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The Citizen
4 days ago
- Business
- The Citizen
Repo rate cut offers no shelter from Budget 3.0 fallout for consumers
Thursday's repo rate cut is unlikely to bring much relief to cash-strapped consumers, as any savings will be offset by the rising fuel levy eating into their income. Although the Reserve Bank's decision to cut the repo rate by 25 basis points on Thursday is good news for economists, it will not shield South Africans from the burden of the fuel and sin tax levies introduced by Budget 3.0. Neil Roets, CEO of Debt Rescue, warns that increased taxing of the workforce is not the answer and will put further financial strain on households, driving them to new depths of despair at a time when they are buckling under the weight of multiple unsustainable inflation-related living costs. 'The reality is that the finance minister's decision to impose new tax measures will hurt lower-income families most, as they will bear a proportionally higher burden, forcing them to make impossible lifestyle choices with the little disposable income they have left.' Before the South African Reserve Bank (Sarb) governor, Lesetja Kganyago, announced the repo rate cut this afternoon, economists polled by Reuters accurately predicted that the Bank would restart its repo rate cutting cycle this month, trimming the repo rate by 25 basis points to bring down the interest rate to 7.25% as the latest inflation data strengthens the case for monetary easing. ALSO READ: Reserve Bank cuts repo rate thanks to lower inflation, stronger rand Repo rate cut too small to matter for consumers 'While any cut in the repo rate benefits consumers, the change is simply not big enough to make any real difference in their lives, or to encourage growth in the economy. The impact on consumers will be minimal, as the 25 basis points cut will mean a tiny saving of R254 per month on a R1.5 million home loan and around R65 on a R500 000 car loan. 'Ultimately, a growing economy is the only solution that will slowly lift the weight of unsustainably high living costs from the shoulders of South Africans,' Roets says. Inflation currently remains outside the Sarb's target range of 3% to 6%, with the most recent data showing that consumer inflation was 2.8% in April, just slightly above March's 2.7%. However, Roets points out, inflation on food and non-alcoholic beverages was 4.0%, the highest it has been since September 2024. 'Overall, inflation is still considered low, which would have been a strong incentive to cut the current repo rate. The exchange rate of the rand also remains a key factor in economic stability and would have influenced the MPC's decision.' ALSO READ: Reserve Bank could cut repo rate on Thursday, but will it decide to? Move to lower inflation target will affect repo rate Kganyago is a longstanding advocate of shifting to a lower inflation target, arguing this would ensure South Africa is better placed to compete with its trading partners. He said earlier that a single-point target of 3% would be in line with South Africa's peers and lead to lower interest rates in the long term. However, his critics worry that reaching a lower inflation target will require tighter monetary policy that will impede growth and employment in a country with one of the highest jobless and poverty rates in the world. On Thursday, Kganyago reiterated his view, saying that the Monetary Policy Committee (MPC) believes that the 3% scenario is more attractive than the 4.5% baseline and would like to see inflation expectations move lower, towards the bottom end of their target range. He also said the MPC will consider scenarios with a 3% objective at future meetings. However, Annabel Bishop, chief economist at Investec, warns that a lower inflation target risks scuppering further interest rate cuts this year too. 'With a change to the inflation target reportedly occurring soon this year, the Sarb has chosen to cut interest rates this month to avoid the limitation of doing so in the future but then could easily be at risk of needing to reverse the cut.' ALSO READ: Salaries decreased by 2% in April, but higher than a year ago Slow pace of repo rate cuts perpetuates debt trap Roets says the reality is that the slow pace of the country's repo rate reductions is perpetuating the debt trap that millions of ordinary South Africans find themselves in, leaving millions with no option but to survive on credit. 'This scenario has been escalating since the prolonged tightening cycle began towards the end of 2021, when the MPC raised the repo rate by a cumulative 4.75% between November 2021 and May 2023, taking it from 3.50% to 8.25%, the highest level since 2014. ' Against this backdrop, the latest Statistics SA General Household Survey, released on Tuesday this week, reveals shocking statistics about hunger in the country. According to the survey results, almost a quarter of South African households did not have enough food to eat last year. This means that around 14 million people out of South Africa's population of 63 million went hungry. Of those polled, 22.2% of households considered access to food inadequate or severely inadequate. 'South Africans need real financial relief. This is a glaring red flag that should be at the top of the list of concerns for government. Sadly, this means more and more South Africans are relying on their credit and store cards to put food on the table and keep the lights on. 'The likelihood is that they will default on debt and fall into an even deeper trap, as the cost of credit increases due to existing debt. This is most evident with big purchases like home and car loans.'
