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 61 cents a litre increase in the petrol price on August 7 is going to have a devastating impact on consumers.
Nene issued the warning on Thursday. “Things are not going how we anticipated. There is a negative impact on revenue collection,” he told a South African Savings Institute function.
Neil Roets, CEO of one of South Africa’s largest debt counselling firms, Debt Rescue, said for the majority of South Africans who are barely managing to make ends meet this double blow is 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 that will 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 is going to add considerably to the total consumer debt now topping R1, 44-trillion (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.
“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 are 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 judgements against them.
“We are 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 said 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, who is also a lawyer and an accredited solicitor in the United Kingdom, said the situation has 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.