Budget 2015 - The South African Quandary

 

The Minister of Finance has delivered his Budget for the forthcoming year, a speech full of words and signifying nothing.

The Budget proposals are remarkable for a number of factors.  It is rearranging the deck chairs on the Titanic on a national scale.  It fails to recognise the many impediments to economic growth that the ANC Government policies and practices have built into the economy, the huge number of hidden costs and difficulties confronting the entrepreneur seeking to start and to operate the new businesses that should be the lifeblood of the economy.  It starts with the basis of what was done last year, and increases from there, without looking at the real value that each item of expenditure generates, or fails to, or at the real cost of the costs and taxes raised, but simply assumes that they are good and goes on from there.  There is virtually no understanding of the real blocks that are holding back the economy, and assumes that a 1% or 5% increase will not make any real difference.

Let us start with the real question:  Do we need taxes?

It is an almost universal view that taxes are, at best, unpleasant or, at worst, evil.  A tax is money taken from the economy, money that, in the hands of the taxpayers, would probably be applied to the most effective purpose, and then given to people with little understanding of the value or the alternative uses of it who either spends those taxes on items of expenditure that the taxpayer would not himself, or invests them in elements of infrastructure that are needed by the country or a large part of it, rather than by the individual taxpayer.  The taxpayers in Switzerland are willing, if not exactly happy, to pay their taxes because they know that the funds will be applied to purposes that they support and, in most cases, to purposes which will benefit them.  They believe that the money will be correctly used.  That is certainly not the case in South Africa.  Most taxpayers in South Africa, if they were given a line item choice of what expenditure to support and which to reject, would accept no more than 20% of the expenditure that the Government so willingly throws away in the name of the taxpayers.  Those paying the taxes (a class of people substantially different from those receiving the benefits) would reject the expenditure of 47% of the Budget on Civil Servants.  An amount of 20% would be too much for the value these people add to the economy!  They would reject the wisdom of paying social grants to 13 000 000 people (and growing!) with a taxpayer base of 3 500 000!  They would be unwilling to fund the possible R200 000 000 on Nkandla, the R54 000 000 over-expenditure on travel by the Presidency, the R30 000 000 on a fence to the Ministerial Compound in Pretoria (where an adequate fence already existed), the cost of thirty-four Ministries, where the United States has only twelve.  They would not support the high cost of the Defence Force, a body that appears to exist solely for the dual purposes of maintaining the rule of African dictatorships and providing a backstop for the overthrow of the ANC as the ruling Party (what other use has the $5,4 billion expended on munitions in the 1990s accomplished?)  That amount could have solved the education crisis, if there had been political will to do so, with change left over to pay the bribes.)  They would want a clear statement of what the South African Police Services intends to accomplish in the field of fighting crime, also within its own ranks, how the National Prosecuting Authority intends bringing the 748 criminal charges levelled against the President to a conclusion that is consistent with an even-handed justice for all.  They would want to impose a limit of a C Class car on any Civil Servant, with the Range Rovers being sold on public auction for the benefit of State coffers, and they would want the personal bodyguard of the beloved President reduced to three persons, without a need for one of them to trot alongside the Presidential limo a la Barrack Obama.

The answer to the question is that we do need taxes, but any dispassionate review would find that the funds raised by the present VAT (at the rate of 14% - those old enough to remember will recall that, when he raised the rate from 3% to 4%, the then Minister of Finance made the commitment that there would never need to be a further increase!) would be more than adequate to fund the necessary requirements of the citizenry.  There would not be a need to increase the fuel levy by 30 cents per litre to a level of nearly 50% of the cost of fuel, nor the levy to fund the Road Accident Fund at an increase of 50 cents per levy, there would be no need to pay e-tolls for the use of roads that were largely built using taxpayers’ money, with more than a third of the amount collected going to some anonymous company is Austria, the contract details with which and the ownership of which have never been divulged.

The removal of the heavy overburden of officialdom, more than half of which is simply a disguised form of unemployment benefit to reduce the official unemployment statistics and to secure the votes of those persons for the ANC, would have the immediate effect of enabling start-up businesses to get going, without the cost and time delay (currently eight months!), and would enable those businesses to start employing people.  The largest constraint on the development of Black-owned businesses is the Government!

Heinrich Himmler stated that, if you tell a lie often enough, it becomes the truth.  That could certainly be applied to the need for tax.

The writer is a Management Consultant, with vast experience in the streamlining of business processes, and with considerable in-depth knowledge of the operations of Government Departments.  She can say with absolute assurance that it would be possible, within a year, to cut the salary costs of Government by at least 20%, without doing anything clever.  Those jobs cut would not result in unemployment.  The application of the salaries paid to those people for one year could easily generate over five hundred thousand sustainable jobs, something that the Government has shown itself totally unable to achieve in its twenty years of misgovernment, with the application of the Multiplier Effect generating at least another four million sustainable jobs within the next three years.  Why has she not done that?  The answer is simple.  An approach to one of the Provinces resulted in a request for a bribe of R1 800 000, payable in cash in advance in order to obtain Provincial Government approval, with the assurance from the bagman that ‘the payment includes the Premier and the MEC for Economic Development’!  That request was refused, and the next two letters to other Provinces are still awaiting a response, after some years, despite reminders and requests for response!

If South Africans are really concerned for the future of their country, it is time for them to demand a clear statement, by line item, of how their taxes are to be spent, and the choice to refuse to support any item of tax they disapprove.  It is time for them to realise just how much money they each pay to the Government, and how little benefit they receive for it.  It should no longer be sufficient for the President to say blithely in regard to Eskom, a State body that has been in a condition of crisis, a condition that would have brought a listed company to the Insolvency Court, since 2008 (seven years for those who can’t calculate!), that “we have a plan”.  The truth is that the Government does not have a plan, or, if there is the vestige of a plan, it does not have any capability or desire to implement it before Eskom, and the country, goes into a terminal collapse.

If South Africans continue to shirk the responsibility of realising that the Government has achieved for South Africa a financial and fiscal state approaching that of Greece, and of then taking action to correct what they have allowed to happen, they must realise that others will take that action for them, in a way that is sure to be less pleasant.  The first signs are already there, in the withdrawal of good companies from South Africa, the cancellation of early plans by international investors to invest in new industries, and the continuing lowering by the ratings agencies of the credit standing of the Government-issued and –backed securities, with the concomitant lowering of the securities of South African financial corporations.  There is not a single negotiating body to tell us of this, as happened in the case of Greece, but the effect will be the same.  Is that what South Africans want?