Budget Postponement Reaction
Brina Biggs, Senior Manager at Budget Insurance
Post Budget cancellation
A 1% VAT increase, like the one implemented in 2018, may seem modest, but its effects are significant.
In 2018, the poorest 10% of households experienced a decline of over 6% in their post-fiscal income.
The poorest households, who spend a larger portion of their income on essential goods and services, are disproportionately affected. So, imagine the impact of a 2% hike with no further reform.
Furthermore, fuel and electricity price hikes compound the burden on households. Higher transportation costs, increased food prices, and reduced disposable income all take a toll.
To mitigate these effects, we urge policymakers to consider zero-rating essential goods and services, increasing social grant expenditures, and implementing targeted benefits for low-income households.
As we move forward, it's crucial that we prioritize the most vulnerable members of our society. We must work together to ensure that economic policies benefit all South Africans, not just a select few."
Carol Mazaka Head of Customer Service at 1Life Insurance
on the Impact of a Potential 2% VAT Increase
As we anticipate the potential increase in VAT by 2%, we understand that South Africans are facing growing financial pressures. This increase will directly impact the cost of goods and services, reducing disposable income and making it even more important for consumers to be mindful of their financial decisions.
Impact on Consumers
A higher VAT rate means households will have less money available to cover essential expenses. Everyday necessities—such as food, transport, and utilities—will become more expensive, placing further strain on already stretched budgets. As a result, many consumers will need to reevaluate their spending habits and prioritise essentials over non-essential expenses.
Financial Planning and Protection
In times like these, financial discipline becomes critical. While it may be tempting to cut back on various expenses, we urge consumers to ensure that they keep their financial protection in place. Savings, life insurance, funeral cover, and other essential policies safeguard families from unforeseen circumstances, providing financial security both in the short and long term.
Call to Action
I strongly encourage all consumers to be strict in their financial decisions, and priotise accord to the money available to them. It is important to evaluate financial commitments and be sure to stay up to date with their premiums and to make informed financial choices that will protect their loved ones. Now, more than ever, is the time to tighten financial belts, review budgets, and ensure that essential cover remains a priority.
Closing Statement
While we wait for the rescheduled Budget speech, remember, financial security is not just about today—it’s about ensuring stability for the future
Hayley Parry, Facilitator at 1Life’s Truth About Money and Money Coach
For South African consumers who are currently struggling to make ends meet and are experiencing more month than money, the proposed 2% VAT increase will just be another factor that continues to erode their cash flow.
If you take a look at a percentage of income that is being spent, for example, on food, those who have lower incomes are spending a great proportion of their incomes on food, as an example - that 2% increase is material. You then add in other factors, like, for example, the big increase coming in electricity prices, as well as rising fuel costs - what these additional costs continue to do is just to erode the cash flow of the average consumer, and my concern is that that means more and more people will be turning to credit in order to make it through until the next payday.
Obviously, from our perspective, that's the last thing we want. We want consumers making sure that they can manage their expenses from payday to payday without needing to lean on credit. But if you have these continual pressures just on the basics in order to fill up your car, fill up your fridge and keep the lights on the home, it is making it increasingly difficult for consumers, particularly those who aren't getting inflation related increases.
A lot of these are going to continue to erode their ability to make it through to payday.
Frank Blackmore, Lead economist at KPMG
What a difference a week can make! I think last year most market commentators had not foreseen a VAT increase as part of this year's budget, and this week, market chatter indicated that a VAT increase may be on the table. From yesterday morning, “2%” was starting to go around the market to most people's disbelief, mostly due to the effects that this would have especially on the poor majority of the country.
Not only would it be highly inflationary, but it would obviously also decrease the disposable income of individuals and be regressive. In other words, the burden would be carried proportionately more by the poor individuals. I think the most alarming aspect of the whole issue was the uncertainty that this has provided into financial markets. We saw reaction from the ground as well as the bond and equity markets that were negative at the time, and one would have thought that even the Government of National Unity with its constituent parties would have had a strategic plan for the economy over the next three years - that would have been debated and finalised before this budget event took place, which was obviously not the case.
As usual, uncertainty in markets leads to volatility in prices, and we've seen this in financial markets this morning. However, I don't think it's the end of the world if the right outcome is reached at the upcoming budget which is now said to be presented in March. Where all parties are satisfied with that budget, I think the country will be better for it. But it would have been good for us to avoid this incident as it played out.
