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Government is enslaving citizens with hefty price increases

South Africa would be far richer if it wasn’t for government constantly ratcheting up prices on the things we can’t avoid paying for.

In South Africa, from January 2008 to April 2019, consumer price inflation increased by 84.9% as measured by the consumer price index (CPI). That, in an international context, is steep. The euro area, for example, only saw prices increase by 16.8% over this period.

But that is a mature and developed market, many will say. While Brazil saw the total price level increase by 79.5% over that period, the likes of China, Russia and Japan saw price level decreases.

Other developing economies saw more reasonable consumer price increases, including Thailand at 18.7%, Mauritius at 42.1% and Rwanda on 53% while high inflation in Mexico saw a price level increase of 58% in total. South Africa is an outlier in these countries.

Government’s heavy hand

The reason has been clear for many years: government and its agencies have increased administrative prices well above inflation.

I have since 1998 studied administered prices. These are prices that government controls such as those for electricity, water, property rates, and taxes on fuel and other fuel components beyond the actual oil-price-related prices on petrol and diesel in rand terms.

Only a handful of these price increases have made headlines, such as electricity – power prices have increased by 351% over the period and more increases are on the way. But water too has increased (by 205%), while local petrol taxes and margins have increased by 190% compared to 70% for the international oil price component.

Increases in the prices of electricity, fuel and water have an impact on the likes of manufacturing and transport. Add Transnet, Airports Company South Africa, school fees, parking fees, tolls and a host of others, and SA CPI ends up increasing even more than it should.

Let’s take the new petroleum pipeline from Durban to Gauteng as an example. It is funded by a charge added to the price of fuel. This currently amounts to 57 cents per litre. It was 15.5 cents a litre in March 2011 – a 268% increase, while overall inflation to which it added increased by 52% over the same period.

They’re everywhere, affecting everything

These prices are everywhere and have impacted the prices of other goods and services since it is impossible not to pay them in petrol, insurance, licences, water and lights, and even schooling.

My best estimate over the last 20 or so years is that the prices government or its agencies control added at least one percentage point to South Africa’s inflation rate every year.

The compounded annual inflation rate since 1998 is 5.7% – and making it just one percentage point lower would mean the price level since 2008 would have increased by only 42.5% and not the 84.9%.

But that’s not all folks – the quality of government services also has an impact as people fear the bad schooling and health lottery that government hospitals present. Never mind the security services and electric fences that help combat suburban crime shivers at night.

South African citizens pay some of the highest taxes in the world but must still pay extra for a reasonable quality of life.

Let’s for a moment just imagine …

Imagine if water and electricity were half price. Imagine if the rentals paid by retailers weren’t increased by as much due to lower power costs and the bakery could bake bread for less.

Administered price increases should have been controlled but were not, as managers never controlled costs. Not all administered prices are captured in the CPI, and some – like harbour and rail tariffs, landing fees and licence fees for medical hospitals, among others – have an indirect impact on overall prices too.

SA would be richer, bigger and wealthier if it were not for the price increases by the government.

The South African economy should have had interest rates that are about 1% or potentially even lower as inflation would have been lower.

That would have decreased the risk of doing business in South Africa and encouraged more investment (leaving aside Eskom’s electricity generation capacity challenges).

Could’ve, should’ve … didn’t

Yip, inflation could have averaged well below the midpoint of the inflation target for most of the last 10 years, but it did not, and our government is mainly at fault.

Lower inflation would equal more real spending, particularly for poorer households. It would have meant a lower risk-free rate for government, which would then have had more money to spend on the poor or on infrastructure.

This also would have meant lower interest rates from the South African Reserve Bank (and less criticism too). It would have meant more money in consumers’ pockets and that would have helped consumer confidence.

Lower inflation would also have lowered the barrier for investment decisions by private businesses, and that would have meant more jobs and more business confidence. This would have led to higher growth of say at least half a percentage point if not a full percentage point or more as confidence enhances confidence in a positive feedback loop.

By my simple calculations, I would say at least one million extra jobs over these 20 years.

