Consumers may soon be pushed to the breaking point in the midst of another possible interest rate increase, ever-rising fuel prices and sharp price increases in the transport sector, for power and of course food.
Dion George, the DA’s spokesperson on finance, says several reports indicate that Finance Minister Enoch Godongwana is considering increasing the VAT rate in an attempt to try and supplement expected revenue gaps resulting from lower than projected economic growth .
“The speculation comes after high-level discussions between the finance minister, president of the Reserve Bank and Pres. Cyril Ramaphosa took place last month.”
George says the national treasury is meanwhile scrambling to find enough money to finance the government’s unrealistic spending plans.
“The DA wants to make it clear that we will reject any further pressure on already struggling South Africans and will oppose any VAT increase.
“August’s fiscal reports released by the treasury indicate that most government departments are depleting their budgets at an unbridled pace.
“The money will run out before the end of the year in March 2024 and the long-awaited surplus, which would be a beacon of fiscal responsibility, is simply a pipe dream,” says George.
The treasury apparently informed Ramaphosa that an increase in VAT from 1% to 2% is necessary for the government to generate more income.
“South Africans already bear a tremendous tax burden and will not tolerate any increase in taxes – including VAT.”
Quality of life eroded
George believes the main cause of the government’s financial crisis is the lack of economic growth and future prospects.
“With insufficient growth, the government’s ability to maintain the nation’s social safety net is being compromised and it must now turn to measures that will require struggling South Africans to dig even deeper into their pockets and even taking more food off their tables.
“Food prices continue to rise at an alarming rate. The government doesn’t seem to care that the poorest 40% of South Africans bear the brunt of these rising costs,” says George.
“The danger of food price inflation requires immediate and decisive government action.
“Instead of increasing VAT, a DA government will ease the burden on lower income households by making essentials such as bone-in chicken, beef, tinned beans, wheat flour, margarine, peanut butter, baby food, tea, coffee and soup powder all VAT-free .”
Thys van Zyl, CEO of Everest Wealth, also warns that consumers will have to steel themselves in the midst of “more sharp price increases that erode their quality of life”.
“Consumers will have to be proactive with their finances as they are pushed ever closer to the edge of the abyss.
“The interest rate has already been increased by 4.75 percentage points since November 2021 and another possible increase exactly two years later lies ahead again,” says Van Zyl.
“Another interest rate increase will cause consumers to struggle even more to keep their heads above water and may no longer be able to afford the installments on their house, car, credit card or personal loans.
“The higher interest rate also means that consumers will have to dig even deeper with credit card and store debts that are becoming more and more expensive.”
Van Zyl says the average salary in the country is not increasing at the same rate and that South Africans are getting poorer and poorer.
“The high cost of living due to perpetual price increases forces consumers to take on more debt and this is a vicious cycle. Payday loans are skyrocketing and consumers are withdrawing investments to keep up with rising living costs.
“Consumers already have enough worries, yet there are rumors that VAT may possibly be increased to continue funding grants while there is also talk of tax increases to finance the state’s projects, such as the National Health Insurance (NHI).
“It is now more important than ever that consumers budget properly to make sure they can keep up with the price increases. Every extra cent must be used to pay off debt and try to save to have an emergency fund ready,” says Van Zyl.
Solidarity has also warned that the proposal to increase VAT by up to two percentage points will be “insane” and that it will put already vulnerable households under even greater pressure. Research also shows that an increase in VAT will not lead to the expected increase in government revenue.