Financial Mail Budget Edition 2018

Financial Mail Page 1 -22/02/18 02:37:06 AM

43605_mmi_print_ad_financial_mail_fin.pdf 1 2018/02/16 2:40 PM
The budget plans

for the year ahead.
We’ll help you plan
for your lifeme.
At MMI our vision is to help you realise Financial Wellness over the
ůŽŶŐĞŵ HŽ
ůŽŶŐĞŵ YŽ ůŝĨĞŵĞ Ž ďĞ ĞĂĐ WŝŚ Ž
ĞŶŽ
ŶĞĚ ŽůŽŶ
ĞΖĞ ŝŶ ŚĞ ďĞ ŚĂĞ Ž ŚĞů Ž ŵĞĞ Ž ŐŽĂů
MŽŵĞŶŵ͕ MĞŽŽůŝĂŶ͕ GĂĚŝ Ŭ ĂŶĚ Můů ĂĞ ŵĞŵďĞ ŽĨ MMI HŽůĚŝŶŐ GŽ͕ ĂŶ ĂŚŽŝ ĞĚ ĮŶĂŶĐŝĂů ĞŝĐĞ ŽŝĚĞ͘
financialmail.co.za
February 22 - February 28, 2018 contents
special report budget 2018
OVERVIEW 39 Towards Financial SPENDING REUTERS/Sumaya Hisham
4 The Big Picture Inclusion 30 Pensions

8 Highlights 42 Don’t Be Caught Unawares 31 Health
10 Politics 32 Provinces
14 Reaction REVENUE 33 Education
16 Gigaba’s Politics 18 Administration 34 Infrastructure
20 Vat 36 Social Grants
OPINION 21 Personal Tax 37 Justice
12 Lifting the Growth 21 Sin Tax 37 Human Settlements
Gradient 22 Transfer Duty 38 Land & Agriculture
17 Reporting for Duty 23 Corporate 40 Telecommunications
24 Between a Rock and a 25 Personal Finance 41 Energy
Hard Place
29 Rethinking Engagement POLICY
Cover: Esa Alexander
26 State-owned Enterprises
28 Eskom
February 22 - February 28, 2018 . financialmail.co.za 3

Financial Mail Page 4-5 -22/02/18 03:06:27 AM
special report budget
Ruvan Boshoff
BUDGET 2018 — THE BIG PICTURE 2018
hopefully, growth. GREATER ALLOCATION

“This is a tough but hopeful budget,” said
finance minister Malusi Gigaba in his speech. Spending growth by function over MTEF (%)*
“Acting now to strengthen the fiscal position will
Post-school
improve the outlook for the economy and education and training 13.7
increase space for future investment growth.”
The first order of business was to correct the Debt-service costs 9.4
impression created by his medium-term budget
in October that government had relinquished its
commitment to fiscal discipline. Social protection 7.9
Instead, the 2018 budget accelerates fiscal
consolidation, while accommodating a promised Health 7.8
rollout of free higher education over the next
three years with a whopping R57bn allocation.
Economic
development 7.4
Thanks to expectations of higher GDP
growth, a stronger currency, lower borrowing Community
development
7.4
rate and significant fiscal consolidation, the
deficit-to-GDP ratio will fall to 3.5% in
2020/2021. Before, it was expected to remain
Basic education 6.8
just under 4% over the medium term.
Peace and security 5.2
The upshot is that gross government debt
will stabilise at 56.2% of GDP in 2021/2022
General public
services 4.3
instead of blowing out to 60% as forecast last
October. It’s a big improvement, even though it * Medium-term expenditure framework Source: National treasury
will take almost five years for debt to stabilise.

For this, SA will get a big tick from the mar- enthusiastic, however, given that the new tax
kets and rating agencies. The rand strengthened measures will push SA’s gross tax-to-GDP ratio
by 10c to R11.62/$ during Gigaba’s speech. from 25.9% now to 27.2% in 2020/2021 —
“In light of the political flux [this budget] was among the top 10 highest ratios in the world.
produced in, it is excellent,” says Investec’s The challenge for government in slowing
Nazmeera Moola. “By raising Vat, government debt was to be mindful of the constitutional
has indicated a willingness to take difficult and imperative to address SA’s vast service-delivery
unpopular decisions to stabilise the fiscus. Cou- needs and protect the poor.
pled with the recent change [of] president, this This was a tall order, given the R48bn rev-
budget should be enough to keep Moody’s on enue shortfall in the current financial year, cou-
hold when it releases its SA sovereign review pled with the last-minute Jacob Zuma-led
on March 22,” she says. directive to fund free higher education.
The budget works hard In the next few days, new president Cyril “Something had to give,” explained Gigaba.
Ramaphosa is expected to announce a new The result: painful fiscal measures, including
to rein in debt while cabinet. If his choices are solid, it may even be tax hikes of R36bn in 2018/2019 and spending
protecting the poor, but enough for Moody’s to move SA’s rating outlook
to stable from negative, Moola feels.
cuts of R85.7bn over the next three years.
Treasury has been forced to make difficult
it’s bad news for the rich Taxpayers can be forgiven for being less than trade-offs in determining which taxes to raise in
Claire Bisseker [email protected] OUT OF BALANCE

Consolidated government fiscal framework
ý The 2018 budget has snatched SA from
the jaws of a debt trap, almost certainly 2017-18 2018-19 2019-20 2020-21
averted an imminent credit rating down- Rbn/percentage of GDP Revised estimate Medium-term estimates
grade from Moody’s and cemented the foun- Revenue 1,353.6 1 490.7 1,609.7 1,736.9
28.8% 29.7% 29.9% 29.9%
Tax hikes and pain: brutal times

dations of the country’s newly established
economic recovery.
The bad news is that all taxpayers will Expenditure 1,558.0 1,671.2 1,803.0 1,941.9
33.2% 33.3% 33.4% 33.4%
pay for the profligacy of the Zuma years
demand brutal measures through higher taxes, including a hike in Vat

to 15%. But the good news is that the reduc-
tion in fiscal risk should fuel confidence and,
Budget balance -204.3
-4.3%
-180.5
-3.6%
-193.3
-3.6%
-205.0
-3.5%
Source: National treasury
4 financialmail.co.za . February 22 - February 28, 2018 February 22 - February 28, 2018 . financialmail.co.za 5
budget 2018 overview

