The effects of unemployment, currently at a high of 32%, have filtered into many levels of the economy, such as residential letting and the picture it paints is rather bleak, despite the budget’s good news on a personal tax level.
Many South Africans saw their income battered during 2020. According to the TPN Tenant Survey, 50% of tenants lost part of their income temporarily, 12% lost their full income temporarily and nearly 10% of tenants lost their income permanently.
From a property ownership perspective, it is perhaps no surprise that many tenants say they simply cannot afford to enter property ownership.
In fact, given the record high levels of unemployment we predict a shrinking pool of tenants. It is highly likely that many people will be moving in with friends or family this year in a bid to save money. This will result in reduced demand for rental property, which in turn, will lead to higher vacancies.
The only solution to this challenge is to grow the job market, which in turn, relies on an economic recovery. The question, however, is whether government is doing enough to enable any degree of meaningful recovery?
The seismic events of 2020 sent the local economy into freefall with a 7.2% economic contraction. Not surprisingly, this was accompanied by significant job losses. According to Stats SA, 2.2 million people lost their jobs in the second quarter of 2020 amidst the country’s hard lockdown.
Despite some recovery in terms of unemployment as lockdown restrictions were eased, the reality is that the economy shed 1.3 million jobs by the end of 2020, compared with the start of the year. The unemployment rate is currently 32.5%, the highest on record.
Finance minister Tito Mboweni revealed in the recent budget speech that the country’s total tax revenue would be higher than predicted, but would still be R213bn less than projections of a year ago. Debt will increase from R3.95tr to R5.2tr in 2023/2024. This unsustainable debt trajectory is because government continues to spend more than it collects from a shrinking pool of taxpayers.
Mboweni’s budget is characterised by significant expenditure cuts as government tries to rein in spending after the country experienced its largest tax shortfall on record. Provinces and municipalities were amongst the biggest losers – provinces have had R58.3bn cut from their budget in 2021, while municipalities have had R20.2bn cut from their budgets over the next three years. In a bid to curb expenditure it is hoped that government will be doing everything possible to stand firm on its stance of a freeze on public sector wage increases.
Government expects to stabilise debt at 89.9% of GDP in 2025/2026. Budget revenue for 2021/2022 is projected to be R1.35tr but achieving this figure relies on economic growth of 3%. However, despite assurances from the finance minister that government is making meaningful progress in implementing structural economic reforms, including lowering the barriers to entry, raising productivity, and lowering the cost of doing business – in reality little progress has been made in this regard.
The cost of doing business in SA remains high. Regulatory red tape, high levels of bureaucracy, policy uncertainty and inefficiency have done little to inspire confidence or encourage investment.
Without these structural reforms the economy will continue to be under pressure. There is no question that consumers are currently under financial pressure. While the 5% increase in the personal income tax bracket announced during the budget was good news for lower- and middle-income households, any savings are likely to be absorbed by the above inflation 15% Eskom tariff hike.
Combined with a contracting economy there is no question that most consumers are feeling the pinch financially. Business confidence is woefully low. As a result, there remains a big question mark on whether government is able to turn the tide on the country’s prospects.
Michelle Dickens is the CEO of the TPN Credit Bureau.