So you heard that some guy called Pravin Gordhan got up in front of South Africa on 26 February and spoke about the National Budget. So what? Mr Gordhan is a politician and the minister of finance and that makes him boring, especially when you have more important things to deal with… things that really affect you. But that’s just it – the national budget could influence your personal circumstances both directly and indirectly and being aware of some of its basic content may help you manage your income and expenses.
Think about your personal budget. Whether you actively manage it or not, you are aware that it’s about money in and money out. You have an amount at the beginning of the month, you spend during the month, and you have some left over at the end, hopefully.
The national budget is not very different; it just deals with more money and is a little more complex. The country spends on things that benefit you, like infrastructure, policing, health and education, and it is their responsibility to collect sufficient income to pay for these expenses. They do this through various forms of taxes, like income tax, certain duties and VAT, and taxpayers are generally happy to contribute to this because of the benefits that they derive, like roads to drive on and pipes to get water to their homes.
This year’s budget most definitely has a direct effect on a student’s pocket. The fuel and Road Accident Fund levies increased which means that as of 5 March a 50 litre tank of fuel will cost R10 more and public transport costs will inevitably be revised too. ‘Sin’ taxes increased resulting in spirits and beer having gone up R4.80 and 9c respectively and, if you smoke, a pack of 20 has increased by 68c. These will continue to increase every year because they’re easy targets.
There are a handful of other changes but most of them are around retirement and tax savings. What’s important to know is that the government is taking it easy on lower income earners and collecting most of its revenue from the highest earners, as well as from businesses.
South Africa is growing, but at a low rate and we need to pick up the pace. The 2014/2015 budget is focusing its spend on education, infrastructure and making it easier to start and run a small business. Government is borrowing money, which is normal, but we would prefer it if it could borrow less so that the debt repayment would be lower, and more money could be spent on things that we can see and use.
The government needs to ensure that it collects enough money to pay its bills and grow the economy at the same time. Inflation and interest rates are not specifically dealt with in the national budget, but important for you to understand when looking at your own money management.
The official inflation rate is 5.8% which means that if your savings account is earning less interest, it is not keeping up with the increasing prices of goods and services. If you have money left over at the end of the month, consider putting it in an investment savings account e.g. 7-day notice or money market, or investing it for the longer term. Some of your expenses will increase by more than inflation… think about private medical aid, food and certain luxuries. As the purse strings tighten you may want to review where and how you spend your money – you could be surprised by how easy it is to save more and spend less.
Interest rates decreased and plateaued over the last few years, which benefited those paying off debt. Last month they increased for the first time in 5 years so if you took a student loan or borrowed money to purchase a vehicle, your monthly payments would have already increased. This recent interest rate hike possibly signals a new, upward trend and therefore an increase in your monthly expenditure.
Most students don’t see the relevance of the national budget until they’re in the workplace and then personal income tax rates and retirement contribution deductions become real, however the budget is about more than just an individual’s personal circumstances. It is the financial plan of a country, a presentation on how (and how much) money will be collected and how it will be spent. It is a reflection on how the government and its ministries intend educating children, assisting the aged and disadvantaged, growing the economy and creating opportunities for all its citizens. Even though you may not feel like it is written for you, it is, and as the years go on you will become more and more aware of how relevant it is in your job, your business, your personal financial planning and the socio-economic environment in which you live.