Middle-class problems

The middle class in any emerging economy is relied on for growth-stimulating consumption. India, for example, has managed to sustain its GDP growth at more than 7% in the past decade, mainly because of a large, strong middle class, coupled with intensive infrastructure investment by the government.

SA is no exception. Our middle class — defined as a household with after-tax income of between R5,900 and R40,000 — has also stimulated growth, achieving a consistent average rate of 5.2% from 2004 to 2007.

In SA’s case, however, middle-class spending power has always been driven by easy access to credit. So reckless were the lending practices by banking institutions that the government stepped in, introducing stringent lending control measures through the National Credit Regulator. While this was intended to deal with the over-indebtedness that had spiralled out of control, the unintended consequence was a reduction in spending power on the part of the middle class.

Our subdued consumer spending and limited private sector investment due to policy uncertainty are the key reasons for poor economic growth and high employment.

This has left the finance minister with no option but to target taxpayers in his desperate attempt to generate revenue, no matter how unsustainable this may be. It is estimated that at the current expenditure rate, the economy should, at least, be growing at 3%. Yet the projected growth rate, as recently indicated by the Treasury, is about 1.3%.

Simply put, the country is spending money it does not have.

Peter Monyuku

Wendywood