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Minister of Cooperative Governance and Traditional Affairs Des Van Rooyen. Picture Credit: Gallo Images
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'Save, don't spend' budget expected

By unknown | Feb 20, 2007 | COMMENTS [ 0 ]

Isaac Moledi

Isaac Moledi

Consumers might have escaped the anticipated Reserve Bank interest rate hike last week but they shouldn't expect a double bonus in the form of individual tax cuts when Finance Minister Trevor Manuel announces the national budget tomorrow.

Experts are saying "Save, don't spend" will be Manuel's message when he delivers his 2007-08 budget.

Though Reserve Bank governor Tito Mboweni left the repo rate unchanged at 9percent and the prime overdraft rate at 12,5percent, experts say tomorrow's budget is expected to introduce further initiatives to promote personal savings and discourage lavish spending after several years of conspicuous consumption.

Concerned about the public's low level of saving for retirement, the government is considering a social security system that would make it compulsory for all working people to save a proportion of their income for their retirement.

The idea is to make it affordable and worthwhile for low-income earners to save for their retirement, while at the same time raising the national savings rate.

Ian Mcdonald, national manager of financial planning at MortgageSA, says the treasury will almost certainly be focused on putting the brakes on consumer spending.

"I think the focus this year will be a strong message of 'save, don't spend'. Hopefully it will address further incentives for retirement savings in particular," he said.

One way of achieving this, he said, would be to raise the tax deductible amount an individual can claim on contributions to retirement annuities.

"A second concession is to remove the taxes levied on retirement funds under management of financial institutions."

These were lowered last year but, Mcdonald said, there have been repeated calls to do away with this tax as it effectively taxes the same money twice.

Mcdonald notes that curtailing consumer spending is an important priority for government this year because greater disposable income drives further consumer spending and credit demand for luxury imported items.

"The knock-on effect is to further widen the current account deficit to fund these imports, something which Tito Mboweni is determined to bring under control as evidenced by recent rate hikes."


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