Consumers burdened by debt will be hardest hit by increases in fuel and tax levies announced by Finance Minister Pravin Gordhan in his Budget yesterday.
Although analysts said that Gordhan was left with little choice but to craft a tight budget, consumers complained his measures would leave them short. Many Capetonians have said they are contemplating a lifestyle change after Gordhan revealed that taxes on sugar, wine, beer, spirits and cigarettes would continue to rise above inflation.
Higher fuel levies – rising 30c/litre to R2.85/l for petrol and R2.70/l for diesel from April 6 – will hurt motorists. The introduction of a new tyre levy, and increases for vehicle emission taxes will further impact road users.
The measures will also hit the economy as a whole since most domestic goods are transported by road, said Neil Roets, chief executive of Debt Rescue.
He said consumers with heavy debt would feel the increase in the fuel price the worst. Almost half of all credit-active consumers are in arrears by three months or more on at least one of their accounts, according to National Credit regulators.
Many South African are already effectively living as if in a recession, said André Roux, economics professor at the University of Stellenbosch Business School.
Although consumers may have hoped for a miracle from the Budget, the reality was that production growth did not match population growth, he said.
“This means that real GDP per capita growth is declining, while very little net job creation can be realistically expected this year. If we add to this rapidly rising food inflation and rising interest rates, the reality is that many South Africans are feeling recessionary-like conditions.”
After hearing that the excise duties on cigarettes would rise from R12.42 for a pack of 20 to R13.24, Khanyisa Weeder, a local bar manager, occasional smoker and drinker, said she would have to quit smoking.
Duties on sparkling wine increased from R9.75 to R10.53 a litre, while producers of fortified wine will pay R5.82 a litre, up from R5.46, and those producing unfortified wine would pay R3.31 a litre from last year’s R3.07. Malt beer taxes are also up from R73.05 a litre to R79.26.
Those indulging in spirits are set to pay the most as duties on a litre of hard liquor will rise from R149.23 a litre to R161.47.
Khira Durand, a university student and wine drinker, said the increase was “hefty”.
She said: “I don’t know why it had to be put up so much. I will just have to slow down.”
Cape Town DJ Kyle Storm-Dibley said he worried about his income as the increase in sin taxes would put people off going out.
Local bar manager Josh Khandha said despite the increases in beverages he was still expecting a crowd at his bar: “It won’t slow the business down; this is not the first increase and yet you still find people getting drunk.”
Khandha said his bar would be forced to increase its alcohol prices, although the increase would not be immediate.
Lew Geffen, chairman of Lew Geffen Sotheby’s International Realty, said Gordhan delivered this year’s budget from “a very tight spot wedged between a rock and a hard place”, and had done a decent job.
“The minister is working hard to shore up
the country and prevent a ratings downgrade. He was unambiguous about his intention to clamp down on government inefficiencies, wastefulness and corruption and that message should be well received by the international community.
“Tax relief across all but the top income brackets will also be well received by the majority of South Africans, but we were expecting a budget that targeted the wealthy and that’s exactly what we got.”
Adrian Goslett, regional director and chief executive of Re/maX estate agents said: “There are still too many households which are currently struggling with high debtlevels.
“Households are encouraged to reduce their debt levels and start saving to make provisions for the future.”
Lizette Erasmus, head of insurance expertise at IntegriSure, said the Budget speech outlined pressures faced by already cash-strapped South Africans.
“In addition to rising levies and taxes, South Africa is currently experiencing a low-growth economy, seeing the SA Reserve Bank warned consumers to expect further interest rate hikes in the future.”
Erasmus said rising inflation rates and the current drought have also been factors that caused an increase in food prices, which will result in many consumers looking for ways to reduce costs further.
Ester Ochse, channel head at FNB Financial Advisory said despite announcing personal income tax relief of R5.5 billion for lower and middle-income earners, the speech was a stark reminder that consumers needed to get used to doing more with less.
“These are stressful financial times which require every individual to scrutinise their budgets a lot closer,” said Ochse.
Robyn Chalmers, spokeswoman for South African Breweries (SAB) said it was “disappointed to note that the excise increase on beer is higher than that of liquor, wine and spirits”.
Gordhan admitted that “issues” remained between the Treasury and the South African Revenue Service as Sars commissioner Tom Moyane failed to take his seat on the podium at the pre-budget press briefing.
He said he hoped he could announce a resolution of tensions in “a couple of weeks”.
Gordhan last year denied claims by Moyane that a rogue intelligence unit was set up at Sars on his watch.[Source: IOL]