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Ferial Haffajee: How much more pressure can the middle class take before it cracks?

Jul 04 2019 05:00
Ferial Haffajee

This has been the whack of a week for South Africa’s middle-class.

Under the cosh, the SA Revenue Service opened tax filing season with a bang and with a promise to come after taxpayers like Julius Malema goes after Pravin Gordhan. In the same week, electricity, waters and rates tariffs all went up, often in double digits.

South Africa’s middle-class pays the majority of personal income taxes – just over four million individual taxpayers contribute the majority to the fiscus, making South Africa’s one of the most progressive tax systems in the world, but one that is extraordinarily hard on its long-suffering middle-class.

Why is this? Because the failed state also means that the middle-classes pay their own education, health and security bills, and increasingly their own water bills, as boreholes become a more common feature with a creaking water supply.

All those private bills have gone up by much more than the official inflation rate in 2019, be that school fees, medical aid rates (across plans) and private security monthly fees.

Until Eskom’s collapse under the pain of state capture, electricity costs were relatively low but this week, all major metros (where the majority of people live) put up electricity tariffs by between nine percent and 11%; rates increases are lower but grew beyond inflation while water tariffs went up substantially to pay for an infrastructure that is creaking.  

If the investments in water infrastructure are not made now, South Africa could very well face a scenario similar to load-shedding, where a localised water crisis becomes generalised. Fin24 reported that the petrol price cut will be almost immediately absorbed into paying off higher utility and property rates bills.

Corporate taxes are lower than personal income taxes, and have been held deliberately so for the past few years as a measure to stimulate investment and employment. Neither of these two things is happening at a significant enough pace to make a dent in the big economic picture, and so the middle-class is facing the highest burden of taxes as well as significant administered and consumer price increases.  

Cracks showing

For black middle-class people, often without the buffer of inter-generational wealth or a family network of support to fall back on, this can result in downward social mobility with the addition of black tax. Black tax refers to the informal transfers that happen from most black middle-class families to other parts of the extended family, who may not yet have emerged into the middle stratum.

The cracks are already beginning to show: there is a movement out of private schools back into the Model C (public schools with private support), but bigger than that was a report in Business Times last Sunday, which suggested more South Africans were using their credit cards for necessities rather than for luxuries or entertainment.

In all its communication this week, SARS made ominous warning sounds directed not at corporate taxpayers but at individual taxpayers – there were no warnings about transfer pricing and other well-worn tax dodges that are common in the private sector.

Stealth taxes

There are also additional stealth taxes in the offing, like the carbon tax (a necessary environmental measure, but a tax nonetheless) and forthcoming national health insurance scheme, which will be akin to a health tax, because the state system is so poor and over-burdened that you cannot yet see it becoming a general-use public facility, like parts of Britain’s national health service and the Scandinavian social systems.

A healthy South African society, directed toward social justice, would include a middle-class that is three times its size to ensure that more state resources go to poor South Africans in order to lift up the entire country.

Present policies are not geared at encouraging a middle-class, but instead push it into downward class mobility – and risk mimicking the make-up of post-colonial societies, where there is generally only a well-to-do elite and a massive underclass.

ferial haffajee  |  taxes  |  middle class
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