national minimum cies that support investment and transforma- CLOSING THE GAP plans would be tions and selling noncore state assets.
RESTORING FISCAL SUSTAINABILITY wage will also help. tion; releasing extra broadband spectrum; low- Main budget revenue and non interest spending as a share of GDP implemented In this last category, government’s property
Gross debt-to-GDP outlook as a share of GDP During a pre- ering barriers to entry for business by address- % For a start, a new portfolio is the immediate low-hanging fruit.
% budget briefing, he ing anticompetitive practices; and providing 28 government guaran- Already, treasury has identified 195,000 state
65 admitted that while support for labour-intensive sectors like tee and funding properties in prime locations, with an estimated
62.8 63.3
61.6 62.4 tax increases would tourism and agriculture. 26 framework for state value of over R40bn.
60.8
60 59.7 “cause economic “Ultimately, all our budget woes would be companies is in the Selling non-core assets will help plug some
58.2
57.0
discomfort”, the resolved if we could get growth going,” says final stages of being holes in the dyke, but can never provide a last-
55 impact of fiscal Moola. She estimates that if SA could get growth 24 revised. Arms coming solution.
56.2 56.2 56.1 55.7
54.2 55.1 55.3 56.0 55.3 consolidation on of 3% by 2020, this alone would move the bud- pany Denel is next in North-West University professor Raymond
growth and service get deficit to 3.4% of GDP. line for a new board, Parsons says the danger of SA drifting into a
50 52.9 52.4 52.2 51.9
51.3 22
50.7 53.3 50.5 delivery would be On spending, R85.7bn will be cut over the Gigaba said. negative tax-and-spend cycle can, however, be
49.0 49.2
52.3 “bearable”. And it next three years. However, because of the huge Revenue Non interest spending Importantly, Giga- averted if strenuous efforts are made to slash
45 46.5
was necessary to outlay for higher education, the pace of gov- ba also promised that the size of government and boost growth.
2017 Budget 2017 MTBPS 2018 Budget 20
43.8 protect the integrity ernment spending will still average 2.1% of GDP any spending on state “Unless fundamental economic reforms are
8
9
0
1
2
3
/14
5
/16
/17
8
9
0
1
7
40
/2
/1
/0
/0
/1
/1
/1
/1
of SA’s public in real terms, reaching R1,9 trillion in companies would be in the offing, and if the economy languishes in a
/1
/0
/0
/2
/1
41.1
16
10
17
20
13
11
12
15
18
14
09
06
05
07
19
08
finances. 2020/2021. Higher education now becomes the Source: Budget Review done in a “deficit- low-growth trap, the balancing of the books in
6
0
5
1
4
3
/16
2
5
/17
8
3
/14
/2
/2
/2
/2
/2
/2
/2
/1
/1
/1
/1
20
25
23
Tax hikes aside, fastest-growing spending item, at 13.7%/year, neutral” manner — in the 2018/2019 budget will rest on weak foun-
24
22
15
16
18
19
14
21
17
13
12
Source: Budget Review the budget capi- over the medium term — exceeding growth in other words, in ways dations,” he says.
talises on the state debt costs (which is 9.4%) for the first time. governments have also been cut, by R28bn. This that won’t add to government debt. Most likely Ramaphosa, and whoever is sitting in the
a fragile growth environment and where to cut “renewed sense of optimism” sweeping SA. The largest category of spending remains will slow school building programmes (a R3.6bn this will be done through introducing strategic chair of the finance minister in the next few
government spending to minimise the impact For one thing, the growth outlook has salaries for government employees, which cut) and the provision of new houses and ser- equity partners, as well as direct capital injec- months, will be keenly aware of this fact. x
Esa Alexander
on service delivery. improved since October, because confidence accounts for over 35% of expenditure. This is viced sites (a R7.2bn cut), but these are areas
The danger was that if it cut too much, or has risen thanks to greater political certainty. followed by basic education (16.5%) and health with a history of hefty underspending anyway.
hiked taxes in the wrong place, SA’s growth The SA Chamber of Commerce & Industry (13.9%). Unfortunately, this means the compo- However, government has taken care to pro-
recovery could have been scuppered. But the confidence index has reached its highest sition of spending will shift from capital towards tect services — including school meals, bus sub-
loss of investor confidence, had public finances level since October 2015, while the Absa pur- consumption spending — something which sidies and medicine. Also, R6bn has been pro-
not returned to a more sustainable path, could chasing managers’ index is at its highest level treasury acknowledges is the very opposite of visionally allocated to drought management. The
have been far worse. since January 2010. More private investment the adjustment required. potential for a severe contraction in the Western
Higher-income earners will bear the brunt of should follow. On the other hand, there is still room for Cape economy due to drought is flagged as a
the tax increases. Estate duty will climb from Critically, treasury is now expecting real more savings if Ramaphosa merges some risk in the Budget Review.
20% to 25% for the wealthy, excise duty on cars GDP to amount to 1.5% this year (previously departments and slashes his cabinet. Other fiscal risks include continued policy
will go up from 20% to 30%, medical tax credits 1.2%) rising to 2.1% by 2020. This is roughly in The public-sector wage settlement, being and political uncertainty, wage pressure, and the
will be eroded, and the top four tax brackets line with the wider economic consensus, but negotiated now, will be critical. Any deviation fact that large parts of the public-sector balance
will get zero relief from fiscal drag. Gigaba is “very optimistic” that this could be from the budgeted increase of 7%/year will sheet have become “exhausted” at a time when
But the Vat hike was the real clincher. Until exceeded if the Ramaphosa-led government is derail plans — not for the first time either. the full costs of free higher education and
now, the ANC government has rejected a Vat able to maintain its reform momentum. About 60% (R53bn) of the R85bn in spending National Health Insurance (NHI) are uncertain.
hike, arguing it is a regressive tax that hurts the In a best-case growth scenario, treasury cuts will come from national government — Budget officials say treasury considered rais-
poor the most. But with SA’s options so limited, forecasts that if government is able to institute including from defence, prisons, and trade & ing Vat by two percentage points, but held off as
there weren’t too many other levers to pull. robust structural reforms, including to state- industry. it was able to make up the extra revenue need-
In recent years, the tax measures have owned enterprises (SOEs), and bolster confi- Infrastructure grants to provincial and local ed by raising a variety of other taxes. But this
focused mainly on personal income tax (PIT). dence and invest- doesn’t mean further Vat hikes can be ruled out.
But its PIT revenues have disappointed recently, ment, then real And if government wants full-scale NHI,
coming in R21bn short of the 2017/2018 target. GDP growth could RAISING SA’s POTENTIAL another Vat hike seems the only viable option.
This suggests further increases might not have top 2% this year. Potential impact of selected NDP reforms on GDP growth Other policies “If you’re going to have step changes in spend-
and reforms,
yielded the required revenue. Also, extra PIT If the global 5.0 such as ing, you’re going to need another big bullet,” said
hikes would have had greater negative conse- economy continues addressing one government official in a pre-budget briefing.
4.5 the skills
quences for growth and investment than a Vat to play ball. 4.0 constraint “Government needs to stabilise expenditure. It
increase, the Davis Tax Committee found. Treasury says if can’t keep having step changes every year.”
3.5
It was the same story with corporate income government can 0.3 0.2 The main risk to SA’s public finances
3.0
tax (CIT). At 28%, SA’s CIT rate is becoming a finalise reforms in 0.6 remains the parlous state of finances at just
global outlier — threatening the country’s com- just four key sec- 2.5 about all the state-owned enterprises.
0.6
petitiveness and providing an incentive for tors, SA’s potential 2.0 Thankfully, decisive action by government to
companies to shift profits abroad. The US, for growth rate could 1.5 0.5 strengthen governance at Eskom has staved off
example, has cut its corporate tax rate from 35% be raised from 1.5% 1.0 the likelihood of a near-term default. But the
to 21% and the Netherlands from 26% to 21%. to over 3.5% over 0.5 financial position of the power utility, as well as
This left Vat, which will bring in R22.9bn of the next decade 0.0 several other beleaguered state companies, pos-
the R36bn in extra tax revenue in the next year. (see graph). Current Improvement Telecoms Barriers to Transport Prioritising Potential es big risks to the economy and the fiscus.
To cushion the impact on the poor, social These reforms potential in confidence reforms entry reforms tourism and growth aer “SOEs are in large measure fiscally unsus-
growth agriculture reforms
grants will be increased by more than inflation. are: implementing tainable,” Gigaba conceded in a pre-budget
Gigaba said free higher education and a new mining-sector poli- Source: Budget Review briefing. But he vowed that robust turnaround
Highlights from Gigaba’s speech

STATE-OWNED
TAX POLICY LUXURY GOODS PUBLIC SPENDING STATE CAPTURE COMPANIES
“Funds available for spending on “Government has demonstrated its
ECONOMIC POLICY “Tax proposals for the 2018 “In addition to Vat, we are public services [will] grow by an resolve to confront allegations of
“We have limited fiscal room and
budget are designed to generate increasing excise duties on luxury are loath to use it to subsidise
“Aer several years during which average of 7.1%/year, increasing to state capture and corruption through
an additional R36bn in tax goods and estate duty on wealthy inefficiency, rather than address
economic growth undershot our R1.3 trillion next year, and are the judicial commission of inquiry
revenue for 2018/2019.” individuals. Taken together, we social needs and invest to improve
projections, we now see the projected to rise to R1.5 trillion in announced by former president
improved growth projections for believe these proposals best protect 2020/2021. We would like to be able our economic competitiveness.
“We are investigating options [Jacob] Zuma, and the investigations
2018 and subsequent years as a floor, the progressive nature of our tax to allocate more to each sphere for Government recognises that the
to further curb the practice of being conducted by the Hawks, Asset
rather than a ceiling. regime, to minimise the impact on service delivery, and a larger share to business models of some state
excessive interest deductions by Forfeiture Unit and other agencies.”
lower-income households.” local government, but the reality is owned companies are unsustainable
companies to reduce their tax and their capital structures too reliant
“We are convinced that as that the rising cost of servicing our
business and consumer confidence
liability.” URBAN RENEWAL national debt leaves less resources TAX AMNESTY on debt.
return, and as government follows “Let us think beyond car washes available.” “It is anticipated that by the end of
“We have not adjusted Vat “We have demonstrated our
through on its commitments to and spaza shops, important as they March 2018, over R3bn will have
since 1993 and it is low resolve by strengthening Eskom’s
enable growth with prudent, fast and are, and find ways to foster produc- “Over the past decade, the public been collected in respect of the
compared to some of our peers. board and management with highly
decisive action, we can exceed our tive, high-value economic activity in sector has invested R2.2 trillion in special voluntary disclosure
We therefore decided that capable, ethical and credible
growth projections. townships owned and managed by economic and social infrastructure. programme [applications] that have
increasing Vat was unavoidable if leadership. This leadership has hit the
township residents. We need to see Yet weaknesses in project prepara- been processed.”
we are to maintain the integrity of ground running”
“With purpose and resolve, we can factories, workshops, tech hubs and tion, execution and delivery have
our public finances.”
take advantage of these opportuni- locally owned retail operations being resulted in lengthy delays and cost
ties, and achieve the faster growth established in our townships.” overruns. Government has estab-
which is needed dramatically to lished a budget facility to standardise
reduce unemployment, poverty and and improve the management of
inequality, and relieve pressure on public infrastructure projects.”
our fiscal framework. This is a tough
but hopeful budget.”
“The country’s economic growth

outlook has improved over the past
few months because of strong
growth in the primary sector of the
economy — particularly agriculture
— as well as a welcome recovery in
investor sentiment and business
confidence.”
FINTECH/
“Over the medium term, the growth LAND REFORM CRYPTOCURRENCIES CROSS-BORDER
FREE EDUCATION
outlook is higher than projected in
MINING POLICY “Accelerating land reform has
“Treasury is working with the INVESTMENT
“The largest reallocation of
last year’s medium-term budget
resources towards government’s “The president’s intervention become urgent and the depart- LOCAL GOVERNMENT Reserve Bank, Financial Services “A range of reforms are proposed
policy statement. The cyclical Board and other government to make it easier for South Africans to
recovery is matched by a renewed priorities is on higher education and PUBLIC this week to restore dialogue on ment of rural development and “Local governments continue to entities towards a regulatory
mining policy raises hope that a land reform has set aside R4.2bn face significant financial manage- diversify and invest into Africa. The
sense of optimism that government training, amounting to additional PROCUREMENT framework for all types of offshore allocation limits for institu-
can and will do its work effectively.” funding of R57bn over the medium solution will be found to unlock for the acquisition of about ment and governance challenges.
“Next week, the director- fintech. For instance, the tional investors are increased by five
term. This is the fastest-growing growth and transformation in this 291,000 ha of strategically Too many municipalities do not
general of national treasury emergence of cryptocurrencies percentage points across all catego-
“We are anticipating growth of 1.5% spending category, with an annual critical sunrise sector. All stake- located land.” charge tariffs that reflect the full
will issue a directive to all is a major development to which ries. This includes the special
in 2018, rising to 2.1% in 2020. While average growth of 13.7%.” holders should be encouraged by cost of the services they deliver, in
government departments and our regulatory regime must allocation to African investments,
this is a good start, there are immedi- the president’s intervention and particular for water services. Many
public institutions, instructing respond.” which will rise to 10%.
ate policy interventions we need to “Returning national student commitment to set the industry on municipalities do not collect the
them to pay suppliers on time a new path of investment,
make to ensure we create the right financial aid scheme students at funds that are owed to them, and do
or be charged with financial inclusive growth and transforma-
environment for investment, growth university will have their loans for not adopt credible budgets. As a
misconduct.” tion.”
and employment.” 2018 onwards converted to a bursary. result, they are unable to pay their
This is an important step in breaking own creditors.”
the cycle of poverty and confronting
youth unemployment, as labour
statistics show that unemployment is
lowest for tertiary graduates.”
budget 2018 overview course; stronger demand in the US and euro something useful. Or just drop him and leave
areas; commodity prices were up and the rest him to his fate and to Zondo.
of Africa was going to grow at 3.3% in 2018. But the bottom line is, someone has to be
POLITICS So the growth he was talking about was a able to do better than this for growth. Take this
sort of effortless cyclical enlargement where we line: “Working closely with the department of
do nothing, but things somehow end up all right trade & industry, I have approved six special
Cloaked in sanctimony anyway. In that budget scenario, everything was