Perhaps we would have seen even bigger investments during the commodity boom and fewer job losses during the commodity price decline, and now have had closer to two million more jobs.

Yes – one out of five jobless people today could have been employed, and there would be less inequality too.

The impact is huge

The impact of higher prices is huge. These charges are then passed on but the efficiency of state-owned monopolies is not addressed.

Why the Competition Commission is not investigating these situations is beyond me. This is treason by the government, as the high prices of everyday items enslaves citizens who should have been at least 10% richer per capita than they are today.

Administrative prices have been studied and blamed by many, even in government, but nothing gets done.

This is a real test for the government now, not just the fight against corruption.

High administrative prices are the result of greed, corruption, waste and the inability of management to do things right.  

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COMMENTS   36

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Spot on, what’s there more to say.

Agreed. As usual Mike hits the nail on the head setting it out simply and comprehensively.

Could only be Mike or Magnus telling it like it is. Well done. Very depressing though.

Hey, spot on usual cliche rhetoric from an economist..
In a classical broad sweep just say,
“SA would be richer, bigger and wealthier if it were not for the price increases by the government.”

when will the actual factors be pointed to or discussed?
how about the role of BEE and the dumbing down of management of SOEs ?

I would say increase the wealth takes and income tax brackets to 90% but since the government somehow don’t know that this is a possibility or are prevented from doing it by the billionaire class ( and the economist allowed air time) i guess we must all suffer while having our anger directed at ‘The government”.

How much of these increases went into the ANC looting spree & the R1 trillion estimated cost of bloated and inept government of SOE’s & municipalities.

We are actually around the middle as corruption goes in a developing country and since much of it’s in the private sector mismanagement in the public sector is probably a larger problem than outright ‘looting’. Of course since most of the loot goes to actual private sector contracts you have to wonder why economist can’t focus on that.

Besides the above South Africas are being double taxed.

Apart from SAPS most middle income homes either have private security or live in a Complex.
Note that the cost of the private security and SAPS is the same as what Germany pays for its police’s force yet their crime rate is under control.

Even private schools have become price competitive with Goverment schools and they are everywhere. Some communities are pushing to go off the grid like Sandhurst, providing their own power and now trying to organise their own water whilst recycling… doing it all themselves.

All in all I believe the average tax in South Africa is about 28%. Think of that considering the lack of service and poor quality. That’s a lot of money to give out for something you kinda receive back.

This all means one thing, South Africa is uncompetitive.

The last paragraph says it all!!!

“High administrative prices are the result of greed, corruption, waste and the inability of management to do things right. “.

4 points that government needs to tackle. Currently the scoreboard reads its Admin prices 4 – Government nil

Correct!

Quite simply, South Africa’s neighboring states pay less for water, electricity, fuel while we pay more. Sometimes these services actually come from SA SOE’s.

It seems odd that these countries which don’t have the economies of scale of SA can give their citizens a better deal.

No wonder many South African’s refuse to pay for basic services and the national tax revenue keeps eroding.

Yes well they do not have the tremendously bloated private sectors with legacy power to suck up all the money in their economies. Apparently their governments are willing to exercise more power over industry and get the funding to provide services.

Another outstanding article from Mike S. Simple, practical and correct. If our politicians could understand these long term principles for success all South Africans would have a much brighter future. Wouldn’t it be great if we could link administered prices to official CPI and then work out how to operate Govt and SOEs to meet this constraint.

Our country is led by people with absolutely no ability in spite of being “educated”. Ability does not come with education.

I am talking about the ability to create a bigger pie or more pie’s.

All these “educated” people can do is find way’s of getting a slice of someone else’s pie. I agree that it is treason and borders on terrorism.

Soon no more pie or are we there already and need to now print money?

MMmmm:

So trickle down economics? Feed the rich and hope they create jobs? You know this is what we have been redoing since the 80’s in the USA/Uk and other places and that it’s been an abject failure? It doesn’t matter if you grow the pie and you do not have sufficient democracy (if you vote and strike and the rich get richer any ways) to actually redistribute the gains to the populations given how capitalism would otherwise concentrate it upwards.

we must expect that indirect taxes will increase. Government cannot overtly tax its citizens (popularity) and many of its wealthiest citizens evade paying direct taxes.

