Tax hikes, interest rate hikes, and accelerated inflation are making South Africans pessimistic and leading to economic hardship, survey data from Wits shows.
Finance minister Pravin Gordhan is expected to announce severe austerity measures with the aim of avoiding a credit rating downgrade to junk status (lower than investment grade), during the national budget speech on Wednesday, 24 February, 2016,
Professor Jannie Rossouw, head of Wits’ School for Economic and Business Science, says that ratings agency Standard & Poor’s may downgrade South Africa to sub-investment grade, should government not indicate that it is taking steps to boost economic growth.
Rossouw said that, as the economy will experience no or at best very low growth this year, it will be necessary to do the following three things:
- Contain expenditure on any luxuries and unnecessary expenditure;
- Contain the deficit before borrowing (difference between income and expenditure); and
- Increase taxes.
“An increased tax burden plus increased interest rates, owing to expected higher inflation, will place consumers under pressure. It is therefore not a good time for consumers to take on additional debt and commitments at this point in time; they should rather make sure that they can afford what they have already committed to with lower disposable income (after-tax income),” he said.
Wits recently published its South African Inflation Survey among 4,000 Professional Provident Society (PPS) members, to gauge the perceptions around inflation in South Africa.
The vast majority of respondents felt that actual price increases are actually higher than the official rate of inflation – and more than 90% said they expected even higher inflation in the future.
According to Rossouw, the survey data shows not only a pessimistic outlook for the future, but also a lack of confidence in historic inflation data as a fair reflection of price increases.
The overall sentiment is that tax increases and interest rate hikes are putting South Africans on the path of hardship – and that things are just going to get worse.