pretty much all sorted by the time Ramaphosa
was elected ANC president in December. It’s the
economic zones that will make qualifying com-
panies subject to a reduced corporate tax rate
and enable them to claim an employment tax
sort of prognosis that bears strong traces of incentive for workers of all ages.”
Zuma’s dead hand.
Speech Gigaba quoted also said some Gigaba is more than likely to be removed as As far as I could see, this was the only effort
people cannot grasp ‘that to denounce finance minister in a cabinet reshuffle in a few in Gigaba’s speech to get even close to the rein-
mudslinging does not mean the days or weeks. If Ramaphosa wants to hold on dustrialising, job-creating, exciting and benefi-
endorsement of whitewashing’ to him, I’ve already suggested sending him to ciated new manufacturing land that Ramaphosa
Harvard’s Kennedy School of Government for a has got us all looking out for. These would not
Peter Bruce [email protected] while. Get him out of the country and learning be six new economic zones as he implied, you
can bet. And the “qualifying” conditions would
ý About a minute or two after he stepped up to not be as guilty as you think I am”. Only, Gigaba could quite as easily go to jail. surely be as stupid now as they have been from
the podium in parliament to deliver his budget But Roosevelt wasn’t finished. He faces two direct threats. First, when deputy the start — qualifying investors in the zones (the
speech, finance minister Malusi Gigaba turned “An epidemic of indiscriminate assault upon chief justice Ray Zondo’s commission of inquiry ones we already have, which I suspect are the
to President Cyril Ramaphosa and asked: “How character does no good,” he said, “but very great into state capture gets its funding and starts same ones Gigaba has just “approved”) have to
long have I got?” harm. The soul of every scoundrel is gladdened work, Gigaba will surely be one of the early partner with the state.
The question wasn’t a joke, even though whenever an honest man is assailed, or even witnesses. He’ll be subject to, we all hope, the Does anyone in the ANC have any idea how
Gigaba was far more assured this week than he when a scoundrel is untruthfully assailed. toughest possible cross-examination. At the end to create just one sustainable job? I doubt it.
was last October, when he delivered the medi- “Now, it is easy to twist out of shape what I of his inquiry, Zondo will have the power to Ramaphosa will be the only person in his
um-term budget policy statement. have just said, easy to affect to misunderstand it, order the criminal prosecution of whomever he cabinet ever to have run a business and he did it
The finance minister is a man under enor- and, if it is slurred over in repetition, not difficult thinks deserves it. with help that not many ordinary entrepreneurs
mous political pressure. His apparent associa- really to misunderstand it. Some persons are The second threat is direct arrest by the in his wake can expect to find.
tions with the thieving Gupta family were just sincerely incapable of understanding that to police, even if the Hawks don’t exactly inspire You create jobs by making it worthwhile and
too many and too frequent. His sweeping away denounce mudslinging does not mean the much confidence. Perhaps when Ramaphosa easy to create businesses that create the jobs in
of the boards of the state’s biggest companies in endorsement of whitewashing; and both the has had time to settle, he’ll be able to establish a the first place. Or you just straight-out give peo-
June 2011, and their replacement with many interested individuals who need whitewashing, new form of prosecutorial investigation (sort of ple the money to start their own dreams.
people who turned out to be proxies of the and those others who practise mudslinging, like like the Scorpions used to be) or re-establish The more government tries to “create jobs”
Gupta family, is indisputable. This was, after all, to encourage such confusion of ideas. working groups of police and prosecutors to the deeper the hole it has dug for itself thus far.
the formal start of the state capture project. speed up priority investigations. Watching Gigaba’s speech I couldn’t help but
The only question is whether or not Gigaba “One of the chief counts against those who For the moment, Gigaba has cloaked himself think about the damage that Zuma did to the
knew at the time that they were proxies for the make indiscriminate assault upon men in busi- in sanctimony. As he spoke yesterday, you people whose lives and careers he touched.
Guptas, or whether then-president Jacob Zuma ness or men in public life, is that they invite a could tell his time at treasury had done him Gigaba, in my view, is one such casualty. I
had given him an instruction to make those reaction which is sure to tell powerfully in good. He knows, probably for the first time, doubt this is a budget he’ll be around to account
appointments. favour of the unscrupulous scoundrel who real- what real trouble looks like, and he worked for this time next year. x
Evidently Gigaba hit Google before the ly ought to be attacked, who ought to be hard yesterday to stop it.
speech and found what he was looking for: a exposed, who ought, if possible, to be put in the In a way he succeeded. He dug a trench.
rousing and famous address by US president penitentiary.” Raising Vat from 14% to 15% was the right thing
Theodore Roosevelt in April 1906, which would It’s lovely stuff, of course — especially the to do, if only because he has to protect our tax
be a cloak to wrap himself up in. Roosevelt’s “some persons are sincerely incapable of morality (which is our general agreement that
speech has become known as the Muckraker understanding that to denounce mudslinging yes, we must pay our income taxes) and there
address — an attack by the US president on the does not mean the endorsement of whitewash- was a danger that further personal tax increases
way the press was scraping the bottom of the ing”. At the time, Roosevelt was facing from the could backfire. The Greeks don’t feel sentimen-
barrel in its reporting about him. print media what politicians today routinely get tal about paying tax, for instance, which is why
Gigaba quoted this bit: “There are, in the body from social media. It wasn’t nice then, and it they are in a state of permanent crisis. Oh yes,
politic, economic and social, many and grave isn’t nice now. and hidden in the budget was a quick line about
evils, and there is urgent necessity for the But it doesn’t get Gigaba off the hook. At cutting the public-sector wage bill. We’ll see.
sternest war upon them. There should be some stage he will have to test his story in pub- But even while he was putting in place a
relentless exposure of, and attack upon every lic. Until he does that, he can progress little fur- defensive line to reassure the ratings agencies, Esa Alexander
evil man, whether politician or businessman, ther in politics. If “how long have I got, Mr Pres- there was something missing: growth. Yes, he
every evil practice, whether in politics, in busi- ident?” is the question now, the answer must said SA would end this year with GDP growth
ness, or in social life. I hail as a benefactor every surely be: “not very long at all”. of 1%, up from an estimated 0.7% last October.
writer or speaker, every man who, on the plat- But life is complicated, Ramaphosa’s perhaps That rises to 1.5 % in 2018 to 2.1% in 2020.
form, or in book, magazine, or newspaper, with more than most. After all, Gigaba is young, Which is all well and good, but treasury
merciless severity makes such attack, provided bright, fit and a Zulu. His whole life has been always over-forecasts growth.
always that he, in his turn, remembers that the spent in politics. In many scenarios, he’s a future Worse, all of the growth Gigaba was talking
attack is of use only if it is absolutely truthful.” president of the country. He is just the sort of about was due to factors external to the econ-
In other words, Gigaba was saying: “I may person that Ramaphosa needs in cabinet. omy. There was the new national mood, of
Financial Mail Page 12 -21/02/18 11:49:04 PM
opinion by Herman van Papendorp
Lifting
the
growth
gradient
I
123RF/lightwise
Van Papendorp n recent years, the SA econ- impact on growth. improve tax morality and compliance.
is head of investment omy has decoupled from an Far higher local growth levels are While additional revenue-generating
research & asset
accelerating global growth required to induce even a short-term measures were unavoidable to address
allocation at
Momentum trajectory. Indeed, the most cyclical improvement in unemployment, the revenue shortfall and the unsustain-
Investments synchronised global growth poverty and inequality. More important- able debt path, the emphasis had to be
recovery since 2010 has, on ly though, to put the economy on a on tax increases that do not discourage
its own, been unable to boost local structurally higher growth plane, SA’s capital expansion or job creation.
growth rates, which have fallen as global uncompetitive product and labour mar- With policy uncertainty a major con-
rates have risen. kets and the deficiencies in the educa- straint on private sector expansion
Consumer and business confidence tion system need to be eradicated plans, investors would welcome trans-
are at their lowest since 1994 due to an through macro policy reforms. parency on progress with the mining
uncertain political and policy environ- Fiscal policy can help by reprioritis- charter and land reform policy. In addi-
ment, coupled with revelations that cor- ing spending towards the right strategic tion, the budget needed to offer credible
ruption is rife and corporate governance areas while altering corporate behaviour funding plans for state-owned enterpris-
largely absent in sections of society. This through appropriate tax measures. es and free higher education, and pro-
has had a negative effect on consumer vide clarity on the cost of dealing with
spending and business investment. SA’s fiscus collects too little revenue the Western Cape water crisis.
The onus is now on SA’s politicians for its bloated expenditure base. Not only Only a small elite of the previously
and policy makers to address the trust did the budget demonstrate a commit- disadvantaged population has benefited
deficit in society and improve confi- ment to fiscal consolidation — it also meaningfully in a financial sense from
dence so the journey to a more pros- provided tangible evidence of how this the democratic transition of 1994.
perous future for all can commence. will be achieved. The 2018 budget can support the
The 2018 budget builds on the pos- To put the economy on a more mantra of inclusive growth by redirect-
itive political seeds sown in December sustainable path, government must be ing spending and revenue towards pri-
with the election of a new ANC lead- ruthless on wasteful expenditure, show orities that sustainably lift the growth
ership and this leadership’s subsequent prudence in terms of the public sector gradient of the economy.
The onus encouraging policy pronouncements. wage bill and procurement policy, and Only by substantially enlarging the
is now on These have enhanced the prospects for prioritise infrastructure spending to economic rewards available in SA can
politicians structural policy reforms. boost longer-term growth potential. we make a broader cross-section of
and policy This year’s budget needed to Progress on these issues will prob- the population financial beneficiaries of
makers to credibly and tangibly demonstrate gov- ably impress ratings agencies. This will the political dividend that democracy
address the ernment’s commitment to fiscal consol- cut debt service costs and help redirect provided almost 25 years ago. In the
trust deficit idation while at the same time limiting spending to sustainable, growth- interest of social cohesion and relative
in society the potentially negative temporary enhancing projects and probably fairness, this is long overdue. x
12 financialmail.co.za . February 22 - February 28, 2018

