Minister Pravin Gordhan’s 2016 budget speech earlier this year
reiterated the following statement several times “We are resilient,
we are committed, we are resourceful”. He chose to repeat this
statement no less than five times during his budget address.
An address whose message was primarily hopeful. Times are
tough, but South Africans are resilient, and if we are committed
as a nation we can find creative and resourceful ways to improve
our economic future.
Characterising these tough times is the fragile business confidence in the region, the concern
and theory that our debt will soon be given junk status, and the impact of the current severe
drought. Our weak forecast of economic growth at only 0,9% further exacerbates this sentiment.
Investopedia describes ‘economic growth as an increase in the capacity of an economy to
produce goods and services.’ Economic growth is a measure of a country’s productivity, and its
ability to increase revenue. If revenue is under pressure and costs are increasing then the only
way to avoid the debt trap in the short-term is to curb costs.
South Africa as a country much like its citizens spends more than it earns. To make up the shortfall,
South Africa needs to borrow R139 billion, which is equivalent to 3.4% of the Gross Domestic
Profit (GDP). Similarly, based on the latest statistics from the National Credit Regulator (NCR)
close to 50% of South Africans are over-indebted, which means they spend more than they earn.
Minster Pravin Gordhan did not offer much regarding consumer relief. Although the lower to
middle-income groups will gain a personal income tax relief of R5.5 billion, this is a marginal
amount on an individual basis. Here are two examples, an individual earning a modest salary
of R8,000 per month will gain an annual relief of R243. An individual earning R25,000 per will
gain an annual relief of R1,206. These marginal gains will be eroded by the rising costs of living,
driven by increases in the fuel price, electricity, interest rates and the decline in the exchange
rate. Inflation is expected to be in the region of 6.8%. The general fuel levy will be raised by 30c/
litre to R2.85/l for petrol and R2.70/l for diesel. Most goods are transported by road which means
that this will impact food prices and other goods. The National Energy Regulator (Nersa) recently
announced that electricity prices will be increasing by 9.4% from April 2016. Before consumers
reach for that glass of wine or beer to drown their sorrows, sin tax is going up as well, meaning
that the prices on alcoholic beverages and tobacco products are also increasing between 6% to
8%.