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Municipal tariff hikes are on the cards, adding to woes...

Business Maverick

TARIFF INCREASES

Municipal tariff hikes are on the cards, adding to woes of SA’s shrinking middle class

(Photo: Dean Hutton / Bloomberg via Getty Images)

Already under heavy inflationary pressure, middle-income earners should brace themselves for further financial challenges when municipalities around South Africa announce tariff increases in July.

South Africa’s unemployment rate is 34.5% and, despite indications that the middle class is growing, a look at the longer-term picture shows that it is actually shrinking. 

With inflationary pressures on all sides, the middle class is likely to shrink even further as many South Africans are forced to downsize or turn to debt to make ends meet.

Brandon de Kock, storytelling director at consumer insights consultancy WhyFive, recently told DM168 that it’s not always best to measure the middle class based on income, pointing to an economic recovery and the fact that car sales — often a measure of economic health — went up in March and May. (April sales were affected by the number of public holidays that month.)

But highly respected economist Mike Schüssler, who died on 24 May, would have begged to differ. In April, he wrote an insightful report with Brenthurst Wealth’s Elize Kruger about the economic realities of the middle class.

Schüssler made the point that, in most countries, anyone earning a typical salary would pay personal income tax, but that was not the case in South Africa: “Hence, in the case of South Africa, those who pay personal income tax can be considered upper middle class. However, this does not translate to being rich, as upper middle class is then effectively classified as a working person who earns an annual income upwards of just R87,000 (R7,250 a month). 

“The irony is that many of the top 10% of earners in South Africa would fall into the lower middle class in many other countries. Yes, upper middle class is a relative term in SA because, in this country, so few people even earn a regular formal salary,” he noted.

He made several other notable points. First, that the upper middle class is typically people in formal jobs, earning fixed salaries and paying PAYE every month. “They are the group of people who keep the wheels of the South African economy rolling.”

Second, the National Treasury’s Budget Review shows a clear downward trend in the number of registered taxpayers with earnings above the annual tax threshold. For the year ending March 2022, there were 6.8 million taxpayers, compared with 6.95 million five years ago. Schüssler pointed out that the bulk of registered taxpayers (69%) earned between R87,300 and R350,000 a year (about R29,000 a month).

Third, and most important, Schüssler pointed out that the increase in the number of personal income taxpayers this year is most likely because many of those who lost jobs during the Covid lockdowns were returning to the workplace.

“However, there does not seem to be any prospect that the upper middle class in South Africa will ever make up more than 20% of the adult population, unless multiple reforms take place. There will be more pressure on the upper middle class in the form of tax burdens and having to pay for more of their own services in the years ahead,” he said.

Schüssler was definitely not wrong about the increasing pressure. The country is on an upward interest rate cycle, food price inflation was 7.6% in April, and petrol prices are through the roof.

Annabel Bishop, chief economist at Investec, said the fuel price hike this month stems from both rand weakness, as South Africa has to pay for its imported oil and petroleum products in US dollars, and the higher ratcheting of international petroleum product prices.

“With the oil price now closer to US$120 per barrel of crude oil than May’s average of closer to US$110 per barrel, South Africa now risks even higher fuel prices in July,” she warns, hinting at an increase of R3 a litre.  

tariff hikes

City of Cape Town increases

A month from now, municipal tariffs are set to increase. The City of Cape Town has noted that it has a payment ratio of 98%, but has made R3.75-billion in rates and tariffs relief available to qualifying residents in the new financial year.

“In addition to the indigent and rates relief on offer, the city in 2021 embarked on a debt write-off and payment incentive project, where debt prior to 1 July 2018 was written off, on condition that an arrangement was entered into to pay more current debts. More than R2-billion in old debt has been written off and some R2-billion is still available until 30 June 2022,” said Siseko Mbandezi, Cape Town’s mayoral committee member for finance.

The debt write-off incentive is only available until the end of June. To qualify, residents have to enter into a debt-payment arrangement that will see all their outstanding debt older than July 2018 being written off. 

The old debt will be reinstated, however, if they default on the new payment arrangement. 

Cape Town residents can expect increases of 6.5% for water and sanitation, 9.5% for electricity and 5.2% for property rates from 1 July.

Johannesburg increases

Delivering a budget speech earlier this week, Julie Suddaby, the City of Johannesburg’s mayoral committee member for finance, said property rates would increase by 4.85%, electricity by 7.47% and water by 9.75%. 

She pointed out that the electricity tariff increase is significantly lower than last year’s increase of 14.59%. Suddaby said the water tariff increase was a pass-through cost from Rand Water. 

Earlier this year, the National Energy Regulator of South Africa proposed electricity tariff increases of 8.6% for municipalities, but the proposal was hastily revised after a general outcry. 

Johannesburg homeowners with a combined monthly income of R22,000 a month qualify for an immediate 50% debt write-off, provided they apply before the cut-off date of 30 June.

Durban increases

Durban residents still reeling from riots last year and two rounds of floods in the past six months have a reprieve, with no increase in property rates this year, whereas water tariffs will go up by 5.9% and electricity by 7.47%. 

Although this may seem a welcome relief, the reality is that property valuations in the area have rocketed, with some properties reportedly doubling in value. The increased valuations will, of course, translate into an automatic increase in property rates.

eThekwini mayor Mxolisi Kaunda said the rate randage on residential properties has been decreased by 10% to accommodate the implementation of the new valuation roll.

“Municipalities are currently facing a difficult fiscal environment. These tariff increases represent an appropriate balance between the interest of poor households and other customers while ensuring the financial sustainability of the municipality,” he said. DM168

This story first appeared in DM168, our weekly newspaper that is available countrywide for R25.

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