Tax hikes ‘will hurt cash-strapped consumers’
12 February 2015
Posted by: Author: Ntsakisi Maswanganyi
Author: Ntsakisi Maswanganyi (BDlive)
Any significant tax changes, such as an increase in personal income taxes, will make consumers more financially vulnerable, University of SA’s Bureau of Market Research (BMR) economist Jaco-lize Meiring says.
Her comments come as the Debt Counsellors Association of SA (DCASA) confirmed on Wednesday that, on average, the number of people applying for debt review was between 12,500 and 14,000 a month and said it was expecting these numbers to increase.
This is up substantially from 18 months ago when about 8,700 people were applying.
"Access to new debt is more difficult and more applications are declined," DCASA director Paul Slot said.
Tax increases, steep electricity tariff increases, load shedding, and overindebtedness would be a burden on consumer finances, said Ms Meiring.
Finance Minister Nhlanhla Nene is expected to hike fuel and Road Accident Fund levies during his budget speech on February 25. Uncertainty remains about which other taxes he will raise, although speculation is rife that tax increases will be targeted at the wealthy through the likes of capital gains taxes.
Consumers’ disposable incomes are at least finding relief from lower inflation, a sharp drop in fuel prices, and stable interest rates. These factors will support consumer spending this year.
On Wednesday, the BMR and credit solutions firm MBD’s fourth-quarter consumer financial vulnerability index showed that consumers felt slightly less vulnerable over the period.
MBD business development executive Stephan Venter said, however, they noticed an increase in the volumes of people defaulting on arrears, although he said this was unlikely to "continue forever because credit extension is slowing".
Mr Slot said that debt repayment behaviour among consumers was changing.
He attributed this to changes in the legislation that had enforced responsible actions, awareness created by the National Credit Regulator, the effect of employer financial wellbeing programmes, and the early intervention by credit providers with consumers in trouble, with an offer of practical assistance.
Consumers’ finances are under pressure from too much debt and people spending more than they earn, the index showed.
The benefits of lower fuel prices, which have helped boost disposable incomes and finances, were not being felt by all consumers. The index showed that public transport costs increased 7.4% in the fourth quarter.
The index also showed that consumers’ debt-servicing capabilities remained their biggest concern and the cause of financial vulnerability in the fourth quarter of last year. This was mainly due to the cumulative 75-basis-point increase in interest rates imposed last year.
Banks’ decisions to be stricter on credit extension also played a role in financial vulnerability.
Ms Meiring said the pressure on consumer finances was intensified by, among other things, prolonged labour strikes, some substantial price increases, and slow employment growth negatively influencing income levels.
The index declined slightly to 51.2 in the fourth quarter of last year, from 51.4 points in the previous quarter. A reading between 50 and 59.9 means consumers are feeling mildly exposed financially. "Mildly exposed means they are not feeling secure or very vulnerable in their finances," said Ms Meiring.
The index measures the cash-flow vulnerability status of consumers by measuring how vulnerable they are when it comes to income, expenditure, savings and debt servicing.
Information was collected from 102 institutions, including municipalities, credit providers, banks and cellphone companies.
This article first appeared on bdlive.co.za.