The budget speech poses an ideal opportunity for us to reflect on the influence policy has on the economic outcomes of all South Africans. The South African economic system remains largely stratified, characterised by the highest proportion of the working class residing in lower income households. Indeed, in the recent past, South Africa has been cited by some as the most unequal country in the world. The more impetus government and the private sector continue to put in bridging the gap between the haves and the have-nots, the better we as a nation will be able to compete on the economic global stage.
Though we have made substantial progress in implementing many reforms which aim to make economic participation more inclusive; including the recent adoption of a Two-Pot retirement system which advocates for partial access to a portion of retirement funds to address consumer’s most pressing expenditure and debt-servicing needs; we still have a stretch to go in terms of ensuring that continuous refinement of legislation gets us miles closer to a fully inclusive state.
According to Johan Els- Old Mutual Chief Economist the potential challenges that could emanate for low-income earners from the envisaged adoption of the proposed budget include:
- An increase in VAT may negatively affect disposable income, making daily living more expensive and of course affecting lower-income households the most.
- The perpetual state of social grants administration means that t financial support for unemployed individuals is compromised.
- Government debt remains high, which could impact long-term economic stability and service delivery.
Beyond the direct impact on households, one could innovatively think of the involvement of the private sector to ease the burden on the South African consumer as follows:
Partnerships Between Financial Institutions and Retailers for VAT Relief
Collaboration between financial institutions and retailers can ease the financial strain on low-income households, by encouraging smart spending and alternative means to cover day to day expenses. Some demonstratively successful initiatives globally include:
- Bank-Retailer Cashback Programs: In Kenya, Safaricom’s M-Pesa has partnered with retailers to offer subsidies on staple foods via mobile payments.
- Direct Cash Transfers: Brazil’s Bolsa Família program facilitates tax-relieved purchases for low-income families through banking partnerships.
- Old Mutual rewards: Enables customers to purchase goods from partner retails using earned points, to stretch their Rands as well to reinvest points into Old Mutual products (Premium payments).
South Africa needs to invest in the driving of similar models to supplement existing VAT exemptions, helping more households afford necessities.
*Adopted from: https://www.safaricom.co.ke/media-center-landing/press-releases/safaricom-launches-lipa-na-m-pesa-cash-back-promotion
Affordability of Essential Goods, Services, and Utilities
Groceries & Food Costs: A 0.5% increase in VAT will not go unnoticed by South African consumers. The effect will no doubt be more pronounced for lower-income households as a significant proportion of their income is dedicated to the food and groceries basket including non-essential food items which will now cost more. However, the impact on buy zero-rated foods will be smaller.
Social Grants & Financial Relief: Some relief will be realised in the unemployed population as the Social Relief of Distress (SRD) grant is extended to March 2026. Above-inflation increases in grants such as child support and old-age pensions will help offset some rising costs.
Electricity & Water Bills: Higher VAT on electricity bills means prepaid and postpaid electricity will cost more. Government assistance in municipal support could stabilize service delivery in some areas.
Rent & Housing Costs: A positive correlation between the general cost of living and rental prices could push up rent prices over time. However, there is no new property tax increases directly impacting tenants.
The Financial Sector in partnership with Government can implement relief strategies such as:
- Financial Inclusion & Education: Expanding access to banking services and offering community-based financial literacy programs such as the wide-reaching Old Mutual Financial Wellness Programme.
- SME Support & Job Creation: Providing affordable lending options, grants, and innovation funds to help small businesses thrive.
- Social Impact Investment: Promoting green and social bonds for projects in affordable housing, healthcare, and education.
- Insurance & Risk Mitigation: Developing low-cost insurance products to shield low-income households from financial shocks.
*Adapted from the National Treasury financial inclusion Policy
These interventions can strengthen economic resilience and enhance financial security for vulnerable populations who continue to form the backbone of South African society at large.