Corporate
Financial Wellness
through innovative
risk and insurance
solutions to protect
your business’
bottom line.
Protecting the financial wellness of your business takes strategic insight. It takes innovation and tailored solutions. It takes the pioneering approach of cell
captive insurance. Guardrisk offers cover for corporates, small enterprises and municipalities, as well as cover for a variety of industries including marine,
construction, motor and many more. The option of a third party insurance offering lets you sell insurance cover to your customers, boosting your business’
earning potential and building your brand. Tel: +27 11 669 1000 • www.guardrisk.co.za
An Authorised Financial Services Provider
www.mmiholdings.co.za
WHAT PARTIES THINK
budget 2018 reaction Opposition “The very low appetite for supporting
finds flaws
WHAT CEOs THINK state-owned enterprises (SOEs) was hearten-
Cautious
ing aer so many previous budgets extended
bail-outs to ailing entities. This is a welcome
Mmusi Maimane development since SOEs are a major area of
DA leader contingent liabilities that the ratings agencies
optimism
“I think today we have come to Increase in Vat widely condemned, look at ... Overall, it was a tough budget,
recognise the fact that while the though lone voice of the FF+ says considering the size of the fiscal deficit. But
ANC has been stealing money for a there were signs that government is leaning
number of years, poor South it’s a good thing, in a way into issues that need to be tackled.”
Africans are going to pay for it ... Genevieve Quintal
This is a budget which is an assault Business leaders say there Nicky Newton-King
on poor people. I would hope that “We ... view his budget as still were few surprises in Gigaba’s CEO of the JSE
we begin to grow our economy so commied to the protection of
that people will be able to find capitalist accumulation which over
‘tough but hopeful’ budget “There was nothing that really surprised me in
work, but what we saw today is a the past 24 years has not led to any Marc Hasenfuss the budget. But I do worry that a combination of
consequence of nine years of meaningful investments ... There is a hike in the Vat rate and an increase in the fuel
mismanagement under the ANC.” no sign of concrete plans to grow the levy could be inflationary. We could dri out of
economy and create sustainable our inflation targeting range, and put pressure
jobs.” on interest rates again.”
The EFF Mustaq Brey
(which boycoed
CEO of Brimstone Investment Corp
the event)
Nqabayomzi Kwankwa “This was obviously a tax-driven

budget, and the fact that a
United Democratic
wealth tax has started to come
Movement chief whip
through is not that surprising.
“It was unfortunate that president Overall, though, I’m not too
[Cyril] Ramaphosa allowed an disappointed.” Jannie Durand
accomplice in the looting of state
resources by president [Jacob] CEO of Remgro
Zuma to address us. We’re bierly,
bierly disappointed [about Vat].
We think they used it as a so Mangosuthu
target because they don’t want to Buthelezi
upset the private sector.” Inkatha Freedom Party leader
“I was pleasantly surprised. The
increase in Vat is regreable, but at
the same time as far as the poorest of
the poor are concerned ... I think it is a
very good balancing act. Staple food
was not increased, [there was] some
“We do have a new dawn and it increase in social grants and in money
was a very tough budget. To for education generally.” “Against the backdrop of a difficult macro
balance that budget we believe environment, government has produced a
that more could have been done to credible budget. Some hard decisions have
reduce government expenditure been taken in order to stabilise the country’s
as opposed to increasing Vat ... We finances, such as increasing Vat. What was
believe that we should address missing was a greater commitment by govern-
corruption and wasteful and “It’s not fair for individuals to carry ment to look at ways to expand the tax network
irregular expenditure which runs the whole tax burden. We saw an and revitalise Sars [the SA Revenue Service].
up to R100bn/year. If we do that increase in personal tax but at least We need to improve the tax authority’s
then it is unnecessary to increase now we broaden it [with the Vat Mteto Nyati investigative capacity once again.”
Vat, which affects the poorest of increase]. We are worried because CEO of Altron Group
the poor.” if you look at the economic growth
rate predicted by the minister, it
says 1.5% for the next financial
Raoul Gamsu “My expectation aer the budget is that there are no quick fixes.
Steve Swart year and about 2.1% for 2020; that CEO of Consolidated But hopefully over the next six months we will see [economic
African Christian is not going to create enough jobs Infrastructure Group policy] changing. Most importantly, I am optimistic about the
Democratic Party MP if for instance more than 800,000 leadership of SA ... we have a good CEO in charge of the country.
pupils leave school annually.” Last year I had expectations of further downgrades, increases in
interest rates and currency weakness. This time it’s the reverse.”
Pieter Groenewald
Freedom Front
Plus leader February 22 - February 28, 2018 . financialmail.co.za 15

GIGABA’S POLITICS While he might remain a member of the cab-
inet, his demotion seems all but certain.
which was pretty much elected on an anti-cor-
ruption and anti-state-capture ticket.
opinion by Bonang Mohale
Dim future for The main reason for this is the cloud hanging
over him as a result of his tenure as public
Deputy chief justice Raymond Zondo is set to
get to work on his judicial inquiry into state
enterprises minister — and his alleged role in capture — and topping the list of his terms of
this chameleon facilitating the “capture” of state-owned enter- reference is how the Guptas and their political
He was kept on to deliver a tough

