MONEY
24/10/2017 14:30 SAST | Updated 25/10/2017 12:12 SAST

Simplified: What The Mini-Budget Speech Is And Why We Should All Care About It

"Ultimately, it affects your pocket."

Bloomberg via Getty Images
Malusi Gigaba, South Africa's finance minister.

All eyes will be on Finance Minister Malusi Gigaba as he delivers his first medium-term budget policy statement to Parliament on Wednesday.

"Every South African should be completely fixated on the mini-budget speech, especially this one," said Nazrien Kader, managing partner at Deloitte Africa's tax and legal services.

But why should we care?

We've asked an economics lecturer from the University of KwaZulu-Natal, Ntokozo Nzimande, to simplify what the budget speech is and why we should care about it.

What it is

Much like we budget to ensure that we have enough to cover our expenses and last us through a specified period of time, so does government.

And while most of us earn salaries, government's "income" comes from taxes and levies. These include personal income tax, company tax, fuel levies and sin taxes such alcohol and tobacco tax.

This "income" must cover, among other things, government salaries, social grants, health and education. It must also cover debts government owes -- similar to how we have to repay personal loans, car and house loans.

So in February each year, the finance minister lets South Africans know how the state will spend money for the next three years."During the mini-budget speech, government tells us if we are still on track," said Nzimande.

The Minister also speaks on what their spending priorities are and how much we have left versus what we owe.

Why we should care

Nzimande believes we should care because it is our tax that goes to government's income pocket -- so, how the state spends this money is important. "We should be concerned about whether or not they are spending it responsibly."

For example, if we don't stick to our monthly budgets, we might run short of petrol money at the end of the month. We may want to cover this by compromising on food items or borrowing from friends or creditors so that we can cover the shortfall.

Now, if we get into the habit of always running short and always borrowing, or not paying creditors on time, this might compromise our credit record. It may also leave us at risk of being blacklisted.

A similar thing, although more complicated, can happen to government. The likely result will be rating agencies downgrading the country's credit rating and this may make the cost of borrowing higher.

A high-risk borrower risks creditors not giving them a loan, or giving it to them at a very high interest rate because the creditors do not trust you all that much, cautions consumer-reporting agency, TransUnion.

READ: Why It's Important To Know Your Credit Score And Where To Get It

So, through the mid-budget speech, we are able to understand whether or not we are managing our finances as a country correctly and what the country's economic growth plan is.

"The mini-budget speech will give us a good idea of the economic context the main budget speech will be presented on, come next year," said Nzimande.

Does the speech directly affect my day-to-day finances?

Yes. "What's discussed has a direct influence on our personal finances," said Nzimande.

For example, if government indicates that they are cash-strapped and in big debt, they could decide to raise personal income tax to cover their expenses. This means you would have less in your pocket, which might impact your budget spent on groceries, transport and other household expenses.

"So, when you listen to the mini-budget speech, you can a good sense of whether or not you might need to make some financial adjustments in a few months."

The main issue to watch out for on Wednesday: budget shortfall

Economics professor Darma Mahadea told HuffPost SA that this is one of the biggest issues to look out for during Wednesday's budget speech, because "the gap of expenditure and revenue raising is rising". Mahadea said how government is going to rein in debt will be important to hear.

The country's debt stood at more than R2-trillion in February.

Kader concurred and added that the collection of revenue to fund government expenditure was expected to fall well below budget. And if this is indicated by Gigaba, South Africa may risk another rating downgrade, she cautioned.

"If this is the case, South Africans can expect tax increases next year," added Nzimande.

"This is why everyone should care, because, ultimately, it affects your pocket," he said.