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Fine-tune your financial savvy ahead of #Budget2016

EWN breaks down the key terms that will help you make sense of Pravin Gordhan's Budget speech.

FILE: Pravin Gordhan. Picture: AFP.

JOHANNESBURG - Finance Minister Pravin Gordhan will on Wednesday deliver his first Budget speech since being reinstated to the position in December.

Make sure you master the terms below to ensure you understand what the details of his speech will mean for you and your wallet.

SIN TAXES

A tax on items such as alcohol and tobacco. They're called sin taxes by the public because they are bad for your wellbeing.

REVENUE SHORTFALL

A revenue shortfall is the gap between the forecast revenues and what was actually achieved.

GDP

Gross domestic product (GDP) is the broadest quantitative measure of a nation's total economic activity. More specifically, GDP represents the monetary value of all goods and services produced within a nation's geographic borders over a specified period of time.

WAGE BILL

The amount paid in wages by an employer to employees.

CURRENT ACCOUNT

The current account is an important indicator of an economy's health. It is defined as the sum of the balance of trade (goods and services exports less imports), net income from abroad and net current transfers.

BUDGET DEFICIT

This refers to a state of financial health in which expenditures exceed revenue. The term 'budget deficit' is most commonly used to refer to government spending rather than that by a business or an individual. When referring to accrued state government deficits, the term 'national debt' is used.

FOREIGN DIRECT INVESTMENT

A foreign direct investment (FDI) is an investment made by a company or entity based in one country, into a company or entity based in another country. FDI differs substantially from indirect investments such as portfolio flows, wherein overseas institutions invest in equities listed on a nation's stock exchange. Entities making direct investments typically have a significant degree of influence and control over the company into which the investment is made.

INTEREST RATES

This is the rate at which interest is paid by borrowers (debtors) for the use of money that they borrow from lenders (creditors). Specifically, the interest rate is a percentage of principal paid a certain number of times per period for all periods during the total term of the loan or credit.

CONSUMER INFLATION

The consumer price index (CPI) is a measure that examines the weighted average of prices of a basket of consumer goods and services, such as transportation, food and medical care. The CPI is calculated by taking price changes for each item in the predetermined basket of goods and averaging them; the goods are weighted according to their importance. Changes in CPI are used to assess price changes associated with the cost of living.

RATINGS AGENCIES

A credit rating agency is a company which assigns credit ratings to countries and companies. It is the country or debtor's ability to pay back debt by making timely interest payments and the likelihood of default. The big three credit rating agencies are Standard & Poor's (S&P), Moody's, and Fitch Group. S&P and Moody's are based in the US, while Fitch is dual-headquartered in New York City and London.

JUNK STATUS

A term used to refer to the credit worthiness of a government or corporation. It's a guide for investors who may be considering buying bonds in those entities. Credit rating agencies issue credit statuses. Government borrowing becomes more expensive. A low credit record and poor confidence means the country is in for a tough time and won't be able to raise finance to fund infrastructure and other essentials necessary for economic growth.

DOWNGRADE

A downgrade is a negative change in the rating of a security. This situation occurs when analysts feel that the future prospects for the country have weakened from the original recommendation, usually due to a material and fundamental change in its future outlook.

FUEL LEVY

This is a tax that government collects from each litre of petrol and diesel that is sold across the country. It forms part of the fiscus and can be used for general government expenditure. The levy is also the primary source of income for the Road Accident Fund (RAF) compensation scheme. The RAF compensates victims of road crashes, promotes road safety to reduce the number of accidents and helps people injured in vehicle collisions with their rehabilitation.

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