Effect of tariff increase on residential
sector – preliminary results
Dr Johannes C Jordaan
Scope
• Impact on residential sector (i.e. households)
• Impact of:
– nominal tariff increases, 2x25% in 2013 and 2014 and
inflation in 2015 and 2016;
– nominal tariff increases, an alternative of 3x18% in 2013 –
2015 and a CPI increase in 2016;
– an increase in the VAT rate to account for the same
amount (2x25%) between 2013 and 2016, and
– an increase in the personal and corporate income tax rates
to account for the same amount (2x25%) needed between
2013 and 2016.
Background
• Household expenditure on electricity as % of
total expenditure
5.0%
6,000
4.5%
5,000
4.0%
3.5%
3.0%
2.5%
3,000
2.0%
2,000
1.5%
1.0%
1,000
0.5%
0.0%
Lower
2
3
4
5
6
7
8
9
Upper
% I&E 2005/06
% LCS 2008/09
Average % I&E
Average % LCS
Average (R) LCS
Average (R) I&E
Rand per year
4,000
Methodology
• Social accounting multiplier analysis (using a SAM
with a Leontief inverse matrix).
•
= identity matrix
= Demand vector (how much, in for example rand terms,
is the change in demand by consumers).
Methodology – advantages and
disadvantages
• Analyses of economy, as an interconnected
system, is possible (direct and indirect affect);
• Easier to use than CGE modelling;
• Built using 2009 data (before recent tariff
increase);
• Multipliers - linear relationship (constant returns
to scale, no substitution effects);
• System is assumed to be in equilibrium, no
considerations is given to price effects;
• No capacity constrain in the model.
Assumptions: Tariff increase
Assumptions:
• Reduction in household and business expenditure is equal to the size of
the tariff increase;
• This reduction in expenditure (lower demand) is weighted according to the
2009 expenditure on electricity (for both households and businesses);
• No provision has been made for a decrease in electricity consumptions as
a result of the price increase (price elasticity of demand);
• No provision has been made for ‘block’ tariff changes;
• According to the SAM, households share of electricity tariffs is 26.4% and
businesses' share is 73.6%;
• Using data from the SAM, a R100 billion rand increase in the tariff will
result in a 112% increase (for all).
Note: R100 billion is assumed for this presentation – The final research and
presentation will have the calculated real increases.
Assumptions: income tax increase (CIT
and PIT)
Assumptions:
• A rand amount is calculated per sector for CIT given the current
profit per sector and the share of CIT payable (in 2009);
• A rand amount is calculated per income group for PIT given the
current share of PIT paid, income per education group is decreased
given the share of PIT payable (in 2009);
• A reduction in income will result in a decrease in demand;
• Income tax is 60% of government revenue;
• According to the SAM households pay 56% of income tax and
business 44%;
• For R100 billion,
– Corporate tax rate will have to increase with 15% (from 28% to 32%)
(or 26.5% effective from 15.7% to 26.5%)
– Personal income tax rate (effective) will have to increase with 26.5%
Assumptions: VAT
Assumptions:
• A relative effective percentage VAT is calculated per
sector (sales tax) and combined with household
expenditure per sector (for each household income
group);
• It is assumed that households carry the full VAT
burden;
• No provision has been made for changes in elasticities
per sector;
• Sales tax are 30% of government revenue;
• For R100 billion
– VAT rate increase with 52.9% (from 14% to 21.4%) (only
looking at sales tax)
Preliminary results: Impact of
R100 billion (excluding Eskom tax impacts)
Tariff
Income tax
VAT
2 395 967
2 395 967
2 395 967
12 166 418
-100 000
-146 731
12 166 418
-100 000
-190 958
12 166 418
-100 000
-115 012
Household expenditure
GVA as a % of GDP
-132 099
-6.12%
-153 348
-7.97%
-183 272
-4.80%
Employment
-704 026 -5.8%
-652 400
-5.4%
-553 395 -4.5%
