South Africa’s hidden tax
Inflation is a hidden tax that many South Africans are unaware of. Economist Thomas Sowell said it is a way to take people’s wealth from them without openly raising taxes.
Inflation shows how much more expensive goods and services have become over a certain period, usually a year. This sounds innocuous.
However, inflation can also be seen as the deterioration of money’s purchasing power. Economist Dawie Roodt defines it as “money losing its value”.
This means the R10 you saved last year will now be worth significantly less. It will not buy you the same products and services as when you saved it.
The root of inflation is typically an increase in the money supply. This happens when a government prints more money and puts it into circulation.
With more money in the system, prices increase, measured as inflation. It is also a measure of how much the value money has lost.
Sowell said once people see the true value of money, they will never look at taxes the same way again. “The fact that people are not told inflation is a tax is the real problem,” he said.
He described inflation as a hidden tax that reduces money’s purchasing power, disproportionately affecting the poor and middle class.
He added that inflation is often caused by government policies, such as excessive money printing and deficit spending.
Inflation erodes savings and discourages investment, leading to slower economic growth and less prosperity.
Roodt echoed Sowell’s views. “Inflation reduces our buying power, erodes our savings, and creates social tensions between groups,” he said.
He explained that the rand’s value had declined by 99% since 1970. “That means if you had R100 in 1970, it would be worth the same as R1 today,” he said.
This is why Roodt supported the South African Reserve Bank’s (SARB’s) aggressive interest rate increases in recent years.
By increasing interest rates, the SARB tried to cause enough pain in the economy to limit spending and reduce inflation.
Therefore, the SARB must continue to maintain high interest rates to prevent inflation from getting out of hand.
Bracket creep is a good example

Bracket creep is a good example of the impact of inflation on how much personal income tax people pay.
Bracket creep occurs when salary increases, driven by inflation, push taxpayers into higher income tax brackets.
This year, Finance Minister Enoch Godongwana did not increase personal income tax. However, he also did not adjust tax brackets for inflation.
The result is that South Africans will have to pay an additional R16.3 billion in personal income tax in 2024.
Traditionally, the government adjusts tax thresholds annually to counteract the effects of inflation. However, for 2024, these thresholds stayed the same.
Thus, if an inflation-related raise is given, earners may be pushed into a new tax bracket and pay more tax.
Through salary increases, many who previously fell outside the R95,750 per year income tax threshold will also be pushed into the taxpaying population.
So, while South Africans breathed a sigh of relief as the 2024 Budget avoided any rate increases to income tax, they will still end up handing over more money to the government.
The result is that individuals are expected to pay R16 billion more in tax during the 2024/25 fiscal year, R17.3 billion in 2025/26, and R18.6 billion in 2026/27.
This illustrates how inflation extends well beyond destroying the value of money. It can also result in paying higher taxes without tax increases.
It explains Sowell’s warning that inflation is a way for a government to take people’s wealth from them without having to openly raise taxes.
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