Use a personal budget to tighten your belt and save, says Standard Bank

Feb 20, 2019

This year’s Budget comes in a fractious election year, with load shedding adding to the somber mood as the build up to February 20 begins. Finance Minister Tito Mboweni will need to walk a tightrope between reining in spending while finding additional revenue to plug the fiscal deficit. Standard Bank PBB Head of Commercial Banking, Craig Polkinghorne, cautions that in this environment consumers need to take great care to ensure their personal balance sheets hold up to additional scrutiny. 

“As inflation pushes incomes into higher tax brackets, there unlikely to be sufficient adjustment in the tax band limits, creating what is called ‘bracket creep’. While a low inflation rate may help alleviate the full impact of this fiscal drag to an extent, consumers will still feel the pinch as bracket creep needs to be added to the higher VAT rate, fuel taxes and numerous other levies, all of which lower purchasing power,” says Craig Polkinghorne.

This adds to the existing strain of consumers who are battling to save and invest while they maintain their standard of living.

“We are desperate to see a consumer-led recovery in our economy, but this is proving to be a pipe dream for now,” says Polkinghorne.

Wealthier taxpayers and those consuming alcohol, cigarettes and sugar sweetened beverages will again face the wrath of the taxman, but Polkinghorne says all taxpayers need to tighten their belts and begin to exercise more prudence when it comes to spending.

“South Africa manages its inflation rate within tight prescribed bands, but the man in the street feels an increased cost of living thanks to levies like lights and water, education bills, security costs and medical aid,” he explains.

Surprise tax increases could also come in the form of higher transfer duties on properties – these were not increased last year – and higher withholding taxes on dividends.

At the end of the day, however, South Africa remains mired in a low savings economy and Polkinghorne says the only way to change this is for consumers to focus on managing their personal budgets in a highly disciplined way.

“Once the dust settles after Mr Mboweni has delivered his maiden Budget speech, I think many households will have to face the hard reality that they need to find ways to cut back,” says Polkinghorne.

Saving on expenses could range from cutting back on take-away bills, eating out and other luxury items, but this must never come at the cost of prudent savings strategies.

“Tax-free savings accounts whereby as much as R33,000 a year can be saved up to a total lifetime limit of R500,000 are wonderful vehicles that will improve the lot of households across the country. No one should cut back on savings to make up room to spend more. Additional ways to plan and save should form part of any household or business budget in these tougher, tighter conditions. Other tactics would include adopting digital banking as a solution to keep better track of spending so that this can be controlled,” says Polkinghorne.

Some modest relief for the lowest income groups can again be expected this year – the usual increases in the tax threshold and the rebate will certainly help – but it will not be enough to stem the full impact of the burden on consumers, even if more items are zero-rated from VAT.

“The tax hike portion of the increases will weigh, but there is no reason to be alarmed if you plan and keep savings on track,” says Polkinghorne.

It is also important to remember the government is also under pressure to find additional ways to cut spending off its own bat. 

“It will be interesting to see how it achieves this balancing act – but the announcement that Eskom is to be split up is an early indication that government is serious about getting its spending and debt under control. The total tax increases announced in the Budget are unlikely to be much higher than they were last year,” concludes Polkinghorne.

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