Tuesday, 13 March 2018

VAT hike may affect inflation and salary increases: Reserve Bank

As part of the annual budget speech, former finance minister Malusi Gigaba confirmed that there will be a rise in the effective VAT rate – from 14% to 15% – from 1 April 2018. This, combined with other changes such as an increase in the fuel levy, has given rise to fears that the inflation rate and interest rates will both take a knock.

Speaking to Reuters on Tuesday (13 March), Brian Kahn, one of the Reserve Bank’s top policymakers said that the central bank expects the hike in VAT to lift inflation by around 0.6 percentage points over the coming year, though it doesn’t expect to raise interest rates in response. "With inflation targeting, you try and look through exogenous shocks, particularly temporary ones and this is a one off," Kahn told Reuters on the sidelines of investor meetings in London, "there may be a few second round effects, it may affect wage increases in the following years, so we expect a moderate, very small increase in the following year as a result of that".

But it is something that can not be reacted to by raising rates. This rise in VAT is a big problem almost to everyone since it is going to also affect fuel prices , food prices.

For more information:

https://businesstech.co.za/news/finance/231273/vat-hike-may-affect-inflation-and-salary-increases-reserve-bank

2 comments:

  1. an increase in vat is not a good thing cause it automatically makes an increase in food prices, on the other side also the salaries of worker must increase due to an increase in vat and grands must also increase.

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  2. this increase in vat is a bad thing because poor people have less to spend overall, so they need to spend larger proportion of their total income to buy what they need than wealthy people. so i think things that are essential so survival should be zero rated vat, things such as groceries and clothing.

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