Recently, I got caught up in a conversation about how your late-twenties/early-thirties seem to be a time of living-space transition:

1. If you’re “choosing your career”, it’s a time to move into a nicer place closer to work; and
2. If you’re “having a family”, it’s time to move into a nicer home further away, where there’s equal volume of traffic and yoga mothers in sweat-pant.

 
If you fall into group 1, then the transition pattern goes something like this:

1. After university/college/getting-your-first-job, live in digs with many people until said people start coupling off and getting married.
2. Realise that you’ll need to move.
3. Look at bachelor flats, decide that they’re too small.
4. Look at two bedroom places, decide that they’re too expensive for one person.
5. Find a flatmate who’s prepared to take the smaller room.

 
And this…sounds fine.

Until you realise that flatmates in their late-twenties/early-thirties who are prepared to take the smaller room are doing so because of financial constraints. Perhaps they’re trying to be entrepreneurs, or they’re locked into lower-paying jobs, or they’re still studying.

Either way, while you were busy not-noticing, your landlord was busy making sure that the lease was signed in your name only: so that the problem of the flatmate potentially not making rent will definitely be yours. Only, because you didn’t really think about it at the time, you didn’t insist on a sub-letting agreement.

So if you’re a bit unfortunate and things go badly, then you might end up having to pay the full rent while your flatmate apologetically promises to pay their portion of the rent soon and then suddenly moves back in with their parents.

And if you’re really unfortunate, then you end up having to pay the full rent anyway while your flatmate insists on their squatter rights under the Prevention of Illegal Eviction and Unlawful Occupation of Land Act of 1998 and the Rental Housing Act of 1999.

It’s that second part that is the most interesting (to me, at least – if you’re that person, less so, I’m sure), because if that happens:

1. You, as the main signatory to the lease, are paying for someone else’s living expenses.
2. That’s the purest form of a direct wealth transfer.
3. Which is basically a tax on your income.
4. #SurpriseTax

 
And if I were Professor Robert Vivian from Wits, I might call it yet another version of the “Masakhana Tax”. He wrote about it a few weeks ago in this article: “South Africans fork out billions in ‘taxes’ collected by stealth.”

The name origin:

When the now-governing African National Congress (ANC) was trying to get into power it encouraged wholesale non-payment of municipal charges. In this it was successful. People stopped paying.

Once the ANC got into power it wanted payment to restart so it could pay its supporters now on the government payroll. It then launched Operation Masakhane to encourage the resumption of payment. It was a failure.

The party discovered it was easier to get people to stop than start paying. Many in any event cannot afford to pay. So, in the end, the ANC gave up and resigned itself to forcing those who pay to pay more to cover the costs of those who do not pay. The additional amounts paid to subsidise those who do not pay is what I call the Masakhane tax.

The Eskom example:

The operation of the Masakhane tax can be illustrated by looking at the recent bid by the state electricity utility Eskom for an increase in electricity prices. Eskom has argued it needs the additional rate increase to compensate for the stagnant consumption. As the price of electricity has gone up fewer can afford it, and so consumption has stagnated.

Those unable to afford it will stop paying, some joining those being supported by the payers: the Masakhane payers. There will be a diminishing pool of payers paying ever-increasing amounts to cover the costs of those not paying.

For those who cannot afford to pay but are getting free electricity, the Masakhane tax is a welfare transfer.

The article then goes on to discuss how unconstitutional this type of wealth transfer is – although that does seem to me a bit, well, irrelevant. I’m almost certainly going to find out in the comments section that I’m wrong and not thinking hard enough about why that’s a problem – but even if it’s unconstitutional, the practical reality is that we’re not going to change it. And at least there’s a pretty direct benefit here to the people that need it.

Although Eskom does seem to be trying to change it:

But if we could change something, what I really would want changed is the way that the government accounts for this in their statistics. Specifically, I’d like them to account for it instead of not accounting for it.

I mean, it’s a wealth transfer; there’s a direct benefit to the less-well-off from the more-well-off; economic inequality is reduced by it.

Surely it ought to be acknowledged?

For more on things that ought to be acknowledged, this post: “How Taxes Reduce Inequality in South Africa.”

Happy Wednesday.

Rolling Alpha posts about finance, economics, and sometimes stuff that is only quite loosely related. Follow me on Twitter @RollingAlpha, or like my page on Facebook at www.facebook.com/rollingalpha. Or both.