Government finances as a household budget
This week our new finance minister Enoch Godongwana laid out the plans for government’s spending over the next three years. The medium-term budget lays out the framework of how much income the government is likely to receive, how much it will borrow and how much it will spend.Like most households, government finances are in bad shape – spending exceeds income with a high reliance on expensive debt.
Often referred to as a “black tax” this puts pressure on most household budgets. Households with children have the additional costs of providing for them including education and health. The Old Mutual Savings and Investment monitor found that more than 40% of households were supporting not only children but also parents or other older dependents.
To continue with the Covid-19 relief grant of R350 past March 2022 at a cost of R40 billion, either further taxes would need to be introduced, or spending cut in other areas. The only way to reduce ‘black tax’, is to have more people in the family working – in other words to increase employment.Any household where the monthly spending exceeds the money coming in, there is a reliance on loans.
A household comparison would be that balloon payment that comes due at the end of your car finance period. If you can’t settle it, you take out a further loan. The finance minister committed to cutting the spending budget. The focus is on reducing the primary budget with the aim to be running a surplus by 2024/25. This surplus could then be used to reduce the debt burden. But where to find those budget cuts and where do you focus your spending priorities?
As the minister pointed out, the increased spending since 2008 had not resulted in higher economic growth or an increase in productivity. For a household, it is like receiving a higher salary but rather than investing it to build wealth, you spend it on day-to-day consumption and one day wake up to wonder where all your money went.Apart from budget cuts, another way to balance the books is to generate more income.
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