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RANDS AND SENSE: 

South Africans spend more than they earn, and with continuing depressed economic growth and a projected tax shortfall of R60 billion for the tax year to the end of March, things are likely to get worse before they get better.

Minister of Finance Tito Mboweni addressed this in his medium-term budget policy statement in October. It provided us with an indication of what can be expected from the Budget speech this month.

He indicated that the government expects only a slow recovery in gross domestic product (GDP) growth levels, to 1.2%, 1.6% and 1.7% in the three years to 2022. This is well below what is needed to cut an unemployment rate of nearly 30%.

In fact, the last time GDP grew in all four quarters was in 2013.

On the brighter side, the SA Reserve Bank recently cut the repo rate by 25 basis points to 6.5%.

The repo rate determines the interest rate at which the central bank lends money to commercial banks. This affects the rate at which these banks lend to their customers.

Questions around the future of state-owned enterprises (SOEs) such as Eskom and SAA are dampening the mood of investors, as the focus is on whether South Africa will retain or lose its last investment-grade credit rating from Moody’s in its next review, scheduled for March 27.

But amid huge bailouts for SOEs, state spending in key areas such as education and health is expected to be reduced in future.

The national debt now tops R3 trillion and may grow to R4.5 trillion by 2022/23 - or 71.3% of GDP - far more than the estimated 60% of GDP by 2023/24.

The cost of servicing South Africa’s growing sovereign debt has reached R204 billion annually - the fastest-growing part of the budget.

The government plans to freeze or reduce the state’s wage bill, which, at 35% of overall revenue, is above the global average. Only time will tell if it will succeed.

But plunging government revenue collection means the budget deficit will expand to 5.9% in the current fiscal year, averaging 6.2% over the next three years, compared with the 4.2% forecast in February last year.

Recently, the World Bank announced its economic forecast for South Africa to below 1% for 2020, due to electricity supply concerns.

This will further affect our economic growth opportunities and put more pressure on consumers.

Following the gloom of the economy and political uncertainty, the rand has continued to trend down, and the JSE has remained flat.

You should take the following tips into consideration to ensure that your insurance, personal income, investments, expenditure and tax matters are well balanced for this year and beyond:

* Constantly review your personal income statement to ensure your debt to income ratio is minimised and that you can accommodate any potential increases after the Budget such as a rise in personal income tax.

* Put your interest relief to good use by increasing debt payments.

* Treat your monthly savings as a monthly debt. Ensure your savings are number one on your list of payments. Savings will help you to prepare for retirement and will help finance emergencies and living expenses if you become unemployed.

* Speak to your financial adviser about what options are available to help you plan for 2020.

William Chuma is a financial adviser at PPS.

PERSONAL FINANCE