation, inclusive growth, and competitiveness.

The paper draws on the National Development Plan to outline six themes and the contribution of growth reforms within each theme that prioritize economic transformation, inclusive growth, and competitiveness. The themes include:

• Modernizing network industries to promote competitiveness and inclusive growth
• Lowering barriers to entry and addressing distorted patterns of ownership through increased competition and small business growth
• Prioritizing labour-intensive growth: agriculture and services
• Implementing focused and flexible industrial and trade policy to promote competitiveness and facilitate long-run growth
• Promoting export competitiveness and harnessing regional growth opportunities
• Quantifying the impact of proposed growth reforms

While the deadline for public comment is closed, it is worth reviewing the document to get an idea of where government is heading. It is probable that Minister Mboweni will elucidate on this paper in his Medium-term budget speech in late October. The paper can be downloaded from the following link (Click here).

Special Trust

Unlike conventional trusts, which are taxed at a flat rate of tax, a special trust is taxed on the same sliding scale applicable to natural persons. For tax purposes the following types of special trusts are recognised:

Special Trust Type A:
A trust created solely for the maintenance and care of a person with a mental illness (as defined in the Mental Health Care Act) or any serious physical disability which precludes them from earning income or managing their own affairs. Special Trust Type-A trusts can be testamentary or inter vivos trusts and are sometimes created as a result of a court order in favour of a specified natural person.

Special Trust Type B:
This is a testamentary trust created by a testator by or in terms of their will solely for the maintenance and care of their relatives who are alive on the date of death of the deceased (including any beneficiary who has been conceived, but not yet born on that date). The youngest of the relatives should be under the age of eighteen years. A trust will cease to be a Type-B trust as from the beginning of a year of assessment in which the youngest of its beneficiaries turns eighteen. The distinction between a Type-A trust and a Type-B trust is important because a Type-A trust qualifies for certain relief from Capital Gains Tax while a Type-B trust does not qualify for such relief.

Who Needs to do Estate Planning?

Many may think that they are not old enough or wealthy enough to warrant doing any estate planning. However, if a person is over the age of eighteen, no matter how small their estate is, it is advisable to begin the process.

Where an estate planner is “at” in life, will determine your strategic plan for your estate, and which techniques to use in order to implement in the plan. An estate planner may be single, married, divorced, or separated. You may have minor children or adult children. You may be married for a second or third time, with children from previous marriages. You may own assets with a strong growth potential.

 

Each plan will be unique and structured according to an estate planner’s own unique set of circumstances, goals and objectives, and reviewed regularly to take account of personal and legislative changes.

Who should be involved?
The estate planner should work together with an estate planning team, which usually comprises a set of professionals, including an accountant, attorney, and financial adviser. The professional team should assist the estate planner with developing and reviewing their estate goals, providing direction on various strategies and tactics, performing cost-benefit analysis, providing advice on the tax implications of various strategies and tactics, and most importantly liaising with other professionals on the estate planning team.

The attorney may assist with drawing up legal documents such as the Last Will and Testament and an inter vivos trust deed. The financial adviser may assist with ensuring the estate is liquid, and the accountant may typically assist with tax planning. Family members, more specifically, a spouse should also form part of the team, especially where more complex plans are contemplated. If you have concerns on this matter why not consult us for professional advice in this regard.

Prescribed Investments for Pension Funds

Much has been publicised about the potential implementation of prescribed investments and resultant impact on investment returns. This policy was previously followed by the Nationalist Party, but abolished in the late 1980’s.

There is no clear policy on this, whilst key ANC leaders have mooted the possibility in the near future as a preferential route as opposed to an IMF bailout for instance. It is probable that Minister Mboweni may provide some clarity on the issue in his upcoming Medium-term budget speech.

In the interim, if you already have a balanced portfolio of investment assets it is probably best that you retain such a position until there is clarity on the matter.

Sincerely,