budget, but can Gigaba survive as a
prises by Zuma’s alleged benefactors, the Gup-
tas, who are now on the run.
A report into state capture by the SA Council
allies in the state manipulated ministerial
appointments and the appointments of board
members in key state-owned companies.
Reporting for duty
of Churches earmarked Gigaba’s tenure at pub- This probe, with powers to subpoena, is set
senior member of Ramaphosa’s cabinet? lic enterprises, from 2009 to 2014, as the gen- to lead directly to Gigaba’s tenure as public Business is ready to answer Ramaphosa’s call — ‘send me’ — to
esis of the state capture project. enterprises minister. ensure our economy is pulled from the brink of policy own goals
Natasha Marrian [email protected] Still, it will provide him with an opportunity @ tobyshapshak
A report by the Public Affairs Research to clear his now deeply tainted name. Julius
T
ý Finance minister Malusi Gigaba perfectly fit- Institute went further, describing in detail how Malema’s EFF boycotted Gigaba’s maiden bud-
ted the mould of WH Auden’s poem, “The Gigaba systematically went about “repurposing” get speech as a protest against his alleged role
Unknown Citizen” until his tenure as public the boards of state-owned entities, “which as the Guptas’ facilitator, including fast-tracking he past few days have
enterprises minister, when his links to state became broadly representative of ‘Gupta-Zuma’ their SA citizenship when he was home affairs renewed the hope and
capture emerged. interests”. minister (from 2014 to 2017). confidence of millions
“Our researchers into Public Opinion are According to the report, Gigaba appointed the Gigaba’s hitherto fairly low-key role in pol- of South Africans in
content / That he held the proper opinions for Gupta-linked Iqbal Sharma to the Transnet itics, which simultaneously helped him rise their country, its insti-
the time of year; / When there was peace, he board in 2010, and in 2011 he appointed Brian within whatever faction was at the helm, shifted tutions and future.
123RF
was for peace: when there was war, he went,” Molefe — whose ties to the Gupta family are under Zuma. First, our MPs elected a new pres-
the poet wrote. well documented in former public protector His role could be exposed by the Zondo ident, Cyril Ramaphosa, enabling a We welcome the marginal reduc- ship, capital structures and gover-
That pretty much sums up the description of Thuli Madonsela’s report on state capture — as commission or, worse, it could show that he constitutional transition from one tion in the deficit. Our preference, nance of these entities cannot be
Gigaba’s politics by his peers. He is a career Transnet CEO. In June 2011, he announced blindly followed instructions to the detriment of leader to another. Then Ramaphosa though, would have been to address delayed. The work that government
politician who blows the way of power in the wholesale changes to the boards of Eskom and principle. opened parliament with an upbeat the fiscal gap through a deeper cut in has commenced with Eskom — where
hurly-burly of SA’s political shifts. Transnet. It will be difficult for him to maintain the message that was a fitting tribute to spending and measures to stimulate a new, credible leadership is now in
Gigaba’s most acerbic critics in the ANC Leaving Gigaba at the helm of treasury poses strategy — that of Auden’s Unknown Citizen — Nelson Mandela in the year of the growth to increase revenues. place — needs to be replicated across
describe him as someone with little depth, and a distinct risk to the Ramaphosa administration, that has worked for him thus far. x icon’s centenary. And this week Government needs to move with all the major SOEs.
say his vacillation can in essence be attributed finance minister Malusi Gigaba deliv- speed to set up the judicial commis- It’s concerning that government
to the pursuit of high office — a strategy that has ered a budget in support of the strong sion of inquiry into the administration will be injecting more cash into some
largely worked. To supporters he is talented, but achievable plans announced by and governance of the SA Revenue of these entities. Hopefully, financial
bright and astute; he has mastered the art of the Ramaphosa. Service. Raising taxes in an environ- support will only be considered for
political chess game, doing what is necessary to What remains is for South Africans ment in which tax morality has been those SOEs that support public policy
rise in the ranks of the ANC and government. to join hands in ensuring that these compromised by governance and objectives or have social mandates.
Gigaba was elected president of the ANC positive statements translate into leadership concerns in the revenue Caution is required in funding those
Youth League for three terms — in 1996, 1998 action and that the younger beneficia- authority is counterproductive. that have a commercial mandate.
and 2001. ries of social grants are quickly turned As we approach another period of
He was seen as one of former president into salary earners. Government has to be commend- ratings reviews, it would be helpful if
Thabo Mbeki’s loyalists — but following the While the broad thrust of the bud- ed for the responsible manner in government were to clarify how it
ANC’s rejection of Mbeki at Polokwane in 2007 get is to be welcomed, we think Giga- which it has sought to address the plans to address the problems in the
and his subsequent recall and exit from the ba could have been bolder, in certain issue of fee-free higher education, SOE sector — especially in the major
political stage, Gigaba’s allegiance switched respects, to stabilise our public which could have become a political entities.
seamlessly, allowing him to rise steadily in finances — especially by reining in football during the coming election The core message of the budget is
stature under Mbeki’s successor, Jacob Zuma. expenditure, and addressing public season. hopeful. Still, achieving the aspirations
In ANC circles, during the debate on “gen- debt and the plethora of troubled Similarly, the approval of six spe- envisaged in it will require a lot of
erational mix” ahead of the Mangaung confer- state-owned enterprises (SOEs). cial economic zones is a welcome hard work on all of our parts.
ence in 2012, it was naturally assumed that he, As expected, and regrettably, the move in the attempt to take advantage Business is ready to answer Rama-
along with contemporaries like Fikile Mbalula rate of Vat will be increased to 15%, of improving global economic condi- phosa’s call — thuma mina (send me)
and Zizi Kodwa, was among the rising stars alongside adjustments in other taxes. tions through promoting export-led — to do its part in ensuring that our
who would lead the party into the future. This will hurt the poor. growth. Government needs to urgent- economy is pulled back from the
But how will Gigaba’s chameleon-like style The state The money could have been raised ly put in place the requisite incentives. brink of policy own goals.
of politics go down in the new administration of our SOEs through eradicating fruitless expendi- The state of our SOEs remains one In this respect, Business Leadership
under President Cyril Ramaphosa? remains ture. But government’s course is of the biggest threats to the integrity of SA has been working with other
It is widely predicted that it will not be one of the indicative of the economic times we our public finances. Of major concern stakeholders on a set of short- to
smooth sailing for the relatively young politician biggest are facing thanks, in part, to a lack of is the heavy reliance of some of these medium-term measures to get our
(he is 46), known for his immaculate suits and a threats to the investor confidence in the economy, entities on government guarantees to economy on a growth path again. In
Siyabulela Duda
glamorous lifestyle. integrity of which is still reeling from the effects stay afloat, instead of using the guar- due course, we will share our propos-
It is expected that Gigaba will be shifted out our public of last year’s credit ratings down- antees to fund capital expenditure. als with government. x
of national treasury in the next cabinet reshuffle. finances grades. The task of addressing the leader- Mohale is CEO of Business Leadership SA
budget 2018 revenue
Hetty Zantman
ADMINISTRATION with the previous fiscal year. It was a daunting Sars has also been clinging on to refunds due treaty, an initiative of the Organ-
task in an economy in which growth had to taxpayers, says Andrew Wellsted, head of tax isation for Economic Co-operation
Scraping the barrel ground to a halt and annual inflation was to fall
to just above 5%.
Sars pulled out the stops, but it was not
at Norton Rose Fulbright.
This is so much so that the tax authority was
censured in a recent report on the refund issue
& Development (OECD) that came
into force in June.
The treaty brought with it the
enough. Preliminary estimates show that tax by the tax ombud. The report noted that common reporting standard under
revenue collected in the past fiscal year fell between November 2016 and March 2017 the which tax authorities in more than
The SA Revenue Service finds itself under increasing pressure — and scrutiny — as R48.2bn (3.8%) short of the budgeted total. office of the ombud received 500 complaints 60 countries share information on
rising tax collection shortfalls become the norm and a commission of enquiry gets That’s at least a marginal improvement from about Sars’s refusal to pay refunds. Half of the assets and bank accounts held by
set up to investigate governance at the tax authority the expectation in the October medium-term complaints were found to be valid. HNW individuals.
budget policy statement, in which Gigaba “The average time it takes us to sort out a Underpinning this, financial
Stafford Thomas [email protected] warned of a projected tax collection shortfall refund problem is three months,” says Mike institutions are now required to
of R50.8bn. Teuchert, national head of taxation services at keep records of their HNW clients,
I
In his latest budget speech, an undaunted Mazars. “It is time-consuming for tax advisers, comply with due diligence require-
f there were any doubts about the dire sit- annual tax receipt deficit approaching R50bn. Gigaba set Sars the task of raising tax revenue and, for clients, [it] adds more fees. Most indi- ments and report pertinent infor-
uation faced by the SA Revenue Service “We always knew that when government of R1.345 trillion in the 2018/2019 fiscal year. It viduals do not have the knowledge needed to mation on a regular basis to tax
(Sars) in raising tax revenue, finance min- increased the Vat rate we would be at the bot- represents a 10.5% (R128bn) rise on the estimat- approach Sars themselves.” authorities.
ister Malusi Gigaba laid them to rest in his tom of the revenue barrel,” says Ernie Lai King, ed tax revenue collected in the past year. And for refunds or other issues a taxpayer The no-place-to-hide nature of
budget speech. MD of tax consultancy One Road Consulting. As always, personal income taxpayers will may have with Sars, the office of the tax ombud the new common reporting stan-
In a move potentially fraught with political The past fiscal year was always going to be a bear the brunt of Gigaba’s tax-raising goals. In is not a quick solution. dard was hoped to already have
risk for the ruling ANC, Gigaba announced an tough year for Sars on the tax revenue collec- addition to the increase in Vat, he is aiming to “All avenues with Sars must first be followed shown results, albeit indirectly.
increase in the Vat rate from 14% to 15%, effec- tion front. And it was — in no uncertain terms. extract another R44.8bn (9.7%) from taxpayers before a taxpayer can approach the ombud’s Delinquent taxpayers with undis-
tive on April 1. Last February, then finance minister Pravin through means including lower-than-inflation office,” says Teuchert. closed foreign assets had been
This will bring in an estimated extra R22.9bn Gordhan set Sars a goal of collecting tax rev- increases to personal income tax rebates and Sars has devised another means of making provided with an amnesty to come
in the 2018/2019 fiscal year, helping to close an enue of R1.265 trillion, a 7% increase compared brackets. In all, individual taxpayers are project- life difficult for taxpayers through deductions clean. It expired at the end of
ed to contribute revenue of R505.8bn, or 37.6% claimed in a tax return. August.
of total tax revenue. Teuchert explains that if Sars requests verifi- Disappointingly, Gigaba made
With Vat added, individuals are projected to cation of a claimed deduction, it sends it to the no mention of the outcome of the
contribute tax revenue of R853.9bn, or 63.5% of taxpayer’s online eFiling profile, with no back- amnesty in his budget speech.
total tax revenue. up through e-mail or conventional mail. Miss a “I suspect the amount of assets
Sars request, and it will disallow the deduction. revealed proved to be embarrass-
Also as usual, corporates got off lightly, with This can easily happen. “No one looks at ingly low,” says Lai King.
their tax contribution to state coffers projected their eFiling profile on a regular basis,” says Whether Sars will use the
Ernie Lai King to rise by R13.1bn (6%) to R231.2bn, or 17.1% of Teuchert. OECD’s common reporting stan-
total tax revenue. Sars is also after much bigger fish, among dard to crack down on errant tax-
But in government’s defence, it finds itself them high-net-worth (HNW) individuals with payers remains to be seen.
between a rock and a hard place on corporate undisclosed assets offshore. Sars is now armed “We have not seen anything
tax. The current corporate tax rate is 28%. with the automatic exchange of information yet,” says Teuchert. “But it is still Mike Teuchert
In its revenue trends and tax policy review, early days. A lot of revenue author-
national treasury notes that the global trend is to CONTRIBUTION TO GROSS ities are still trying to work out
reduce corporate income tax rates. The US, for TAX REVENUE how they will be able to analyse
example, has lowered its corporate tax rate the information.” ment in his state of the nation address that a
from 35% to 21%, and the UK has lowered its Percentage of gross tax revenue, 2016-17 The common reporting standard has another commission of inquiry is to be set up to probe
rate from 30% to 19%. key role to play: cracking down on multination- “tax administration and governance” at the rev-
“At 28%, SA is becoming an outlier,” warns
Persons and individuals 37.1 als indulging in profit shifting to the most ben- enue authority.
national treasury. Vat 25.3 eficial tax jurisdictions. The result is a loss of tax Gigaba in November called for such a com-
Can Sars pull off the revenue collection income (base erosion) in countries where they mission to be set up.
objective it has been set by Gigaba? It remains Companies 17.9 earn their profits. “We know very little about what the com-
to be seen. But recent history suggests it will be SA’s comparatively high corporate tax rate mission’s remit is, but I suspect it will in part
touch and go.
Fuel levy 5.5 puts it at risk of base erosion and profit shifting, deal with the substantial loss of senior staff in
Tax collection shortfalls have, unfortunately, Customs duties 4 warns treasury. The most significant factor in the past 18 months and all the negative public
become the norm over the past four fiscal this is transfer pricing between units of a multi- attention Sars has been getting,” says Wellsted.
years. And the shortfalls have been rising. Specific excise duties 3.1 national company. While it should be done at Says Teuchert: “There is no accurate infor-
In the 2016/2017 fiscal year tax revenue fell arm’s length pricing, it is a practice open to mation on Sars staff turnover and in its media
7% (R30bn) short of the R1.174 trillion targeted.
Dividend withholding tax 2.7 much abuse. releases it has played down the losses of highly
That was a sharp rise from the 1.1% (R11.6bn) Skills development levy 1.3 With the introduction of the common report- experienced people. But anecdotally we see it
shortfall in the 2015/2016 fiscal year and the 1.5% ing standard, Sars now has access to country- all over the place.”
0.7
Robert Tshabalala
(R14.65bn) shortfall in the 2014/2015 fiscal year. Electricity levy by-country information on all large multination- It is worrisome at a time when Sars needs all
With the growing shortfalls has come an als operating in SA. the skills it can muster.
increasingly aggressive approach by Sars to
Transfer duties 0.7 Source: National treasury
Sars will soon find itself under scrutiny fol- “A strong Sars is critical to restoring SA to
extract every last cent it can from taxpayers. lowing President Cyril Ramaphosa’s announce- health,” says Teuchert. x
budget 2018 revenue

