Middle-class anchor of our economy is under threat

The severity of the financial squeeze on middle-income earners is laid bare by new research that shows that about one in five South Africans earning between R360000 and R480000 a year is financially vulnerable and lives from day to day.

A report by Unisa's Bureau of Market Research and credit management company MDB says a further two in five families are financially exposed and would be at risk of slipping into the financially vulnerable category if their cash flow were reduced.

These are not struggling unskilled workers - we are squarely in middle-class territory here: office employees, public servants, skilled industrial workers, small business owners.

This is the category of South Africans who face the prospect of increased taxes as Finance Minister Nhlanhla Nene tries to raise billions of rands to reduce the budget deficit to the targeted 4.1%.

The research suggests that these citizens - the people who drive sales of cars and consumer electronics, and who contribute disproportionately to the revenue of the retail sector - could find themselves paying between R200 and R500 a month more in tax.

In such a scenario, household consumption expenditure, a major driver of our economy, would be curbed as middle-income consumers, already burdened by rising food and administered prices, such as those for electricity and fuel, further tighten their belts.

It is not inconceivable that another effect of increased taxes on middle-income consumers will be social and political instability.

One of the crowning achievements of our young democracy is the rise of the black middle class. Although this has fuelled consumption expenditure, too many households have failed to convert their rising incomes into property ownership.

Squeezing distressed households further could push them back into poverty. History teaches us that rising expectations coupled with economic adversity is a lethal mixture.