A balanced budget, say most economists

CONSUMERS would feel the pinch of the rise in the fuel and electricity levies more than that of the increase in income tax announced by Finance Minister Nhlanhla Nene on Wednesday.

This was the collective view of the economists and retail analysts this week.

Meanwhile business leaders believed the budget speech was balanced and that consumers would remain resilient.

Nene said fuel levies would increase by a total of 80.5c a litre. This will consist of a 30.5c a litre increase in the general fuel levy and 50c a litre hike in the Road Accident Fund.

The increase in income tax will also take a little away from consumer spending, analysts said. For those earning more than R181 900 will income tax increase by 1 percentage point.

Those earning more than R500 000 will have to pay R271 a month more and at R1.5 million a year the tax increase would be R1 105 a month.

Investment marketer and analyst for Absa Wealth & Investments Chris Gilmour said: “Cause for concern for consumers is that the lower fuel price that consumers have been enjoying over the past few weeks, will soon be largely negated.

“Consumers will see a general fuel levy increase of 30.5c a litre in April, combined with an anticipated increase of around 90c per litre in March due to under-recovery of the fuel price.”

On the tax increase, Gilmour said the 1 percentage point tax increase was a surprise, however, “it was not as bad as the market had expected”.

He said the market was looking at anything between 2 percent and 2.2 percent.

Gilmour said it would nonetheless have a negative impact on consumer spending.

The general retailers index only fell 1.1 percent down yesterday, which Gilmour said could have been a mild reaction to the Budget.

“I suspect that most of the investors have taken a view that this is probably a better result than anticipated.

“It will obviously mark the retailers down, but not as badly as we expected.”

Wits University economics professor Jannie Rossouw agreed that the income tax was not as high as had been expected.

“The income tax was a pleasant surprise as we expected higher tax hikes and indirect tax increases as well.”

He added that sin taxes, the increase in the electricity levy as well as the fuel levy increase were going to put some burden on the consumer.

Pierre Van Tonder, the chief executive of Spur Corporation, said although tax increases were not a “Christmas gift”, consumers as well as business would remain resilient.

“We can either stick our heads in the sand or start thinking about how to enhance our value proportions and try and get those customers out of their homes and spending.”

Van Tonder said it was not a Christmas present that South Africans were waiting for but, “it is the reality and that is what we have to deal with and we need to make sure that when customers come into our various brands that we are up there giving them great value,” he said.

Chris Hart, the head of market and economic research at Investment Solutions, said the budget did not take into account the state of the already highly indebtedness of consumers.

“The income tax hike will not allow consumers to save, which means that we (the country) will not be creating capital required for growth.”

He said the income tax is going to further exacerbate the saving problems that the coun- try was facing.

“It is also going to constrain consumer demand and the net effect of that would be to slow growth even more.”

Hart said the increase in the electricity levy coupled with the fuel levy would further constrain consumer spending and at some level even more than the tax hikes.

“I am a little despondent because this is probably the most anti-growth budget we have seen in the last 20 years.”

Hart said the budget was not resolving the core issues with growth such as encouraging savings. “You will not get any new growth coming into the economy without any savings,” said Hart.

Massmart chief executive Guy Hayward said the budget was a speech was well balanced.

“I think the minister did a good job. It is a fair budget in that he has taken money from the rich to give to the poor.”

Hayward said this seemed appropriate, because the highincome earners remained resilient and the lower income group was under pressure.

“Its impact on our business will be similar, the upper income customers will have slightly less money, but importantly for the country and part of our business, middle- and lower-income customers will have slightly more.”

The income tax was a pleasant surprise as we expected higher tax hikes and indirect tax increases as well. The budget did not take into account the state of the already highly indebtedness of consumers.