The Citizen
7 days ago
- Business
- The Citizen
Godongwana punished taxpayers in Budget 3.0 despite calls not to
The minister had to plug a staggering R75 billion hole in Budget 3.0 without further borrowing or triggering political backlash. Even before the first version of Budget 2025, there were calls for finance minister Enoch Godongwana not to punish taxpayers, but in Budget 3.0 he did in any way. Budget 3.0 coincided with grim economic indicators that include unemployment at 32.9%, global instability and a trade war that continue to affect South Africa's growth prospects. The nation has been on tenterhooks since the shock news was announced on 19 February that Godongwana planned to increase the Vat rate from 15% to 17% in Budget 2025 to generate an additional R58 billion in revenue, resulting in serious backlash from the parties in the government of national unity (GNU) and other opposition parties. However, he failed to allay the fears of citizens and investors with his plans to tackle the escalating fiscal deficit, manage the country's debt and spend without burdening taxpayers, Neil Roets, CEO of Debt Rescue, says. ALSO READ: Budget 3.0 was not a chainsaw budget, economists say Only vague measures for stimulating job creation in Budget 3.0 'Measures to stimulate job creation were vague, and the absence of any real focus on combatting corruption was evident. Especially concerning were the tax measures figured in at this time and those projected for 2026, at a time when South Africans need urgent financial relief. 'I understand that the minister faces numerous challenges, including a turbulent economic landscape, crumbling infrastructure, currency volatility, global trade tensions and an astronomical government budget deficit. 'He is tasked with striking a delicate balance between expenditure cuts and avoiding further financial strain on households, but taxing the workforce to death is not the answer. The reality is that his decision to impose new tax measures will hurt consumers who are already struggling.' Investec chief economist Annabel Bishop agrees, saying that increasing taxes is not a favoured route to plug the gap of the budget deficit, as this has a negative impact on growth and employment. ALSO READ: Budget 3.0: not austerity budget, but a redistributive budget Infrastructure investment and structural reforms in Budget 3.0 Godongwana laid out the government's plans to spur economic growth potential to boost revenue and reduce funding shortfalls with an emphasis in Budget 3.0 on infrastructure investment and structural reforms. Roets says this is commendable, with over R1 trillion allocated over three years to infrastructure projects across transport, energy and water, which are critical for long-term growth. 'However, delivery remains the key concern. 'Budget 3.0 confirms that debt service costs will exceed R1.3 trillion over the next three years, which means R1.2 billion per day, which is more than the combined allocations for health, education and policing. 'What we need is a concrete plan of action to tackle the fiscal deficit through disciplined budgeting, efficient tax collection, responsible spending and a laser focus on stimulating economic growth. Without economic growth we are looking at a mounting socio-economic crisis,' he warns. ALSO READ: Sensible or underwhelming? Economists react to Godongwana's Budget 3.0 Will Sars come to the rescue as Budget 3.0 envisages? The government allocated an additional R7.5 billion to Sars to increase its revenue collection capabilities. If this is successful, it could bring in R20 to R50 billion per year which will potentially cancel the need for further tax increases, he says. 'The news ahead of Budget 2025 of a historic public servants' salary increase, accompanied by substantial enhancements to various allowances, does not inspire confidence in the GNU due to the dire predicament of much of the country's workforce.' There was, Roets points out, of course, no mention of cutting down the size of the cabinet, regarded by many as an unnecessary burden on taxpayers and an obstacle to effective governance, a point that has been hotly debated in the media leading up to Budget 2025. Political analyst Joe Mhlanga notes that the cabinet's size and perks drain our economy, while ActionSA recently revealed that the current cabinet configuration is costing taxpayers an additional R239 million per year, amounting to over R1 billion for the current term. ALSO READ: Budget 3.0: Fuel levy replaced VAT hike but is it the better option? Dropping the Vat increase, minister imposed other taxes in Budget 3.0 Roets says the minister's reiteration that Vat will not be increased was widely welcomed, but imposing alternative tax penalties on taxpayers, such as raising sin taxes even more and hiking the fuel levy for the first time since 2022, delivers a heavy blow to the hard-working citizens who are the backbone of the economy. From 4 June the general fuel levy will increase by 16 cents per litre for petrol and 15 cents per litre for diesel. Roets says this alone will increase the cost of living for every South African. 