There’s never enough money …

Weekend Argus (Saturday Edition) - - FRONT PAGE -

If you re­mem­ber noth­ing else from all the reports on this week’s medium-term bud­get state­ment, re­mem­ber this: the money you have to spend will al­ways be lim­ited, but the choices you make will de­ter­mine your fi­nan­cial fu­ture.

In­sight into Fi­nance Min­is­ter Pravin Gord­han and his team’s dif­fi­cult task in bal­anc­ing the coun­try’s bud­get should com­fort all strug­gling with too many de­mands on too lit­tle in­come.

Dur­ing a me­dia brief­ing be­fore de­liv­er­ing his speech, Gord­han said economists had told him that re­sources are al­ways lim­ited: “There is never enough money, you need a prag­matic ap­proach.”

Giv­ing jour­nal­ists a sim­ple bud­get­ing les­son, Gord­han said that when you are faced with lim­ited re­sources, you need to take stock of how much in­come you have, what you need to spend and how much you can bor­row.

Hope­fully, your choices as an in­di­vid­ual are much eas­ier than the min­is­ter’s. He faced a big hole in in­come – some R23 bil­lion in the cur­rent year and more over the next two years as a re­sult of slow eco­nomic growth. You should hope­fully see an in­crease in your in­come, even if that in­crease is mod­est and eroded next year by tax in­creases and higher-than-in­fla­tion in­creases in the likes of med­i­cal scheme con­tri­bu­tions.

When it came to ex­penses, the min­is­ter had to make care­ful choices be­tween cut­ting gov­ern­ment ex­penses, pro­vid­ing ser­vices to lift peo­ple out of poverty, stim­u­lat­ing growth and keep­ing the rat­ings agen­cies from down­grad­ing our bonds. He also had protest­ing stu­dents on the steps of Par­lia­ment.

Per­sonal bud­get­ing re­quires the same care but hope­fully un­der less pres­sure.

Dur­ing the brief­ing, Gord­han stated that spend­ing de­ci­sions were guided by the coun­try’s Na­tional Devel­op­ment Plan.

You too should spend in line with a well-thought­through plan about where you want take your life and that of your fam­ily.

And like Gord­han, you may have to cut your ex­penses to fund the fu­ture, or in­vest in your per­sonal growth, so that, like the coun­try’s econ­omy and rev­enues, your in­come will also grow.

When it came to bor­row­ing, Gord­han had to de­cide how much to bor­row on the coun­try’s be­half, bal­anc­ing the need to bor­row to stim­u­late eco­nomic growth against the cost of re­pay­ing the loans.

San­isha Packirisamy, an econ­o­mist at Mo­men­tum, and Her­man van Papen­dorp, the head of as­set al­lo­ca­tion at Mo­men­tum, say the gov­ern­ment is spend­ing 12 cents in ev­ery rand col­lected to ser­vice debt, and this “crowds out” needs on which the gov­ern­ment should be spend­ing its money.

Gord­han re­vealed that the cost of ser­vic­ing the coun­try’s debt will rise by 10.1 per­cent a year, and it was the most rapidly in­creas­ing item of all the gov­ern­ment’s ex­penses.

An­swer­ing a ques­tion about how much debt the coun­try could take on, Lungisa Fuzile, the di­rec­tor-gen­eral of the Na­tional Trea­sury, said there was no magic for­mula, but the gov­ern­ment had to ask it­self if it could still af­ford the debt it has, not only now but also in the fu­ture.

Bor­row­ing was unavoid­able for the coun­try, but it should be some­thing we all seek to avoid in our per­sonal bud­gets. The cost of your per­sonal debt crowds out things on which you too could bet­ter spend your money.

When it comes to tax rev­enue, the medi­umterm bud­get had some scary num­bers about fu­ture in­creases: R28 bil­lion next year, with some com­ing from tax mea­sures al­ready an­nounced and R13 bil­lion from new taxes.

The min­is­ter and his team would not be drawn on what tax in­creases we may face next year as these will be re­vealed in next year’s bud­get, but Packirisamy and Van Papen­dorp have a few ideas on where the money may come from:

• An in­crease in wealth taxes such as es­tate duty and div­i­dends tax. They say global fi­nan­cial ser­vices group Mac­quarie ex­pects es­tate duty to be dou­bled from 20 to 40 per­cent and div­i­dends tax to in­crease from 15 to 20 per­cent, while tax and au­dit firm PwC ex­pects a new 45 per­cent in­come tax rate band for those earn­ing above R1 mil­lion.

• A one-per­cent in­come tax in­crease across the board, but not for lower earn­ers. • Lim­it­ing re­lief for bracket creep or fis­cal drag. • A tax on sugar-sweet­ened bev­er­ages. • An en­vi­ron­men­tal tax on car­bon emis­sions. These are chal­leng­ing eco­nomic times, Gord­han says, but we are not in hope­less sit­u­a­tion. It means cut­ting what you can for the next two years. The min­is­ter then sug­gested that the coun­try “work like hell” to get the coun­try sta­ble and grow­ing. On a per­sonal level, read “work like hell” to re­duce your debt, in­vest in your­self and grow your in­come.

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