‘Increases have become unsustainable and have ripple effect on economy’ – economist

With the announcement of substantial tariff hikes in July, residents across several municipalities are bracing for an increase in monthly expenses.

The new tariffs will affect essential services such as electricity, water and waste management, sparking widespread concern among households already grappling with rising living costs.

Economists warn that these hikes could exacerbate the financial strain on low-income families, pushing many to the brink of financial instability.

Increases a result of stagnant economy

Economist Dawie Roodt said the increases were a result of the country’s stagnant economy and what he called a “fight” for resources, resulting in the average consumer being severely under pressure.

“The SA economy has very high levels of unemployment and poverty.

“In this circumstance, there’s a clash for resources in the economy between the normal consumers who are under pressure and other institutions like the local authorities and even governments. That leaves less for the average consumer in South Africa.”

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Tariff increases vary across different municipalities

Comparatively, the proposed tariff increases vary significantly across different municipalities, with some areas facing steeper hikes than others.

The City of Tshwane, which unveiled its tariff increases on Monday, has slightly higher increases than the City of Johannesburg (COJ) across the board, while the COJ has the lowest property rate increases across municipalities.

The eThekwini municipality last month revised hefty tariff hikes following a public outcry.

The decision saw water and sanitation tariff increases reduced from the proposed 14.9% to 10.9%, while the electricity increase was adjusted from the initially proposed 14% to 12.72%.

Roodt said these tariff increases have become unsustainable and have a ripple effect through the economy.

This adds to inflationary pressures and inevitably the SA Reserve Bank (Sarb) will increase interest rates, or keep interest rates relatively high.

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“There are many price increases like this that are not determined by supply and demand forces in the economy.

“But it will come to an end because it’s become unsustainable, it has a ripple effect right through the economy as that pushes inflation up.

“This forces the Reserve Bank to increase interest rates and when interest rates increase too quickly, economic growth may slow or give way to a recession,” he said.

Felt most by low-income households

Political analyst Khanya Vilakazi emphasised the immediate impact will be felt most by low-income households and those already struggling to make ends meet.

“From a giant retail shop, the effect then trickles down to individuals because their mark up needs to a certain percentage so that they can still be economically viable.

“It becomes an expensive exercise and we see that by way of an increase in poverty.

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“The impact is going to be severe, especially in these economic times.

“What this also means is that this could see significant struggle as families try to cope with the burden.”

Vilakazi added that the biggest problem was the quality of services delivered to citizens.

“If the services are subpar, we see the community up in arms because it’s very difficult for the municipality to justify the increase in rates.

“Communities wouldn’t have much of an issue if they are raising rates and offering proper services to residents.”

‘Accountability is the key’

But according to Julius Kleynhans, local government executive at Organisation Undoing Tax Abuse, the bad performance of municipalities, quality of leadership and poor management of finances is being pushed onto the consumer.

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He emphasised municipalities should be more transparent about their finances and their performance, especially at executive level so that residents can hold them to account.

“Accountability is the key.

“We need more stringent performance measurements placed on municipal management – and even political oversight – because there are no repercussions for politicians.

“We need to start looking at how we can hold individuals to account for bad performances in municipalities.”