The VAT whiplash: why SA can't afford to ignore the real cost of policy uncertainty
Image: Armand Hough / Independent Newspapers
When the South African Government floated the proposition of a 0.5% VAT increase earlier this year, only to cancel it at the eleventh hour, the economy may have avoided an official tax hike, but the damage had already been done. Even before the proposal could be tabled in the Budget Speech, the mere suggestion of higher VAT triggered a psychological and financial ripple effect.
Consumer sentiment shifted almost instantly, with many fearing potential retail activity dips and increased credit card usage, with many South Africans, particularly in the middle-income group, looking to tighten their belts in anticipation of rising costs that never formally materialised.
This moment offers a sobering reflection on the state of financial resilience in the country. It wasn't the implementation that sparked anxiety, but the uncertainty. The mere suggestion of a VAT increase was enough to trigger a reaction in households and ripple through lending institutions. This kind of market sensitivity underscores a deeper fragility: one where consumer confidence is worn thin, and policy signals - real or speculative - can tip the scale from financial coping to financial crisis.
When policy uncertainty hits home
While VAT hikes are not new in South Africa, the reaction to this latest proposal felt particularly acute. Wages have stagnated, unemployment remains high, and the cost of basic goods continues to climb. In this context, even a small increase in indirect tax feels like a direct threat.
Consumers responded accordingly. Spending signalled a slowdown across various sectors, particularly in discretionary categories. This wasn't about affordability alone; it was largely about caution. And when spending slows but everyday costs remain, many turn to short-term solutions, namely credit.
However, for lenders, these behavioural shifts are not just theoretical; they represent a real risk, particularly when they happen suddenly and at scale. The ability to understand and track how economic announcements shape credit behaviour, whether the announcements are confirmed or not, is now business-critical.
The credit cushion is wearing thin
Recent XDS studies paint a clear picture of how South Africans are managing the squeeze. Credit card utilisation has risen steadily, not just as a function of increased spending, but as a stopgap for essential purchases such as groceries, utilities, clothing, and fuel.
Over the past five years, there has been a 13% rise in credit card utilisation, even as credit limits for new cards have dropped by 21%. This means many consumers are accessing more of their available credit, even with reduced ceilings, underscoring a growing dependence on revolving credit to cover essentials like food, fuel, and utilities.
Notably, the average number of new credit cards issued per month has surged by 39% - a clear signal that households are turning to credit more frequently to buffer against economic uncertainty. For many middle-income households, credit is no longer a financial tool, but a survival mechanism.
This trend isn't restricted to VAT announcements; it reflects a broader, more troubling reality: households are living closer to the financial edge, with fewer buffers in place. When a single policy proposal can stall retail spending and increase debt reliance, it becomes clear just how precarious the balance really is.
And yet, most lending frameworks still rely on backward-looking data and quarterly trends. By the time changes in consumer behaviour are reflected in reports, the impact may have already been embedded in default rates and missed payments. It's a delayed response to a fast-moving problem.
Hashtags
Try Our AI Features
Explore what Daily8 AI can do for you:
Comments
No comments yet...