Highly skilled
Skilled
Semi-skilled and unskilled
Formal
Informal
-115 272
-281 185
-182 711
-579 167
-124 859
-111 611
-267 173
-153 565
-532 349
-120 050
-0.9%
-2.2%
-1.3%
-4.4%
-1.0%
-92 342
-224 779
-131 521
-448 641
-104 754
GDP 2009 (Rm)
Total implied employment
Direct impact (Rm)
GVA (Rm)
-0.9%
-2.3%
-1.5%
-4.8%
-1.0%
-0.8%
-1.8%
-1.1%
-3.7%
-0.9%
Preliminary results: Impact of
R100 billion
Factors of Production: Labour
Tariff
Income
VAT
Labour with primary school education (grades 1-7)
-6%
-8%
-5%
Labour with middle school education (grades 8-11)
-6%
-9%
-4%
Labor completed sedondary school education (grade 12)
-5%
-10%
-4%
Labor with tertiary education (certificates, diplomas or degrees)
-5%
-11%
-4%
Households
Decile 1
Decile 2
Decile 3
Decile 4
Decile 5
Decile 6
Decile 7
Decile 8
Decile 9
Decile 10
-5%
-6%
-6%
-7%
-7%
-7%
-7%
-7%
-7%
-7%
-5%
-5%
-6%
-7%
-7%
-8%
-8%
-8%
-9%
-9%
-10%
-10%
-10%
-11%
-11%
-11%
-10%
-10%
-9%
-9%
Sector impacts
Tariff
0
Agriculture
Forestry
Fisheries
Coal mining
Other mining
Food processing
Beverages & tobacco
Textiles
Wearing apparel
Leather products
Footwear
Wood products
Paper products
Printing & publishing
Petroleum products
Basic chemicals
Other chemicals
Rubber products
Plastics
Glass products
Other non-metallic minerals
Basic iron & steel
Non-ferrous metal
Metal products
General purpose machinery
Electrical machinery
Radio & television equip.
Medical equipment
Vehicles & parts
Other transport equipment
Furniture
Other manufacturing
Electricity & gas distribution
Water distribution
Construction
Wholesale & retail trade
Hotels & catering
Transport
Post & communications
Financial services
Insurance & pensions
Real estate activities
Research & development
Rental services
Other business activities
Public administration
Education
Health
Other services
-10000
VAT
Income
-20000
-30000
Agriculture
Forestry
Fisheries
Coal mining
Other mining
Food processing
Beverages & tobacco
Textiles
Wearing apparel
Leather products
Footwear
Wood products
Paper products
Printing & publishing
Petroleum products
Basic chemicals
Other chemicals
Rubber products
Plastics
Glass products
Other non-metallic minerals
Basic iron & steel
Non-ferrous metal
Metal products
General purpose machinery
Electrical machinery
Radio & television equip.
Medical equipment
Vehicles & parts
Other transport equipment
Furniture
Other manufacturing
Electricity & gas distribution
Water distribution
Construction
Wholesale & retail trade
Hotels & catering
Transport
Post & communications
Financial services
Insurance & pensions
Real estate activities
Research & development
Rental services
Other business activities
Public administration
Education
Health
Other services
0
-10000
-20000
-30000
Agriculture
Forestry
Fisheries
Coal mining
Other mining
Food processing
Beverages & tobacco
Textiles
Wearing apparel
Leather products
Footwear
Wood products
Paper products
Printing & publishing
Petroleum products
Basic chemicals
Other chemicals
Rubber products
Plastics
Glass products
Other non-metallic minerals
Basic iron & steel
Non-ferrous metal
Metal products
General purpose machinery
Electrical machinery
Radio & television equip.
Medical equipment
Vehicles & parts
Other transport equipment
Furniture
Other manufacturing
Electricity & gas distribution
Water distribution
Construction
Wholesale & retail trade
Hotels & catering
Transport
Post & communications
Financial services
Insurance & pensions
Real estate activities
Research & development
Rental services
Other business activities
Public administration
Education
Health
Other services
0
-10000
-20000
-30000
Questions
• Calendar years vs ‘tariff periods’;
• Effective % tariff increases (Redistributor/
municipality);
• Constant prices vs real prices (monetary
illusion impact of inflation);
• ‘R153 billion from tax ‘recycling’?
• Given model limitation – period of impact
estimation.
Thank you