As expected, a few announcements made during #Budget2018 have the whole country talking. This includes a VAT increase from 14% to 15% – the first since 1993, an announced overhaul of state-owned companies such as Eskom, Telkom and SAA, as well as the start of free higher education: with NSFAS loans being turned into bursaries and first-year students from households with an annual income of less than R350 000 receiving free education.
With this in mind, we had a Facebook Live video chat with Tsitsi Hatendi-Matika, Head of Retail Investment at Absa Wealth and Investment Management so she could answer some of your most frequently asked #Budget2018 questions.
- What does the new 15% VAT mean for my groceries?
“It depends what’s in your basket of goods,” Hatendi-Matika started. “If it includes zero-rated items such as brown bread, maize meal or eggs, the VAT increase won’t affect you. This is positive for the South Africans with lower incomes. When it comes to baskets that don’t have any zero-rated items in them, everything will just cost you a few rand (or cents in some cases) more.”
- What is your outlook for inflation considering the VAT and fuel levy increases, as well as the implementation of sugar tax?
“When you first look at the Budget Speech and what was announced, the immediate answer is that it won’t directly affect inflation. But on closer inspection if you look at grocery stores such as Pick n Pay, for example, they’ve done a good job of shielding customers from massive inflation implications by using central distribution points.” She continued that there are definitely some situations where the rising inflation will filter through and we’ll feel it in some way – but not as massively crippling as one would fear. “There are ways to work around it.”
- Does #Budget2018 affect the interest rate?
“Fortunately for the Reserve Bank, a positive budget is positive for the country’s economic outlook. The rand reacted very positively and strengthened during and after the conclusion of Minister Gigaba’s speech. This will feed through to every aspect of the economy – including the interest rate.” She suspects that the interest rate will probably not have too much of an immediate effect on our pockets.
- What must happen before we get upgraded from junk status by ratings agencies?
“I definitely don’t see us being upgraded in the short-to-medium term. Historically, ratings agencies take quite some time to change a country’s rating. I think the fastest change has taken two years, so we wouldn’t go from recently being downgraded to being upgraded again within a few months. Remember, they have to first see proof that South Africa’s economy is growing, that our debt is being paid off and that it is, in fact, a justified decision to upgrade the country.” Hatendi-Matika added that our state-owned entities play a big part in this too. “They’re currently in shambles and that’s only one of the things that would have to improve. Realistically, given the imbalances we have, it could take between four and ten years for South Africa’s rating to change.
- Could there ever be a situation where income tax decreases are announced?
“People should remember that we never used to get any personal tax increases – it stayed constant for quite a few years, with some relief every now and again. It’s only been in the last two to three years where it’s started increasing,” she added. “With this in mind, tax decreases are definitely not out of the question – depending on how fast the economy can strengthen and government debt can be paid off.”
- What does government do with the money they collect from sin tax?
“I have to laugh when I hear this question. The thinking behind it is the fact that alcohol and cigarettes aren’t necessities. They’re actually bad for people’s health and it translates to a burden on our health sector. So, it’s government’s way to not only take the strain off the health sector by encouraging healthier lifestyles but to collect extra funds from things that people don’t actually need, rather than taxing everyday items such as eggs or milk.”
- Why are social grants still so low?
“It’s all about balance. Straight after the Budget Speech, my Uber driver said to me: ‘A R91 increase is fantastic!’ And he was genuinely happy about it. When we look at the cost of living and all of the other places that money has to go to, the fact that grants were increased above inflation this year is a step in the right direction.”
- What does the public-sector wage bill include? And why do government spend so much money on it?
“A lot of people think that this refers to ministers and politicians, but in actual fact, it also includes normal people. Think public school teachers, nurses and security officers – which means that this money actually goes towards servicing us,” Hatendi-Matika explained. “With this said, I do think that on a global level, South Africa probably has one of the most bloated public-sector wage bills on the administration side. Our ministers get salaries and perks like homes, cars and bonuses that are all covered with these funds and it really can get expensive. We need to allocate the funds to the necessities and cut out the luxuries.”
Disclaimer: The advice contained on this blog is for general purposes only and does not take into account individual circumstances, objectives or financial needs. Accordingly, readers are advised to seek appropriate advice from licensed professionals prior to making any investment, or taking up a financial product or service.