Related Articles
IOL News
an hour ago
- IOL News
Count Me in Movement calls for reform of spaza shop regulations to support local businesses
The Count Me In Movement has decried the systemic exclusion of South African citizens and township business owners from accessing crucial government support as the nation grapples with a burgeoning informal retail sector. . Image: Independent Newspapers Archives The Count Me in Movement has taken a firm stand against the "systematic exclusion" of South Africans within the current Spaza Shop regulatory framework, calling in the process for a significant overhaul of South Africa's spaza shop regulatory system. The movement said the current system excludes township business owners from accessing crucial government support while the nation continues to grapple with a burgeoning informal retail sector. This comes after the recent government announcement of the R500 million Spaza Shop Support Fund (SSSF), which seeks to empower eligible South African spaza shop owners in both townships and rural areas, offering them a lifeline to improve, expand, and sustain their businesses. However, the Count Me in Movement argues that many local entrepreneurs remain locked out of this initiative, primarily due to excessive compliance burdens, fragmented registration processes, and pervasive barriers within the licensing system. Video Player is loading. Play Video Play Unmute Current Time 0:00 / Duration -:- Loaded : 0% Stream Type LIVE Seek to live, currently behind live LIVE Remaining Time - 0:00 This is a modal window. Beginning of dialog window. Escape will cancel and close the window. Text Color White Black Red Green Blue Yellow Magenta Cyan Transparency Opaque Semi-Transparent Background Color Black White Red Green Blue Yellow Magenta Cyan Transparency Opaque Semi-Transparent Transparent Window Color Black White Red Green Blue Yellow Magenta Cyan Transparency Transparent Semi-Transparent Opaque Font Size 50% 75% 100% 125% 150% 175% 200% 300% 400% Text Edge Style None Raised Depressed Uniform Dropshadow Font Family Proportional Sans-Serif Monospace Sans-Serif Proportional Serif Monospace Serif Casual Script Small Caps Reset restore all settings to the default values Done Close Modal Dialog End of dialog window. Advertisement Next Stay Close ✕ In a statement released on Friday, the movement appealed directly to Small Business Minister Stella Ndabeni-Abrahams, urging her to address these pressing challenges. They disclosed that while spaza shops play a pivotal role in township economies, a lack of streamlined and accessible compliance requirements often deters local operators from benefiting from government initiatives. "Despite playing a critical role in township economies, many of these businesses remain locked out of the Spaza Shop Support fund due to excessive compliance. burdens, fragmented registration requirements, and systematic barriers in the licensing process," it said. The movement said unregistered spaza shop owners, most of whom are undocumented foreigners have made the process very difficult for local spaza shop operators. "Adding to the challenge is the rapid proliferation of unregistered spaza shops, operated by undocumented foreign nationals, who are not subjected to the same inspections or regulatory scrutiny--creating an uneven and unfair playing field for local entrepreneurs. "Our local entrepreneurs are being set up to fail by a system that expects full compliance with scattered, expensive and inaccessible requirements. The current model disproportionately impacts South African spaza shop owners who lack the digital access, financial resources, or administrative support required to navigate complex state systems," the movement added.
The Star
4 hours ago
- The Star
Trump's Tariffs Must Sow the Seeds for a National Reawakening
Zamikhaya Maseti | Published 9 hours ago Zamikhaya Maseti On August 1, 2025 , South Africa will enter a zone of strategic economic pain, engineered not by global market fluctuations, but by the vengeful hands of conservative economic nationalism. The United States, under the reins of Donald J. Trump, will impose a 30 per cent tariff on all goods and products exported from South Africa to the American markets. This is not a policy of trade readjustment; it is a geoeconomic act of hostility. The justification, wrapped in the language of " reciprocity, " is in reality a strategic blow aimed at disciplining South Africa's geopolitical posture and diplomatic boldness. Trump's economic nationalism, which sits at the ideological centre of Conservative Republicanism, is not merely inward-looking. It is punitive, retaliatory, and profoundly regressive. It has shaken the global trade architecture, not to recalibrate it, but to bend it in favour of America's new mercantilist order. This doctrine does not merely target trade imbalances; it punishes defiance. South Africa is now paying the price for standing on principle, particularly for its posture on Palestine and its landmark case against Israel at the International Court of Justice. It is clear, painfully so, that South Africa is being economically strangled not for what it trades, but for what it believes. Some Western analysts, ever keen to defend the status quo, will dispute this. They will search for economic rationality in an act that is blatantly political. Let them continue their intellectual gymnastics. This moment calls for clarity, not politeness. The truth is that Trump's worldview is transactional and tribal, and in that logic, South Africa has become collateral. That South Africa is seen as an irritant in Washington's new world order is not coincidental; it is structural. And let it be said without fear, Trump's policy on South Africa is influenced not only by economic calculations but by the mythologies peddled by actors like AfriForum and Elon Musk, who have exported the lie of white genocide into America's political