Last Wednesday we witnessed Malusi Gigaba deliver the National Budget speech for South Africa. The budget speech outlines the projected expenditure by government using taxpayer’s money. It also outlines how the government expects to raise funds through taxes. Regardless of whether we like it or not, announcements in the budget speech are enforceable and affect all South African citizens.
Many South Africans Are Struggling To Pay Their Debts
Almost 10 million South African consumers are behind on their debt payments. The budget speech announcements affect the man on the ground and either make their lives easier or more difficult, depending on the intention of the change or introduction. Unfortunately for South Africans, our GDP growth is slow and our government spending and debt is high, resulting in the need for more revenue.
Let’s have a look at the highlights from the budget speech and how they affect consumers with debt.
Free Higher Education
This is an obvious win for consumers that qualify. Student debt is often the first serious debt that adults encounter. It can take many years to pay back and often the debt looms around long after the students have their degrees. For households with low income, free higher education allows them to get a cheaper start in getting a degree. A tertiary education can greatly increase your chances of getting employment and can teach you necessary work-place skills.
There will be increase in VAT from 14% to 15%. This is the first increase in this tax since 1993. This is one of those announcements that you simply have to learn to live with. All products and services that attract VAT will cost more going forward. This could affect consumers budgets by making their normal monthly expenses higher.
Sin Tax Increase
The duty on alcohol and tobacco will increase too. The tax on alcohol will increase by 6-10% and tobacco will increase by 8.5%. The increased cost of these items needs to be taken into account for consumers that are already struggling to survive on their income. These items could be classified as luxuries and therefore perhaps need to be cut down or out of the budget completely if you cannot comfortably afford them. Easier said than done.
Predicted growth of 1%
Although still dismal, the 1% forecasted growth for South Africa is better than the previous estimate of 0.7%. For the economy to thrive, we need higher growth. Higher growth means that there is more money in the economy. The country could receive more local and more importantly, foreign investment which creates jobs and increases wealth for South Africans. Many South Africans are supporting their entire families on one or two salaries which puts households under immense stress and pressure. Job creation lifts this burden and adds extra income into households and communities.
Fuel Levy Increase
The increase in the price of fuel affects the entire economy. Not only is it more expensive to get to work, but businesses will have increased costs, which will get transferred onto consumers. The prices of goods and services will increase which results in higher expenditure for households.
The increase in general goods and services coupled with the increase in VAT will make your normal monthly basket of goods more expensive. For consumers that have high levels of debt, it could mean that they are unable to afford all of their costs each month. This could cause consumers to use more debt to fund the gaps. Alternatively, current debt goes unpaid, which could get the consumer into trouble. Not paying your debt on time or short paying on certain accounts negatively affects your credit score.
Consumers that are struggling with debts need to seek the help of a professional, such as a debt counsellor. To make the most of your money, plan and stick to a reasonable budget every month which will help you to not overspend and also to cut down on luxuries and unnecessary expenses.