Government finances are in an unsustainable state as revealed in the mid-term budget. Home owners need to ensure that their budgets don’t follow suit.
I met up with a friend recently who has disposed of all assets; sold house and car, and much of her furniture. She now rents an adequately-sized one-bed cottage, which comes with free wifi and inclusive of power and water usage, and uses Uber and public transport. What she has is “A life unburdened by debt. I am free” she said, “and I now have money for fun and healthy savings for the future.” Her only obligations are to meet her retirement goals and usual daily expenses such as food & mobile phone. Hers is an enviable lifestyle, and an ideal scenario for a single person, but not so much for a family. According to StatsSA most recent Living Conditions Survey, roughly a third of household income is spent on a mortgage, which is generally the largest component of debt for homeowners. When you add in utilities, transport, and food and non-alcoholic beverages, householders are spending roughly 61.8 percent of their gross income on basic needs. Now factor in taxes, household maintenance and furnishings, insurances, school fees, and up-and-down petrol hikes etc, there is really not much left in terms of disposal income.
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The cost of fun
And people need to have a bit of fun. What would the Rugby World Cup have been without the sharing of the love of the game among friends; a few drinks perhaps followed by a braai in celebration. Let’s look at the cost of a one-off event of that nature for a family of three: travel to a friend at even a meagre R100 Uber for a return journey; your meat R100; alcohol and cooldrinks R150; and a salad, packet of crisps, bread rolls, R70. (Let’s not include the green-and-gold T-shirts for all three, which at R1000 roughly for an official shirt, and R250 for a cheaper version, would make this calculation exceptionally unreasonable.)
So for one braai, round off to R400. Times that by three events and there goes R1200.
This is not something easily budgeted for a household already whose finances are already burdened. It is this type of expense that takes away from our ability to save more, and protect ourselves against the unknowns, which leads into debt. We can very quickly spend more than we earn, which is exactly the scenario the SA government faces.
Government debt
A lot of fun was had by corrupt politicians, those who benefited from state capture, but now there is this huge debt. Last Wednesday our finance minister Tito Mboweni, said we have a tax shortfall of R53-billion, and multiple bailouts for state-owned enterprises; Eskom alone comprises a debt of R450-billion, which has left little wriggle room to boost spending on key priorities like health and education. Our debt now stands at R3-trillion and likely to grow to R4.5-trillion in the next three years. Servicing this debt costs 13.7% per year and is the fastest-growing part of the budget, said Mboweni.
To meet budget commitments the Treasury needs growth; 10.4% to be exact. The reality is that this cannot be met; and government knows this. What is currently being achieved is 3.7%. This percentage is impacted by the low profitability of companies, and weak household consumption as consumers cutback to service their own debt and living expenses, and consequently Treasury has had to downgrade its growth anticipation to just 0.5% for the year. Mboweni has thus confirmed that we are facing yet another year of large tax revenue shortfalls.
The solution package, as laid out in his mid-term budget speech last week, included a variable mix of good and bad, among them: politicians salaries will be frozen; civil servants wage bills will be cut; e-Tolls must be paid but this has yet to be confirmed by the Department of Transport; and that bailouts to state-owned enterprises will not be as prolific, nor secure as the government moves from bailout to loans for those it does not sell off. This brings us back to the Eskom problem, which is to be restructured into three institutional entities; and (sigh) brings with it a whole new set of problems. The National Union of Mineworkers (NUM) has threatening to strike against Eskom’s separation into three, using country-wide blackouts as its weapon. NUM claims that the restructuring will only increase costs by adding to the cash-flow crisis.
SARS’s estimated R60-billion shortfall is yet another of the burdens, and which taxpayers are expected to pay for. For homeowners, this pressure is immense due to the already high cost of living and the fear is that the working class may start dodging taxes because they simply cannot afford more, and more and more …
The importance of personal budget
Homeowners, who have maintained some optimism, are seriously beginning to mirror investor sentiment, with hesitancy, impatience and caution. Frustrations are heightened, financial concerns elevated, but it remains that property is a good investment. It is an asset that, despite any national economic woes, has potential for growth, provided it is looked after.
The advice from property analysts is that to meet the mortgage repayment, careful budgeting is required. If the national budget teaches us anything, it is that we need to manage our finances early to avoid a crisis tipping point.
