‘Our belts are pulled as tight as can be’
Middle class joins struggle to make ends meet
LIKE millions of South Africans, Johannesburg couple Marc and Charmaine Albers were disappointed when Finance Minister Pravin Gordhan announced further tax increases last week.
Much like the wizardry with which the National Treasury had to balance spending against weak revenue, the pair — along with South Africans across the spectrum — juggle to make ends meet.
“We’ve squeezed blood out of a stone to make it happen, but you get to the point where you can’t trim any more,” Marc said this week.
In the past year or so the couple has been forced to cut spending as higher food, fuel and medical aid costs weighed heavily on their disposable income.
They withdrew from an investment which was underperforming because of the weak economy, and settled some of their debt, including credit cards which they have cancelled, and shifted to a bank with cheaper fees.
They do not have a flashy lifestyle, and even though their combined gross annual earnings put them firmly in the middle class, red meat, for example, is now considered a luxury in their home.
Having employed a domestic helper and gardener four days a week, they can now afford only a gardener, who doubles up as a cleaner — once a week.
Marc said: “Early last year, we were actually quite comfortable. We had spare cash which we could put away.”
But as the year progressed, the spare cash dwindled.
The family also shopped for cheaper cellphone packages, settling on one where data usage is consolidated into a single package.
“We’ve dropped individual data costs per phone, and we bought a large bundle. Even though that was a phenomenal move, it’s still not enough,” Marc said.
The price of petrol has spiralled upwards as well, adding about R300 to the cost of running the couple’s two relatively modest cars.
Charmaine said: “We try to reduce petrol costs by doing a lift share.”
The family has ditched takeaways in favour of home-cooked meals. They buy everything in bulk.
“We find the more often you go to the shop, the more disastrous it is. We now try and visit it once or twice a month and if we have to we’ll pop in and get the basics,” she said.
Despite the economic pressure, the Albers remain among those privileged enough to be able to go on holiday — thanks to the sponsorship of relatives.
The National Minimum Wage report indicates that of a population of 55.9 million, 29.7 million live below the poverty line of R1 036.07 monthly, meaning they do not have sufficient income to meet basic needs.
Economists expect that the kind of frugality shown by the Albers family will remain the case for many South Africans this year despite an expected improvement in economic growth — especially since consumers remain highly indebted.
The latest National Credit Regulator credit report shows that in the five years from September 2011 to September 2016, the number of credit active consumers rose 21% to 24.25 million people. About 40% of them were consumers in good standing compared with just under half in 2011.
Sanisha Packirisamy, an economist at MMI Investment and Savings, said the effect of the tax increases on overall consumption spend may not be too severe this year, but “we are, however, likely to see a negative impact on big-ticket consumer items including car sales”.
The effect on the sales of semidurable goods, such as clothing and shoes, and nondurable items, such as food, is likely to be more limited.
Andrew Wellsted, head of tax at Norton Rose Fulbright, said that over the past 12 years the amount taxable on income has generally declined.
“This is due to a fiscal drag which has seen tax rates remain constant, however the tax brackets have moved in accordance with inflation.”
But in the 2015-16 financial year, the amount taxable rose due to an increase in the tax rate for the highest bracket from 40% to 41%. This has been increased to 45% for the 2017-18 year.
Jeffrey Schultz, an economist at BNP Paribas Securities, said increases in marginal tax rates will subdue consumer confidence — a fundamental driver of consumer spending.
“A much lower inflationary environment, which we expect in the second half of the year, could provide support to crimped real disposable income.”
Schultz said: “Expected improvement in GDP is more likely to come from a more favourable commodity price environment alongside a more sanguine outlook for global growth, demand and a domestic agriculture sector which looks poised for a rebound from the drought.”
Last week, retailers Massmart and Pick n Pay said they expected less of an effect on their business because the largest tax increase affected those earning more than R1.5 million a year and not the majority of their client base.
Kaeleen Brown, retail analyst at SBG Securities, said Woolworths is more likely to suffer.
“It tends to have a higherincome consumer and for Woolworths it’s probably the most negative versus other retailers which tend to focus on the massmarket consumer.”
Brown said a negative for clothing retailers this year may be fabric or product import inflation as the price of these items is denominated in US dollars and the rand had strengthened materially earlier this year.
Experian’s Business Debt Index for the fourth quarter of 2016 indicated that “growth in private sector credit extension is likely to continue to be constrained by the fact that households remain characterised by high levels of indebtedness and are not in a position to take on more debt”. Household debt as a percentage of disposable income was 77.8% in the third quarter of last year.
Early last year we were quite comfortable. We had spare cash to put away