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A tough financial future for SA despite the possibility of no tax increase announcement in the 2022 Budget speech

South Africans will be waiting with bated breath today as they hear from Finance Minister Enoch Godongwana, who has the task of performing one of the most demanding financial balancing acts yet undertaken by a Minister on budget day. Picture: Karen Sandison/ANA

South Africans will be waiting with bated breath today as they hear from Finance Minister Enoch Godongwana, who has the task of performing one of the most demanding financial balancing acts yet undertaken by a Minister on budget day. Picture: Karen Sandison/ANA

Published Feb 23, 2022

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By John Manyike

Taxes may not increase, but that does not mean that South Africans will necessarily be better off after this year's national budget is announced this week. Things may get tougher, but a new look at some of SA's financial problems could bring some relief.

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South Africans will be waiting with bated breath today as they hear from Finance Minister Enoch Godongwana, who has the task of performing one of the most demanding financial balancing acts yet undertaken by a Minister on budget day.

The government will be wrestling with many issues. They range from the dire national economic situation, the costs of the public sector employment bill, the shrinking tax base, record unemployment levels, and the cost and sustainability of the extended social welfare grants. The grant alone will absorb about R 45 billion of our scarce cash resources over the next year.

Ordinary South Africans will be hoping that, as predicted by economists, the Budget will be a boring affair.

A boring budget for economists will mean a welcome respite for taxpayers. Many are still recovering from the personal costs of the Covid-19 pandemic, which closed the doors of small companies, depleted savings bases, and in many cases left people unemployed. Keeping things the way they are will, therefore, be welcomed.

But as unpleasant thoughts of more personal tax and a VAT increase drift into the background, the Budget is still likely to hit citizens hard.

The main blow will be the predicted six cents a litre rise in the fuel levy to help bolster the Road Accident Fund, which is facing massive shortfalls. To Mr and Mrs Average SA, this means that the taxi or bus ride to work will get more expensive, that inflation will rise, and the cost of an average bag of groceries will go up once again.

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It's tough, particularly when South Africans, who are not known for their saving abilities, are already using more than 67 percent of their monthly incomes to pay off existing debt. At its simplest, this means that only 33 cents in every rand are available for families to live on- reducing these 33 cents means that living will become more challenging.

The question that has to be asked here is whether the proposed 'two-pot retirement system 'answers some problems. Currently being considered, the scheme could see Mr and Mrs Average saving more for their retirements, reducing their debt levels and increasing savings.

The current thinking is that pension-fund members should be allowed to withdraw a third of their net retirement fund contributions and accrued investment returns annually to provide short term financial relief.

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The benefit would lie in stopping the 'tradition' that sees South Africans leaving a job, withdrawing all their pension and provident fund contributions and spending them on unnecessary items. The question is whether the ability to draw pension money out of a fund will be used to settle debt, pay off houses and loans, or merely acquire new lifestyle toys and create further debt?

Whether the legislation is enabled or not, people using the opportunity will find that they will get out less than expected once fees and taxes are paid. It is also unlikely that companies will be able to reconfigure changes to their IT systems for consumers to benefit from soon.

Interest rates are on the way up. Good for retired people living off their investments but adding further cost pressure to those with bonds and loans that need to be paid.

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The question, Mr Minister, is whether this is not an appropriate time to upgrade limits on tax-free savings schemes and incentivise people to benefit from higher interest rates?

To those out there who feel that the growing government wage bill won't impact our futures, my advice is to think again. The stand-off between government and labour will not see civil service numbers reducing through anything other than those resigning, not getting replaced.

Already facing a budget deficit of about R5 billion, increasing civil service wages, usually above inflation, will add pressure. This means that service delivery will be impacted and lead to citizens' dissatisfaction and possible increased levels of social disruption.

There is no doubt that social grants are desperately needed by millions of South Africans. However, extending payments is placing massive stresses on an economy that is already creaking at the edges. Our people, too, are becoming accustomed to the annual increases that go their way.

Perhaps, along with the government's commitment to reducing red tape and encouraging business, should come a scheme that aggressively promotes small businesses, helps them increase their vital role in our economy at a local level, and provides incentives for the employment of others?

The objective would be not to stop social grants but to use some of the money to create sustainable futures, reduce poverty, and create pride as new wage earners enter the working ranks and contribute to the growth of our economy.

John Manyike is the Head of Financial Education at Old Mutual.

*The views expressed here are not necessarily those of IOL or of title sites.

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