The curious case of disengagement
Win or lose, sink or swim. One thing is certain we'll never give in. Side by side, hand in hand; we all stand together.
Ok, now that you have a potentially irritating song stuck into your head, we will see how the above sentiments apply to the way Finance Minister Pravin Gordhan approached this year’s budget.
Speaking at the recent Liberty Lounge Budget Review, STANLIB Chief Economist, Kevin Lings, said that this was both a fascinating budget and a budget where Gordhan did the right thing… or was forced to do it.
A reflection of pain
“The 2017 budget was a real reflection of the pain felt by South Africans during the year. Growth has slowed, the credit ratings agencies are circling waiting for an opportunity to downgrade South Africa, and the tensions between President Jacob Zuma and Gordhan were palpable. This was a tough budget; Reform was on the cards, but there is no political backing to make widespread change,” said Lings.
Because of this, the famous warning of tightening our belts was once again spoken about from the highest pulpit as it becomes clear that South Africans are going to have to get the country’s economy going.
Sad realities
Some people may think that I am merely stating the obvious. But am I?
When government needed to grow the economy in the past, through infrastructure build programmes and job creation, the country borrowed money to do this. Think back to the 2010 FIFA World Cup. However, with a ratings downgrade imminent, South Africa does not have the luxury of knocking on debtors doors with great confidence. The days of borrowing ourselves into growth have gone with the wind.
“The reason we are not borrowing money is also because we want to save ourselves from a credit rating downgrade. Gordhan is forcing the country to stick to fiscal discipline because it makes the most financial sense,” said Lings.
We all want growth, but it seems as if the sins of the past are now coming back to haunt us. Because of our past borrowing habits, we have accumulated a significant amount of interest on our loan repayments. And it is this interest that is killing us. Lings pointed out that if it wasn’t for this interest payment, we would be recording a budget surplus and not the deficit that Gordhan seems to announce on a yearly basis.
We all stand together
It now becomes very clear that the responsibility of reviving the country and its economy has fallen on the shoulders of the South African public.
“A lot more South Africans will pay a lot more tax. We have already seen government introduce a new tax bracket and we wait to see the effects that this will have on the public. Many people say that South Africa is the most taxed country in the world. On a percentage basis, this is not true. But when we look at what we receive for the tax that we pay, this is where the issue of contention comes in,” said Lings.
There is no doubt that the tax regime needs a shakeup; and it is not necessarily on a percentage level. The fundamental problem in South Africa is our perennial inability to collect taxes on a large scale basis.
“It is believed that 483 000 people pay 50.1% of the country’s taxes. But we cannot broaden the tax base because we cannot create jobs. The level of job creation depends on the level of investment in the country, and the level of investment in the country depends on the level of confidence,” said Lings.
Crouch… pause… disengage
What are we doing to resolve the above issue? Well, nothing. There is little confidence in government and as Lings pointed out, we cannot really say that the actions of politicians at the State of the Nation Address did anything to restore that confidence.
“We cannot continue to blame the world for our underperformance. We need confidence to be restored in our country and our economy. At the moment, confidence is being destroyed. The social dynamics in the country is eroding trust and there is an entrenched decline at a consumer level. Business confidence is not doing any better. The business sector is faring no better as it is actively disengaging from the economy. There is no investment, so government is entrenched in its debt,” said Lings.
In addition to the new income tax bracket, Gordhan announced an increase in the fuel levy and the introduction of a sugar tax all of which hope to collect additional tax revenue. How much this collection will amount to remains to be seen.
Editor’s Thoughts:
Come what may, we desperately need to restore confidence in the economy. But in order for this to occur, government also needs to play its part. Please comment below, interact with us on Twitter at @fanews_online or email me your thoughts [email protected].
