Monday, March 22, 2010

The big tax debacle and are middle class South Africans really coping?

I first read this article on Salmagundi's Blog and was really shocked to realize "Hey that's my situation"


South Africa’s middle classes – the backbone of our tax systems – aren’t coping with their expenses. Economist David Roodt pointed out that people earning between R100 000 and R500 000 a year (that’s between about R8 000 and R40 000 a month) are ‘most definitely taking huge stress’: ‘They are the taxpayers in the economy,’ he said, ‘but they are not at the receiving end of the (money raised in) taxes.’

The Sunday Times article accused the middle classes of irresponsible spending during the ‘fat’ times – taking advantage of easy credit, the article says, they ‘splurged on homes and cars’ and ‘did not save’.

Costs have rocketed astronomically – but our earnings haven’t; in fact, most of us are earning the same today as say five years ago! As time went by and we realized earnings weren’t keeping up with our expenses, We cut back:

Time passed and things didn’t improve. Electricity prices rose, petrol prices went through the roof, food became significantly more expensive. We rebonded our properties and, of necessity, began drawing a little money out of the surplus each month to pay our bills.


When that avenue dried up most of us tried to sell our properties the problem, of course, is that we are South Africa's middle class, and the properties we’re trying to sell are middle-class properties – in other words, we’re trying to sell our assets to people who’re in the very same boat as we are. We’d dearly love to sell our properties and alleviate our debt loads, but we can’t: the people we’re trying to sell them to don’t have the money to buy them! The South African middle class is fast running out of ready cash.

Almost two years ago, in July 2008, a hearing held by the US’s congressional Joint Economic Committee warned of exactly this situation in America: what was happening financially in that country, they said, wasn’t just a middle-class ‘squeeze’ but the beginnings of an actual collapse.

At the hearing, Harvard law professor Elizabeth Warren pointed out that while inflation-adjusted average household income in America had declined by $1 175 since 2000, basic expenses for an average household had increased by more than $4 600. She said, ‘Seven years of flat or declining wages, seven years of increasing costs, and seven years of mounting debts have placed unprecedented stress on ordinary families. By every critical financial measure, these families are losing ground … the strong middle class that has been the backbone of the American economy … is in jeopardy.’

What happens when the middle class collapses? When most of us have lost our jobs and/or our houses, and can’t support ourselves, never mind pay the taxes that keep the country running?

It’s a worrying scenario in a country full of people who want everything for nothing where riots erupt for services however when those services do become available nobody wants to pay for them! When the middle class get tired of been milked what will happen? Well that time is fast approaching the middle class are being taxed to death to carry the non paying class or the class who feel entitled to it all at no cost.
It’s a model that was doomed from the start it’s just a matter of time!