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% 4.5% 4.0% 3.5% 3.0% 2.5% 2.0% 1.5% 1.0% 0.5% 0.0% Lower 2 3 4 5 6 7 8 9 Upper 6,000 5,000 4,000 3,000 2,000 1,000 - Rand per year % I&E 2005/06 % LCS 2008/09 Average % I&E Average % LCS Average (R) LCS Average (R) I&E
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 GDP 2009 (Rm) 2 395 967 2 395 967 2 395 967 Total implied employment 12166 418 12166418 12166418 Direct impact (Rm) -100000-100000 -100000 GVA (Rm) -146731-190958 -115012 Householdexpenditure -132099-153348 -183272 GVA as a % of GDP -6.12% -7.97% -4.80% Employment -704 026-5.8% -652 400-5.4% -553 395-4.5% Highly skilled -115272-0.9% -111611-0.9% -92342-0.8% Skilled -281185-2.3% -267173-2.2% -224779-1.8% Semi-skilled and unskilled -182711-1.5% -153565-1.3% -131521-1.1% Formal -579167-4.8% -532349-4.4% -448641-3.7% Informal -124859-1.0% -120050-1.0% -104754-0.9%
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 1-5% -5% -10% Decile 2-6% -5% -10% Decile 3-6% -6% -10% Decile 4-7% -7% -11% Decile 5-7% -7% -11% Decile 6-7% -8% -11% Decile 7-7% -8% -10% Decile 8-7% -8% -10% Decile 9-7% -9% -9% Decile 10-7% -9% -9%
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 Sector impacts Tariff Income VAT -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 vsreal prices (monetary illusion impact of inflation); R153 billion from tax recycling? Given model limitation period of impact estimation.
Thank you