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Will the Budget help ordinary families struggling with rising living costs?

Published Feb 22, 2022

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This week's Budget speech is expected to yield few surprises in terms of tax relief and assistance to under-pressure consumers, say economists. As the country recovers more slowly than expected from the Covid-19 pandemic, rising prices are hitting ordinary families hard.

According to Liberty financial adviser Sheila-Ann Robey, many people are struggling with surging inflation, led by rising fuel prices. "Fuel price increases are making life more expensive for everyone. This is causing a crisis in household expenses for many out there, it is making it more difficult to afford ordinary things like groceries and school fees. People are shopping around for the cheapest deals they can find. Predicted fuel price levy increases in the 2022 Budget will not help this situation."

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Economists are predicting increases in the fuel levy and the Road Accident Fund levy in this year's budget. Stanlib economist Ndivhuho Netshitenzhe says: "We expect any tax changes to be modest and related to things like the fuel levy and Road Accident Fund levy ‒ these are increases that we usually see every year. We don’t expect any increases in tax rates as current tax revenue is already strong and ahead of budget and any increases would hurt the already fragile recovery."

Another thing causing more pressure on households is tax bracket creep, says Netshitenzhe. This is where salary increases try to meet inflation but end up pushing people into higher tax brackets. "Many people are raiding their long-term savings just to survive. The consequences of this are not immediately apparent but will become more so in the long-term when people find they don't have funds to retire or maybe start a new business," says Robey.

"As well as this, things like substantial increases in education and medical aid are also putting more pressure on consumers. In reaction to this, I see people cancelling things like insurance, which is not a good idea because it means people are less able to manage the bumps in life. For example, a serious personal health issue from a family's main earner could now have severe consequences because there is no safety net left to catch them. These are all consequences of the tight economic climate," Robey says.

Tight economic conditions have also seen many budding entrepreneurs return to the corporate workforce, which means fewer people starting businesses and creating jobs. "You've got to remember a job is not really security. As we've seen these past few years ‒ it can end at any time for various reasons. I would advise that people do explore starting their own businesses for this reason," Robey says.

Looking ahead, Netshitenzhe says she thinks borrowing costs will rise after the budget. "Overall, this year’s budget is more about whether the Minister can continue to push South Africa in the direction of fiscal consolidation and stability. He should not allow for over-spending given the tax over-run expected, but instead use these additional funds wisely to cement fiscal discipline, especially at a time when borrowing costs are set to rise."

Robey believes the rise in borrowing costs will further hurt consumers. "It's true many people are borrowing just to survive. I would not advise people to do this. People should not be getting into credit, if possible. It's important to think long-term to avoid a spiral of debt that is difficult to get out of.

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"With all of this in mind, the best way to deal with money difficulties is to make a financial plan. It's a good idea to speak to a financial adviser to help you get through financial problems. They can help you make a plan and find ways to cope," she says.

This article does not constitute advice. The material is for information purposes only and does not contain any personal recommendations.

PERSONAL FINANCE

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