Ricardo Teixeira, CFP , BDO 20 February 2019. South Africa is faced with a stubborn and dangerously low economic growth rate. Our GDP is currently below 1% and after todays National Budget speech its clear that our GDP is not forecast to exceed 2% for at least the next 3 years. Were in a low growth economic and no matter what levers are pulled, there just seems to be no way out of this pit.
Our Minister of Finances approach in this years National Budget was clearly to take a step back and not disrupt the status quo with any fundamental changes to tax policy nor administration. So, what should he be doing to bring back growth to the South African economy?
Ask any economist, and they are likely to ramble off a shopping list of wishes ranging from minimum wage to tax incentives, and everything in between. The truth be told, Im certain that all these ideas could all work, but often with dependencies and provisos.
There is one economic and behavioural variable though that often gets overlooked as a stimulus for growth. Saving. Yes, boring old, savings. Putting away money that you have now for the future. Not spending. Saving.
The magic of savings is that we dont just leave our savings idle, we apply them to get a return. Whether its your personal savings or governments savings. Our savings generate interest on bank deposits, dividend on shares, we get to invest in a business, buy a house or second property, make a capital gain on the sale of that business, fund a start up, get access to more loan finance. All from the simple habit of savings.
Guess what these savings activities lead to? Growth. More wealth. New business opportunities. Employment. And more.
So, what could Tito do differently next time? Seed a culture of savings. Get South Africans to harness the power of savings to bring back growth to our economy. He could very well start with compulsory preservation of retirement savings. A primary source of tax efficient and tax frees savings are our retirement funds. By introducing punitive penalties for withdrawing from retirement funds or better yet, making it compulsory to leave retirement savings untouched when changing jobs until retirement is a powerful catalyst for a savings culture.
Why, Tito could even amend lending criteria to include a factor for ones savings rate and personal savings history. The better you are at saving, the easier it is to get a loan.
And if he was able to be more generous in dishing out benefits, a discount on your personal income tax rate would be a real bonus to tax payers who do save and display the habit of saving.
The point is not to overlook the simple rules of money as we have read about and learnt from The Richest Man in Babylon. Fatten your purse, control your expenditure, make your money multiple and you are on the road to the road of plenty.