Budget 2016 – Stability first

Today our finance minister, Pravin Gordhan, announced the budget for 2016/2017. Before this afternoon’s speech, most of us saw minister Gordhan as a superhero that is going to swoop in and erase government debt, strengthen the Rand and save our economy from reaching junk status. I am sure some thought that he possessed some kind of a magic wand that could be waved and diminish the looming effects of the drought that hit our agricultural industry, provide free tertiary education to all and then get rid of Eskom, SAA and half of our government staff compliment.

 

Instead, with amazing poise and confidence amidst extremely turbulent circumstances, he stood up and delivered a shockingly safe budget that brings some income tax relief for  low to middle income earners instead of increasing personal income tax rates like we all expected. While we braced ourselves and our wallets for the effects of a possible VAT increase, he instead raised the usual suspects – fuel levy and sin taxes –  and introduced a sugar tax that means not only will you pay more for your brandy but also the cola that you mix with it and the Cream Sodas you will need to fight off the effects the next day.

The good news is that minister Gordhan kept his cool and tried his best to instill some confidence in his team’s abilities to help stabilise the South African economy. He made it clear that wasteful spending will no longer be tolerated when he told Eskom that tariff increases must be done only to cover necessary spending and not just to make things more comfortable. The idea to merge SAA and SA Express and to bring in a minority private shareholder is brilliant – collaborating in such a manner will help to cut costs by sharing resources, combining revenue and learning from the private sector how to spend money wisely when it comes from your own pockets instead of state coffers. The proposal to reduce government spending on public servant salaries will make a huge difference. Let’s hope that this time minister Gordhan is left in his position long enough to gain momentum and actually execute some of these belt-tightening exercises.

Of course government has a huge social responsibility when it comes to taking care of people who are trying to survive in an economy with such a high rate of unemployment. Social grants were increased to help reduce the effect of inflation but despite these efforts, South Africans are getting poorer and finding it difficult to afford even the basics when it comes to healthcare, education and even just food and transport. In the short-term, it is difficult to address these issues and solve them overnight. The introduction of tax -free saving instruments and the retirement reform drive is geared towards teaching those of us who are fortunate enough to earn a regular wage, that it is important to put some money away for a rainy day or eventually your golden years. Saving for retirement and taking care of yourself when you are no longer able to work for a living will remove a huge burden off government’s shoulders and some of the money that must now be spent on old age grants could be used towards educating our children how to be more independent and financially successful citizens.

 

Creating a culture of saving something for the future, living frugally and caring for our community, infrastructure and our neighbours will in the long-term help our economy grow again but until then, we will have to survive another year and hope that the rating agencies see the potential that minister Gordhan is trying to help us see.

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