Consumers are angry that the government is treating them like a cash cow instead of fighting corruption and improving its fiscal discipline. File photo by Dwayne Senior/Bloomberg via Getty Images
South Africans have condemned Finance Minister Enoch Godongwana’s plan to hike value added tax (VAT) by one percentage point over the next two years from 15% to 16%, saying he is further burdening cash-strapped households, which already have little wriggle room to cut expenses in the face of rising food, electricity and transport costs.
Instead of “eating the money” and “slowly killing the country” through rampant corruption and spending excesses, the government should find creative ways to save money by cutting out luxuries and reducing the size of the bloated cabinet, one irate resident said.
Along with the VAT hike, Godongwana expanded the basket of zero-rated foods to include the offal of sheep, poultry, goats, swine and bovine animals, as well as specific cuts like heads, feet, bones and tongues, dairy liquid blends and canned vegetables.
The concession is little comfort for 52-year-old Christina Kennedy, from Randburg in Johannesburg, who said her family had already cut back on luxuries and would now have to explore how to further reduce monthly expenses.
She was also not impressed by the fact that the finance minister halved the VAT increase from the initial two percentage points
“It’s still 1%. It’s a steep hike, and I think the minister is just trying to cushion the blow, but I think there’s no denying it will have a knock-on effect on the cost of goods and services,” Kennedy said.
“It was good to see that there is some zero-rating of more basic items in the food basket. But I don’t think it really addresses the core problem of trying to stimulate growth in the economy and not suppress it by making goods and services more expensive.”
“We all have so much anxiety with our daily and monthly budgets as it is that this could really have quite a huge impact.
“So, from our perspective as an ordinary household, not really indulging in many luxuries and trying to spend within our means, I can’t see it not having an impact, and we will probably have to cut back on certain things.
“But it’s very hard to consume less electricity and less water when you’re already trying to conserve as it is — and the VAT on that will be coupled with tariff increases.”
Kennedy said that, as her family shopped around for cheaper medical aid and internet service providers, she wished the government would rein in its own spending, including cutting what she called a bloated cabinet.
“I fail to see why we should have to keep constantly forking out and shouldering all these extra charges when there are a lot of inefficiencies that are perhaps not being addressed.”
Durban North pensioner Sharon Bax, 66, said there was nowhere else older citizens could cut back on costs and predicted that some middle-income families would reduce spending on domestic workers, taking away jobs from the lower working class.
“We, as pensioners, have cut back as far as we can on spending. It will affect the very poor and their families again as people will cut back further on domestic help than they already have,” Bax said.
“The ANC must cut their luxury expenditure by 90% for this country to recover.
“Preferably zero luxuries — pay for them out of their salaries.
“The poor would rather have jobs than handouts,” she added, alluding to social grants.
Joyson Morris, a small business owner in Newlands East, north-east of Durban, said consumers were paying the price for corruption in the government.
“They keep on eating the money and now what’s happening is they’re putting up VAT to try and bring back the money, which can never work. They’re just killing us. They’re killing the country slowly,” Morris said.
The 44-year-old added that he had stopped drinking alcohol and smoking cigarettes a few years ago to try to balance his family budget and was not sure what else they could cut from their monthly expenses.
“I wouldn’t say the car, because you need a car to get from point A to B, but the price of petrol is also shooting up sky high.”
(Graphic: John McCann/M&G)
Mervyn Abrahams, the programme coordinator for the Pietermaritzburg Economic Justice and Dignity Group, which analyses poor households’ budgets and tracks retail food prices monthly, described VAT as a regressive tax.
This is one where low-income earners pay a larger percentage of their income than the middle and high-income ones, according to Investopedia.
By contrast, a progressive tax takes a larger percentage from high-income earners.
“Those with the least amount of money proportionately spend the greater amount of their income on VAT … There are other means that will not be as detrimental to the economy and to poor households,” Abrahams said.
“It is inflationary because it goes right through the value chain and affects all goods and services sold in the country, and this will be bad for the economy, as we are trying to get economic growth.”
He said, based on the economic justice group’s latest price data, a 15.5% rate would bring the total VAT on a basic basket of household groceries to R334.81 and raise the cost of the basket to R5 324.02 from R5 313.22.
It would bring the VAT on a basket of basic household toiletries and domestic products to R139.53 and raise the total cost to R1 039.74 from R1 035.24.
A 15.5% VAT rate on top of Eskom’s 12.7% increase, which is due to come into effect in July, would raise the cost of a household’s basic 350kWh consumption of electricity to R1 180.53 from R1 175.42.
In addition, Abrahams said that it was unlikely that the treasury would get the amount of revenue it was hoping to collect through pushing up VAT because it would cause consumer spending preferences to change due to higher prices.
“We would like them to look at other means to get that revenue.
“And one of those means would be for the state to draw down from the gold reserve fund, as it has done in the past,” he said.
“The state can also cut back on things like the employment incentives, like rebates that they give employers.
“We have not seen any value since that has been implemented. The unemployment rate has just increased so it has not had the desired effect,” Abrahams said.