Our in­ter­ests at heart

Finweek English Edition - - Letters - DAVID MICK­LE­BURGH

IT’S AN UN­PALAT­ABLE FACT that very few gov­ern­ments or even cabi­net mem­bers have the moral courage or noble in­tent to boldly adopt un­pop­u­lar leg­is­la­tion even when it would be not only a swift and ef­fec­tive cure for a prob­lem but also the most ob­vi­ous.

The only so­lu­tion SA Re­serve Bank gov­er­nor Tito Mboweni seems to con­tem­plate is con­trol via in­ter­est rates, when other bet­ter and more prag­matic so­lu­tions are at hand. Ma­nip­u­lat­ing in­ter­est rates is al­len­com­pass­ing and its neg­a­tive im­pact is in­dis­crim­i­nate, af­fect­ing in­no­cent pro­duc­ers and prof­li­gate con­sumers, poor and rich, alike.

We’re al­ways be­ing told that largely the poor in­habit South Africa. In­creas­ing in­ter­est rates hurts the mid­dle and lower in­come sec­tors the most. While an in­crease in rates might put a damper on new pur­chases it also re­sults in an un­avoid­able in­creased bur­den for ex­ist­ing credit, such as hire-pur­chase agree­ments, mort­gages, credit card bud­get pay­ments and over­drafts.

With a pen stroke, SA could ap­ply con­straints that would at­tack in­fla­tion and slow credit de­mand with­out hurt­ing those un­able to de­fend them­selves. All the Fi­nance Min­is­ter has to do is pre­clude the banks from us­ing the courts to re­cover debt in­curred by in­di­vid­u­als for all con­sum­ables, such as food and liquor bought via a credit card or on monthly ac­count. That will in­clude re­mov­ing the clever ruse whereby items nor­mally ir­recov­er­able through debtors’ courts – such as fuel, gam­bling and liquor pur­chases – are paid via credit card (a so-called “cash only” petrol card pur­chase can be trans­ferred to a stan­dard credit card), an ex­er­cise that’s patently against the spirit of the “cash only” prin­ci­ple for those pur­chases.

Gov­ern­ment won’t do that be­cause it hasn’t got the for­ti­tude to go against the mighty bank lobby, so the poor­est of us will con­tinue to bear the bur­den of the eas­ier-toleg­is­late in­ter­est rate in­crease. But there’s a prece­dent, set by a pre­vi­ous gov­ern­ment that didn’t like gam­bling and the con­cept of su­ing for gam­bling debts and liquor pur­chases and

vir­tu­ally ex­cluded the use of the courts for this pur­pose.

Nor should credit cards be al­lowed when pay­ing any pri­mary debt. Gov­ern­ment has steadily re­duced the amount of de­posit a con­sumer has had to pay when buy­ing cars and furniture. The ef­fect of that is also to ben­e­fit the banks and in­crease the monthly bur­den on the poorer con­sumer. It’s great for busi­ness and bank­ing, lousy for the con­sumer – so par for the course.

When the banks bleat that such reg­u­la­tion is un­en­force­able me­chan­i­cally, let me point out that cash tills can dis­cern be­tween VAT­able and non-VAT­able items. Why not the same preclu­sion on credit cards to iden­tify con­sum­ables, so that when the pur­chase is made the bank and con­sumer will be aware that this por­tion of the debt used to buy con­sum­ables isn’t re­cov­er­able through the courts. That would slow down profli­gacy dra­mat­i­cally.

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