Drop in diesel price & food price increases

While the substantial drop in the price of diesel announced on Thursday is welcome news for consumers‚ it won’t offset the increase in food prices caused by the drought‚ economists caution.

They say that while the 78 cents a litre decrease in the diesel price will bring some relief to battered consumers who depend on road transportation to convey most of the commodities they consume including food‚ the impending increase in the price of food is going to offset this drop.

The three cents a litre drop in the petrol price will also have hardly any effect at all‚ they add.

Neil Roets. CEO of debt management firm Debt Rescue‚ said the decrease could have been substantially more had it not been for the drama surrounding the dismissal of the previous finance minister and the impact it had on the South African currency.

“The problem is that the severe drought in especially maize producing areas is going to lead to substantial increases the price of all foodstuffs including staples like maize and wheat.

“The government is between a rock and a hard place because it is unable to balance its budget by cutting state spending while taxes are no longer covering the glaring shortcomings in the budget.

“Corporate tax is already among the highest in the world and it would severely impact the economy if (FIance Minister) Pravin Gordhan decides on an increase in this sector‚” Roets said.

Independent economist Dawie Roodt said tax on individuals had also pretty much reached its limit because there were simply not enough rich people in the country to fund an increase.

“What we are left with is VAT and while this would be the most equitable tax because it taxes everybody‚ the mainly black and poor electorate will simply not stand for this.”

Roodt said the same tactics that brought the government to its knees on the issue of university fees would be used to put a stop to an increase in VAT.

“We will see riots the likes of which have never been seen in this country if government increases VAT even by a modest amount‚” he warned.

Roets said there was a host of other increases coming down the pipeline that were going to massively impact on consumers who were already vastly over indebted.

“Eskom wants to hike electricity prices again and has made a submission just in time for the festive season that economist Mike Schussler says may lead to a 17% increase next year.”

Despite government’s promise to universities that it would not increase fees‚ this would not affect school fees which had been steadily rising from year to year.

“The unemployment rate of 25.5% is also indicative of the fact that it is belt-tightening time for consumers.

“Our massive unemployment rate which in reality is closer to 40% if people who have given up looking for jobs are taken into account‚ accentuates the reality that all South Africans are in for a very rough ride‚” Roets said.

He added that the fact that most consumers owed more than 75% of their monthly salary cheques to financial institutions showed just how dire the situation actually was.

“There is no way to put a positive spin on these figures. The country is broke‚ consumers are broke and even slight price adjustments in the fuel price is going to have little or no impact.”

Roets said his company was seeing double digit increases in its growth rate largely because of the growing number of deeply indebted consumers who were seeking relief by going under debt review.

“Debt counselling remains the best way for consumers to manage their debt load by negotiating with creditors and paying off their debt in smaller instalments over a longer period of time.

“None of their assets may be attached by debt collectors while they are under debt review‚” Roets said.

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