On Wednesday last week, South Africa’s recently appointed finance minister, Nhlanhla Nene, presented his maiden mid-term budget – his ‘mini-budget’ to the nation. What do his pronouncements mean for us?
A big belt to tighten
The budget policy statement comes against the backdrop of some serious challenges: low GDP growth, ballooning budget deficit, and looming credit agency downgrades of public sector enterprises.
How does any of us tackle debt? Two strategies: spend less, generate more income. Nene’s approach is no different – just on a larger scale, of course. So, cut back on government spending and raise government revenue.
Naturally, this is stated rather simply. Raising revenue in a straitened economy presents a challenge: you need a growing economy to deliver taxes to meet budget deficit requirements. In the absence of such growth, a hike in taxes over the next few years is inevitable – a fact confirmed by the Minister in his speech.
We may be tempted to focus on this negative point of the budget speech – after all, it means additional pressure on our pockets (from which the taxes will be extracted!). Nene will reveal details regarding tax increases in the February budget speech. However, I am encouraged by a number of aspects in the speech.
Firstly, Nene has clearly recognised the limited resources at his disposal to address government debt, and has put a plan in place to deal with it. He aims to cap the amount that government can spend annually, and this must mean prioritising government departments that require allocations.
Secondly, Nene acknowledges the need to create an environment in which the private sector has the confidence to invest in the economy. Part of this must mean addressing the need to improve electricity and water, and postal services, to create a platform for investment-led growth.
Finally, Nene identified the lynchpin of the success of these proposals: effective implementation. He has set the goal of improving the state’s aptitude for planning, managing its programmes and infrastructure.
Lessons from Financial Planning
At Chartered Wealth, we recognise the positive elements of the budget speech because they revolve around devising a successful plan. We are in the business of creating plans to help our clients prosper. What does that plan entail? An objective look at available resources: savings, assets, the ability to generate income; then, leveraging those resources to best achieve the outcomes our clients are aiming for – the life planning process is a crucial part of determining this. So, we choose investments that will allow their money to grow at the best rate possible. We also attribute the success of our plan to its effective implementation. We want to see our clients enjoying their retirement, ticking off bucket list items that bring them fulfilment and significance.