The Budget could bring new taxes

After the interest rate announcement the biggest factor affecting consumers is the Budget speech by Tito Mboweni, minister of finance, which is expected on 26 February.

Lucie Villa, Moody’s lead analyst for South Africa, made it clear in the agency’s November decision on South Africa’s grading that the February budget speech could be a watershed.

“The development of a credible fiscal strategy to contain the rise in debt, including in the 2020 budget process and statement, will be crucial to sustain the rating at its current level,” Villa said in a statement on the announcement that Moody’s outlook for the grading had changed from stable to negative, but that it was still holding on the lowest investment grade.

Standard & Poor’s Global ratings, which downgraded South Africa to junk status in 2017, also changed its outlook to negative at the end of November.

Both agencies stressed the risk that Eskom holds for government coffers. Eskom has around R450 billion in debt, of which the government guarantees nearly R300 billion. That means that if Eskom can’t make its debt payments, the government must.

So Mboweni’s plan for Eskom will have to be closely watched.

However, consumers have a much more direct reason to pay attention when Mboweni starts speaking in Parliament: in his medium term budget framework in October he warned that new taxes will be announced. Even though that may not come into effect in February, expect bad news.

This is how Mboweni put it in October: “Significant tax increases over the past several years leave only moderate scope to boost tax revenue at this time. Given the size of the required adjustment, however, additional tax measures are under consideration.”

Over the last year consumers and companies shouldered an increase in the highest rate of income tax (to 45%), an increase in tax on trusts (also to 45%), an increase in value added tax (from 14% to 15%), a sugar tax on sweetened drinks, and a carbon tax.

A downgrade will also mean the government pays more for its debt, which in turn seriously affects the nation’s financial position and heightens the urgency of tax increases.

Dawie Rood, chief economist of the Efficient Group, says his biggest fear is the record-high fiscal gap, which will make it increasingly difficult for the government to borrow money.

“Increasingly I get the feeling that though the lights are on in the presidential residence, there’s nobody home.”

Source : Business Insider SA.

Die een kan ons asb volgende week of die week daarna post (maak die  datum ook vir dan iewers.)

Unemployment and GDP numbers may not be pretty.

Other news consumers can expect in the first quarter includes:

  • In February Statistics South Africa publishes the unemployment numbers for the fourth quarter of 2019. In the third quarter unemployment shot up to a record 29.1%. The fourth quarter usually brings much temporary employment, but many graduates and matriculants also entered the job market for the first time in that quarter.
  • In March Stats SA publishes the gross domestic product (GDP), or economic growth, numbers for the fourth quarter and the entire 2019. The economy shrunk in the third quarter (-0.6%), and negative growth in the fourth quarter would mean a recession. Spending on Black Friday and Christmas might see the economy escape recession, but growth was hit by load shedding. At this stage the Reserve Bank predicts 2019 growth of just 0.5%. For 2020 a lukewarm 1.4% is forecast.

Roodt says the shopping fever of Black Friday and Cyber Monday – more than R6 billion in debit and credit card transactions were processed by clearing house BankServAfrica – shows the message that the economy is in crisis has not yet sunk in.

“I’m afraid we are on the road to a full-scale recession, we may already be in one in the fourth quarter.

“Given the destruction caused by load shedding and the government’s fast-growing debt burden, I can’t help but think that things will get a lot worse before they get better,” Roodt says.

Neil Roets, executive head of debt counselling firm Debt Rescue, says January, February and March are always busy, but they expect 2020 to be the busiest in the history of the firm.

“We know from media reports that consumers spent massively over the Black Friday, Cyber Monday and over the Christmas Holidays and that is going to have severely negative consequences for deeply indebted consumers.”

Roets says “a sort of disease” grips people during the holidays and their spending becomes entirely irrational. That is of course fanned by massive advertising campaigns by retailers.

That leads to people forgetting about school clothes, writing equipment and school fees payable by January and February.

“The one consistent comment we get is this sense of entitlement that because everybody else was shopping they felt entitled to join the shopping stampede.”

Consumers’ current gross debt stands at nearly R1,800 billion.

Nearly half of consumers are three months or more behind on their account, especially credit and shop cards, followed by micro and other personal loans.

Source : Business Insider SA