Day 124: Desperate Borrowing Behaviour

Whereas loans used to be mainly for big expenses, such as buying a car or renovating a house - personal finance research unit head, Bernadene de Clercq explains how South Africans have resorted to borrowing from credit providers to pay for food, transport, medical bills, school fees and electricity bills.

Prices of electricity and fuel have increased significantly over the past few years - which is a factor that was not taken into account at the time when loans were taken out. This resulted in a situation where people are now unable to pay back their debts - leaving them little choice but to create more debt in order to provide for themselves.

This is obviously a big problem because no-one can get out of a hole by digging the hole deeper. The situation is exacerbated by the fact that electricity prices are expected to continue rising with an annual increase of 16%, and this for the coming 5 years.

Inability to pay back debts will cause more and more to resort to crime to provide for themselves, which will further jeopardize social and political stability - while appropriate use of the word 'stability' is already questionable.

South Africa is on a dangerous roads - where investors are starting to shy away from investment opportunities, fearing that the economy and state will collapse. A cutting of investment spending in the South African economy will hamper economic growth and further aid its downfall - causing prices to drop, unemployment to grow and crime to rise more...

An Equal Money System will not allow money to determine who gets what, loans will not be necessary, no one will be a slave to debt and entering crime to provide for oneself will no longer come up in anyone's mind. We live in a messy, chaotic world where everything is continuously changing and threatened with instability and even collapse - we don't have to live in a world like this - we are choosing to through the simple thought that 'we can never change what is here'.

This one thought is our God as it dominates our lives and in the name of this one thought, we allow billions to suffer every day - while there is a way - a simple way - educate yourself at www.equalmoney.org and bring out your vote!

Related articles

• Day 94: How is Money Created?
• Day 118: Drop in Agricultural Farmland Threatens South African Food Security
• Day 85: Financing Government Expenditure
• Day 110: Evilution - Neocolonialism
• 106: Structural Adjustment

Day 85: Financing Government Expenditure

There are three ways a government can finance its expenditure (and where usually all three are being employed): taxes, borrowing and income from property.

Taxes and borrowing are quite straightforward ( though we will dig deeper into the tax point later), but 'income from property' might need some additional explaining. Income from property basically refers to the income the government receives from for instance publicly owned enterprises, rent (eg. mining rights) and other forms of charges and license fees. When all of these are added up, they however only result into a very small proportion of the income of the government. In general, taxes will be where the major share of income originates, but is usually also not sufficient to cover all of the government's expenditure.

As seen in the previous blog, the difference between government income and government expenditure is called the 'budget deficit'. In order to finance this gap, the government will turn to borrowing.

As we all know, borrowing creates debt -- and as such, government borrowing will increase public debt. As the debt increases, so will the interest burden which also affects future generations as they will sit with the debts from those who were in government positions before them, and so when borrowing occurs, we are basically spending money at the expense of future generations which will have to pay this debt off. Because of this implication, borrowing will only be seen as justified when it is done in relation to capital investments which are expected to yield a return which will 'set off' the incurred debt.

Taxation

Taxes are compulsory payments which go to the government, and as we said before -- make up the largest share of government revenue.

There are three different types of taxes which each their own sub-categories: 1) Direct and Indirect Taxes, 2) General and Selective Taxes and 3) Progressive, Regressive and Regressive Taxes.

Direct taxes are also sometimes referred to as taxes on income and wealth. Direct taxes are levied on 'persons' (companies can also constitute as 'persons').  This tax includes personal income tax, estate duty and company tax. Indirect taxes on the other hand, are levied upon transactions and are usually paid by those who will be consuming the good or service in question. VAT, customs, and excise duties are examples of indirect taxes.

While for instance VAT is an indirect tax it is also a general tax. It is a general tax because it is levied on most goods and services. Excise duties are also an indirect tax, but can further be classified as being a selective tax since it is levied on specific goods only (eg. Fuel, alcohol, tobacco).

We can differentiate between progressive, proportional and regressive taxes based on the ratio of tax paid to taxable income.

A progressive tax is a tax where the ratio of tax paid to taxable income increases as taxable income increases. This implies that people with higher incomes will pay a larger percentage of their income than those people with low(er) incomes.
A proportional tax is a tax where the ratio of tax paid to taxable income is the same at all levels for income.  (Eg, everyone pays 25%)
A regressive tax is a tax where the ratio between tax paid and taxable income decreases as taxable income increases. In this case, a larger percentage of the low-income people will be taken than those with higher incomes. This usually happens with indirect taxes such as VAT.