'Notably, the minister also confirmed that the planned expansion of the zero-rated Vat basket that was originally proposed to cushion poorer households from a Vat hike, will now fall away since the Vat increase itself was dropped. This removes what could have been a vital buffer for low-income households. 'How can this possibly alleviate the burden on the country's workforce? Does this mean that taxpayers are having to pay for the inefficient management and high levels of corruption that have led to the country's poor service delivery? ALSO READ: Godongwana cuts zero-rated food basket in Budget 3.0 Consumers need more aggressive support strategies 'It is essential that government considers much more aggressive support strategies for consumers facing financial distress.' Roets says with 32.9% of the nation without income, according to the Q1 2025 Quarterly Labour Force Survey data released by Statistics SA, it is not difficult to understand how government grants are indeed the only lifeline for many people. However, job creation is a top priority – or it should be, he says. 'With a third of the population currently unemployed and youth unemployment at an astronomical 46%, among the highest in the world, the country stands at the tipping point of becoming a state-funded nation and everything that comes with that. 'Government's growth path focuses on extending and increasing the social wage support grant. This points to a lack of confidence in economic recovery powered by a flourishing business sector that drives job creation and entrepreneurship, without which there will be no recovery.'
The South African
13-05-2025
- Business
- The South African
Most South Africans cut grocery spend, with 86% feeling the strain
The survey reveals that many buy food on credit, and some even omit essentials from their budgets due to the cost of living. South Africans are feeling the pinch of the high cost-of-living crisis, with a recent Debt Rescue survey finding that 86% of households are cutting back on groceries to afford other essentials like electricity. The survey was conducted to assess the severity of the cost-of-living crisis on households, according to Business Tech. The survey revealed that many families are being forced to cut essential items, like food, to afford electricity and other critical needs. Debt Rescue conducted the survey ahead of the 12.7% electricity tariff hike that took effect for direct Eskom customers on April 1 this year. Annaline van der Poel, Chief Legal Officer at Debt Rescue, in an interview with Newzroom Afrika , said this is a serious situation, pointing out that this is the second survey conducted in the past year to evaluate the impact of the cost of living, with a specific focus on electricity. Van der Poel said in both surveys that a significant percentage of respondents indicated that they altered their dietary habits due to financial limitations. Initially, families coped by reducing daily meals while still trying to include essential nutrients. Although inflation has slowed down, Van der Poel said it is important to recognise that household debt is still rising, albeit at a slower pace. 'For the average household, income is not keeping up with that. Debt is still at enormously high rates.' Vulnerable populations, especially those dependent on social assistance grants like SASSA payments, bear the brunt of the high cost of living. Van der Poel said that when essential tariffs, such as electricity prices, increase, any benefits from rising grants can be negated, putting beneficiaries in an even more precarious financial situation. To survive this high cost of living, Van der Poel suggests meticulous budgeting, creating a realistic and honest monthly budget, and seeking out specials and discounts on essential items by reviewing community papers and comparing prices. 'This requires discipline and careful planning to manage expenses within the limited control available to individuals. For those with credit cards, it is strongly advised to reduce their use, reserving them only for absolute emergencies when all other options have been exhausted.' Let us know by leaving a comment below, or send a WhatsApp to 060 011 021 11 Subscribe to The South African website's newsletters and follow us on WhatsApp, Facebook, X, and Bluesky for the latest news.
