It is unlikely that saving for your children's education will be a tax break you can expect from the budget on February 17.
This does not mean government is doing nothing about it - there is talk of a move to free public schooling - but the timing is simply not good, with the projected R70bn collection shortfall leaving scant room for tax breaks of this sort. And, of course, if schooling becomes free, any tax breaks down the line will benefit private schools, making the whole issue a political hot potato.
This comes as SA's household savings rate relative to disposable income remains abysmal at -0,4%.
Deloitte tax director Billy Joubert says there is nothing along the lines of an education savings tax break on offer at the moment and he doesn't expect any changes in the budget.
He says the authorities have been quite generous on tax rates and there is help via the tax-free interest amount - which applies to all savings. There is also the section 18A deduction for donations to educational institutions.
"But I don't expect a break - there is huge pressure on tax collection this year."
These views are echoed by FTR Tax & Corporate tax manager Ettiene Retief, who says the "timing is not ideal".
He feels the tax system is not always the right place to create incentives, but there are certain areas where tax can help, such as improving benefits on medical expenses.
Banking Association of SA director Cas Coovadia feels there is scope to use incentives for saving for education. He says there is "healthy competition" among banks to provide products and it is hoped more people will get involved, given the savings record of South Africans.
He says improving the picture in part relates to reducing costs, such as stamp duty, but also determining what the true savings rate is. According to Coovadia, there are a lot of informal saving schemes around, meaning South Africans on the whole are probably saving more than is generally assumed.
"We need to look at the options - and it does not have to be tax," says Coovadia. "We need to determine taxable income before thinking of tax breaks."
The four major banks, as well as Postbank, offer youth accounts. The accounts offered by the retail banks are for both transactions and savings, while the product offered by Postbank is a more conventional savings product.
Astrid Ludin, a consultant at the Banking Association, says there is scope to engage with the state about the possibility of a tax-based incentive for parents to save for children. It is recommended that the type of account should be branded in a similar way to the Mzansi account and should be marketed rigorously by the financial institutions participating. This account could be linked to the Fundisa initiative, which is already branded and has an existing link with the state. The matched grant could then be limited to low-income families, while all families could get some tax benefit.
"Drawing on international experience, it appears that there is scope in SA to expand the existing savings options by developing a more savings-orientated product for the youth, which could be linked to the Teach Children to Save campaign, a collective annual campaign," she said in a recent publication.
In the UK, the government introduced the concept of the Child Trust Fund (CTF) in 2005. The account is a long-term savings account, opened by parents on behalf of their children and which the children may access only when they turn 18. Children born after September 1 2002 receive a one-off £250 voucher from the government, which parents can use to open a CTF account in their child's name. They receive a further £250 voucher when the child turns seven (this amount is £500 for lower-income families), and parents can add up to £1 200 into the account each year, without a tax liability.
Nedbank chief economist Dennis Dykes says any idea to improve savings in SA is a good one as the savings rate is "abysmal". He says the ratio of savings to disposable income has been negative for three years and has been below 1% for the past decade.
Savings rates are 11% in Ireland and France, and 10% in Germany, so clearly more needs to be done to improve the overall savings rate, and expanding saving for education is an ideal vehicle to drive that. But the upcoming budget is not likely to be the place where the incentives will be found.
