Headlines this morning offer mixed reviews of yesterday’s mini budget speech by Finance Minister Pravin Gordhan. But to the average South African it all sounds like Greek. To make sure you don’t miss out on office conversation around the watercooler, we’ve put together five key points from the mini budget speech and exactly what it all means.
- The South African economy’s growth is lower than expected. In February 2016 Minister Gordhan announced that our economy would see a growth of 0.9% in the year. This figure has been revised to 0.5%, 0.4% lower than predicted. Lower economic growth isn’t a great sign because there are major benefits to higher economic growth:
- Economic growth means higher incomes, allowing consumers to enjoy better standards of living.
- If there’s economic growth, businesses need more workers to produce goods and services. This, of course, means more jobs and lower unemployment.
- Tax revenue is the income that is gained by the government through taxation. Economic growth means the government earns more money from tax revenue because more people and businesses earn money. More tax revenue + less spending on benefits like unemployment = government having to borrow less money at high interest rates. (South Africa currently has R2 trillion debt on which we pay interest of R147bn.)
- If government earns more money from tax revenues it means they can spend more on public services like health and education.
- Economic growth sends investors positive signals that it’s worth investing in the country and that there’s money to be made.
- We’ll be paying more tax. The exact details around how much more tax we’ll be paying will be revealed to the Budget Speech February 2017. Minister Gordhan announced that an additional R34 billion would be raised through taxes in the next two years. This is going to help the economy (hopefully) avoid junk status in December, but it does mean that consumers will be impacted. Especially those with debt.
- Unemployment is up by 1.6%. With little economic growth, a country has fewer goods and services it produces. This, in turn, affects employment rates. There are is currently 8.9 million people (26.6%) in the country without jobs.
- Government is R23 billion down in revenue. This is the shortfall of tax revenue collection in the 2016/2017 financial year compared to February’s predictions.
- GDP growth down from 0.9% to 0.5%. Gross domestic product (GDP) is the monetary value of all goods and services produced within a country’s borders in a specific time. It can be calculated on an annual or quarterly basis. It’s how a country’s economic health is measured. Later this year when rating agencies decide whether or not to move South Africa to junk status, the GDP will be one of the factors they consider.
Not sure if your current budget can take the strain of additional taxes and expenses next year? Talk to a qualified debt counsellor about your financial situation.