Budget Analysis

Budget’s skewed income base leaves dangerous gaps

Minister of Finance Nhlanhla Nene
Nene.jpg

Last week’s national budget did nothing to stem the ever-increasing threat of anarchy present in South African civil society due to frustrated expectations.

To ignore the widely felt threat to personal wellbeing and property is not a positive approach. It leaves people unprepared for the negative consequences of unfulfilled expectations among a growing majority of the population, and brings the nation closer to countrywide anarchy than it has ever been sindce 1994.

This is evident from the growing number of violent and destructive service and labour unrests, xenophobic attacks against foreigners and racial intolerance.

Budget

The National Budget of last week did nothing to address the situation. The Minister of Finance, Nhlanhla Nene, can be faulted for the fact that he at best maintained the status quo for the moment. It also points to the lack of leadership and growing divisions in the government and tripartite alliance, if one can call this loose relationship such.

In relation to the rest of the world – the first world, emerging economies and even sub-Saharan Africa – South Africa is clearly sinking to the bottom quartile. One does not have to look further than Mr Nene’s own budget speech and the related documentation from the Treasury to find the supporting data for this view.

For instance, while the population grew in the past year by 1.9% from just under 53 million to just over 54 million, GDP only grew with 1.4% compared to sub-Saharan Africa’s 4.8%. And South Africa’s CPI is 6.1% compared to the 6.7% of its African neighbours.

Add to that, that our currency has consistently weakened over the past four years at an annualised rate of 19% per annum from R6.60 to R11.65 to the dollar at the beginning of January 2015 due to foreign fixed investors’ loss of faith in South Africa as a long-term investment destination.

The lack of reliable consistent generation of electricity, deteriorating local government services across the board, deteriorating security in land and fixed property rights, rivalry and ‘gang warfare’ in organised labour as well as future water shortages add to this deteriorating picture.

Effort required

Looking at the data available, one does not have to be an economist to realise that it will take time, money, strong leadership, expertise, national unity, work ethic, conviction and a consistent implementation of a plan to save this economy and to turn this ship that is South Africa around.

It does not seem that we presently have it all.

All of the above, however, is present in the country, albeit not always in sufficient quantities. But we can get it, even though we currently seem to lack the ability to get the engine going.

The government’s own National Development Plan has the support of business but alas, not of labour and others in the ‘alliance’. The growing divide between the increasingly successful Transnet vs the increasingly failing Eskom is proof of the potential of the NDP. But besides Transnet and some lip service we fall short.

After last year’s budget we warned that an abused minority cannot be expected to finance a widening bottomless pit of a consuming and unproductive majority with virtually no quid pro quo for the financier.

This position was not only maintained in this year’s budget. It even worsened.

The latest figures from the government’s own statistical service shows that 27 million South Africans live in poverty, the biggest percentage of the population ever, despite the fact that 17 million live 100% on government social grants.

To this one can add that, after a slight increase in personal income tax in the latest budget, only 7 million South African registered tax payers are contributing to the state’s coffers. Of them a little more than 700 000 people pay more than 60% of the total personal income tax.

That does not include their indirect contribution via VAT, several duties and umpteen levies.

Corporate income tax in the coming year will be only 51% of the direct personal income tax and much less if one adds the indirect taxes.

Such a skewed revenue stream has never been sustainable in any country anywhere in the world – especially because the needs of the budget and the economy cannot be satisfied by such a limited revenue stream.

As a result expectations of the South African population on all levels cannot be satisfied. It leaves dangerous gaps between citizens’ needs and expectations and their lived reality.

                                                                                                                                     by Heinrich Kruger

(Heinrich Kruger is the founder and CEO of Kruger International Asset Management. [email protected])



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