Households feel the pain of tax and fuel increases
Real disposable income contracted for the first time since the last quarter of 2013
Data from the Reserve Bank on Tuesday show the immense strain households have come under due to tax increases and successive fuel price hikes.
Real disposable income contracted for the first time since the last quarter of 2013, the data showed, while household spending declined by 1.3% in the second quarter for the first time in two years as people adjusted their spending habits.
A weak performance in the retail sector weighed on growth in the second quarter.
The retail sector is an important indicator of consumer spending which drives growth in the economy.
Finance minister Nhlanhla Nene warned earlier in September that headwinds to household spending, which make up almost 60% of GDP, will hinder a robust recovery in economic growth.
Nene said the National Treasury was likely to have to revise down its growth forecast for the year at the medium-term budget policy statement at the end of October. The Reserve Bank last week downgraded its growth forecast for the year from 1.2% to 0.7%.
SA fell into recession in the second quarter of 2018 for the first time since the global financial crisis, while unemployment remains above 27%.
“The decline in households’ real disposable income, largely due to tax increases and fuel-price hikes in the second quarter of 2018, adversely affected real household consumption expenditure,” the Reserve Bank said.
Additionally, waning wealth effects, policy uncertainty, a weak domestic economic climate and subdued nominal house price growth have all weighed on the consumer’s willingness and ability to spend, the Bank said.
Consumers have been hard hit by the first VAT hike in 15 years, from 14% to 15% effective from April 1 2018, increases in income tax, and five successive months of fuel price increases.
“Household incomes are likely to remain under some pressure from the poor job market as well as higher taxes and rising inflation in the short term,” said Nedbank economist Johannes Khosa.
Spending on goods declined while spending on services increased at a slow pace. This reflected pre-emptive purchases ahead of the VAT increase and subdued economic environment, the Bank said.