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Gigaba’s budget was nothing more than average: Expert

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The 2018 budget speech presented by Finance Minister Malusi Gigaba as his maiden (and probably his last), was encouraging in many ways but so much so in the content than in the delivery itself.

Sonorously, due to the cloud hanging over his shoulder, Gigaba didn’t bring his “A game” to present the heartening news to South Africans and investors.

Hours before, the North Gauteng High Court had ruled that Malusi Gigaba lied under oath when he testified during his tenure as home affairs minister in a case filed by a company that wanted to open a private immigration terminal at the O.R. Tambo International Airport.

Or, was it perhaps due to the fact that he was thinking about the impact of the value added tax to the poor? Perchance, both.

Or, maybe the rumour of cabinet reshuffle and incessant call that Gigaba should be the first in line to get a boot got to him.

The writer was uncertain. One would have expected a cheerful Finance Minister to delivery better news on fiscal consolidation, attempts to redress the needs of our country’s severe socio-economic shortcomings amid a low-growth economic environment.

Broadly, 2018 budget makes desperate attempts to balance the trade-offs, amid competing priorities.

As a person, he was acutely aware that the eyes of rating agencies and investors were firmly zoomed on him while the consumers were staring at the entire administration.

In truth, there was no surprise given limited options that National Treasury faced.

Increase in Value Added Tax, as unpalatable as it seems, was inevitable.

Sin tax is always in for a hiking.

Medium term stability necessitated actionable fiscal consolidation to avert further credit rating downgrades.

There was little manoeuvre on Personal Income Tax, given that in 2017, government had come up with tax reforms, leading to the super tax bracket of 45% on individuals earning above R1.5 million.

No government wants to keep introducing new reforms. It doesn’t demonstrate good rationale. Also, those individuals whose earnings fall under super tax bracket are shy of 105 000.

This is not scalable. Any increase would be insignificant to the revenue, at best. Already, there are people who have developed an industry to tax avoidance, which is legal and these individuals are likely to find ‘solutions’.

The deceitful individuals would invent creative means for tax aversion, which is illegal. This administration wants to encourage and cultivate tax morality. In any case, the Laffer curve, which illustrates a theoretical relationship between rates of taxation and resulting levels of government revenue, is getting too tight. The conclusion therefore is that his performance or delivery of 2018 budget speech was average.

As the writer pages through the 2018 Budget Review, it is tempting to conclusively declare that there still exists elements of misalignment, at best; thus hard work and improved coordination are urgently required.

Specially, budget review has a headline titled: “2017: Complex factors shape fiscal choices”.

This is a clear and unequivocal indictment that we scored our own goals and fiscal consolidation is a loose term, which requires serious meaning to this cabinet:

In light of the recession in early 2017, the MTBPS revised the 2017/18 revenue estimate down by R50.8 billion, with R20.8 billion of this shortfall attributed to lower personal income tax collections. That’s 41% of the R50.8 billion!

Well, this is a clear sign that people are losing jobs. Without jobs, there is no personal income tax. Leading to weak consumption (and savings), thus poverty – and lower VAT collection. Minister Gigaba announced that government would be uncovering the reasons on why there is shortage on revenue collection.

The South African Revenue Service (SARS) would justifiably what the reasons are for the commission of inquiry on poor revenue collection.

Revenue collection is a function of personal income tax (PIT) around 38%, VAT around 28%; company income tax (CIT) around 17%; the balance is made up of import and customs duties, fuel levy, plus other taxes and collections.

This economy needs inclusive growth and jobs. Of course, there are no jobs and retrenchments are everywhere.

We should learn from Winston Churchill, who said “I contend that a nation to try to tax itself into prosperity is like a man standing in a bucket and trying to lift himself up the by the handle”.

Risks at several state-owned companies materialised, resulting in government transfers totalling R13.7 billion.

Here is evidence of state capture, corruption and mismanagement. As you recall, Gigaba had announced that government was going to fund the loss and poorly run SAA and South African Postal Service.

The deteriorating outlook triggered credit rating downgrades in April and November 2017.

Thanks to u Baba, GMJ Nxamalala with his self-serving, unnecessary and non-caring cabinet reshuffle. Political uncertainty contributed significantly to the downgrades.

In November, in response to the deteriorating fiscal outlook, a Cabinet subcommittee identified medium-term spending cuts amounting to R85 billion.

A bit of good news here. However, if they could identify R85 billion cut, why not R100 billion or R150 billion? This is after the Medium Term Budget Policy Statement (MTBPS) accurately and honestly informed South Africans (and the world) that we are in serious trouble. This was a missed opportunity to break the psychological barrier of R100 billion slash. Imagine the headline: “SA Cabinet cuts spending by R150 billion”– confidence-boosting and re-invigorating indeed.

But, alas, it wasn’t to be. Point 5 is even damning.

In December, then-President Jacob Zuma announced fee-free higher education and training for the poor and working-class students.

What? While sub-committee is looking to tightening the belt? This is even after his own commission told him that it is unaffordable. Like a drunkard using uses lamp-posts—for support rather than illumination, Zuma staggered. What was the commission for? If he were a child, one would have said, this was very naughty.

But, it’s Zuma. Thanks to his “hospital pass”, we have R57 billion bill over the medium term.

This is not against fee-free higher education and training for the poor. Common sense dictates that one cannot spend money one does not have; especially, when looking for money.

“Complex” is certainly a euphemism, as none of the above seems complex. Scoring own goals and circumventing hard choices.

Government debt and debt-service costs

Aren’t we looking to save? There is another deplorable observation. In 2017/18 the net borrowing requirement- the amount needed to finance the budget deficit – will total R217.3 billion, which is R50.5 billion higher than projected on 2017 Budget. How does one allow an access “overrun” when the situation calls for reduction? It should not be allowed. Any additional commitment of public resources to [some] poorly-managed state-owned companies should be accompanied by clear reformation of competent, competent, governance (board and executives), cut of wastage and free of corruption and state capture. It is time to apply strictest sagacity so that the pain felt by the consumers is not absorbed by all. It is high time for clear and full accountability. It cannot be business as usual.

Sizwe Mbele is Director of Strategy at Business Leadership South Africa

 

 

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