The Democratic Alliance has called for the VAT to be scrapped on more food items ahead of the Mid-term Budget statement next Wednesday.<\/p>\n
It comes as South African inflation decelerated for a second straight month on Tuesday (19 October), according to data from Statistics South Africa – but food prices continued to climb.<\/p>\n
Consumer price inflation increased by 7.5% year-on-year in September 2022, down from the 7.6% year-on-year print in the previous month. Inflation now averages 6.7% for the calendar year 2022 to date, which is well above the top end of the target band, noted Luigi Marinus, portfolio manager at PPS Investments.<\/p>\n
Month-on-month inflation increased by 0.1%, compared to the 0.2% increase the previous month, StatsSA said.<\/p>\n
Transport remains the largest contributor to inflation over the past year, as it has been every month this year apart from January, which coincides with the Russian invasion of Ukraine in February.<\/p>\n
Other large contributors to inflation over the year are food and non-alcoholic beverages (2.0%) and housing and utilities (1.0%), noted Marinus.<\/p>\n
“As was the case for the past few months, all 11 inflation groups saw an increase in prices year-on-year. Food and public transport which are important inflation considerations for many South African consumers saw increases of 11.9% and 22.1% respectively over the year, in part as a result of the secondary effect of the 34.1% increase in fuel prices.”<\/p>\n
Scrap VAT<\/strong><\/p>\n DA finance portfolio lead, Dr Dion George, said that many South Africans, particularly the poorest, are struggling to put food on the table due to the cost of food crisis.<\/p>\n George called for VAT to be dropped on more food items commonly purchased by the poorest 50% of households, such as:<\/p>\n “This will help poor households to stretch food budgets further and enable the purchase of more nutritious food.”<\/p>\n “We especially call on minister Godongwana to zero-rate bone-in chicken and other chicken categories commonly purchased by low-income households. Zero-rating bone-in chicken would cost approximately R3 billion, but experts have suggested the intervention would pay for itself through improved health, work and learning outcomes.<\/p>\n “Bone-in chicken is a high-quality source of protein and by far the most popular one for low-income households, making up 14% of low-income household food budgets. Poor South Africans need an affordable source of protein to prevent them from shifting to a less nutritious high-carb diet as their budget is squeezed.<\/p>\n “It is also versatile and quick to cook, saving on energy costs,” said George.<\/p>\n The DA called on the finance minister to announce cuts to import tariffs on pasta and those chicken categories purchased by very poor households, such as chicken carcasses. “This will bring meaningful relief to the poorest households while having a negligible impact on the fiscus.”<\/p>\n The political party also urged the minister to cut fuel taxes to lower the cost of transport. “Fuel tax cuts will mean more money for household food budgets and lower food costs because the high cost of transporting food has pushed up food prices at the till, said George.<\/p>\n “Fuel tax cuts can be covered by cutting corruption and wasteful expenditure, reallocating funds such as the VIP Protection budget, and opening the economy for growth.”<\/p>\n The DA pointed to a survey conducted by Debt Relief showing that 81% of households are skipping at least one daily meal while 41% say they can\u2019t feed their families anymore.<\/p>\n “This hunger crisis is harming our society in many terrible ways. At least 27% of South Africa\u2019s children below the age of 5 are stunted due to malnutrition. Millions of schoolchildren are unable to concentrate and learn. Worker productivity is impacted, and our society is increasingly unstable,” said George.<\/p>\n “Minister Godongwana could easily afford these hunger relief measures if he puts the brakes on ministerial wastefulness and puts the accelerator on economic reform to grow our economy for jobs, growth and revenue,” the politician said.<\/p>\n South Africa’s VAT regime already includes 19 basic foodstuffs that are zero-rated to help limit the impact of VAT on poorer households.<\/p>\n VAT-free food in South Africa<\/strong><\/p>\n More hikes on the way<\/strong><\/p>\n Bloomberg reports that a slowdown in inflation over the past two months is unlikely to sway the central bank from raising interest rates in November.<\/p>\n Policymakers have already increased the key rate by a cumulative 275 basis points since November to 6.25%, Bloomberg said. The implied policy rate path of the central bank\u2019s quarterly projection model, which the MPC uses as a guide, indicated in September the benchmark will be at 5.6% by year-end.<\/p>\n That suggests the committee has been front-loading its fight against inflation and there may be room to cool the hiking cycle, especially as record power cuts by Eskom Holdings and a strike at Transnet, South Africa\u2019s state-owned logistics company that operates most of the nation\u2019s harbors, crimp economic growth.<\/p>\n The main drivers of inflation in September were food and transport. Core inflation, which excludes volatile items like food and fuel, accelerated to 4.7% from 4.4%, suggesting that underlying prices pressures are building.<\/p>\n\n
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