Standard of living in SA is on a slippery slope

Houses

Why you’re ‘getting poorer’. SA’s middle class may even begin shrinking now, further reducing stability and growth.

You’re not imagining it, you are getting poorer.

South Africa’s struggling middle class is being squeezed like never before by a heavy tax burden, rising food prices, debt interest rates and the cost of avoiding crime.

There is even a very real possibility that the current middle class, about 9 million people or 16% of the population, could shrink as more and more people fall into poverty.

The pressures on the middle class have been intensifying since 1994, although the group has grown considerably in size. The black middle class component, currently at 55% of the group, has tripled in the last decade.

However, rising taxes, food prices and the “hidden taxes” of paying extra for services such as security, education and health mean the “freedom dividend” is beginning to shrink for many families.

The continuing stagnation of the economy is the biggest threat to the middle class, which is one of the biggest factors in the stability and growth potential of a country.

Professor Leslie Bank, deputy executive director of the Economic Performance and Development Programme at the Human Sciences Research Council, said the middle class in South Africa is too small and needs to increase by “at least 20% to 30%” if economic growth is to be sustainable.

He urged government to grow the middle class by expanding opportunities and creating investments.

Professor of economics at Stellenbosch University Servaas van der Berg said although there had been an increase in the black middle class, the figure “has slowed because the economy has slowed”.

The white portion of the middle class has remained static because most of the “white population is already in the middle class”.

Bank said more whites were struggling to retain their jobs. Most of the government positions occupied by whites during the apartheid era were now filled by blacks. Whites have become “poorer” and their “unemployed rate is growing”.

Van der Berg added that everyone in the middle class is affected by tax, but it’s not that the taxes are necessarily too high.

“Some of the things the middle class regard as so important have become quite expensive.”

Putting security around their houses was important.

“The costs of things such as cellphones and computers and Wi-Fi have become very important for many people in the middle class and they put additional strains on their finances.”

He added: “Also, what one should not forget is that most children of the middle class go to prepaying schools – and those fees, in a way, you can see them as a form of tax.”

In Professor Roger Southall’s book, The New Black Middle Class in South Africa, he wrote that “debt was the biggest middle class fear and “52% of middle class South Africans felt they would never be financially free”.

But he added that the black middle class was said to be “taking the most strain” due to credit-binging and “dangerously high levels of debt”.

The proportion of black owners of mid-value and higher-value homes outside townships was high.

With homeownership, he said, there were multiple other expenses such as municipal rates, water and electricity.

“Meanwhile, due to the absence of adequate policing, many within the middle class incur security costs, all to be added to the costs of school fees and private medical insurance, to which increasing numbers of the black middle class subscribe,” said Southall.

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The squeeze on the middle class is illustrated clearly with “Tax Freedom Day” – the day in the year when the country has earned enough to pay the direct and indirect taxes levied by government.

In SA this year, it was May 23. On average, South Africans pay 40% of their income to government. Taxes, both direct and indirect, have been rising steadily.

Four financial questions to ask before you get married

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According to Statistics South Africa, more weddings are registered in December than any other month.

“If couples can work as a team and commit to a clear financial plan that is beneficial to both, from the beginning of the relationship, you increase your chances of achieving financial success and a more stable relationship,” says Liberty legal marketing specialist Faeeza Khan.

Khan suggests you ask the following four financial questions:

Will we be married in community of property?

When you get married in community of property, you agree to share all financial obligations with your spouse. If you are married in this way, you will not be able to enter into any transaction without the consent of your spouse.

For example, if you’d like to buy a new car, both spouses will have to agree and sign the contract. All assets and liabilities accumulated before and during the marriage is the joint responsibility of both spouses.

How much debt are you bringing into the marriage?

Debt is one of the biggest financial challenges couples need to deal with. It could be worse for new couples if one person could bring a lot of debt into the relationship, which the other partner may need to help settle before they start building their wealth.

If married in community of property, both spouses will be jointly liable for the debt, even though the original contractual agreement that was signed before the marriage only involved one signatory.

That means if one of the spouses defaults on their financial obligations with a creditor, both parties will be held liable to settle the outstanding debt.

What personal and financial risks do we need to cover in our marriage?

As soon as you say, “I do”, your lifestyle and responsibilities change. Your spouse becomes your responsibility both personally and financially.
It also means the risks you faced as a single person changes significantly. If something happens to you, your spouse will be left to deal with the financial risks.

Make sure that from day one you have a will in place that clearly outlines what must happen to your money in the event of your death or disability.

Should we meet with a financial adviser before we get married?

In Khan’s view, it is vital that new couples ensure that their financial plans and risks are covered. For instance, a meeting with a financial adviser or planner should include estate planning, retirement planning, personal risk planning and business planning.

Happy, healthy employees

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The author of The Happiness Advantage, Shawn Anchor discovered that when a person is feeling positive, the brain works much better. His research found that at these “happy” times the individuals tended to be more creative and become better at solving problems, as well as more effective collaborators with their colleagues. Anchor therefore also argues that there is then a clear incentive for employers that the happiness of their employees leads to greater levels of profits.

