Budget 2016 a Step in the Right Direction

The recently announced budget is a move in the right direction in terms of fiscal policy, but was it a budget that was it savings friendly? Finance Minister Pravin Gordhan’s National Budget tabled on Wednesday afternoon in Parliament was a budget that spoke of greater austerity on government spending and indeed acknowledged the need for the country to try and avoid an International Ratings Agency downgrade whilst also preventing the country from slipping into a recession. The minister announced that Treasury expected the economy to grow 0,9% this year, down from 1,3% and this news has affected currency markets. The National Development Plan aims to grow our economy at 5%, we are far off that target.  The announced budget hopes to reduce the National Budget Deficit which is how much the country is spending over the budget from 3.2% in 2016/17 to 2.4% in 2018/19 (3.9% in 2015/16).

SASI Acting CEO Gerald Mwandiambira says, ” The budget was fairly neutral and balanced the need to keep the economy afloat whilst showing International Ratings Agencies that the Government can turn the ship around. The budget will make saving and investment difficult as many macro-economic factors work against the consumer. Indeed, more consumers may become more in debt as interest rates may rise whilst food price inflation is racing away due to the drought. It is important for consumers to start preparing for challenging times ahead by beefing up their emergency fund whilst doing their best to avoid and clear existing debt.”

The budget was less kind to Small and Medium Size business with little encouragement to entrepreneurship and employment. Gerald notes, “The Employment Tax Incentive (ETI) which lapses on January 1 2017 is unlikely to be rolled over. The ETI incentives employers to provide young people between the ages of 18 and 29 with jobs and work experience. A total of 36 000 employers have provided more than 250 000 jobs to young people at the cost of R3.9 billion under the ETI. This means that it will be difficult to create new businesses.” Jobs enable peeople to save and create wealth.

The South African Savings Institute (SASI) believe that a concerted effort to improve our national savings through a combination of fiscal discipline , private sector investment and household saving can stimulate the economy. Gerald says “China grew its economy by saving 40% of GDP. Based on the Investec GIBS Savings Index data , SA needs to save 28% of GDP to grow at 5% per annum. We are currently saving 16%. We believe that this money which already is in the system can be saved and stimulate growth.  Dialogue is needed between all stakeholders to make this possibility happen.”