GOVT SHOULD CUT TAXES, SUBSIDISE BREAD, FUEL - ECONOMISTS

MANZINI – As consumers are headed for the worst, due to the escalating cost of living, government should cut taxes or subsidise bread and fuel, says economists.

The economists said this following that this month’s payday will offer minimal groceries to consumers, as bread will increase by E2.88 while fuel will, as of tomorrow, cost E2.30 more per litre. The increment of fuel per litre was announced by the Principal Secretary in the Ministry of Natural Resources and Energy, Dorcas Dlamini. In a press statement, announcing the third fuel hike this year, Dlamini said all the fuel prices would increase by E2.30 per litre effective tomorrow.

Increase

She said the volatile international oil market situation, coupled with the weaker Lilangeni/Dollar exchange rate, necessitated the fuel price increase.  The PS said the crude oil prices increased to an average of US$118 (E1 882) per barrel in the month of June 2022, from an average of US$110 (E1 728.10) a barrel, realised in the month of May 2022. “The Lilangeni/Dollar exchange rate slightly appreciated and averaged E15.71 in the month of June 2022 as compared to the E15.95 realised in the month of May 2022,” she said. Dlamini said the persistent increase in the international oil prices was a result of the persistent geopolitical tensions between Russia and Ukraine, which were disrupting the global oil supply.

Prices

In light of this, Dlamini said the new fuel prices would result in Unleaded Petrol (ULP 95) increasing from E21.55 per litre to E23.85 per litre, while diesel (0.005%S) shall now retail at E24.40/litre as it will increase from E22.10/litre. On the other hand, as of midnight, the paraffin price will increase from E16.85 to E19.15 per litre. When announcing the increment, the PS said the ministry encouraged the public to use fuel efficiently as the international oil markets and the Lilangeni / Dollar exchange rate remained highly volatile.

Meanwhile, this publication yesterday reported that a bread price hike of 20.76 per cent had been approved by Cabinet, which would see loaf of bread weighing 800 grammes retailing at a maximum of E16.73 while brown bread shall cost E14.58. Against the backdrop of these increments, government on Monday announced that civil servants had been awarded a three per cent cost-of-living adjustment (CoLA) of monthly salary across the board with effect from April 1, 2022. In addition to this, the parties also agreed on an additional once-off payment of one per cent of annual basic salary across the board.

In light of these contrasting developments that have been announced in the past three days, this publication sought an understanding from economists on what could be the solution to the escalating cost of living. Thembinkosi Dube opined that an immediate solution would be for government to cut taxes in order to cushion consumers from the high inflation. Dube said this move would assist in putting back money into the pockets of the consumers. “Cutting back taxes will offer consumers disposable income and in turn sustain businesses. Without disposable income, people will not be spending as they will not afford most of the basic commodities,” he said.

However, Dube was quick to highlight that the downside to this would be that government had already set a national budget which was partially funded by the taxes remitted by the citizenry. He said if these taxes would be cut, there was a high possibility for its programmes being stalled and or affected. Dube said these programmes which stood to be disrupted included free primary education (FPE) and orphaned and vulnerable children (OVC) grants, among many.

Alternative

The economist said an alternative would be for government to subsidise the price of bread, as it was a staple food. He said this would assist consumers to have sufficient disposable income. Dube said if consumers had limited disposable income, some commodities would not be bought. These commodities, he said, included entertainment and groceries that an individual could do without. “Government has to see a way of increasing the disposable income, which is the tax or subsidising bread so that businesses don’t go under. However, government needs the money as well, which results in a paradox as we don’t know who has to start to pay who.”

Meanwhile, University of Eswatini (UNESWA) Economics Lecturer Sanele Sibiya said this was quite an unfortunate situation that the country was faced with, as it was global economics and there were minimal options for the country. He said a challenge with a tax relief was that the economy was already operating on a deficit. Sibiya said government had already tried to minimise fuel levy through the E93 million for retailers.

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