The Citizen
05-05-2025
- Business
- The Citizen
Small fuel price decrease no help for consumers in looming rough ride
The cost-of-living crisis of the past few years all but decimated household budgets across income groups, and the fuel price decrease will not help. The small fuel price decrease on Wednesday will not be of much help for consumers with a rough ride looming for millions of South Africans who have battled their way through the past year despite a cost-of-living crisis. According to the department of petroleum and mineral resources the price of petrol will decrease by 22 cents per litre for 93 and 95 and between 41 and 42 cents per litre for diesel, largely thanks to steep declines in global oil prices in April as markets were rattled by US president Donald Trump's tariffs and trade wars, while the rand weakened slightly amid the shocks. The average Brent crude oil price declined from $71.04 to $66.40 over the month and the average international product prices for petrol, diesel and illuminated paraffin decreased during the period under review. Despite the good news at the pumps, Debt Rescue CEO, Neil Roets, warns that the past few months have been among the toughest yet for citizens from all walks of life and the tiny fuel price decrease will make no discernible difference in the lives of consumers who are still facing prices above R20 per litre at the pumps. ALSO READ: Steep increase in price of household food basket means more people will go hungry Food prices increasing and interest rates unsustainably high In addition, he points out, rocketing food prices and unsustainably high interest rates keep them locked into a debt cycle that they cannot escape. 'While any financial relief is obviously welcome, authorities must recognise that South Africans are at breaking point right now under the combined onslaught of food prices that have increased far above the inflation rate, interest rates that are still among the highest they have been in a decade and the relentless financial onslaught from Eskom for an essential service that affects the survival of every man, woman and child.' The price of food is unsurprisingly at the top of the list of concerns for the majority of households across the nation, not least because recent price increases for basic foodstuffs now place nutritional meals out of reach, especially among lower-income families, he says. While the latest inflation data for South Africa showed an easing, food prices in the country saw a sharp increase. The April 2025 Household Affordability Index confirms the daily reality facing people today: the cost of survival is rising faster than people can keep up. 'The figures in the April 2025 Household Affordability Index, released by the Pietermaritzburg Economic Justice and Dignity Group, reflect a brutal truth that millions of South Africans are no longer coping,' Roets says. ALSO READ: Modest decline in essential food prices but savings not always passed on Nutritious food off the table – fuel price decrease no help Aliya Chikte, project officer at the Alternative Information and Development Centre (AIDC) agrees, saying that although food inflation is slowing down, the average cost of a household food basket is unaffordable in the context of mass unemployment and deep impoverishment. The latest report shows that the average household food basket, catering for a family of four, now costs R5 420.30, but a nutritionally adequate food basket is priced at R6 666.26. 'That is a shortfall of R1 245.96, a gap that low-income households simply cannot close through income alone. 'This means that workers earning the National Minimum Wage are R2 000 short on food after covering just electricity and transport, leaving only R453.28 per person per month for food, far below the Food Poverty Line of R796.' Roets also points out that the effect of VAT on the household food basket is significant, with 22 of the 44 food items in the total household food basket subject to VAT. 'Food items subject to VAT made up 46% of the total cost of the household food basket in April. With zero-rated food items costing R2 929.32 and foods subject to VAT R2 490.97, VAT on the total household food basket amounted to R324.91. 'This means that 6.0% of the household food basket was made up of VAT. This is money that could be used to buy more food.' ALSO READ: What does lowest inflation in 5 years mean for repo rate? Lower fuel price no help for government mistakes and lower salaries He says that added to this is the sad fact that hard-working taxpayers will ultimately pay for any mistakes the government makes. 'When the Western Cape High Court stopped the tabled VAT hike, it passed the legal costs on to Treasury and parliament. This means that taxpayers will end up footing this bill. Exactly how much remains to be seen, but it is likely to run into hundreds of thousands of rands.' Adding insult to injury is the latest BankservAfrica Take-Home Pay Index, which shows that nominal average take-home pay declined to 17,811 in March 2025, 2.5% lower than February's R18,272. This is due to intensifying economic headwinds locally and globally that continue to pressure growth prospects and confidence levels, Roets says. 'This raises concerns over potential impacts on employment and earnings in the coming months, despite the upward year-on-year momentum. It is no wonder that South Africans are fast losing hope, while desperately clinging to the belief that somewhere along the line, government will take action to turn things around for consumers. 'Until then, it is every man (and woman) for himself, it seems. The sad fact is that, for too many people, turning to traditional debt avenues offers the only immediate lifeline and this effectively sentences them to a term of unrelenting repayments – with interest of course – that traps them in a vicious debt cycle that is not easily broken,' Roets warns.