I am surprised that the land debate has not (yet) mentioned that an extra levy onto rates and taxes would generate enormous funds for a land redistribution fund. It is not like land owners can avoid paying 5% extra.

It has been mentioned by some in the ANC, similar to the EFF view. As with mineral rights they want the state to be the custodian of all land.

You will pay the state for land that you already bought and paid to be allowed to live there.

You will do this with your basic income grant and try to produce sufficient offspring, funded by grants, to put food on the table.

If you do have a job, you will be working for the state. It would then be wise to produce even more offspring with lots of partners, thus allowing you permanent paternity leave.

This miracle will be achieved by printing money.

“The mission of the law is not to oppress persons and plunder them of their property, even though the law may be acting in a philanthropic spirit. Its mission is to protect property.”
― Frederic Bastiat, The Law

Administered costs are forms of legalised plunder. Unscrupulous cadres are put in positions of power across the country, where they act as highwaymen and extortionists. The tool of their trade is the legal framework that enables and supports them in the looting of private property. Administered costs are nothing but Expropriation Without Compensation. All these costs mentioned in the article act as an infringement on private property rights. The ANC corrupted the law itself, it killed real justice under the banner of “social justice”. Now, the law itself, instead of protecting property, has become a tool of plunder.

In the small rural community where I live there are more than 3000 “equitable contribution” households that do not pay rates and taxes to the local municipality. Those who cannot afford this extortion are in fact paying by handing over incremental parts of their property to the municipality. Your house is the basis of your cash flow, and if your cash flow is not enough to fund the extortion, they simply take your house.

The value of the property is slowly but surely transferred from individuals to parastatals on a monthly basis. At this rate, it is a no-brainer that municipalities will eventually own all the properties within their boundaries.

We cannot even look to the president for a reprieve, because he was personally involved in the degradation of the law when he turned himself into a BEE billionaire overnight. The impact of legal plunder is much more destructive than illegal plunder, which is corruption. The law can act against corruption, but when plunder is legalised, a corrupted legal system enforces injustice.

Zuma and the Guptas were smalltime criminals, they perpetrated corruption or illegal plunder. The much bigger problem, with a destructive force on the economy that is 10 times worse than corruption, is the legalization of plunder by the current president.

It is really tough to be a capitalist in a socialist country.

Property taxes have become a real nightmare. This needs to be investigated as I suspect it is being abused. I live on a small farm and suddenly have to pay the same rates as someone living in town. Yet I have no tar road, just a track through a forest, no electricity, no sewerage, no water, I have to provide all this myself (which is quite easy). The question remains though, why do I have to pay the same rates as in town? Small B&B establishments suddenly have to pay “business rates”. My and their property tax went up with 300%. The “zoning” of properties have become a hostile and means of increasing administered prices, and as Mike mentions, enslaves citizens. If this trend is not stopped and this pyramid scheme reversed, you will end up renting your property from the government in any event. Your “ownership” will mean absolutely nothing.

No no no, Mike, you’ve missed the core issue. Most of these charges are not adminstrative, they are stealth taxes which were created by taking arms of government and turning them into parastatals.

Take tolls. By spinning off the Directorate of Roads into SANRAL, government got to keep the tax revenue which used to fund roads and created a new revenue stream. Ditto for road safety, airports and all the other new SOEs which used to be arms of government. The taxpayer is paying twice for many things and the excuse is the apparently rational ‘user pays’ argument.

But it is really just political cowardice. The ANC is too scared to charge the taxpayer the real cost of running a government for 55 million people versus 5 million before 1994, because it would cost them votes. So they sneaked it in through the back door in the form of user charges. When a government sneaks anything in through the back door, the result is always waste and corruption.

And yet less than a month ago the slaves gave the enslavers an overwhelming 57.5% of the vote. I guess then that it must be true that a nation gets the government that it deserves. See you guys at the bottom,not long to go.

