By: Nicola Mawson
The fact that people have been battling financially is clearly shown in the numbers coming out of the new administration’s first budget earlier this week. The Medium-Term Budget Policy Statement, tabled by Finance Minister Enoch Godongwana on Wednesday, showed that the economic picture is not as rosy as South Africans may have hoped for.
While Godongwana said: “There is a new light that is shining down on our country and on our economy,” the National Treasury also revised GDP growth expectations lower, at 1.1%, instead of February’s anticipated 1.3%.
The tough economy also adversely affected tax collections. Godongwana noted that tax collection for 2024/25 is expected to be R22.3 billion lower than what was estimated in February.
Nkosinathi Mahlangu, Youth Employment Portfolio Head at Momentum Group, said: “It’s clear that tax revenue collection remains a key challenge for Treasury, which is no surprise in an economy with a stratospheric unemployment rate”.
As Citadel Chief Economist, Maarten Ackerman, put it, significant work is required to stabilise economic growth.
Following the speech, the South African Revenue Service (Sars) issued a statement indicating that its debt compliance efforts yielded lower returns year-on-year, down R9.3bn –or a 23.6% contraction.
This, it said, was despite it having finalised about 1.3 million more debt cases, an increase of almost 290% year-on-year.
“Sars recorded significant increases year on year on deferred payment arrangements for debt, requests for suspension of payments, and issuing final demands. This evidence the degree of hardship felt by taxpayers, which is negatively affecting their ability to honour their tax obligations,” it said.
The revision in anticipated economic growth will certainly not help.
Neil Roets, CEO of Debt Rescue, said: “Such stagnation suggests that many South Africans will continue to grapple with economic hardships, particularly as the cost of living escalates. A mere average growth rate of 1.8% over the medium term is insufficient to elevate the standard of living for the majority of our population.”
Roets’ comments come even as inflation is now at the midpoint of the South African Reserve Bank’s target range, a recent 0.25 percentage point interest rate cut, and another cut anticipated this month.
Jurgen Eckmann, Wealth Manager at Consult by Momentum, said: “We find ourselves in a period of both low economic growth and a higher interest rate environment which doesn’t bode well for the consumer, as finding a job and managing personal debt is a difficult task”.
Eckmann adds that should the government want to push the inflation bracket lower, as indicated, this will also mean “that we are going to feel higher interest rates for longer and consumers will feel the pinch”.
A trend that has been noticed over the last six to eight months is that, where clients are running short of funds for daily living, they are reducing cover on policies instead of cancelling outright, Kia Brokers managing member Gerald Kahn said.
Debt Busters’ latest Debt Index, for the second quarter of this year, stated that debt counselling inquiries were up by 18%, and online debt management requests increased by 12% compared to the same period last year. “We anticipate a similar trend for this year as consumers’ desire to become financially sustainable continues to grow,” it stated.
Other findings, notably from figures compiled before the GNU, included that South Africans had 44% less purchasing power when compared with 2016, 62% of net income was going towards servicing debt, and top earners had “unsustainably high levels of unsecured debt”.
The African National Congress wants steps taken to help alleviate the burden on consumers and has told the government to expand the list of zero-rated foodstuffs, which comes after chicken producers also said they want some of the white meat to be VAT-free. Currently, 19 food items are VAT-free, including brown bread and maize meal.
Casey Delport, Investment Analyst of Fixed Income at Anchor Capital, said that VAT collection as a form of tax was already falling short of the targeted growth rate of 3.6% year-on-year, which reflects “weak consumer spending for much of this year”.
However, a recovery is expected between October and March “due to lower consumer debt-servicing costs and withdrawals from the two-pot pension system, which will boost consumer spending power,” said Delport.
Take-home pay has also started increasing, with the average net income, adjusted for inflation, being 5.6% higher than a year ago at R14 969 according to the BankservAfrica Take-home Pay Index. Eckmann explained that it is likely that the higher end of the salary brackets won’t see any tax relief in February, a form of “stealth tax”. You can expect the average consumer to pay more tax next year in some way, shape or form.”
What will, however, aid Sars, said Delport, is that the amount of tax collected as a result of two-pot withdrawals has gone up from the R5bn expected to a confirmed R7.1bn.
In the meantime, for those who are battling, cheating the taxman is not the solution. Sars Commissioner Edward Kieswetter said it will be “unrelenting in its drive to engender voluntary compliance”.
The agency is ready to go after those who misrepresent their economic status, Kieswetter said. To ensure the agency pulls in its target of R1.8 trillion, Sars will use data science and AI to ensure no one gets away with theft, he added.
PERSONAL FINANCE