It may soon become almost impossible for low-income households to tighten their belts any further, a development agency has warned.
On top of a weakened rand and drought-induced food price hikes, the National Energy Regulator of SA (Nersa) last week gave Eskom permission to hike electricity tariffs by 9.4% to recoup some of the billions it spent on diesel to operate open-cycle gas turbines to keep the lights on.
For the middle classes, there have also been above-inflation school-fee increases and an up to 10% rise in satellite-TV subscriptions, which MultiChoice announced would be effected in April as a result of the weak rand.
The Pietermaritzburg Agency for Community Social Action (Pacsa) said the recent increase in state social grants would not lessen the pain for the poor.
“Our data show that even before the social grant increases have come into effect in April, they have already been eroded by food price inflation,” said Pacsa researcher Julie Smith.
“Social grants have not been increased at the level of projected food price inflation and, in a context of low and capped incomes, we expect a crisis to emerge in the households of low-income families.”
The social justice and development NGO predicts that families will not be able to absorb these massive food price hikes. Households are already underspending on food by 56% and taking on debt to cover food shortfalls.
Smith said that high food prices, together with Eskom’s 9.4% increase in electricity tariffs, the exponential water-tariff increase, increased interest rates and excessive levels of indebtedness “may have disastrous implications for South African society”.
Pacsa is one of the organisations that opposed the electricity-tariff hike and, in its submission to Nersa, it said the “negative impact of the tariff increase will be immediate” and “could push millions of households deeper into poverty, entrench inequality and increase unemployment”.
However, economist Azar Jammine said that the situation was not yet at the stage where the squeeze was being profoundly felt, adding that retail figures were showing that people were still buying.
“Retail sales were so strong in December. People are not really tightening belts despite all the signs of hard times lying ahead, and this will lead to an increase in borrowing for people to survive,” he explains.
“Logic tells me people will struggle and, unless they borrow a lot more, they won’t be able to keep up. The other factor to consider is that there are going to be significant
job losses this year, which will also impact on many households.”
Mike Schüssler, chief economist at Economists.co.za, said it would be difficult for consumers to borrow when they had lost income. “It will be a tougher time to borrow, as job losses are going to have a huge impact on consumer spending. In fact, all the recent and anticipated increases will hurt consumer confidence.”
Schüssler argued that people were going to find themselves under a lot of economic pressure and could get poorer.
Pacsa’s Smith further argued that the Eskom hike would affect the prices of all goods and services because electricity was an input across all value chains. This would mean a double burden on citizens.
“Domestic electricity prices will go up and the prices of all other goods and services will go up; this at a time when most families have much less money in their pockets.”
She said low-income households could not cut back their consumption to absorb escalating costs.
“Low-income households are already using as little electricity as possible and this low consumption is absolutely essential to cook food, to keep families warm; for light, health and security. On very limited and low incomes, households will be forced to cut back on other essential requirements, such as food, education, transport and healthcare.”
Though Eskom customers are already aware that they will have to dig deeper to pay for power, those being supplied by municipalities must brace themselves for expected tariff hikes in a few months’ time.
Mbombela city spokesperson Joseph Ngala said tariffs were definitely going to increase in the 2016/17 financial year, but strategic meetings would determine the percentage.
Mbombela encompasses Mpumalanga’s capital city, Mbombela (formerly Nelspruit), White River, Hazyview, and surrounding townships and villages, with a population of about 735 000 in about 131 000 households. The proposed increases, in percentages, are property rates and taxes at 6.8%, 8% for electricity, a 7.76% increase proposed for refuse removal and 3.7% for water. This comes to an average increase of 7.2% in real terms for a household charged R700 for rates and taxes, R300 for refuse removal, R1 000 for electricity and R150 for water.
“But we will take into account how many of our residents can afford the increase. Our fear is that the more unemployed people we have, the bigger our indigent register is. The 2016/17 budget will be tabled earlier because it is an election year,” said Ngala.
The eThekwini municipality has not yet decided on the increases it will levy.
City head of communications Tozi Mthethwa said the city was awaiting the tariff-increase guidelines from Nersa and could not at this stage give an indication as to what the increase would be.
However, the City of Tshwane said tariff hikes were inevitable since they were buying bulk supplies from Eskom and Rand Water, among other service providers.
“Eskom will increase tariffs and naturally we also increase when this happens because we buy from them. We will, however, not want to hit consumers hard in the pocket and will consider factors such as unemployment and the underperformance of our economy when the time comes to review tariff prices,” said city spokesperson Selby Bokaba.
The City of Joburg indicated that it was already engaged in a property-rates, policy-review process through public participation, seeking customers’ input before deciding on any price hikes.
“We are mindful that our consumers and property owners are facing difficult times and, as the city, we are eager to engage with our residents on a policy that will be sustainable yet beneficial to all parties involved.
“We must ensure that tariffs are equitable and affordable to our residents,” said Joburg group finance spokesperson Stan Maphologela.
The Ekurhuleni municipality has also undertaken to consider “several economic factors” when deciding on new tariffs.
Ekurhuleni municipal spokesperson Themba Gadebe said: “We are all aware that the tariffs increase comes in the wake of a depressed economy and it is in our interest to consider the reality of our consumers when implementing new tariffs in July.
“This has been a norm for a number of financial years, where we have sought to cushion our residents from the effects of tariff increases.
“We are currently preparing our budget for the next financial year and the member of the mayoral committee
for finance will make an announcement concerning the implementation of new tariffs next month when tabling
the budget.” – Additional reporting by Sizwe sama Yende
Tips for your money makeover
Once you start taking control of your money, it
is amazing how fast your finances will turn around, writes Maya Fisher-French.
Over the past six
months, we have been helping six readers rehabilitate their finances as part of
our City Press Momentum Money Makeover competition. It has been surprising to
see how quickly the candidates have managed to pay off debt and increase their
disposable income in such a short time.
The secret was as simple as budgeting
and tracking their monthly expenses to understand where their money was going
each month, and figuring out where they could cut back.
The lessons learnt from
these six individuals will help many of our readers survive the tough year
. Prepare a household budget. If you are married or living
together, it has to be a budget drawn up by both of you. You both need to
understand how much money is coming in and where it is being spent.
. Watch out for unconscious spending. By writing down what he
was spending each month, one reader realised that he was spending R700 a month
on takeaway food whenever he went to the shopping mall.
It had just become a
habit and he was unaware of how much it was costing him. Are there any spending
“habits” you can quit to save that extra cash?
. Watch your data usage. One candidate cut back her cellphone
bill by a massive R1 000 a month. She was able to use that saving to pay off her
. Be realistic about needs versus wants. By reviewing all the
money she was spending on extramural activities and extra lessons for her
children, one candidate decided to cut back and only focus on the important
lessons for her children rather than worrying that they would be “losing out”.
It is easy to get into a frame of mind where we start to see luxuries and
nonnecessities as things we “have to have”. If you get your finances in order,
there will be money in the future for those wants.
. Start small. All the candidates started by targeting their
smallest debts first – these tended to be store accounts.
These were settled in
a matter of months and the money they were paying to those debts is now going
towards bigger debts like their credit cards, or is being used to start an
emergency savings account.
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