Picture: THINKSTOCK
Picture: THINKSTOCK

WHILE the substantial drop in the price of diesel announced on Thursday is welcome news for consumers‚ it won’t offset the increase in food prices caused by the drought‚ economists caution.

They say that while the 78 cents a litre decrease in the diesel price will bring some relief to battered consumers who depend on road transportation to convey most of the commodities they consume including food‚ the impending increase in the price of food is going to offset this drop.

The 3 cents a litre drop in the petrol price will also have hardly any effect at all‚ they add.

Neil Roets, CEO of debt management firm Debt Rescue‚ said the decrease could have been substantially more had it not been for the drama surrounding the dismissal of the previous finance minister and the impact it had on the South African currency.

"The problem is that the severe drought in especially maize producing areas is going to lead to substantial increases the price of all foodstuffs including staples like maize and wheat.

"The government is between a rock and a hard place because it is unable to balance its budget by cutting state spending while taxes are no longer covering the glaring shortcomings in the budget.

"Corporate tax is already among the highest in the world and it would severely impact the economy if Pravin Gordhan decides on an increase in this sector‚" Roets said.

Independent economist Dawie Roodt said tax on individuals had also pretty much reached its limit because there were simply not enough rich people in the country to fund an increase.

"What we are left with is VAT and while this would be the most equitable tax because it taxes everybody‚ the mainly black and poor electorate will simply not stand for this."

Mr Roodt said the same tactics that brought the government to its knees on the issue of university fees would be used to put a stop to an increase in VAT.

TMG Digital