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4 Key Factors to Simplify Understanding of The Upcoming Budget Speech

26 February 2020 Liberty

Given the continued revenue shortfalls in previous financial years, otherwise referred to as the “fiscal”, and continued financial challenges faced at a national level, South Africans are patiently waiting on experts to reflect on the budget speech. When it’s delivered on 26 February 2020, few will be able to interpret the immediate impact or understand the fate of their pockets, until they hear the budget speech broken down in laments terms by the experts.

To help South Africans see through the jargon that sugar coats South Africa’s state of our affairs, Liberty Consumer Economist, Tendani Mantshimuli and Senior Manager, Group Corporate & Client Tax, James Coutinho, weighed in on key areas referenced during budget speech to help consumers unpack what it all means to them.

1. Gross Domestic Product (GDP) Growth
One of the most referenced terms in the budget speech is our GDP, and how it is affected by our debt, spend and what income we are generating as a country. GDP is the monetary value of all finished goods and services made within South Africa during a specific period, in this case for the year, and it becomes a measurement of our economic output as a country.
The finance minister will also unpack the finer detail to profile our most lucrative exports and offerings that other countries depend on, which also helps investors understand what drives our economy. Last year, it was projected that South Africa will only reach a sluggish 1% growth by 2021. No doubt South Africans are waiting to hear how the Minister of Finance plans to improve on this meagre outlook.

2. Knowing your tax increases and decreases
Consumers will continue to bear the burden of increases in costs whether to their personal income or taxes imposed on products consumed, adding to an already existing feeling of financial strain and helplessness. What consumers will really want to know about is if they’ll pay more income tax, if pension funds are affected or if their daily expenses are being impacted adversely, whether due to unexpected levies or income tax brackets creeping on their lifestyle costs.

A necessary evil, it’s important to understand two kinds of tax:
• Personal income tax – According to government resources, personal income tax is the money you pay to government from your salary or wages. This money is used to help pay for roads, schools, hospitals and other government services. The South African Revenue Services (SARS) manages the collection of taxes and ensures that all working citizens contribute fairly.
• Value-added tax - This is a consumption tax placed on a product whenever value is added at each stage towards supplying it to the consumer, from production to the point of sale. Sellers in the production chain charge VAT to the buyer, which is then paid to the government. This is where you’ll hear about sin-tax (where we pay more for harmful products) and zero-rated (non-taxable) items. These taxes are just some of the way's government tries to ensure we work more responsibly with our money and have access to essential items.

3. The Impact of Our Gross National Debt
Despite efforts raising our country’s income through tax and other lucrative avenues, the issue of our accumulated debt as a country, remains. Our “gross national debt” exceeded R3-trillion 2018/2019 and was reportedly expected to rise, which means we’d have half as much debt as we have GDP value as a country.

Every time the government borrows money from the likes of the International Monetary Fund or the World Bank, it further widens the debt-to-GDP ratio - a measurement of financial health of our country. A higher debt-to-GDP ratio is alright when an economy is growing quickly to pay off the debt made, faster. However last year’s budget speech was dominated by concerns over South Africa’s rising debt as the country is not growing at a desirable rate, leading to the country’s near ‘Junk status’, a simple term use to describe a country that has dropped below an acceptable investment grade in the eyes of ratings agencies like Moody’s.

4. Economic Growth
The budget speech will be a representation of our country’s value, its plans to improve that value and present information to equip South Africans to play an active part in society to ensure our annual financial goals are achieved. At the heart of our economy, are the people that live in it and with much of the budget iterations easily applied to our own personal financial health status, we all have a role to play in economic growth.

Our financially savvy behavior is not only beneficial to us as individuals, but the socio-economic state of our country and the meaningful outcomes we collectively hope for as a country. While we cannot control the budget speech and allocated spend for 2020, we can manage our pockets and plan better for financial freedom and inclusivity.

If you want to get advice from someone who is in it with you, speak to your local financial adviser about how you can take the liberty of making meaningful changes to your personal financial situation.

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