Consumers pay more, get less

PRICE HIKES IN FUEL, FOOD AND ELECTRICITY – PLUS INCREASED TAXATION – HAVE ERODED HOUSEHOLDS’ ALREADY STRETCHED DISPOSABLE INCOME,WRITES

CISMAIL SADER

OST escalations are reducing the disposable income of households year on year. This is putting a strain on already stretched household budgets. A quick review reveals that for the same consumption levels of electricity, fuel and food over the past two years, consumers are paying about 12.7% more.

The 2015 average annual income of South African households was revealed to be R138 168, according to the Living Conditions of Households Survey (Survey) released by Statistics SA in January 2017.

Assuming that this income grew by average annual inflation the average salary in 2018 would have increased to R162 542. Tax payable would have increased by R2 418 from R13 205 in 2016 to R15 623 in 2018. At these levels of income the taxpayer has been fortunate enough to remain in the lowest tax bracket and has not been subject to bracket creep.

One needs also to consider the effect of other increases that the taxpayer has been subjected to in this period. The survey also revealed that the average household spent the largest proportion of its income on household utilities at 32.55%, transport at 16.29% and food at 13.75%. Assuming that the average monthly consumption of electricity for a household has remained stable at 800kw per month over the past three years, the cost of this electricity for a household in Durban has increased from R1 180 (incl) in 2016 to R1 294 (incl) in 2018.

This represents a 9.66% increase over the two years. The household is now paying an extra R114 a month or R1 368 a year for the same amount of electricity. For many households on limited budgets, the only way to keep electricity costs the same year on year is to reduce consumption. Considering the continued bailouts that Eskom has been getting and its very poor cash flow position, electricity increases are likely to persist for the foreseeable future. It would make sense for those consumers who can to move some of their household power requirements towards renewable energy.

For the number of sunny days we experience annually in South Africa it would be logical for a large part of our energy requirements to come from a solar source.

However, in South Africa this is proving to be too expensive for the average household.

Fuel price changes since 2016 are also causing a significant dent in the consumer’s pocket. A consumer filling up, on average, 120 litres a month would have been spending a total of R1 440 a month on fuel in February 2016 and in February 2018 this would have cost him/her R1 636 a month for the same quantity of petrol. This is an additional R196 a month or R2 352 annually. This translates to a 13.6% increase in fuel cost in two years.

Food price increases have caused South Africans to become much more discerning shoppers in recent years.

Food inflation for February 2018 was 4.5% as compared with February 2017 when food inflation was 9.9% as compared with February 2016. Assuming a household spent on average R1 685 a month on food in February 2016, food inflation over the two years would mean that it is now paying R1 935 for the same basket of food. This is an increase of R250 a month or R3 000 a year.

The past 12 months have seen significant increases in the price of red meat and eggs. As farmers seek to rebuild their herds after the drought these high prices will remain for the immediate future.

Fortunately for South African homeowners, the current prime interest rate of 10% is lower than it was in January 2016. If households have not unnecessarily burdened themselves with additional debt, their debt repayments should be at the same level.

Assuming the above consumption levels for electricity, food and fuel have remained constant for two years – and taking into account increased taxation – a household would now be