Johannesburg – The threat by the government to raise taxes because of what deputy Finance Minister Nhlanhla Nene called “revenue coming in below expectations” coupled with the expected 61c a litre increase in the petrol price on August 7 is going to have a devastating impact on consumers.
Nene said: “Things are not going how we anticipated.
“There is a negative impact on revenue collection,” he told a SA Savings Institute function.
Neil Roets, CEO of Debt Rescue, said for the majority of South Africans who were barely managing to make ends meet this double blow was going to be the straw that breaks the camel’s back.
“While the increase in the price of fuel is going to hit everybody, the tax increase is going to hit the emerging middle class especially hard.
“Many of them have clawed their way out of poverty by working hard and counting their pennies.
“To now be faced by the threat of higher taxes as well as an all-time high fuel price is going to push large numbers of them back into poverty.”
Roets said the substantial increase in the cost of goods and services would be the consequence of the government’s continuing policy of squeezing the middle class ever harder because of its inability to curb its own out-of-control spending. He said it would add considerably to the total consumer debt now topping R1.44trn (according to Statistics South Africa).
Finance Minister Pravin Gordhan hinted at tax hikes when he presented the budget in February and Nene said such a step could not be ruled out in these “tough” times.
Roets said: “Instead of curbing its own spending and curbing spiralling corruption and waste in the public sector the state is squeezing the consumer ever harder to make up the shortfall in the budget.
“We’re already seeing a dramatic growth in the number of people who are seeking protection from their creditors by going under debt review.
“There has also been a significant growth in the number of consumers who are having their salaries docked by garnishee orders and who are being blacklisted because of judgments against them.
“We’re experiencing double digit growth in our own client list and we know from colleagues in the debt counselling industry that they too are seeing rapid growth in the number of distressed consumers seeking help,” Roets said.
He went on to say that the number of consumers seeking help from his company had more than doubled over the past six months.
“There are so many people on the knife-edge that the fuel price increase is going to have devastating consequences.
“We can only guess what the tax increase is going to be but it will unquestionably hit middle class consumers hard,” he said.
Roets said the situation had become dire and was confirmed as such in a statement from the National Credit Regulator.
“It’s a well-known fact that almost half of all credit-active consumers in South Africa have impaired credit records…in other words, about nine million consumers are in arrears (by three or more months) on at least one account, or have a debt judgment or administration order to their names,” Roets said.
Cape Town – From midnight, consumers will pay more for fuel and should brace themselves for further increases including meat prices by the end of the year, say experts.
The price of petrol will increase by 44 cents a litre and diesel by 22 cents.
File photo. Credit: Independent Media
Gwarega Mangozhe, chief executive at the Consumer Goods Council of SA, said the higher price of fuel, which is directly linked to the weakening of the rand against the dollar, will inevitably impact on disposable household incomes which are already under pressure from other cost increases.
“Consumer spending is subdued and some of our members have noticed a change in shopping habits as consumers search for bargains, while some are prioritising their overall spend on groceries in light of tighter disposable incomes.
“While we remain confident that many of our members will experience a fairly busy festive trading season, the overall outlook remains uncertain given the predicted low economic growth during 2016.”
Momentum economist Sanisha Packirisamy, said the 43c/l under-recovery in the price of petrol last month was largely a function of a 1.7 percent depreciation in the rand against the dollar between August and September and a 0.4 percent uptick in average monthly international oil prices over the same period.
Packirisamy said the Organisation of the Petroleum Exporting Countries (Opec) caused a 7 percent rise in international oil prices late in the month owing to a largely unexpected agreement by Opec to cut production levels.
“If oil prices persist at these levels there could be a further increase in petrol prices next month, should the rand stay at similar levels as well.”
She added the rand was also under pressure from heightened fears around a sovereign rating downgrade by Standard and Poor’s rating agency in December on the back of weak growth fundamentals and persistent policy incoherence.
“In our view, the expected rise in petrol prices still leaves the year-on-year inflation rate in private transport costs in the Stats SA consumer basket at reasonably low levels.”
Standard Bank economist Kim Silberman said the outlook for the remainder of the year was for the petrol price to continue to rise, which will add pressure to consumers’ disposable income.
Silberman said consumers spent on average 5.7 percent of their income directly on petrol, which added pressure to consumers’ disposable income.
“However, the effects of the fuel price are far broader than that and will most likely feed through to the price of public transport and the general cost of producing goods and services.
“We expect meat price inflation to accelerate in December.”
Neil Roets, chief executive of the debt management firm, Debt Rescue said he expected further increases in the price of fuel towards the end of the year.
“The ongoing political bickering within the ANC and an extremely sluggish economy are likely to impact on the rand and it looks as if the price of crude oil may also be on the rise.”
Roets said one of the major effects of the fuel price increase on the economy would be the continued rise in the price of food.
“The announcement by the Red Meat Producers Association that the red meat price could increase by as much as R8 per/kg in the short term and that it could take between three to five years to restore herds following the severe drought is bad news for consumers who are dependent on meat for their daily survival.”
Roets said the real elephant in the room was the expected downgrade by the rating agencies later in the year.
“Despite all the efforts by the government to persuade the agencies that the economy was on the mend, they are not buying into the narrative and the reasons are clear: widespread corruption and parastatals like Eskom and SAA that are burning through taxpayers’ money at an alarming rate.”
Damon Sivitilli, head of marketing at city debt management firm, DebtBusters, said the price of fuel increasing put more pressure on the already strained budgets of many consumers.
He said not only would the fuel hike and the resulting increased cost of commodities choke consumers, but it would also have a huge impact on small businesses across the country.
Sivitilli advised consumers to start reviewing their budgets by looking at their needs and adjusting their spending on luxuries in order to survive the economic and political turmoil.
“The repo rate went unchanged last month due to stable inflation rates, but the upcoming increase in petrol costs may put pressure on this once again and continue the trend of rising inflation and costs into the new year.”