bloodstream. But this is not the time for victimhood, nor is it the moment for diplomatic lamentation. It is time for South Africa to do some difficult thinking and embrace a new, muscular pragmatism . Diplomatic efforts, however noble, are unlikely to change Trump's position. Minister Parks Tau and his diplomatic team may work tirelessly, but they are facing a political machine that does not respond to nuance. Trump's narrative is fixed , and in that narrative, South Africa is an unfriendly trading partner whose tariffs harm American interests. He argues, correctly or not, that South African import duties and market access protocols are unfavourable to US goods. That argument, however flawed, resonates with his domestic base, and therefore it will stand. The United States will not blink , and it will not backtrack . Thus, it is not sufficient for South Africa to hope against hope; it must respond. Minister Parks Tau, trade envoys, and industrial leaders must now do the hard intellectual and strategic labour of repositioning the country's economic posture. Nowhere is this urgency more pressing than in the automotive sector, a critical node of South Africa's manufacturing ecosystem. This sector is not only a source of direct jobs; it sustains a complex web of downstream industries, from component manufacturing and logistics to retail and after-market services. It is here that the 30 per cent tariff will hit hardest, and it is here that innovation, not inertia, must be summoned . The sector must accept that the American market , for the foreseeable future, has lost ground. The time has come for South Africa to pivot decisively toward other markets, especially those aligned with its economic diplomacy ambitions. The first option lies in the African Continental Free Trade Area (AfCFTA), the single largest integrated market on the continent , and the largest globally by number of countries. With over 1.3 billion people and a combined GDP exceeding $3.4 trillion, the AfCFTA offers South Africa a natural and politically friendly trading space. Sub-Saharan Africa, in particular, presents high-value demand for affordable, durable automotive products, especially among its emerging middle classes and youthful populations. Research shows that more than 60 per cent of the region's population is under the age of 25, representing a long-term demand curve that is not speculative, but empirically grounded. Yet, South African companies have been slow to leverage this opportunity. There remains an unhealthy fog of Afro-pessimism and the lingering delusion of South African exceptionalism. These intellectual blindfolds must be cast aside . Africa is not a dumping ground; it is a destination for growt h. The automotive industry must shift from waiting for trade to come to it and instead begin creating strategic partnerships in East, West, and Central Africa. This includes setting up joint ventures, service hubs, and low-cost satellite assembly plants across regional economic communities. The second and equally strategic option lies in a new industrial partnership with China. The presence and popularity of Chinese-made vehicles in the South African domestic market has reached a saturation point. They are competitively priced, technologically competent, and now represent a serious challenge to traditional brands. But if left unmanaged, this trend could lead to the hollowing out of South Africa's manufacturing base. South Africa must use its BRICS membership as a strategic lever. China must be persuaded to localise the manufacturing of its automotive brands in South Africa. This is not a charity request; it is a strategic proposal. Chinese companies should be invited to co-invest in high-tech manufacturing and assembly infrastructure in Eastern Cape, Gauteng, and KwaZulu-Natal. This could take the form of co-assembled production alongside legacy OEMs like Mercedes-Benz SA, which now face looming layoffs. The South African government must incentivise this localisation through targeted industrial policy, special economic zones, and technology-sharing frameworks. In this regard, the principle of ' South Africa Inc ' must be revived with urgency. Under President Cyril Ramaphosa, South Africa Inc refers to the coordinated use of economic diplomacy, government strategy, and business networks to advance national economic interests abroad. Its objectives are to integrate South African companies into key markets, attract strategic investment, and drive regional industrialisation. In Southern Africa, this approach has already delivered notable success, such as increased South African corporate presence in Zambia, Namibia, and Mozambique, particularly in retail, finance, and energy sectors. Now is the time to bring the automotive sector under this umbrella. South African diplomatic missions across Africa and Asia must be tasked explicitly with facilitating market entry, assembling policy frameworks, and brokering industrial partnerships for local manufacturers. This is not merely export promotion; it is the safeguarding of South Africa's industrial sovereignty. In conclusion, the Trump tariffs should not be seen as the end of a trade relationship, but as the beginning of a deeper national reawakening. The South African government must retool its economic diplomacy, its industrial incentives, and its regional vision. The automotive sector, in particular, must abandon old comfort zones and rise to this moment with the courage of imagination and the rigour of strategy. What is at stake is more than exports; it is the future of South Africa's industrial identity. * Zamikhaya Maseti is a Political Economy Analyst with a Magister Philosophiae (M. PHIL) in South African Politics and Political Economy from the University of Port Elizabeth (UPE), now known as the Nelson Mandela University (NMU). ** The views expressed do not necessarily reflect the views of IOL, Independent Media or The African.
