Old Mutual sends warning over unseen tax in South Africa
The war in Iran has led to massive shifts in the world’s financial impacts, and Old Mutual has warned that these impacts hit closer to home than many realise.
From rising fuel prices to further inflationary increases, Old Mutual’s experts have been warning consumers about what is increasingly being described as the “unseen tax” on everyday living.
John Manyike, Head of Financial Education at Old Mutual, said that global instability is quietly eroding household budgets in ways many consumers underestimate.
“South Africans are engaging in conversations about global tensions around the braai, often in a casual way,” said Manyike.
“But what many don’t realise is that these events have a direct and measurable impact on their personal finances. This is what we refer to as the unseen or silent tax.”
While South Africa’s integration into global economic structures strengthens the country’s standing, it also exposes consumers to international disruptions.
The war in Iran led to massive increases in fuel, with petrol up R3 and diesel up R7 in April, respectively, despite the general fuel levy being lowered by R3.
Prices are only set to rise further in May, with petrol up by around R2 and diesel by around R6. Further government relief may still come.
“While the intervention provides short-term breathing room, it does not remove the underlying pressure,” said Manyike.
“And there is a real risk that the relief we see now could translate into higher inflation or interest rate pressure later when the levy is reinstated.”
Costs are passed on
Izak Odendaal, investment strategist at Old Mutual Wealth, said that the implications of the increase are immediate and personal, with rising transport costs also hurting the prices of goods and services.
“However, it depends on the extent to which businesses absorb those costs or pass them on to consumers,” argued Odendaal.
If the costs are passed on to consumers, it will add further strain to household budgets and reduce disposable income.
A major concern is fertiliser supplies, which have already been disrupted by the war and could put pressure on food prices.
“While central banks are approaching this global supply shock cautiously, given the uncertainty, they could raise interest rates if they see inflationary pressures broadening out beyond fuel prices,” he said.
This may happen in South Africa as well, even if it is too soon to say. Odendaal said that the Reserve Bank has the luxury of being patient as it assesses the situation.
Inflation was broadly in line with the Reserve Bank’s target at 3% for February and 3.1% for March, respectively.
Odendaal said that it all depends on how long the conflict lasts and its effects on supplies and keeping energy prices elevated. It also depends on how the rand-dollar exchange rate performs over the year.
While the rand fell somewhat when the war broke out, it has been incredibly stable compared to previous global crises.
- Build or strengthen your emergency fund
- Eliminate unnecessary spending
- Postpone discretionary purchases
- Avoid taking on additional debt
- Switch to affordable brands
Old Mutual Savings and Investments Monitor shows that many South Africans switch to cheaper supermarkets and affordable brands to cope with the rising cost of living.
Others are cutting back on subscription television, and others are exploring streaming options.
With no clear timeline for how long geopolitical tensions will persist and the possibility that economic effects may linger long after conflicts subside, Manyike cautions against complacency.
“Consumers need to move from being passive observers of global events to active participants in their own financial resilience,” said Manyike.
“The unseen tax is already here, but the real question is whether consumers are prepared to respond to it in a way that protects their financial future.”
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