Regardless of the outcome of Budget 2018, there is a way consumers can better prepare for it, says an expert.
Priya Naicker, advice manager at Old Mutual explained the finance minister could plug the revenue shortfall of R50.8bn by raising personal income tax. But this is already limited by high unemployment rates and low business confidence, she said.
Another option is to raise the VAT rate, currently at 14%.
Either way an increase on income tax and VAT will constrain consumer incomes.
Naicker shared practical tips for consumers to prepare for the financial impacts of the National Budget, to be delivered on February 21:
1. Review and understand the interest rates on your debt
“While it may be tempting to spend on credit, consider purchases carefully against the total cost of repayment.
“Create a plan to reduce your debt that works for you, paying additional amounts to the most expensive debts first, or perhaps starting with those that provide the quickest wins for positive momentum.”
2. Plan for an increase – even if there might not be one
South Africans need to adapt and plan for a tough economy. Factor in a 1% to 2% increase into your personal budget for household spending.
3. Review luxury and discretionary spending
“An option Treasury may consider is introducing a tiered VAT increase. This means that VAT could be increased on premium items and services like cigarettes and alcohol,” she said.
Cutting out expense on these items could provide financial relief.
4. Save, save and save again
“Whether used to cover emergency costs or to achieve our dreams and goals, saving is an important tool to create the life we want and protect us from expensive debt,” said Naicker.
“Partner with a financial adviser to craft a savings strategy that meets your needs and makes use of tax concessions where possible.”
5. Create a financial plan
A financial plan helps you develop strategies to balance needs in the short term, as well as medium and long term goals, she explained.
“Combining attention to what you want to achieve with an understanding of your finances and taking action, is key to financial wellness.
“A financial adviser often brings the expertise needed to interpret economic factors within the context of individual circumstances to create a dynamic plan that is adaptable to changing circumstances.”
