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There’s never enough money …

Columnists

If you remember nothing else from all the reports on this week’s medium-term budget statement, remember this: the money you have to spend will always be limited, but the choices you make will determine your financial future.

Insight into Finance Minister Pravin Gordhan and his team’s difficult task in balancing the country’s budget should comfort all struggling with too many demands on too little income.

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During a media briefing before delivering his speech, Gordhan said economists had told him that resources are always limited: “There is never enough money, you need a pragmatic approach.”

Giving journalists a simple budgeting lesson, Gordhan said that when you are faced with limited resources, you need to take stock of how much income you have, what you need to spend and how much you can borrow.

Hopefully, your choices as an individual are much easier than the minister’s. He faced a big hole in income – some R23 billion in the current year and more over the next two years as a result of slow economic growth. You should hopefully see an increase in your income, even if that increase is modest and eroded next year by tax increases and higher-than-inflation increases in the likes of medical scheme contributions.

When it came to expenses, the minister had to make careful choices between cutting government expenses, providing services to lift people out of poverty, stimulating growth and keeping the ratings agencies from downgrading our bonds. He also had protesting students on the steps of Parliament.

Personal budgeting requires the same care but hopefully under less pressure.

During the briefing, Gordhan stated that spending decisions were guided by the country’s National Development Plan.

You too should spend in line with a well-thought- through plan about where you want take your life and that of your family.

And like Gordhan, you may have to cut your expenses to fund the future, or invest in your personal growth, so that, like the country’s economy and revenues, your income will also grow.

When it came to borrowing, Gordhan had to decide how much to borrow on the country’s behalf, balancing the need to borrow to stimulate economic growth against the cost of repaying the loans.

Sanisha Packirisamy, an economist at Momentum, and Herman van Papendorp, the head of asset allocation at Momentum, say the government is spending 12 cents in every rand collected to service debt, and this “crowds out” needs on which the government should be spending its money.

Gordhan revealed that the cost of servicing the country’s debt will rise by 10.1 percent a year, and it was the most rapidly increasing item of all the government’s expenses.

Answering a question about how much debt the country could take on, Lungisa Fuzile, the director-general of the National Treasury, said there was no magic formula, but the government had to ask itself if it could still afford the debt it has, not only now but also in the future.

Borrowing was unavoidable for the country, but it should be something we all seek to avoid in our personal budgets. The cost of your personal debt crowds out things on which you too could better spend your money.

When it comes to tax revenue, the medium-term budget had some scary numbers about future increases: R28 billion next year, with some coming from tax measures already announced and R13 billion from new taxes.

The minister and his team would not be drawn on what tax increases we may face next year as these will be revealed in next year’s budget, but Packirisamy and Van Papendorp have a few ideas on where the money may come from:

• An increase in wealth taxes such as estate duty and dividends tax. They say global financial services group Macquarie expects estate duty to be doubled from 20 to 40 percent and dividends tax to increase from 15 to 20 percent, while tax and audit firm PwC expects a new 45 percent income tax rate band for those earning above R1 million.

• A one-percent income tax increase across the board, but not for lower earners.

• Limiting relief for bracket creep or fiscal drag.

• A tax on sugar-sweetened beverages.

• An environmental tax on carbon emissions.

These are challenging economic times, Gordhan says, but we are not in hopeless situation. It means cutting what you can for the next two years. The minister then suggested that the country “work like hell” to get the country stable and growing. On a personal level, read “work like hell” to reduce your debt, invest in yourself and grow your income.

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