IOL News
28-04-2025
- Business
- IOL News
South African households still under pressure despite inflation dropping to 5-year low
Experts believe that an inflation drop of 0.5% to 2.7% in March, bringing inflation to its lowest level in five years, is good news, but consumers remain under pressure due to rising costs. South Africa's consumers received a sliver of hope this week as Statistics South Africa (Stats SA) announced a significant drop in inflation from 3.2% to 2.7% in March, marking the lowest level seen in five years. While this decline was seen as a promising development, experts warned that many households were still grappling with rising costs that continue to exert pressure on their budgets. Neil Roets, CEO of Debt Rescue, welcomed the news, suggesting it might bolster the case for a potential interest rate cut. 'This brings a glimmer of hope to struggling South African households and strengthens the case for a potential interest rate cut. Lower inflation reduces pressure on the Reserve Bank, and while a cautious approach is likely, we're hopeful that rate relief will come before the end of the year,' he said. Roets added that although this was encouraging, they remained concerned particularly as essential goods were not becoming more affordable. 'Food prices, especially staples like maize meal and tea, remain stubbornly high. Fuel costs may have eased, but households are not feeling a meaningful difference in their monthly budgets. Consumers are still overextended, caught between rising electricity costs, expensive essential groceries, and stagnant incomes.' Consumers are still overextended, caught between rising electricity costs, expensive essential groceries, and stagnant incomes. It is believed that lower inflation, without corresponding relief in core living expenses, does little to improve day-to-day affordability. Roets added that Debt Rescue continues to call on policymakers to prioritise job creation and bring down interest rates to ease the pressure on struggling households. Benay Sager, executive head of DebtBusters, said they hoped the decline in consumer prices will factor into the SA Reserve Bank's consideration when make a decision on the repo rate interest rates. 'We hope it will allow the Reserve Bank to lower the interest rates and provide more relief for consumers,' Sager said. 'We know they will also try to balance this data with other macro information based on global indicators, so if next month is also low interest rates, we believe there is a very strong position to make an argument for interest rate reductions at the end of May, which would be great for consumers.' Sager said he did not believe that this will impact the economy just yet. 'Most of our inflation is due to regulated prices of electricity and petrol have been coming down, which is one of the primary reasons for this reduction,' he said. 'However, electricity prices are flat throughout the year until the 1st of April, so often those increases from Eskom kick in during April, or if you are a municipal customer, in July and only then do we see the primary impact on inflation.' Casey Sprake, an economist at Anchor Capital, said the Sarb's Monetary Pociy Committee now faced a nuanced dilemma—one rooted less in macroeconomic constraint and more in policy discretion. 'Real policy rates in SA remain in restrictive territory, meaning that current monetary policy is exerting a significant dampening effect on economic activity. This creates a window for the MPC to adopt a less restrictive stance, should it choose to do so.' Sprake added that the Sarb has consistently underscored its commitment to anchoring inflation expectations and preserving financial stability, especially in a context of currency volatility. 'Additionally, the uncertain global environment, marked by tightening geopolitical tensions and diverging monetary paths across major central banks, continues to inject caution into the MPC's decision-making process.' Sprake said that while the March inflation data validated the Sarb's prior caution and suggested that monetary tightening has been effective, the threshold for cutting interest rates below its estimated neutral level, where policy neither stimulates nor restrains inflation and growth, remains high. 'We maintain our outlook that the Sarb will eventually lower the repo rate to this neutral level, but the exact timing remains uncertain given prevailing uncertainty,' she said. BUSINESS REPORT
