Friday, February 8, 2013

The increase in electricity tariffs is leading to Service Exclusion- CfSC

Addressing poverty continues to be identified as a major challenge for Malawian society and has been a central topicthat successive governments have attempted to tackle or at least pretended to do so. Commitments in Malawi Growth and Development Strategy (MGDS), pronouncements in the newly launched Economic Recovery Plan (ERP) and various key government documents underscore that view. However, in spite of all these attempts to address poverty the reality is grim: poverty in Malawi remains severe and widespread – a situation that leaves millions to grapple, on a daily basis, with the un-abating increase in food and essential non-food commodities.

The ever rising cost of living presents to the country an extremely serious challenge upon which all efforts must be concentrated so as to ease people’s daily suffering.

In carrying out the Basic Needs Basket survey for December 2012, CfSC experienced how the ever-increasing cost of
living is leading to “service exclusion” among low-income earners in urban Malawi. Service exclusion refers to lack of access to basic services, whether these are, in the home (such as power and water supplies) or outside it (for example access to transport).

Following the recent increase in electricity charges the CfSC research team found that almost half of the households where the monthly cost of living household data is collected from had their power disconnected
because they can no longer afford to pay for it. This sad development was witnessed in Mzuzu, Lilongwe, Zomba and
Blantyre cities. Households that participate in our monthly surveys explained that they opted to use “cheaper” sources of light and energy because they currently find Escom tariffs out of reach. In some cases, households were found to be excluded from both electricity and water supply.

Such firsthand experiences of urban poverty speak volumes regarding the extent to which the cost of living is dragging people into poverty and further deepening inequality. Actually, what is discernible in Malawian society today is that inequality in all its forms is so massively entranced, tearing whole communities, people and societies apart - between the “haves” and the “have-nots”.

Inequality exists between city and district and between regions, and within districts and
cities. For example, the gap between the centre of growth that is Lilongwe and the backwaters of poverty and inequality up north in Chitipa, exemplify the acute inequality gap between regions. Within Lilongwe city, the gap between the leafy suburbs of Area 43 and Area 10 and the squalor of Nchesi and Ntandire continues to widen and illustrate the nature of the inequality problem in Malawi society. Notwithstanding the debilitating and dehumanising effects, poverty and inequality undermine human dignity and development.

Grotesque forms of inequality that socially excludes people from accessing basic services hugely undermine economic growth and development. In his encyclical, Populorum Progressio, the document that addresses structured inequality, both between nations and between individuals, especially those relationships between rich and poor nations or rich and poor individuals, Paul VI exhorts that justice demand that such relationships be regulated in order to insure fairness when the poor are at a disadvantage. CfSC believes that “the first line of attack against poverty must be to build and sustain a healthy economy that provides employment opportunities at just wages for all adults who are able to work. Poverty is intimately linked to the issue of employment.

Employment, especially in the private sector, would promote human dignity, increase social solidarity, and promote self-reliance of the poor”.

CfSC Basic Needs Basket survey for December 2012 established that the cost of living for an average low-income
earning family of six continues to soar in all the cities of Malawi. In Lilongwe, the total cost of basic food items and essential non-food items such as housing, water and electricity for the month of December was K91, 632 compared to K88, 737 in November, 2012.

This unrelenting upward adjustment was largely as a result of price increases in the staple
maize and other food items like beans. For instance, the staple went up by 20% in Lilongwe, 14% in Zomba, 12% in
Blantyre while in Mzuzu it went through the roof by 47%. The unprecedented increase in maize prices in Mzuzu is
attributed to cross-border trade and smuggling of the grain to Tanzania which has dramatically pushed up the prices.

The average total cost of basic food items and non-food items for all the cities for December was K84, 463 signifying a nominal increase of K4, 949 when compared to the November average which was at K79, 514. Whether people can access their basic needs or not has serious implications on individual and family well-being and consequently, the future development of the country.

Because poor households devote over 50% of their income to buying food items, the sustained increase in food prices substantially reduces their income. Relating this to the tax measures provided for in the 2012/13 national budget, the increase in the zero percent threshold for PAYE from MK12, 000 to MK15, 000 and also increasing the 15 percent bracket from MK3, 000 to MK5, 000 were welcome developments in the light of high cost of living. However, the gains made have since been eroded by not only the high cost of food but also by the recent unprecedented increase in the cost of electricity.

In real terms, therefore, the tax relief has not had a positive increase in the purchasing power for the
employees, especially those with lower wages. The constant recommendation to further increase the zero percent
threshold for PAYE so that low-income earning employees have more money in their pockets would not only give relief to such a group of employees, but would also help to stimulate the economy. Broadening the tax base to also include the informal sector should be implemented if some relief is to be provided to the few formal sector employees.

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