The Star
4 hours ago
- The Star
SASKO upgrades 1 000 playgrounds in tribute to Mandela Month
In a powerful tribute to Mandela Month, SASKO has transformed playtime for thousands of children by upgrading 1 000 playgrounds at early childhood development centres and primary schools across South Africa, bringing joy, safety, and hope to communities nationwide. To celebrate the achievement of reaching 1,000 upgraded playgrounds, SASKO held a Mandela Day event at Ikaneng Combined School in Diepkloof, Soweto, on July 25. The school is one of many to benefit from the Siyasizana Play Better initiative. As part of the celebration, SASKO unveiled a special 1,000-slice loaf, a symbolic nod to both the milestone and Nelson Mandela's enduring vision for a better South Africa. The loaf was used to prepare sandwiches for the children of Ikaneng. The act of care extended to a local NGO that supports feeding initiatives for learners in the community, ensuring that the spirit of Mandela Day is not only celebrated but lived out. Launched in 2023, SASKO's Siyasizana Play Better initiative aims to bridge the gap in access to safe and quality play spaces at early childhood development centres and schools. Rooted in a spirit of care, the programme has invested over R10 million and relied on public participation, where South Africans nominated schools by purchasing SASKO bread. As a result, previously overlooked communities across Limpopo, Khayelitsha, Soweto, and Gqeberha now enjoy vibrant, inclusive play areas that spark creativity and joy. According to the South African Early Childhood Review, over 60% of young children in South Africa do not have access to safe, age-appropriate play facilities. Vilosha Soni, Chief Marketing Officer at PepsiCo South Africa, said SASKO is committed to ensuring that all children have the chance to enjoy safe play, feel valued, and experience a sense of belonging. 'SASKO believes every child deserves the right to play, to be safe, and to feel like they matter. These playgrounds represent more than structures; they are symbols of dignity and hope.' She further said the initiative reflects what it means to put care into action, highlighting how lasting change is possible when consumers, communities, and businesses work together. SASKO partnered with Buco, which helped bring a positive impact to schools by providing building materials for our playground structures. Lesego Moagi, Group Marketing Executive at Buco, said that as a brand firmly rooted in local communities, Buco recognises that meaningful change comes from creating safe, supportive spaces where children can thrive. He added that Buco has witnessed firsthand how the lack of safe and functional infrastructure continues to hinder learners' growth and potential. 'We've seen how the absence of safe, functional infrastructure continues to hold learners back, particularly in the foundation years where care, safety, and stimulation matter most. Contributing to the Siyasizana playgrounds has been aligned with our broader commitment to supporting education as a driver of social and economic development,' said Moagi. SASKO aims to reach 5 million children by 2030, working to make play a fundamental right rather than a privilege. The brand intends to strengthen partnerships with NGOs and government bodies to expand its impact and bring meaningful change to underserved communities. The Star [email protected]
