Taxing pressure from inflation on the Suburbanites

HB-inflation

By Mike Schussler

11th December 2019

Today, we were told SA inflation had come out at 3,6% – the lowest rate since December 2010!

But what if I were to tell you that, for a suburban dweller, inflation remains very high, and is essentially a tax on the suburban lifestyle?

Screenshot 2019-12-11 at 16.27.20
Necessity Inflation: More than doubles the inflation rate in the suburbs

For our suburbanites, the basket of goods and services on which their inflation rate is calculated is made up of some things over which a parent in the suburb has no real choice – which I term necessity inflation.

It is comprised of school fees, petrol taxes, armed response, electricity, water, healthcare and medical insurance, and so on.

However, tertiary education fees and boarding fees are excluded, as these are not a necessity for most.

For petrol, this inflation includes only the South African components – such as taxes, levies and margins on fuel that the government directly controls. I accept that the actual basic fuel prices are not something that the government can control.

Generally, necessity inflation can be summed up as a measure of the price which is required to have your kids in reasonable education, your health security and the cost of getting to work.

Then it includes the basics of life – such as water and power, which are needed to survive – and property taxes we have to pay.  I have left out tobacco and alcohol as those incur taxes on indulgences that one can do without. Or so I am told.

I also left out VAT, personal income tax, and so on.

Anyway, necessity inflation is nothing but a tax on people for maintaining their standard of living, for wanting the right to quality education and health care – avoiding the death traps that are ironically called ‘public health’ facilities.

This part of the inflation mix has never been inside the inflation targets since the current calculation method started in 2009.

It is a screaming indictment of the failure of government, with people frightened by low standards and poor service delivery by the state.

Globally, education, security and health care are generally considered essential services that most countries try to excel at.

Not so in South Africa, where the body count from murder is extreme, while women dare not go out at night due to fear of attack.

Our fee-free schools have bad reputations, and SA’s results in international comparisons show outcomes that are so poor that most governments would react by resigning in disgust. Not ours.

Public health is a lottery, as admitted publicly by health department officials. Privately, some have whispered it could even be a crime against humanity.

Water and power are no longer of the same quality as before – but in price terms, they have increased far above most things (See 10-year graph below).

Screenshot 2019-12-11 at 16.29.53
Massive jumps in the prices of suburban necessities

I also assume the suburban consumer is honest and pays for her water and lights, and needs a car – as safe and reliable public transport is often not available to the suburban public.

The simple truth is that it is expensive to live in the suburbs and to want a reasonable quality of education, health and security. I certainly define ‘reasonable’ as just average, or even just fairly close to a liveable standard of living.

This is not a matter of race. My black suburban neighbours all want the same basic standards for their families.

So suburban South Africans who want even mildly reasonable security, schooling and health find themselves in an effective tax trap – having to pay again for the things they should normally expect to be provided by the state.  These prices increase far above other components of inflation further enslaving the working middle class.

Suburbanites are thus prisoners of a failed regime, deprived of the human right to fair standards of health, education and freedom from fear.

In contrast to necessary inflation, demand-side inflation – the upward price pressure on goods and services – is now in free-fall due to near-zero GDP growth.

Indeed, it is pretty evident that deflation is happening in the demand side of the economy, whose weighting is nearly 80% of the national inflation basket.

Demand-side inflation has been below 6% since April 2009, and is not the problem! The demand inflation of people living in SA’s suburbs is lower than the inflation rates in the EU, the US or Japan.

It is the other 20% of inflation, the necessity inflation, which pushes the headline inflation far higher.

From the demand side – the choice side – consumers generally get great value for money, with very reasonable food and clothing prices.

Freedom of choice has led to lower prices, but fears have increased the overall inflation level for many – due to their need for essential services.

This is the unfortunate situation the suburbanites are in. The headline inflation rate is far lower than the actual inflation they suffer (see the first chart), because of all the extras they need to compensate for the state’s failed delivery.

Inflation at 3,6%?  Pull the other one!

Mike Schussler is a leading South African economist and data analyst.

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One thought on “Taxing pressure from inflation on the Suburbanites

  1. Fully agreed Mike, when one looks at the ‘cost of living’ budget in the suburbs over the last 10 years it is definitely substantially higher than the so called stated inflation rates especially electricity, health insurance, rates etc!
    The impact on Investment drawdown ability has been the most noted resulting in lifestyle adjustments in living budgets.

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