By: Mathapelo Sipamla
The National Treasury’s 2024 Budget speech can be a complex blend of figures and forecasts that many South Africans struggle to decipher.
I want to unpack how the government’s Budget will impact everyday South Africans’ lives. I’ve focused specifically on areas of interest for people’s personal finances, including fuel and road accident levies, social grants, and the government’s debt strategy and how debt plays out in people’s day-to-day lives.
Here’s how the 2024 Budget speech will affect the average South African’s pocket.
How to benefit from the general fuel levy relief
Finance Minister Enoch Godongwana announced that there would be no increases to the general fuel levy. This will come as a relief to many South Africans, considering the already high cost of living and the impact fuel prices have on food and transport costs.
The finance minister’s decision is significant considering the rising living costs and economic challenges that burden so many households. This financial relief is an opportunity for South Africans to stretch their personal budgets even further by considering strategies to pay off debt and save.
Top tip: I suggests South Africans purchase groceries in bulk and plan meals for the week. This reduces the frequency of trips to the store and helps cut fuel and food costs. Also, consider joining a lift club with colleagues or neighbours to cut the cost of commuting.
The social grant increase might not stretch your monthly budget
The finance minister has announced increases in social grants to support the nation’s most vulnerable populations. The increases include:
– an increase of R100 to the old age, war veterans, disability, and care dependency grants. This amount will be divided into R90 effective from April, and R10 effective October.
– a R50 increase to the foster care grant.
– a R20 increase to the child support grant.
While these increases are welcome, the real-world impact is modest. The increase may not significantly alleviate households’ financial pressures. That’s why beneficiaries should manage these funds more cautiously to ensure they can afford essential needs without incurring more debt.
Top tip: I suggest households create a spending plan to stretch their increased income further amid rising living costs.
Unpacking the two-pot retirement system
The two-pot retirement system aims to empower more South Africans to preserve their retirement savings when they leave or change jobs through controlled access to a portion of their savings during financially challenging times. To do this, from September 1, 2024, the government will divide retirement funds into two components:
– a retirement component, which you cannot touch until retirement
– a savings component from which members can make limited withdrawals before retirement.
All the savings that accumulated in your retirement fund up until August 31, 2024, will go into the vested component and cannot be touched until retirement. The two-pot system could be a lifeline for South Africans, allowing them to withdraw from their savings in emergencies. However, they should do so with caution, understanding that any withdrawals will have an impact on their future financial well-being.
Top tip: I encourage South Africans to speak to a financial adviser to help them create a balanced saving, spending, and investing strategy to navigate the new system. An adviser can also show the long-term consequences of withdrawing early on one’s future retirement income.
How the Budget speech affects debt
As a country, South Africa relies heavily on debt, and it’s the same for many South African households. This year, the finance minister estimates that the gap between how much money the government makes and how much it spends (this gap is called a budget deficit) will worsen from 4% to 4.9%.
As a result, the government may need to borrow more. This could make it harder for South Africans to manage their debt, because of:
– higher interest rates/repayments for loans and bonds
– reduced public services, such as health care, education, and social services
Thankfully, the finance minister also announced that the government will not implement any major tax increases, relieving cash-strapped South Africans. Despite this relief, households should still be mindful of taking on more debt and focus on paying off existing debt as quickly as possible.
The finance minister is constantly trying to balance the country’s income with its expenses, and most South Africans are in a similar situation. Households should try to pay off the smallest debts first, to free up their pockets to tackle the bigger amounts. This is known as the snowball method.
The 2024 Budget speech presents challenges and opportunities for households, especially those dealing with debt. So, South Africans must understand its implications for effective financial planning and debt management. We hope this breakdown will help households stay informed and get the help they need to navigate these changes and improve their financial health.
* Sipamla is the head of Agency Distribution at Sanlam.
PERSONAL FINANCE