Budget 2021: A constrained economy exacerbates growing unemployment

“Not only is the economy under pressure, but so are jobs and incomes,” says Dickens, CEO of TPN Credit Bureau.

Finance Minister Tito Mboweni’s 2021 national budget has been delivered against the backdrop of a significant economic contraction in the second quarter of 2020, rising debt to GDP and many South Africans that are in a weakened financial position.

“Significantly, he confirmed that we are spending more than we are collecting from less people,” points out Michelle Dickens, CEO of TPN Credit Bureau.

According to unemployment figures released by Stats SA, 2.2 million people lost their jobs in the second quarter of 2020. Despite a recovery, South Africa is still short of 1.3 million jobs from the start of the year compared to the end of the year. The country’s current unemployment rate of 32.5% is the highest on record. In the expanded definition, this figure is even higher at 42.5%.

South Africa recorded its largest tax shortfall on record in the past year, collecting R213 billion less than anticipated in the 2020/21 budget. This shortfall will necessitate additional government borrowing of R500 billion per year for the medium term, which means our gross loan debt will increase from R3.95 trillion currently to R5.2 trillion in 2023/24.

Encouragingly there was no change made to the VAT rate, the corporate income tax rate will be lowered to 27% in April 2022 and the personal income tax brackets will be increased by 5% which will provide some tax relief to lower and middle income households. As expected, the excise and fuel levies have been increased, as have sin taxes.

“South Africans are already subject to a very high tax rate, paying tax rates that are more commonly found in developed nations, so it was little surprise that government put a hold on the R40 billion tax increase announced in October last year,” says Dickens.

“There is no question that in the wake of Covid-19 and a contracting economy, consumers are feeling the pinch,” she says, adding that personal finances will be further stretched by the looming 15% Eskom tariff hike.

“One reflection of this is the fact that despite historically low interest rates currently, tenants are not rushing out to buy their own homes because they are unable to afford it. According to the TPN Tenant Survey affordability has become one of the most significant barriers to entry to property ownership,” says Dickens.

The survey revealed that nearly 10% of tenants lost their income permanently during lockdown, 12% lost their income temporarily and only 25% received their full pay. “Given the high unemployment figures we can expect to see a growing number of people this year moving back in with friends or family rather than owning their own property or renting a property,” predicts Dickens.

According to the survey, money, paying the rent, funding the deposit and a lack of control over the cost of utilities – energy in particular – fall in the top four challenges faced by tenants.

“Not only is the economy under pressure, but so are jobs and incomes,” says Dickens. “This has a knock on effect on the property market which is also under pressure. In the rental market in particular, reduced demand for property translates into higher vacancies and ultimately, lower prices.”

While she is encouraged by the budget’s R11 billion allocation to the Presidential Youth Employment Initiative – which takes government funding for employment creation to nearly R100 billion – Dickens questions whether this is effective.

“Within the expanded definition, youth unemployment is at 74%,” she points out, adding that the only way to address this challenge is to grow the economy in order to create more jobs. Economic growth, however, relies on an investment into capacity building projects and South Africa has limited fiscal space to achieve this in the current environment.

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