If the govt were a household …

SIMPLIFY MATTERS: GO INTO DEBT COUNSELLING

Most pressing step is to significantly cut expenditure which is 26% over income.

monthly shortfall of R26 320, or 26% more than the income. Furthermore, this monthly shortfall needs to be financed with debt. This will, of course, inflate future interest payments, which already stand at R16 320, or 16.3% of income. Other expenses stand at R110 000, which on its own exceeds the monthly income and means the family spends much more than it can afford.

Debt counselling

Moneyweb sent this simplified budget to two debt counselling firms for analysis. Both recommended that if this household came knocking on their door for help, they would advise immediate debt counselling.

Carla Oberholzer of DebtSafe said the household has a significant monthly deficit.“I would recommend that the household be put under debt counselling. From experience, this family is over-indebted, and if there is not an immediate intervention, the situation will deteriorate to such an extent that it is not possible to recover.”

Neil Roets of Debt Rescue concurred. “The household’s expenses exceed income, and in 99% of cases such a household would not recover if it was not put into debt counselling. This current scenario is not sustainable and significant changes have to be made.”

A debt counselling process would include negotiations with credit providers, and that they must be part of a recovery plan.

Reduce expenditure

The first thing that needs to happen is a crisis meeting of all family members to apprise them of the situation. The household may discuss ways to increase its income, but as both spouses are already working this may be difficult to achieve. The most pressing step is to significantly reduce expenditure. All family members must cut spending, or the sheriff may be at the door sooner than they think.

In the government’s context, Mboweni could not have been clearer on Wednesday – SA Inc is in deep financial trouble. It is safe to assume that all stakeholders are now aware of this.

The key is now for Mboweni and the president to engage all stakeholders and get their commitment to reducing spending, as an increase in tax income is not going to happen in the short term. If expenditure is not cut, the International Monetary Fund may be at the door soon.

This current scenario is not sustainable