VAT respectively. In Nigeria it is 5%. PERSONAL TAX SIN TAX
The increase is being relied upon to con- SA VAT RATE
Filling the tribute about R23bn — equivalent to 64% of the
additional R36bn revenue that government is Some relief Sugar jobs
targeting.
revenue hole PwC Vat partner Lesley O’Connell says the
increase will have a major effect on households’
but it’s slight may be lost
already tight budgets, and the April 1 implemen-
While some believe the Vat increase was tation date doesn’t leave much time for busi- 10% 14% 15% Bad news for the rich: increased duty Plan is to raise billions once again from
inevitable and necessary, others say there nesses to effect the necessary system changes. will squeeze more money from high- users of alcohol and tobacco but now
are better ways to make up the shortfall Despite the reservations, she believes it’s the value estates fans of sugary drinks also face a levy
Introduced 1993 2018
correct approach. “This raises large amounts of in 1991
Ann Crotty [email protected] revenue with relatively small increases in rates Stephen Cranston [email protected] Stafford Thomas [email protected]
due to its broad base and economic efficiency.
ý Imagine former Steinhoff CEO Markus Jooste The fact that there is no amended list of zero- ý Last year there was a painful increase in the ý Smokers and alcohol drinkers need no
pitching up to present the group’s 2017 financial
results along with the restated 2016 and 2015
rated foodstuffs is positive as it maintains the
integrity and efficiency of the Vat system.” R289.2bn
revenue generated
top marginal income-tax rate to 45%. There are
no similar fireworks this year; the same rate
longer feel alone when it comes to being the
targets of punitive excise duties. From April 1
figures and, before the end of the presentation, Not everyone agrees that a Vat increase was applies for those earning from R1.5m/year. Sim- they will be joined by consumers of sugary
in 2016-17
blithely informing shareholders that they will either inevitable or the right thing to do. Gilad ilarly, there are no changes to brackets above drinks.
have to weigh in with additional billions Isaacs, director of the corporate strategy & R555,000. The initial hit that sugary-drink consumers
because the company is in such difficulties. And industrial development research programme at At lower levels, changes to tax brackets and face is a levy of 2.1c/g of sugar, with the first
imagine him presenting this reality as though he Wits University, says it is “madness” to place the rebates offer 3.1% relief. Andrew Wellsted, a 4g/100 ml exempt. Hogan Lovells estimates that
had nothing to do with those difficulties. burden of collecting so much of the additional “If Ramaphosa wants to place a moratorium partner at the Norton Rose law firm, says gov- the levy will lead to an 11% rise in the price of
Fortunately, Steinhoff shareholders in such a revenue on Vat. on the Vat move, he could [do so] on the rea- ernment realises SA has a very small tax base, sugary drinks.
position would be able to walk away. It’s not so “In a country plagued with high levels of sonable grounds that he wants to engage with with 100,000 people paying at least 27% It will also extract over R1bn in additional tax
for South African citizens, particularly the poor- poverty and inequality every instrument must social partners such as Cosatu and civil society income tax. It is more palatable to increase tax- revenue from consumers.
123RF/ limbi007
est who will be most heavily affected by the one be brought to bear on solving these challenges,” groups,” says Isaacs. es stealthily by adjusting brackets than keep The SA Revenue Service describes the sugar
percentage point increase in Vat that the ANC’s he says. “The tax system is one tool.” If Ramaphosa does want to engage with civil increasing the top marginal rate. levy as being in support of the department of
very own value-destroyer, finance minister Isaacs describes Vat as the least progressive society groups, he need look no further than the An additional R6.8bn is likely to be collected pay more in real terms as they move up the health’s aim to decrease diabetes, obesity and
Malusi Gigaba, announced on Wednesday. component of the tax system, noting it has a Alternative Information & Development Centre next year through the monetary illusion of earnings ladder. other related diseases. But it comes with more
It is only the second increase in Vat since the relatively greater effect on the poor and lower- (AIDC), which has collated the views of 30 civil keeping taxes “unchanged” but having people About 75% of taxpayers earn less than than just an added cost to consumers.
tax was introduced in 1991. The first was in income earners. society organisations. R350,000 so could be eligible for free higher A study conducted by the Bureau for Food &
1993, just ahead of the country’s first democratic However, he says the Vat increase is not a The AIDC describes a Vat increase as an HIGHER BURDEN education. They account for 19% of income tax Agricultural Policy for the SA Sugar Association
elections. done deal. “There is still a parliamentary pro- attack on the poor that SA cannot afford. payments. found that the levy will result in a 200,000 t fall
For many establishment economists, the cess to go through, which provides a two-week “If an increase in Vat is a symbol of what the Taxable income (R) Rates of tax (2018-19) SA’s personal income tax burden has in annual sugar demand which in turn will lead
strongest argument for increasing Vat is simply window for discussion.” future holds under Ramaphosa, it will mean R0 - R195,850 18% of each R1 increased from 8.3% of GDP in 2011 to 9.8% to the loss of an estimated 3,129 direct farm
that it hasn’t been done for so long. Or, as Giga- While a budget has never been rejected in harder times for SA’s poor,” says the AIDC. today but revenue continues to be strangled by jobs, most of them among small growers.
ba put it rather pointlessly during his budget the past, Isaacs believes things are sufficiently Isaacs says there are workable alternatives, R195,851 - R305,850 R35,253 + 26% of the lower bonus payments, moderate wage settle- For smokers and consumers of alcoholic
amount above R195,850
speech: “We have not adjusted Vat since 1993 different this time to provide some scope for a including increasing government debt, which is ments, job losses and the stabilisation of public- beverages, finance minister Malusi Gigaba had
and it is low compared to some of our peers. review of the Vat decision. not high by international standards. R305,851 - R423,300 R63,853 + 31% of the service employment after years of growth. As a more of the same bad news they have been
We therefore decided that increasing Vat was He refers to speculation of a cabinet reshuffle Personal income tax increases, especially at amount above R305,850 result, Gigaba expects personal income tax rev- getting since 2002: excise duty increases will
unavoidable if we are to maintain the integrity and the likelihood of Gigaba being removed the highest level, a wealth tax with a particular enue to undershoot its target by R21.1bn in the be above the inflation rate.
of our public finances.” from his position as finance minister. He also focus on intergenerational wealth and a small R423,301 - R555,600 R100,263 + 36% of the 2017/2018 fiscal year, now ending. Between them, drinkers and smokers are
The peers he referred to might be Norway wonders to what extent this budget is backed increase in corporate tax are all options that amount above R423,300 Personal tax accounts for 37.1% of revenue, projected to contribute an additional R1.33bn in
and Hungary, where Vat is 25% and 27% by Ramaphosa. should be considered. x R147,891 + 39% of the
double the 17.9% from corporate tax. tax revenue in 2018/2019.
R555,601 - R708,310
amount above R555,600 There will be at least one attempt to squeeze Liquor consumers face proposed excise duty
COMPARATIVE STANDARD VAT RATES BY COUNTRY the rich. In line with Davis Tax Committee rec- increases of from 6% to 10% which will extract
R708,311 - R1,500,000 R207,448 + 41% of the ommendations, estate duty on estates worth an additional R910m in tax revenue.
% amount above R708,310 more than R30m will increase from 25% to Hardest hit, at a 10% rise, are beer drinkers
21
30%. Any donation above R30m in any one year who will soon find the price of their favourite
R1,500,001 and above R532,041 + 45% of the
amount above R1,500,000
will be taxed at 25%. brew jumping by 14.6c/340 ml can.
14
Private citizens are being challenged by a It takes the total excise duty payable to
Rebates range of additional taxes. The sugar tax will 161.56c/340 ml.
7 Primary R14,067 arrive on April Fool’s Day — the latest in a list of Coming off comparatively lightly, fortified-
Secondary R7,713 special impositions such as the plastic bag tax, wine drinkers will pay an extra 37c/l. The 6%
0 Tertiary R2,574 the levy on incandescent light bulbs and the rise takes total tax on fortified wine to R6.54/l.
Argentina
UK
Madagascar
Morocco
Cameroon
OECD
India
Russia
Turkey
Côte d'Ivoire
Rwanda
Tanzania
Uganda
Brazil
China
Mozambique
Malawi
Mexico
Kenya
Ghana
Mauritius
Namibia
Zimbabwe
SA
Botswana
Indonesia
South Korea
Japan
Nigeria
Saudi Arabia
vehicle emissions tax. These will soon be joined But it is still well above the R3.91/l for unfor-
Tax threshold by the carbon tax bill. tified wine, which represents by far the largest
Below age 65 R78,150 The slight increase in medical tax credits is portion of the wine market.
Age 65 and over R121,000 also a hit for the private citizen. Tax increases Smokers will feel the pain of an 8.5% rise in
* Rates are for 2017 and 2018. THE OECD rate refers to an unweighted average Age 75 and over R135,300
Source: International Bureau of Fiscal Documentation
Source: National treasury on tobacco and alcohol will surprise nobody. x tax on cigarettes that will take excise duty to
budget 2018 revenue

