LAST GASP FOR THE GOLDEN GOOSE
When Reserve Bank governor Lesetja Kganyago hiked interest rates by 25 basis points last week, those who were listening might have heard an audible groan from SA’s besieged middle class.
The Bank’s reasoning was that inflation had climbed to a five-year high of 5.9%, so Kganyago was only following SA’s inflation-targeting policy.
But it’s not as if the economy is so hot, and demand rising so fast, that Kganyago needed to cool the economy. That 5.9% inflation number wasn’t a perfect reflection of what is happening to market prices set in a free economy; rather, it is a number driven partly by the grasping hands of a rent-seeking state that hasn’t bothered to ask what happens when it kills the golden goose.
The hollowing out of SA’s middle class in recent years is a subject that has been glossed over by many economists. But the indisputable fact is that an increasingly small number of employed South Africans are having to pay for an ever-swelling group of unemployed South Africans.
Over the past decade, SA’s tax base added just 500,000 people, while the number of unemployed rose from 7.1-million past 10-million, and those on welfare from 16-million to 18-million.
Yet each year, delinquent municipalities seek to leech an ever-larger amount from a proportionally smaller number of working South Africans, partly to pay bloated salary bills for officials who, in many cases, have no right to occupy a chair.
It doesn’t help that Eskom now wants a 20.5% tariff hike for the 2023 financial year — and this after a 17.8% hike imposed on municipalities last year. Throw in the 40% rise in petrol prices — due to a steep rise in the oil price, worsened by the extra fuel taxes ladled into the price in recent years — and you have a brewing crisis.
Needless to say, all these hikes — imposed not as a consequence of rising demand, but because of gross inefficiencies at state-owned monopolies — are leaving South Africans far poorer.
This week DebtBusters, the largest debt counselling company in the country, reported that demand for debt counselling soared 18% in the last quarter of 2021. Those who applied for counselling were battling to keep on top of their finances because their real income, with inflation stripped out, had shrunk by 25% over the past five years.
This accords with the grim picture painted by the Pietermaritzburg Economic Justice & Dignity Group, whose household affordability index shows a basic basket of food cost R4,401 in January — an 8.6% increase on the same month last year. It urges policymakers to wake up to “the major affordability crisis” facing ordinary South Africans.
But why would they? Up to now, the evidence suggests, government officials seem to believe the country’s citizens exist only as a source of tax to finance their stay in office. Nor do they have to deal with the real-world realities of their subjects, since they’re guaranteed a job and wage hikes untethered from the service they notionally provide.
Even though middleincome households have taken financial strain during the slow growth of the past decade, and particularly during Covid, far more terrifying has been the rise in unemployment and the relative decline in wage earnings for the bottom 50% of income earners.
The bottom line is that without sustained, rapid economic growth — something that will be challenging in the wake of the pandemic and the July unrest — the tension between SA’s small, stagnant tax base, the beleaguered middle class, and the exploding demand for welfare is likely to become ever more acute. Government officials don’t seem to be listening — but when this pot boils over, they’ll have no room to feign surprise.