Pre-budget tips for any outcome

EITHER WAY WE SHOULD ALL BE BETTER SAVERS While saving often feels like a sacrifice, it’s a much-needed financial treat to ourselves.

Treasury and Finance Minister Malusi Gigaba are in a challenging position. Currently, SA’s debt obligations and expenses exceed its income, and last year’s tax revenue shortfall was a worrying R50.8 billion – the largest ‘tax loss’ since 2009.

Adding pressure is government’s recent promise of free education for students from defined poor and working-class families. In addition, credit ratings agency Moody’s, who still rate SA a notch above junk status, has placed the country on review. It’ll be watching the budget closely for signs of over-indebtedness.

One option Gigaba could be considering to plug the gap is raising personal income tax. But economists say South Africa’s personal income tax base is limited by our high unemployment rates and low business confidence.

Another revenue stream Treasury could consider increasing in the national budget speech (at 2pm today), is VAT – the tax added on to the price of most of the goods and services we buy every day. The VAT rate has been at 14% since 1993. An increase in personal tax and/or VAT is likely to result in more constrained consumer incomes.

Regardless of which value-added tax (VAT) course Gigaba announces, there are several steps consumers can take to prepare for the budget’s possible financial impacts:

Review and understand the interest rates on your debt: interest charged on short-term debt like credit cards and short-term loans can be hefty. Consider purchases carefully against the total cost of repayment. Create a plan to reduce your debt that works for you, paying additional amounts to the most expensive debts first, or perhaps starting with those that provide the quickest wins for positive momentum. Plan for a VAT increase (even if there isn’t one): With predictions of a tough economy being SA’s reality for some time, South Africans will need to adapt and plan accordingly. Consider factoring a 1% to 2% increase (economists’ current prediction) into your budget for household spending. Review luxury and discretionary spending: An option Treasury may consider is introducing a tiered VAT increase. This means VAT could be increased on premium items and services like cigarettes and alcohol. Eliminating or reducing your spend on these items can create significant financial relief. Save, save, save: Saving is a much-needed financial treat to ourselves. Whether used to cover emergency costs or to achieve our dreams and goals, it’s an important tool to create the life we want and protect us from debt. Partner with a financial advisor to craft a savings strategy that meets your needs and uses tax concessions where possible. Create a financial plan: A robust financial plan helps create strategies to balance your immediate needs with short-, medium- and long-term goals. Combining attention to what you want to achieve with an understanding of your finances and taking action, is key to financial wellness. Often a financial advisor can help. Priya Naicker is advice manager at Old Mutual.