SIN TAXES

Changes in specific excise duties R15.52 on a pack of 20. CORPORATE TAX But the intention is not to let local
CORPORATE INCOME TAX
Ostensibly tax on “sin” prod- companies simply shift their activ-
as a share of GDP
ities to reduce their tax liabilities. All %
ucts such as cigarettes and alcohol
All eyes on
Cigarees
South Africa
Pack of 20
are aimed at cutting consumption. tax incentives and grants are being 7
Reality seems to tell another story. monitored — all must meet inclusive OECD
Unfortified wine
According to British American incentives growth incentives.
6 Africa
Malt beer
Tobacco (BAT), illegal tobacco The research and development 5
340ml
products today account for 24% of incentives have certainly missed the
Companies get a break with no tax
Spirits
750ml
the SA market with an estimated mark. They allow taxpayers to 4

increase, but government has a few
1l
5.5bn illicit cigarettes sold in this deduct 150% of expenditure on

country annually. Loss of tax rev- tricks up its sleeve qualifying projects. But there is a 3
enue is said to be about long application backlog and the

2
R5bn/year. Stephen Cranston [email protected] incentive will be reviewed to reduce
It also suggests very poor complexity. 1
policing by Sars. BAT estimates ý Finance minister Malusi Gigaba must have Nazmeera Moola, co-head of
R4.80 30c 14.6c R1.22
2000
2004
2006
2009
2008
2005
2003
2002
2001
2010
2007
2015
2013
2014
that 80% of the total trade in illicit been tempted to increase the corporate tax rate. fixed income at Investec Asset Man-
2012
2011
tobacco is manufactured locally. x It has remained at 28% since 2013, when the agement, says the budget, including
Source: OECD
more neo-liberal Pravin Gordhan regime a stable corporate tax rate, is a nec-
reduced it from 34.5%. essary but not sufficient condition to
TRANSFER DUTY down from a multiyear high of 7% in 2014. mildly stronger year for all housing market seg- But companies can be a lot more mobile than shoring up SA’s one remaining investment- global trend towards lower corporate tax rates,
Finance minister Malusi Gigaba expects rev- ments,’’ he says. people and are certainly more prepared to shop grade investment rating (from Moody’s). government will review the controlled foreign
No relief for enue collection from transfer duties to recover

by 7% to R8.34bn in 2018/2019. Some may
Jacques du Toit, senior property economist at
Absa Home Loans, echoes a similar sentiment.
around for a more attractive environment. It
would be a major blow if there were an outflow
As it is there is a pick-up in resistance to
paying tax. Tax buoyancy, or the relationship
company tax exemption to see whether a
reduction is warranted.
argue this estimate is overoptimistic, particular- He says that while the increase in Vat, of big corporates along the lines of the 1999 between tax revenue growth and economic Government is also reviewing the tax treat-
home buyers ly since transfer duty rates did not increase.
Furthermore, there has been no adjustment
marginal personal income tax relief and
increased fuel levies will have a negative effect
exodus of Old Mutual, Anglo American, Billiton,
Dimension Data and SAB.
growth, fell to 0.96, materially below
economic growth.
ment of excessive debt financing. As interest
payments are tax deductible it is an incentive to
to capital gains tax in this year’s budget, which on household finances, lower inflation and the According to the Budget Review, falling cor- use debt rather than equity, and is often used to
Transfer duty rates have not been
changed, partly because revenue from
means there won’t be a rise in revenue on that stronger rand could lead to lower interest rates, porate income tax rates in advanced and TAX REVENUE 2018/19 strip profits from high-tax countries. There will
front either. which could provide much-needed support for emerging countries have already affected SA’s be a discussion document coming out soon. The
property sales was lower than expected However, FNB household and property sec- the housing market. global competitiveness. This trend limits the aim in corporate tax is to balance certainty,
Personal
tor strategist John Loos says housing activity Herschel Jawitz, CEO of Jawitz Properties, room to increase or even maintain the tax rates R505.8bn income tax simplicity and protection of the revenue base,
Joan Muller [email protected] may well pick up over the next 12 months on agrees that while the budget provides no real on business. Corporate income tax already con- the Budget Review says.
the back of improved sentiment, thanks to SA’s impetus for a residential property market tributes more to GDP than in virtually every R348.1bn Vat There are also ambitions to expand Vat to
ý Unsurprisingly, no adjustment to transfer political transition. recovery, improved consumer confidence is sizeable economy except Chile. foreign electronic services including cloud com-
duty rates was announced in this year’s budget. Loos notes that leading economic indicators likely to support property prices and demand “There was definitely a danger that we would Corporate puting and other online services.
It follows a drop in the revenue that gov- are already pointing towards a strengthening over the next 12 months. But the increase in price ourselves out of the market,” says Andrew R348.1bn income tax And to ensure proper governance of public
ernment earns from property sales: transfer economy. estate duty on estates above R30m may lower Wellsted, a partner at Norton Rose Fulbright. entities and encourage accountability, losses or
Customs &
duty collection for the 2017/2018 tax year came “It seems plausible that 2018 could be a demand in the luxury market, he says. x Life was already made somewhat uncom- R97.4bn excise duties
expenditure classified as fruitless or wasteful
in at R7.8bn, about R620m less than the fortable for shareholders by last year’s increase will not qualify for a tax deduction.
R8.42bn treasury had hoped to earn.
The transfer duty shortfall can be attributed BRINGING IN LESS in the dividend withholding tax from 15% to
20%. R84.8bn Other
Corporates will also be pleased to hear that
there will be improvements to tax administra-
largely to the relief that was offered to entry- Transfer duty revenues (Rbn) Corporate tax has been reduced from 35% to tion. Perhaps the SA Revenue Service (Sars) can
level home buyers when government raised the 21% in the US and from 30% to 19% in the UK. become a partner to business after all.
transfer duty exemption threshold last year The SA government has opted for a simpli-
R77.5bn Fuel levies
It is looking to bring in electronic fiscal
8.51
*8.34
8.25
from R750,000 to R900,000. fied corporate tax regime in which businesses Source: National treasury devices, or electronic cash registers, to help
7.8
Though buyers in the sub-R900,000 bracket know exactly what they are going to pay, and revenue administration by monitoring business
After much debate the minister decided to
7.4
7.4
were the biggest winners from the adjustments wasteful tax incentives have been removed, transactions. It is also looking to prevent “fore-
introduced in the 2017 budget, anyone who though a few high-profile special zones have let Vat take the strain rather than corporate or stalling” in which abnormal volumes of prod-
6.77
6.7
bought a property priced at R1.25m or more been set up. personal tax increases. ucts are moved from warehouses into the
benefited too. From March 1 last year they effec- They will get additional tax incentives. The Corporates might be getting away with no market to avoid increases in excise duty rates.
tively saved R4,500 in transfer duty. initiative is being led by the department of trade tax increase, but they will need to be well It also plans to take on counterfeit cigarette
5.48
5.32
Transfer duty revenue was hit not only by & industry and is focused on the manufacturing aware of some government initiatives featured operations with fiscal markers required under
4.93
4.68
the higher exemption threshold but by a dip in and tradable services sectors to support exports, in the budget. the tracking and tracing obligations of the World
4.27
housing sales. Industry players say market sen- economic growth and job creation. Coega in the It will be reviewing the controlled foreign Health Organisation’s protocol to eliminate illicit
3.83
timent was dented last year by ongoing political Eastern Cape is the best known but others company comparable tax exemption. SA-con- trade in tobacco products. Other products could
uncertainty, credit rating agency downgrades include Dube TradePort in Durban, East London, trolled companies operating in countries where soon be subjected to fiscal marking.
and SA’s dismal economic growth rate of only Maluti-a-Phofung, Richards Bay and Saldanha tax payable is less than 75% of what would have Sars collects more than 30% of total revenue
around 1%. Bay. Against the national trend they will be been payable at home are required to include from the customs and excise system and is at
In addition, softer sales volumes led to lower offered a lower corporate tax rate for qualifying the foreign net income in their SA tax calcu- an advanced stage in its customs modernisation
house price growth. The FNB house price index firms as well as employment tax incentives not lation. This prevents these firms from shifting programme: strengthening data and revenue
recorded average growth of only 3.7% last year, just for young people but workers of all ages. profits to low-tax jurisdictions. In view of the collection associated with cross-border trade. x
6
11
9
-0
-1
-1
-1
-1
-1
-1
-1
-1
-0
-0
-0
-1
0-
16
11
12
17
13
18
15
14
. .
06
09
07
08
05
20
20
20
20
20
22 financialmail.co.za February 22 - February 28, 2018

20
20
20
February 22 - February 28, 2018 financialmail.co.za 23

20
20
20
20
20
20
Source: National treasury *Estimate

budget 2018 revenue

opinion by Dennis Davis PERSONAL FINANCE
Tightening the
for nine large medical schemes, according to
Grant Thornton Healthcare.
Middle-income earners were spared invest-
ment tax and estate duty increases this year, but
226
The number of days in a year
Between a rock tax screws
high earners with estates exceeding R30m will
face a higher estate duty rate of 25% — or
should they try to donate assets exceeding this
a person earning R1m/year in
the past tax year may need to
work to pay income tax,
and a hard place