Exactly right. Terrible if you cannot even figure out you’re being screwed over.

Hereshoping
I live in a medium sized town in KZN. The municipality charge R6_8000-00 to install prepaid electricity meters. We have a written quote from a regestered electrition from Johannesburg to come here to install quite a few meters at a total cost of +- R1520-00 per house. It is a company owned by African people. Where is all that extra money going? The company is coming down to have a meeting- lets see what happens.

Ultimately someone must pay for the various categories of stealing and inefficiency:

1. Basic income grants-now 17 MILLION
2. Overpaid jobs at SAA and Eskom, SADF, SAPS( gaggle of generals), bloated civil service.
3. BEE deals and wholesale theft for zero value added.

Cannot keep stealing forever and the tax base shrinks daily-Standard bank branches closing, mining Lonmin, SAA only when not if,

Time for the star of gangster state to look after his electorate not only himself. Same as for Mr Bantry Bay mansion who never built a business but excelled at BEE-and hogged the trough!!

yes, it affect the poorest of the poor ( ANC supporters ) they most. I just can’t understand? No win situation.

Dear Chev: of all that is written above , yours is the simple Truth .
The Country has no Leadership , the Educated are leaving , either Physically or Financially & frankly there is NO solution .NOBODY can at this stage save the RSA : Its over .

Also for businesses do not forget about the many “ad hoc” charges such as COID (oh your rate is higher because of the nature of the work you do, pay first and then query…blah, blah), BBBEE, mandatory other contributions to bargaining bodies depending on the industry, try licensing trucks (these figures are horrific, you should look at the inflation here). All these things are “that is it, close your eyes and pay, you do not have choice”.

Also do not ask how the figure is calculated…..

This is a well orchestrated plan to remove (steal) wealth from the ‘surplus creators’ and give it to the ‘cannots’ and ‘will nots’. Period

No it’s the whites, they are to blame for everything… from the prices in the supermarket to the weak economic growth and the unemployment. Are you now saying that the government has increased electricity by 350% over the past 10 years and it isn’t the whites? Water by 205%? Petrol taxes by 190%?

You mean the whites aren’t to blame for the amount of inflation? You mean to tell me the SOE bailouts are inflationary and the fact that South Africa has some of the highest taxes in the world and the worst unemployment, highest crime and a very weak currency with 16 million on welfare isn’t the fault of the whites?

Aikona, your white race is oppressing us! You hear me! We can’t afford anything in the shops and supermarkets! Bring down your prices! We don’t understand where things come from in the supermarket, how it is bought with the Rand. We only understand you whites are oppressing us!

What about rates and other municipal charge,

These increases are called social re engineering,,redistribution of wealth.This has become a socialist policy with the redistribution of wealth

Would be interesting (and probably infuriating) to see what the relationship between the increase in administered prices vs government wage increases is related to the effectiveness of said government employees. In the bottom decile of the world would be my guess? Lots more money for the same/less quality service.

Mr Schussler’s heading says it all: “government is enslaving citizens with its hefty price increases”. People don’t realize they are dealing with an Afro-Commie gutterment which has always had the intention of achieving just that: enslaving citizens. It has had the slightest intention of achieving inflation-targeting for the goods and “services”it controls, and couldn’t care less about citizens and their welfare as long as they are living like pigs. The anc gutterment wants to squeeze all citizens dry and until they beg for mercy.

Great summary, what else is there to say. Most probably also the cause of the wealth disparity.

I do not think it is a Competition Commission responsibility to assess charges, etc. I do think it reveals a very weak regulatory environment and more specifically the absence of regulators in setting tariffs and protecting the public. If you have SOE’s and SOC, you require Regulators.

Pretoria property taxes are 1% per year of the value of you house. So in 50 years you give half the value of your house to the government. And the 1% rate is increasing every year. Where does it stop? 10% per year? Plus we must pay 15% VAT on property rates and etolls… Basically paying tax on tax. Next we will have to pay VAT on monthly PAYE income tax.

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