It may have been English dramatist Christopher Bullock who, long before Benjamin Franklin, recognised that few things are more certain in the world than death and taxes.
Many Africans, from Johannesburg to Nairobi, Abuja and Addis, know that the power of the state at multiple levels to levy or raise taxes and surcharges has deep political complications. It is a difficult undertaking balancing tensions between the pace, scale and depth of fiscal reforms and who shoulders the costs.
The economic insecurity observed in SA firms and households has elicited a response from our executive. When President Cyril Ramaphosa gave his opening of parliament address he highlighted that the unity government would, in response to the domestic cost of living crisis, “expand the basket of essential food items exempt from VAT and undertake a comprehensive review of administered prices”.
In highlighting the need for such a review the GNU has seemingly shifted our attention towards other crucial arenas where price-setting behaviour by the state and the institutional nexus between delivery authorities, regulators and bulk sellers such as Eskom and the water boards all have a bearing on the economic insecurity of households and firms.
The first relates to softening food and other nonfood consumer prices. In the last review of food and nonfood products to be incorporated into the basket of goods for which the consumption tax would not apply, a few considerations informed the decision on which products ought to be included in the list.
The overall tax system had to remain “progressive” — food and nonfood goods that took up a relatively higher share of the consumption basket of poorer households had to be prioritised. Zero rating also had to incentivise the consumption of “merit” goods.
Passed on
Poorer households tend to spend a larger share of their income on sugar, alcohol and cigarettes, which has health costs to society. Foregone revenue to the fiscus however, has to be considered.
Other considerations include the market structure producing the product and whether there is a risk that the “relief” will be absorbed by producers or retailers along the value chain, rather than passed on to poorer consumers.
Another dimension that may be relevant in this review is products and services used by the poor, which are subject to supply chains dominated by the informal sector. The annual minibus taxi sector fare changes every July, for example.
Some may argue it is also worth considering areas that take up a relatively higher chunk of poorer households’ consumption baskets, such as prepaid electricity, where the interaction between regulated bulk pricing interacts with municipal agency fee-setting, determining unit-level prices paid by firms and households.
This difference in the “distributional incidence” in taxation and billing, in which the state is the price-setter, can also be seen in the cost-price build-ups of industrial firms, in which the burden takes on a different, no less important role.
Take for instance the case of listed aluminium fabricator Hulamin, for which utilities accounted for just more than a tenth of the cost of sales between 2019 and 2022. For primary steel producer ArcelorMittal, energy costs constituted about 13% of operating expenses. The steel producer suggested in its half-year update to end-June that electricity tariffs had grown 16% year on year, far higher than its dollar-denominated consumables.
Addressing the consumer welfare and industrial implications of the prices the state sets, alongside ensuring greater efficiency and productivity in the delivery of such services, will be an indispensable part of any inclusive economic agenda for meaningful change, in an increasingly turbulent period.
It does not seem that the national revenue fund or the own-revenue pockets of subnational authorities can afford to forgo cash for any economic multipliers arising from greater consumer spending or new industrial investment. We are apparently caught between a rock and a characteristically hard place.
• Cawe is chief commissioner at the International Trade Administration Commission. He writes in his personal capacity.
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