Further, a healthy workforce is directly linked to high levels of productivity and your business’ positive bottom-line performance. In South Africa’s first Effective Employee Index which was conducted by MMI, the holdings company of Momentum, in consultation with Unisa to research employee productivity, it shows that physical health and financial wellbeing are key drivers of employee productivity. Sick, unhealthy employees who are anxious about their finances then transforms into high levels of absenteeism and presenteeism – which is the condition of being at work but not fully engaged or productive. These impacts on the financial wellness of the employer, it affects their ability to grow their bottom line and protect their balance sheet, as reported by Katherine Baker, the Head of Momentum FundsAtWork.

The FinScope South Africa 2016 Survey revealed that 90% of employed South Africans earn R15 000 or less each month and 81% of the 90% earn R6 000 or less. These members of the population are particularly vulnerable in financial wellness. This is especially true in South Africa where households are forced to rely on retirement savings when they change jobs in order to cover their cost-of-living expenses, leaving little to no savings for when they actually retire. This problem is particularly bad amongst low-income earners who are the majority of South African employees.

When staff feel supported, engaged and valued by their employer, the company will see tangible returns. These returns include staff taking control of their health, become critical thinkers, developing communication skills and an increased loyalty to the organisation. Employers supporting their employees with retirement savings, lump sum death benefits, disability and funeral benefits, help to improve employees’ physical and financial wellness.

The MMI research also revealed that by providing appropriate insurance and retirement solutions and by engaging with the correct wellness program, employers are able to influence up to a third of lost productive employee time at work. Protecting the health of your employees is no longer a nice-to-have – it’s a necessity. There is a need for innovative financial services solutions for your employees.

Amazon hunting for second US headquarters to host 50 000 staff

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Amazon.com is searching for a site for a major corporate office in the US, a development expected to house as many as 50 000 people and to be equal in size to its current Seattle headquarters.

The cost of what Amazon is billing as its “second company headquarters in North America” is expected to top $5bn, the company said.

Amazon is now asking local and state governments to pitch for its business, with the promise of boosting the local economy.

Any new development by Amazon would have a major impact on the surrounding community. The company is one of the biggest employers in Seattle, on course to have 929 000 square metres of office space, more than 15% of the city’s inventory.

“We expect HQ2 to be a full equal to our Seattle headquarters,” said founder and CEO Jeff Bezos. “Amazon HQ2 will bring billions of dollars in up-front and ongoing investments, and tens of thousands of high-paying jobs.”

The e-commerce giant recently moved into a new 500-foot-tall office tower in Seattle, complete with 100-foot-tall orbs – Amazon calls them Biospheres – which will host more than 300 plant species from around the world when they open in 2018.

SA to mull tax hikes and spending cuts to avoid full junk- Treasury

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The Presidential Fiscal Committee (PFC) and Cabinet will meet in the next two weeks to work out plan that could cut spending or tax increases of R40bn to strengthen the fiscus.

That is according to National Treasury, which was responding to the announcement on Friday that S&P Global Ratings had cut South Africa’s local-currency debt score to junk, while Moody’s Investors Services threatened to slash its ranking to the same level, raising the risk of a selloff from global indexes.

“In the 2017 Medium Term Budget Policy Statement chapter on fiscal policy, we indicated that additional spending cuts or tax increases of R40bn (0.8% of GDP), would be required from 2018/19, in order to stabilise public debt below 60% of GDP over the next decade,” Treasury said in a statement.

“Over the next two weeks, the PFC and Cabinet will consider a package of measures to this effect, to be implemented from 2018. Specific details on these measures will be announced in the 2018 Budget.”

It said that restoring business and consumer confidence and catalysing inclusive growth is the top priority of government.

“There can therefore be no doubt of government’s strong commitment to addressing the structural constraints to growing the economy and improving public finances.

“To this end, government is working urgently and diligently on practical steps to provide the necessary policy certainty, environment conducive to investment, and predictability that the country so desperately needs.

“Decisive actions in managing government expenditure and closing the revenue gap are critical for achieving sound public finances.”

Should Moody’s also downgrade the local-currency rating, rand debt would fall out of gauges including Citigroup’s World Government Bond Index, and this could spark outflows of as much as R100bn, Citigroup economist Gina Schoeman said ahead of the rating company announcements.

A selloff of rand bonds – which comprise about 90% of South Africa’s outstanding liabilities – would raise borrowing costs for the nation as it sells more debt to plug a widening budget gap.

Sachs resignation sent message of instability to ratings agencies

Business Leadership SA said on Saturday that the resignation of Treasury budget chief Michael Sachs “sent a message of instability and lack of clarity to the ratings agencies”.

He reportedly resigned due to issues stemming from the new PFC, which has been critcised of limiting the scope of transparency on the budgeting process. However, Treasury defended the PFC on Saturday.

“National Treasury remains the centre where budgeting occurs as provided for in the Constitution. It is also important to clarify that the Mandate Paper developed by the Department of Performance, Monitoring and Evaluation serves to set priorities for  the whole of government, ensuring alignment with the National Development Plan,” it said.

“The PFC streamlines decision-making, and provides the necessary authority to co- ordinate and ensure adherence to the fiscal framework by the entirety of government, driven at the Cabinet level. This in no way undermines the role of National Treasury in the budget-setting process,” it said.