Oh dear, seems like the politicians are living in their own little world again if we look at what our Minister of Finance proposed in the Budget Speech and the games Donald Trump is playing with his tariff policies.
If we look at what was proposed in the 2025 Budget Speech, we see the following:
- Instead of reducing the size of a very costly and impotent government, the Minister of Finance has decided to squeeze the three million taxpayers paying 90% of income tax in South Africa a little bit more by not increasing the tax brackets or medical aid credits. On top of that, he has done nothing about the extremely wasteful and corrupt expenditure side of the budget but has preferred to increase VAT by 0.5% this year and another 0.5% next year. By doing that, he has effectively told all consumers, rich and poor, that they have to bail out the government for its inability to create an economy that can increase employment and stimulate growth.
- The proposed budget will most likely not be passed by parliament with the DA, MK and EFF all opposing an increase in VAT.
- As with everything, there is a breaking point as to how far you can bend the taxpayers before they find an alternative way of doing things and we shall have to see if that point has just been breached. At the end of the day, the government will just have to bite the bullet by slashing the expenditure side of the budget and making the country more business-friendly by lowering taxes; liberating the labour market; reducing regulations; and replacing government-run sectors of the market with the private sector.
On the investment side of things we have seen equity prices drop in recent weeks, due to the uncertainty created by the trade tariffs introduced by Donald Trump. The question you have to ask yourself, is whether this creates a buying opportunity, or should you sell your equities? To answer that question we have to consider the following:
Firstly, did you fill your cash buckets towards the end of last year as per the proposals made? If the answer is yes, then you are not affected by the fall in equity prices because you will only need to sell your equity holdings seven or so years from now, when prices will have recovered.
Secondly, do you think the US will go into a recession? If the answer is yes, then you can expect shares to go down further and buying now is not on the cards, but if you believe like many people out there that the current pain is a politically self-inflicted wound that can be reversed by a mere shift in policy, then you have to start buying this dip because there are many top notch companies trading at very fair valuations that will be worth a lot more five years from now.
Personally, I believe that there are many world-class companies trading 20% below their recent all-time highs, that will be worth a lot more in five years’ time and I want to start owning them. Owing to the uncertain potential outcomes over the shorter term, rushing into anything is not a good idea but it just seems unlikely that Donald Trump would like to go into the November 2026 mid-term elections with the US being in a recession; and the Fed can lower interest rates quite a lot which could help the economy avoid a recession. If I have to choose between the SA budget and the US tariff wars, I would choose the latter because I think it will be easier to fix.
