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How the mini budget will affect you

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As the notices about price increases start rolling in, combined with higher taxes expected next year, I must confess to feeling a bit gloomy about 2017.

I am normally biased towards optimism, but sometimes you have to do a reality check.

Last week, I received notification from my son’s school that fees would rise by 10% (unfortunately, my kids are not at university yet) next year, and our medical scheme informed us that our premiums would increase by 11%.

Combined, these costs add up to about a quarter of our monthly budget.

The news has been just as negative about price increases for other necessities, as the medium-term budget policy statement – known as the mini budget – this week forecast electricity prices would rise by 9.1%.

FNB property economist John Loos told City Press he expected the cost of other utilities, such as rates and water, to increase by similar margins – well above the official inflation rate of 6.1%.

Petrol prices are trickier to predict as they depend on the strength of the rand and the international oil price. But if South Africa does experience a credit downgrade in December, we are more likely to have a weaker currency pushing up our fuel prices.

The main problem is that these are all necessities, not things we can cut out of our spending. In our household, if we add utilities and petrol to the calculation, nearly 40% of our expenses will increase well above our salaries – no doubt something many other households will experience.

The only good news is that high food inflation, which has been clocking in at more than 11%, has started to come down.

And, if normal weather patterns resume, Treasury expects food inflation to moderate to 5.4%. However, that does not mean food prices will come down; it just means they will rise more slowly.

Then there are the tax hikes. While we wait for concrete proposals to be announced in the national budget in February, we have been warned by Finance Minister Pravin Gordhan, in this week’s mini budget, that the taxman is going to need an additional R28 billion next year.

Whether this will be in the form of VAT, sugar taxes, personal taxes or company tax, it will all eventually feed down to households.

And households are not looking that healthy. According to the mini budget, growth in household income after inflation slowed to below 1% a year, which means our incomes are not rising much above the official inflation figure – even though our bills are.

Also, household wealth fell, partly due to a weaker stock exchange earlier this year.

So, it is not surprising that the medium-term budget stated “consumer confidence remains low and higher inflation has reduced household purchasing power”.

Considering that most people will not receive salary increases much above inflation and will most likely experience higher taxes in some form, we will be poorer next year and will have to work harder.

The only good news is that our mortgage repayments are unlikely to increase.

While the official inflation figure used by the SA Reserve Bank currently hovers at the 6% level – bearing no resemblance to my household inflation rate – it does mean that interest rates are unlikely to be raised.

In the words of Gordhan during the press briefing on the mini budget: “We are talking about surviving the next two years.

We need to tighten what we can and work like hell to create a common consensus and create confidence.”

And, in the words of Treasury director-general Lungisa Fuzile, it is not a question of what is an appropriate amount of debt, but whether you “can still afford to pay the amount of debt you have now and in the future. The time has come for South Africa’s debt to be stabilised.”

While Gordhan and Fuzile were speaking about our country, the same applies to our households.

The reality for most South African households is that the only way to get through 2017 is to start budgeting seriously, accept that certain luxuries may have to be cut, use any extra cash or bonuses to settle debt and take on extra jobs where possible.

What we need to avoid at all costs is taking on more debt in the hope that our incomes will rise to cover it.

Amid the gloomy forecast comes this silver lining: If our economy can get back on track and all the promises made to improve efficiency and bring confidence back to the country are met, then our finance minister believes we should see lower inflation, improved wage growth and an improved household balance sheet in the years ahead. We just need to hang on for the next two years.

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