South Africans are feeling the pinch, so much so that President Cyril Ramaphosa wants his government to provide some economic relief - but it's going to be a tough task, economists say.
Ramaphosa said yesterday that the government would announce a package of economic measures to help South Africans who are feeling the effects of fuel hikes and the recent VAT increase.
“We will be announcing a package of measures to ease the burden of the price increase. This will include the finalisation of the VAT-exempt products.
“I will ask the ministers in the economic cluster to finalise the package in a matter of two weeks,” Ramaphosa said, addressing business and government leaders in Pretoria ahead of the BRICS Summit later this month.
Ramaphosa’s plan comes just days after a massive fuel hike which for the first time pushed the price of petrol above R16 a litre.
The increases, he explained, were the result of price fluctuations that occurred as a result of the dollar-rand exchange and the increased demand for oil.
But Ramaphosa didn't provide much detail on what the economic measures could be.
He did call on retailers, particularly food processors, to hold back from imposing increases on food items. Energy Minister Jeff Radebe explained that Ramaphosa had instructed that the mandate of the VAT Commission be expanded to include the fuel price issues.
Nedbank economist Isaac Mashego said it was typical of politicians to make promises when times were tough.
“If the government is going to put in place measures, does this mean reducing the fuel levy? It has never been done before, post-1994.”
Mashego said it was likely that a further fuel hike was on the cards next month. “In the short term, there is little that can be done,” he said, adding that a long-term solution would be getting the economy to work and to develop cheap public transport.
Economist Dawie Roodt said he would like to see an increase in the fuel levy, as it was an ideal way for the government to collect cheap indirect taxes.
He said that living standards were likely to fall as prices increased. “The state needs to spend less, the civil service needs to become more productive and it must become easier for businesses to operate.”
Mashego pointed out that if retailers did not pass on prices to consumers and instead absorbed the increases, as suggested by Ramaphosa, it could lead to failing businesses and staff cuts.
The good news was that there were signs, according to Mashego, of the rand strengthening and the price of oil dropping in the coming weeks.
The poor are experiencing the worst of the recent price hikes, with staples like maize meal hit with significant price increases over the past few months.
Merwyn Abrahams, of the Pietermaritzburg Justice and Dignity Group, said that zero-VAT food items were not helping South Africa’s poor, as they were meant to.
Instead of choosing maize and beans to cook, which were zero-VAT items, explained Abrahams, the poor were opting for instant noodles because they used less electricity.
Abrahams suggested that increasing the amount given in social grants, so that they were above food inflation, would be the best way to help the poor.
“It paints a terrible picture, when we asked poor people what they can do to survive these price recent increases.
"They say, 'we don’t have the ability to save, so the only way we can survive is to eat less',” said Abrahams.