Don't bank on relief from Mboweni - debt expert

2019-02-19 22:15 - Carin Smith
Too much debt
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South African households facing increased levels of debt – and seeking urgent assistance – should not bank on Finance Minister Tito Mboweni to provide much relief in Wednesday's Budget speech, says Benay Sager, chief operations officer (COO) of DebtBusters.

Average debt levels of local households have increased by levels that exceed inflation over the last year.

Tightening belts

Just as households are tightening their belts, Sager believes government will be too.

"From experience, we know that the approach for any budget should be the same, be it for the national government or an individual - that is spend less than what you earn," says Sager.

"Unfortunately, the expectation is that South Africa would need to borrow even more money this year, which would add to the strain the taxpayers are experiencing already."

More debt, less money

Unsecured debt makes up almost half of DebtBusters' debt book and the debt counselling firm is seeing more and more people, specifically in the 40 to 60 age group, opting for larger unsecured loans that have average interest rates of 24% or more.

"While the government budget is expected to be stretched to its limit as well this year, it's more important than ever that consumers apply better discipline in how they manage their own budgets," says Sager.

Kenosi Magosha, head of client solutions savings at Sanlam Personal Finance, says Mboweni will need to carefully consider low-income households in his Budget 2019 speech.

Magosha says Mboweni will need to strike a delicate balance between not putting further pressure on strained household finances and efforts to raise revenue to safeguard SA's credit rating whilst pursuing economic growth.

In Magosha's view, it is likely Mboweni could still leverage personal income tax through less than inflationary adjustments to tax brackets, but not from an increase in the marginal tax rates, which are considered high at the top end of 45%.

"After the increase in VAT, a panel was put together with a mandate to investigate how to mitigate the increase's impact on low-income households. Recommendations from this panel are likely to result in the minister introducing more zero-rated (VAT) goods and increasing expenditure on social grants or other programmes geared at ensuring that low-income and poor households have access to food and necessities," she says.

Eskom and consumer pockets

Magosha says it will be important for Mboweni to address concerns around the government's rescue plan for Eskom and specifically, whether these are likely to involve a cost to consumers in terms of an increase in electricity costs or if other funding models leveraging corporates will be pursued.

She says what the government spends on improving employment and entrepreneurial opportunities will also be crucial.

Tax incentives to encourage the youth employment may be boosted and expenditure targeted at certain sectors increased to encourage the establishment and growth of SMEs.

"It will also be interesting to see if there are any additional "carrots" to encourage more consumer savings – such as increases in Tax-Free Saving Accounts contribution limits," she says. Magosha says beyond Treasury's efforts to mitigate pressure on consumer finances, individuals and households will need to consider their own budgets.

Enver Duminy, CEO of Cape Town Tourism, says the tourism industry remains optimistic that locals will continue to enjoy tourism experiences and that international visitors will also continue to enjoy what is, to those travelling on foreign currencies, affordable luxury.

"We look to government for continued support across multiple initiatives to ensure industry-wide sustainability so that employment rates in tourism are stable and also so that job creation in the sector can be realised," comments Duminy.

"There's a sense that once the elections have taken place, the economy won't be quite as skittish, so the challenge is to press ahead with our strategies for business development."