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What Are The Aims Of Budget Speech In South Africa


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What Is a Budget?
A budget is an estimation of revenue and expenses over a specified future period of time and is usually compiled and re-evaluated on a periodic basis. Budgets can be made for a person, a family, a group of people, a business, a government, a country, a multinational organization or just about anything else that makes and spends money. At companies and organizations, a budget is an internal tool used by management and is often not required for reporting by external parties.

In South Africa, the National Budget Speech has a direct impact on the bottom line of SMEs and influences long-term business decisions,” said Yudhvir Seetharam, head of analytics for FNB Business.

Understanding Budgeting Terms and Tips
A budget is a microeconomic concept that shows the trade-off made when one good is exchanged for another. In terms of the bottom line – or the end result of this trade-off – a surplus budget means profits are anticipated, a balanced budget means revenues are expected to equal expenses, and a deficit budget means expenses will exceed revenues.

  • A budget is an estimation of revenue and expenses over a specified future period of time and is utilized by governments, businesses, and individuals.
  • A budget is basically a financial plan for a defined period, normally a year. It greatly enhances the success of any undertaking. As the saying goes, "if you fail to plan then plan to fail."
  • Corporate budgets are essential for operating at peak efficiency. Aside from earmarking resources, a budget can also aid in setting goals, measuring outcomes and planning for contingencies.
  • Personal budgets are extremely useful in managing an individual's or family's finances over both the short and long term horizon.
Corporate Budgets
Budgets are an integral part of running any business efficiently and effectively.

Budget Development Process

The process begins by establishing assumptions for the upcoming budget period. These assumptions are related to projected sales trends, cost trends and the overall economic outlook of the market, industry or sector. Specific factors affecting potential expenses are addressed and monitored. The budget is published in a packet that outlines the standards and procedures used to develop it, including the assumptions about the markets, key relationships with vendors that provide discounts, and explanations of how certain calculations were made.

The sales budget is often the first to be developed, as subsequent expense budgets cannot be established without knowing future cash flows. Budgets are developed for all the different subsidiaries, divisions and departments within an organization. For a manufacturer, a separate budget is often developed for direct materials, labor and overhead.

All budgets get rolled up into the master budget, which also includes budgeted financial statements, forecasts of cash inflows and outflows, and an overall financing plan. At a corporation, the top management reviews the budget and submits it for approval to the board of directors.

Static Vs. Flexible Budgets

There are two major types of budgets: static budgets and flexible budgets. A static budget remains unchanged over the life of the budget. Regardless of changes that occur during the budgeting period, all accounts and figures originally calculated remain the same.

A flexible budget has a relational value to certain variables. The dollar amounts listed on a flexible budget change based on sales levels, production levels or other external economic factors.

Both types of budgets are useful for management. A static budget evaluates the effectiveness of the original budgeting process, while a flexible budget provides deeper insight into business operations.

Personal Budgets
Individuals and families can have budgets, too. Creating and using a budget is not just for those who need to closely monitor their cash flows from month to month because "money is tight." Almost everyone, even people with large paychecks and plenty of money in the bank, can benefit from budgeting.

FNB’s top 10 areas to address in the Budget Speech:

  • Tax – this should be watched closely as high unemployment, decreasing disposable income of consumers and the slowdown in economic growth are currently leading to lower tax revenues for the government. Meanwhile, tax relief for small businesses would have a major impact on their profit margins.
  • High youth unemployment – the current youth subsidy may be cancelled due to complaints that it is not effective enough. However, scrapping this subsidy, while saving on costs, might also decrease business and consumer confidence as we are effectively doing less to assist in youth unemployment.
  • Red tape – in a weak economic environment the government should aim to reduce red tape since it increases costs for SMEs and hinders their growth and ability to create jobs.
  • National Development Plan (NDP) – updates provided on the implementation of the programme directly affect SMEs since the government is relying on this sector to meet one of its NDP goals to create 11 million jobs by 2030.
  • Infrastructure investment – spending on infrastructure, roads, power plants and water supply initiatives, amongst other projects, creates vast opportunities for SMEs.
  • Weak Rand – despite the weak Rand, South African businesses are still failing to take advantage of the export market due to low global demand and a number of economic factors. As a result, the government may consider introducing incentives to boost export growth. In contrast, because we are a net importer, the weak Rand will have a negative impact on the cost of imports due to factors such as the drought.
  • Procurement – the decision by government to simplify the tender and procurement processes has given SMEs that do business with the government piece of mind as it saves them time and money. Further developments in this area will be important for SMEs that want to secure government contracts.
  • Electricity tariffs – increases coming into effect this year will have a negative impact on the struggling manufacturing sector. Efforts to support energy-intensive sectors will also assist SMEs that are involved in the sub-sectors of these industries.
  • Economic growth – fears of an economic recession have risen following the South African Reserve Bank’s (SARB) decision to cut its growth forecast to 0.9% from 1.5% for this year. Measures that the government puts in place to promote economic growth this year will be of interest to SMEs.
  • Small Business Development – efforts to boost growth and employment through Enterprise Development and the Small Business Ministry will go a long way to address some of the challenges faced by many SMEs.
“In light of the highly uncertain business environment, it has never been more important for SMEs to pay special attention to the National Budget Speech, as key decisions made by the Minister will impact on their growth and survival,” concludes Seetharam.