As South Africa continues to contend with complex economic challenges, households feel the financial pressures highlighted by the Medium-Term Budget Policy Statement (MTBPS). While many are hoping to benefit from year-end bonuses and a 13th cheque, financial advisers are urging South African families to remain cautious. Bertie Nel, Head of Financial Planning and Advice at Momentum, advises that understanding this year’s MTBPS is crucial to manage household finances effectively.

“The MTBPS is a significant economic announcement that outlines the government’s fiscal strategy and sets the scene for the annual budget in February” says Nel. “It provides essential insights into inflation targets, tax policies, social grant updates, and economic growth projections, all of which impact household finances in real terms.”

Here’s what Nel says households should take note of:

Rising cost of living

The MTBPS revealed a challenging fiscal outlook with the government’s budget deficit revised higher, also due to lower-than-expected tax revenues. While no immediate VAT or income tax changes were announced, Nel says households should be mindful of possible future tax increases as the government seeks to stabilise its finances.

“This could mean less disposable income in the medium term, so prudent spending and budgeting are key,” he advises.

Retirement fund access and tax implications

The two-pot retirement system, designed to allow partial withdrawals from retirement funds, has seen high uptake, exceeding government projections. This will generate additional tax revenue, but Nel warns that accessing retirement funds early could jeopardise long-term savings goals.

“Don’t take the risk if you don’t have to,” advises Nel. “And if you do, find a financial adviser that can help you and your family balance your immediate needs with future security.”

Lower interest rates and debt repayments

We will be seeing in reduction in interest rate that will benefit and increase families’ disposable household income. It may be an option to retain debt repayment amounts to pay off debt earlier. However, that is only an option if households can afford it.

Tax compliance and updates

SARS’ commitment to boost tax compliance is expected to improve revenue collection, with higher personal income tax buoyancy predicted.

“Families should ensure accurate tax filings to avoid penalties, especially with SARS’ increased efficiency. A financial adviser can help navigate tax benefits and obligations, ensuring your household makes the most of potential deductions,” says Nel.

Understanding inflation and budget adjustments

Although Treasury forecasts a stable inflation rate of 4.5% over the medium term, Nel says households must still plan for cost-of-living fluctuations. This starts with adjusting budgets and setting up emergency funds to cushion against unexpected expenses. “It’s a complicated landscape, but advice is available and can help you pivot with the times. Find a financial adviser who can help you plan for inflation and adjust your spending,” explains Nel.

Why financial advice is essential

Nel says financial advisers are vital in times of economic uncertainty, offering tailored guidance to interpret the implications of the MTBPS on household finances. “Events like the MTBPS shape our economic landscape, and advisers help households align their financial goals with these shifts,” says Nel. “They support families in managing debt, optimising disposable income, and developing sustainable investment strategies.”

With the MTBPS highlighting economic pressures and an unpredictable outlook, Nel says financial advisers have become more important than ever. “As we approach the year’s end, families have an opportunity to build stronger financial foundations. By understanding economic realities and how to respond to them, we can all make better financial decisions. That’s where advisers come in,” Nel concludes.