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So we know that the South African government likes nothing more than to increase "sin taxes" or those taxes levied on alcohol and tobacco products, ever single year when the budget speech takes place.
While "sin taxes" keeps going up every year, consumption and demand for alcohol and tobacco seems to be inelastic to such tax increases, people tend to buy regardless of the increasing taxes and costs of these goods. |
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Is fiscal policy fueling inflation which monetary policy attempts to curb?
So by just how much are these so called "sin taxes" being increased? Are they (the South African government) increasing the sin taxes at the same rate as inflation or are they increasing by more than inflation? Anything more than inflation means that government is actually fueling inflation by pushing up tax increases more than inflation (where inflation is attribute to cost pressures such as higher taxes it is known as cost push inflation) and this will see the South African Reserve Bank (and its monetary policy committee) raise interest rates to try and curb inflation even though the inflation is caused by factors outside of consumers control, consumers will bear the brunt of not only higher taxes on products they consume but because of the higher sin taxes they will soon have to deal with higher interest rates too. See more about South Africa's inflation rate here.
The bar chart below shows the nominal and real changes of the various "sin taxes" for the 2019/2020 financial year.
The bar chart below shows the nominal and real changes of the various "sin taxes" for the 2019/2020 financial year.
So the nominal change in tax shows the percentage change in the tax for a particular product of alcohol or tobacco before the effects of inflation has been removed. The real change in tax shows the percentage change in the sin taxes announced during Tito Mboweni's budget speech after the effects of inflation has been removed. Basically the real change shows if the increase in taxes announced is higher or lower than the inflation rat. Thus a positive real change in tax shows above inflation increases in the "sin taxes" announced. The only category where there was a negative real change in "sin taxes" was in Traditional African Beer and Traditional African Beer powder. This is because no increase in "sin taxes" for Traditional African Beer was announced, thus the real increase is negative. 0% increase and 5.2% inflation deducted gives us a -5.2% real change. All other "sin tax" categories saw positive real changes in "sin taxes" or stated differently "sin tax" increases well above the levels of inflation.
The summary below shows the real changes in "sin taxes" for various alcoholic beverages and tobacco related products. Sorted from highest to lowest real change in taxes:
So the average real increase in "sin taxes" excluding traditional African beer is 2.7%, while the inflation rate used in the calculation was sitting at 5.2%. So Treasury increased the average "sin" tax by 51% more than the inflation rate used. This will have an inflationary effect in alcoholic beverages and tobacco as measured in the South African consumer price index. We hope the South African Reserve Bank (SARB) takes note of this and knows any inflationary pressure that comes from increased taxes is not the fault of the consumer and raising interest rates will hurt the economy more than sitting with a temporary inflation increase caused by cost push factors such as rising "sin taxes". See more about Alcohol price behaviour here.
- Sparkling wine: 3.8%
- Pipe tobacco: 3.8%
- Cigars: 3.8%
- Malt beer: 2.2%
- Unfortified wine : 2.2%
- Fortified wine : 2.2%
- Ciders and alcoholic fruit beverages: 2.2%
- Spirits: 2.2%
- Cigarettes: 2.2%
- Cigarette tobacco: 2.2%
- Traditional African beer : -5.2%
- Traditional African beer powder: -5.2 %
So the average real increase in "sin taxes" excluding traditional African beer is 2.7%, while the inflation rate used in the calculation was sitting at 5.2%. So Treasury increased the average "sin" tax by 51% more than the inflation rate used. This will have an inflationary effect in alcoholic beverages and tobacco as measured in the South African consumer price index. We hope the South African Reserve Bank (SARB) takes note of this and knows any inflationary pressure that comes from increased taxes is not the fault of the consumer and raising interest rates will hurt the economy more than sitting with a temporary inflation increase caused by cost push factors such as rising "sin taxes". See more about Alcohol price behaviour here.