Momentum in economy continues despite VAT and other tax hikes - index

The South African economy continued to grow despite the various tax increases that came into effect at the beginning of April, according to BankservAfrica’s Economic Transaction Index (BETI).

The latest BETI reflects growth across all measurement periods in April. Consumer confidence was at its strongest in the first quarter of 2018, reflecting the economy’s growth despite the changes in value-added tax, according to the BETI report.

“With the VAT increase, new sugar tax, higher excise tax as well as higher fuel tax, one expected a slower month in April. But the fact is that there was m/m growth, albeit at a slower rate. This indicates there is some underlying momentum in the economy,” says Mike Schüssler, chief economist at Economists dotcoza.

That the index is showing its sixth month without any decline bodes well for the country's growth prospects this year, according to the report. The last period SA saw the BETI with six consecutive months without declines ended in August 2013.
 
“Although the BETI reflected a slightly slower monthly growth of 0.2% in April – which was expected due to the incoming taxes at the beginning of the month – this is still double the average 0.1% monthly growth rate over the last three years,” says Shergeran Naidoo, head of stakeholder engagement at BankservAfrica.
 
He adds that the April rate was about half the 0.4% month-on-month (m/m) growth rate between March and February. However, the BETI in April 2018 was 2.8% higher than in April 2017.

Although slightly lower compared to March’s year-on-year growth of 3.3%, April 2018’s figure still shows the strength of the South African economy at the start of the second quarter, according to the report.

Slight decline

The BETI transactions declined slightly in April to 96.9 million from a record set in March of 101.4 million, according to Naidoo. However, on a year-on-year basis, the number of transactions in April grew by 10%.

Naidoo cautions that these figures should be viewed in line with measurement. The BETI adjusts for weekdays but the transactions are not adjusted for weekdays. March had three more weekdays due to the holiday calendar, which could be the reason for the fall in transactions.
 
Schüssler believes the slight decline could also be attributed to the pre-emptive buying that took place in March for goods priced on the lower VAT rate.

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