A credit deposit shock is on my budget wish list
By Quentin Wray
February is just around the corner, and with February will come the national budget and the traditional slew of predictions and wish lists.
Finance minister Trevor Manuel has been on the job for more than a decade now and one characteristic of his watch has been the shortage of surprises. We have come to expect no more than one per budget speech.
As a citizen who pays far more tax than I would like to every month, I must admit to liking the air of certainty that surrounds South Africa's fiscal direction. I like to know there are checks and balances in place that will make it difficult for departments to waste too much money.
There are some areas where waste and corruption are apparent, but compared with many other developing countries, which can only be described as kleptocracies, we run a very tight ship.
I also like the fact that I am unlikely to find myself having to cough up more every month following surprise hikes in tax rates.
However, as a journalist tasked with the job of covering the budget every year, there is a part of me that would like it if Manuel for once made my job easier by doing something uncharacteristically foolish. There's nothing like a good shock to make a story write itself.
As this is unlikely, we will probably be relying on sober analysis and reflection again this year.
The unions and other leftist groups will no doubt again decry the fact that the budget is so business friendly, while business and the right will moan about the fact that Manuel should have cut taxes more.
For this year's surprise, I am backing Brait economist Colen Garrow's suggestion that Manuel should reintroduce regulations that will force people buying assets on credit to pay a deposit.
At the moment, customers can buy white goods, cars and even houses without paying any deposit. This has made it dead easy for people to buy things on credit and, as a result, credit extension has surged to stratospheric levels.
This has all sorts of consequences. Savings levels remain low because people pay instalments rather than save and people remain vulnerable to the spectre of higher interest rates.
The normal tool to curb credit extension is interest rates. This would undoubtedly work - but it would also slow growth and curb job creation.
On top of this, the Reserve Bank, which is responsible for setting interest rates, is only tasked with governing inflation and not intermediate measures such as credit.
Given that inflation is under control, thanks to moderating oil prices and the stable rand, the bank will be loathe to hike rates merely in response to rising debt levels.
The reintroduction of deposits for hire purchase and lease agreements would slow credit extension down without all the other negative consequences a rate hike would have for the rest of the economy.
It would mean that before you changed your car or your house, you would have to either save cash or pay off enough of your current debt to build up some equity in your asset.
Either way, it would slow down the rate at which people churn their assets. As debt was paid off and savings accrued, the net debt position of South Africans would improve.
Of course, if this is done, there will be an outcry from the financial institutions and retailers. But given the cynical way they have been lending money ahead of the introduction of new credit laws, we could be forgiven for not caring too much.
Article from http://www.busrep.co.za/
Posted by: www.southafrica-carhire
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Labels: South Africa - Economy
