No shock increases on the horizon, at this stage

A YEAR of hard work for property and consumer-related sectors appears likely, given the mediocre outlook for the economy and household sector.

Perhaps the good news is there is little currently to suggest any more than very mild interest rate hiking, FNB household and property sector strategist John Loos said yesterday in the first “Property Barometer” publication for the year.

“Little seems to have changed early in 2016 with regards to a somewhat mediocre economic outlook for South Africa,” he said.

Global commodity prices remain depressed, boding ill for export growth and thus for economic growth, but on the other hand it was positive for the consumer price index (CPI) inflation rate given oil was one of the commodities under severe pressure.

“The likelihood of any major CPI inflation ‘shock’ at this stage appears re-mote in 2016,” said Loos. Drought-driven food price inflation and a rand under pressure may drive import prices higher and cause a gradual rise in inflation, he added.

Loos said the big deal on the macroeconomic policy stage this year was likely to be the Budget speech. For the consumer government moves to narrow its fiscal deficit and the rise in its debt may mean a further increase in the “effective personal tax rate’: A bigger question was if there will be a rise in the VAT (Value Added Tax) rate, said Loos.

“Whatever the detail, I expect the household sector tax burden relative to disposable income to rise in 2016,” said Loos. Above inflation municipal and utility tariffs were expected to continue in 2016, he added.

Neil Roets CEO of debt management firm Debt Rescue, said the 78 cents a litre decrease in the diesel price tomorrow would bring some relief to battered consumers, but increase in the price of food is would offset the benefit.

The three cents a litre drop in the petrol would have hardly any effect at all. “The government is between a rock and a hard place because it is unable to balance its budget by cut-ting state spending while taxes no longer cover the glaring shortcomings in the budget.

Corporate tax is already among the highest in the world and it would impact the economy if Pravin Gordhan decides on an increase in this sector.”

Independent economist Dawie Roodt said tax on individuals had also pretty much reached its limit because there are 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.”

“We will see riots the likes of which have never been seen in this country if government increases VAT even by a modest amount,” said Roodt. Roets said electricity price may rise by 17% this year.”

Loos said load shedding may be muted in 2016, a result of a big drop in demand for electricity in recent times as the economy stagnates.

Need immediate financial help?

Thank you!

We look forward to the opportunity to get you debt-free!