amount, they will pay donations tax.
The increasing burden on South Africans Dividends tax was increased last year from typical medical scheme
in some income classes is close to 15% to 20% and the inclusion rate on capital contributions, private
reaching a tipping point gains tax increased in 2016. schooling costs, retirement
The 2018 budget will be remembered as the one in which Vat was The tax burden on individuals is often mea- savings and security costs
increased for the first time since 1993 — but Gigaba had little choice Laura du Preez sured in terms of the number of days in the
year the average taxpayer works to pay his or account public services provided by the state.
I
ý The squeeze on individual taxpayers contin- her tax obligation — known as tax freedom day. If government fails to provide benefits such
123RF/Andrey Kiselev
ued in this year’s budget with increased Vat and Last year tax freedom day was on May 25 — as health care, education, retirement savings
n the end, it turned out that While personal income tax rates fall within the scope of a wealth tax? fuel levies, almost no fiscal-drag relief and a five days later than it was in 2015 and six weeks and security, taxpayers need to fund these
the 2018 budget was a remain unchanged, the partial imple- As you’d expect, the budget places below-inflation increase in the medical tax later than it was in 1994, the Free Market Foun- themselves.
prisoner of the economic mentation of fiscal drag does repre- much-needed emphasis on tax credit that whittled away this benefit. dation reported last year.
and political conditions sent a modest effective tax increase administration. Tax buoyancy is now This year’s additional burden comes on the Tax freedom day is calculated by taking total Health care is not the only one of these
created over the past few for higher earners. below 1 — a measure that illustrates back of a steady increase in income tax and government tax revenue and dividing it by GDP. costs rising at above-inflation rates. Recently
years. The tepid levels of But even if the marginal tax rate how revenues have fallen below the indirect taxes over the past few years. But Ferdie Schneider, the national head of tax Old Mutual warned parents to expect education
GDP growth, astounding levels of cor- were increased from 45% to 50% for rate of GDP growth in the country. South Africans’ personal income tax burden at BDO, says the calculation is misleading costs to rise by 9%/year.
ruption, declining tax morality and people earning more than R1.5m/year, The Budget Review suggests that has risen from 8.3% of GDP seven years ago because it only considers an average effective This means public school costs of
turbulence in the SA Revenue Service it would raise revenue by less than the decline in the dividend tax collec- to 9.8% in the 2018 tax year, the Budget tax rate, and these rates vary sharply. R32,000/year last year could amount to
(Sars) all combined to create a rev- R5bn — hardly a replacement for a Vat tion — by more than R5bn from what Review notes. Just in income tax, the Budget Review shows R50,000 in five years, and private high school
enue shortfall that has created fiscal increase when the country needs to was projected last year — is a signif- Add to this consumption taxes such as Vat the 2019 average income tax rates will vary costs of R125,000 could rise to R197,000 by
unsustainability. raise more than R20bn. icant factor in that buoyancy rate. That increasing the price of many purchases by from 0% to 36.8%. 2021. University costs of R54,000 last year
If you recall, back in October when The reality of SA’s economy is that is true, but concerns with the state of another percentage point, the fuel levy and road Tax freedom day also fails to take into would increase to R85,000 by 2021 and
finance minister Malusi Gigaba deliv- the pyramid shape of income distri- Sars could also have been a contribut- accident fund levy increasing the tax on fuel R176,000 by 2030, Old Mutual says.
ered the medium-term budget policy bution — itself an unwelcome product ing factor. from 35.6% to 38.4%, and a two-percentage- Eugene du Plessis, director of tax at Grant
statement, the revenue shortfall was of our racist past — imposes an inher- The problems at Sars are one of the point increase in ad valorem excise duty push- Thornton, says a taxpayer earning R1m/year in
calculated at R50.8bn — and that did ent constraint on our ability to raise early issues that President Cyril ing up the cost of goods such as vehicles and the past tax year and paying R7,500/month in
Russell Roberts
not include the added expenditure the sort of revenue needed to plug the Ramaphosa needs to fix. cellphones. medical scheme contributions, R10,000 in pri-
needed to fulfil former president Jacob shortfall through any hikes to personal On balance, Gigaba’s budget will Following an income tax rate increase in vate schooling costs, R5,000 in retirement sav-
Zuma’s cavalier pledge of free tertiary income tax. doubtlessly be remembered as the 2016 and the introduction of a 45% marginal tax ings and R1,360 for security had an annual
education. one in which Vat was increased for bracket for high earners last year, personal income tax burden of R275,918.
This week’s budget showed that Of course, some attempt has been the first time since 1993. income tax rates were not increased this year. Such a taxpayer would have needed to work
the R50.8bn has been revised down to made to target the wealthy in this Some have argued for a three-tier However, the screws will tighten on all tax- 224 days out of 365 — or until August 13 — to
R48.2bn. To fill this gap, national trea- budget through an increase in estate Vat system: a luxury Vat tier for a cer- payers as national treasury chose, once again, cover tax, medical, security, retirement and
sury needs extra tax revenue of duty. But the fact is, unless tougher tain range of products; a zero-rated not to fully address tax-bracket creep. This education costs.
R36bn, as well as a commitment to anti-avoidance measures are imple- tier for essentials like bread; and the occurs when a salary increase pushes a tax- In the tax year that starts on March 1,
prune government expenditure by mented, along the lines recommended normal tier, which will now be 15%. payer into a higher tax bracket. assuming this taxpayer’s income and costs
R85bn over the next three years. by the Davis tax committee, little will The answer to this is that creating a This year even the lower income brackets increase by 4.8%, his or her annual income tax
It may be controversial that a one come of this increase. luxury Vat tier would require signif- were granted only partial bracket-creep relief — liability will rise to R294,417, which means
percentage point increase in Vat is the While it’s doubtful that estate duty icant legislative work to define what the bottom three income brackets were raised working an extra two days until August 15 to
centre of the tax increases needed to could ever make a really major con- constitutes these items. That legisla- by a below-inflation 3.1%, while the four higher meet expenses.
fund this shortfall, but it’s hardly sur- tribution to revenue, it must still be tion would take time to put together. tax brackets were not adjusted at all. Ferdie Schneider Rhodes Business School tax professor
prising. After all, where else would taken seriously in a country with the Second, a three-tier Vat system This will cost personal taxpayers an addi- Matthew Lester says last year’s tax statistics
Gigaba have been able to source a sort of egregious levels of income and creates opportunities for arbitrage (on tional R6.8bn in the 2019 tax year. released by the SA Revenue Service show that
predictable R22.9bn? wealth inequality that we have in SA. the input side), which makes it inef- Individual taxpayers will also be squeezed just over 1m taxpayers earning more than
At 28%, corporate tax is already The Davis tax committee has com- ficient and difficult to administer. Also, for an additional R700m because medical tax R500,000/year pay 62% of personal tax, which
fairly high, and in a globalised world in pleted a report on wealth tax, but increasing the scope for a “zero rating” credits rose by less than inflation. amounts to 23% of total tax revenue, before they
The one which SA is seeking new investment implementation of the proposals means the revenue that is foregone They increased by a mere 2.31% (for the first spend a cent on anything else.
percentage to power its growth trajectory, an requires significant additional informa- mainly benefits the wealthiest people. two beneficiaries) and 2.45% (for remaining The tax burden on these individuals could
point increase would have proved econom- tion about wealth patterns and a com- It is far better to redistribute on the beneficiaries) — well below the increases in therefore be close to reaching a tipping point.
increase in ically counterproductive. And besides, prehensive discussion of its scope. expenditure side — such as the contributions that medical scheme members Schneider says too heavy a burden on tax-
Vat may be we need reliable information about the For example, does wealth situated increases to social grants announced face, which are typically two to three percent- payers leads to an emigration brain drain, tax
controversial, gap between nominal and effective in retirement funds — which, on any in this budget, as well as the increased age points above inflation (which was 4.4% for avoidance mechanisms, and capital or income-
but it’s hardly corporate rates of tax before any cor- plausible definition, make up a signif- spending on tertiary education for the the year to the end of January). generating potential being moved to tax juris-
surprising porate tax increase could be justified. icant part of SA wealth’s landscape — poorer sections of SA. x The increases in contributions average 7.75% dictions with lower rates. x
budget 2017 policy

STATE-OWNED ENTERPRISES as will a new set of directors for SA Express
(SAX) — the regional airline operator that is set
No more bailouts — to soon be merged with its larger but equally

cash-strapped cousin, SA Airways (SAA).
Both Denel and SAX have been operating
and clean up your

only thanks to the loan guarantees they have
from government. Neither has been able to fund
its operations independently.
In December, Denel was forced to turn to
act, Gigaba tells SOEs national treasury for a further R580m loan
guarantee to pay the salaries of its approximate-
ly 2,000 employees. This was in addition to a
R1.9bn increase in a debt guarantee that gov-
Finance minister says the elimination of corruption and the strengthening of ernment had extended to Denel earlier, hiking
governance will be priorities. As an example he points to Eskom, where in January its total exposure to R2.4bn.
six new directors were appointed to the board and the acting CEO was replaced “We will follow the same path of fixing man-
agement and governance teams as government
Sikonathi Mantshantsha [email protected] and the management teams of SOEs to elim- has done at Eskom,” said Gigaba.
inate rampant corruption. Nonetheless, the Eskom has been perhaps the worst and most
ý Cash-strapped utilities that were hoping for R466bn in government guarantees, given to the visible of the bumbling SOEs. To strengthen its
financial respite from the budget were left dis- entities as collateral for their debts, will stay in governance, six new directors were appointed
appointed as finance minister Malusi Gigaba place. The last of the guarantees — R350bn to the board in January, including Telkom chair-
chose not to make any new allocations to shore extended to cover Eskom’s debt — will expire in man Jabu Mabuza. The power utility also
up their leaking balance sheets. March 2023. replaced Sean Maritz, who had been acting CEO
Instead of the carrot that state-owned enter- First in the whipping line would be the board for three months, with the highly rated Phaka-
prises (SOEs) were hoping for, the minister and management of arms manufacturer Denel, mani Hadebe.
spoke of the stick. He said government would Gigaba said. Eskom’s new board was also mandated to
prioritise strengthening corporate governance Denel’s new board will be announced soon, cull all senior managers and executives who
Waldo Swiegers

F O U N D AT I O N
͘ŵŵŝŚŽůĚŝŶŐ͘ĐŽŵ
O ĮŶĂŶĐŝĂů ůŝ
ĞĂĐ ŽũĞĐ

ů ĞŵďŽĚ Ž ĮŶĂŶĐŝĂů
ĞůůŶĞ ŐŽĂů͘
O
ŝŶĞŵĞŶ ŝŶŽ ĮŶĂŶĐŝĂů ĞĚ ĐĂŽŶ
WĞ Ă
Ğ
Ž Ě ŽĨ Ž
͗
• 1000 ŚŝŐŚ ĐŚŽŽů ĚĞŶ ĞