If government was a household …

If the South African government was a household, it would be placed into debt counselling. This is how much trouble South Africa’s finances are in.

Read: R53bn-sized tax hole in 2019

Finance Minister Tito Mboweni’s mini budget – officially the Medium-Term Budget Policy Statement – contains so many references to trillions, billions and millions that it is not easy to comprehend the actual situation.

Moneyweb recalculated the budgeted numbers and forecasts disclosed by Mboweni, using percentages to represent the country’s financial position as that of a household. 

The result for the 2019/2020 financial year is presented below as a monthly budget, which is a lot easier to digest.

Monthly household budget 2019/2020
Total income	R100 000
Total expenses	R126 320
Interest payments	R16 320
Other expenses	R110 000
Monthly shortfall	-R26 320
Total debt	R2 826 005

Source: MTBPS data, Moneyweb calculations 

The household budget reflects a total monthly income of R100 000 and total expenses of R126 320. This results in a monthly shortfall of R26 320, or 26% more than the income.

Furthermore, this monthly shortfall needs to financed with debt. This will, of course, inflate future interest payments, which already stand at R16 320, or 16.3% of income.

Other expenses stand at R110 000, which on its own exceeds the monthly income and means the family spends much more than it can afford.

Debt counselling 

Moneyweb sent this simplified budget to two debt counselling firms for analysis. Both recommended that if this household came knocking on their door for help, they would advise immediate debt counselling. 

Carla Oberholzer of DebtSafe says it is clear that the household has a significant monthly deficit.

“I would recommend that the household be put under debt counselling.”

“From experience, this family is over-indebted, and if there is not an immediate intervention, the situation will deteriorate to such an extent that it is not possible to recover.”

Neil Roets of Debt Rescue concurs. “The household’s expenses exceed the income, and in 99% of cases, such a household would not recover if it is not put into debt counselling. This current scenario is not sustainable and significant changes will have to be made.”

Roets adds that a debt counselling process would include negotiations with credit providers, and that they must be part of a recovery plan.

Reduce expenditure

It is clear that this household needs urgent intervention. 

The first thing that needs to happen is a crisis meeting of all family members to apprise them of the situation. The household may discuss ways to increase its income, but as both spouses are already working this may be difficult to achieve. The most pressing step is to significantly reduce expenditure.

All family members must commit to and proceed with cutting their spending, or the sheriff may be at the household’s door sooner than they might think.

In the government’s context, Mboweni could not have been clearer on Wednesday – SA Inc is in deep financial trouble. It is safe to assume that all stakeholders are now aware of this.

The key is now for Mboweni and the president to engage all stakeholders and get their commitment to reducing spending, as an increase in tax income is not going to happen in the short term.

If expenditure is not cut significantly, the International Monetary Fund may be at the door sooner than they might think.

Read: The Medium-Term Budget Policy Statement 2019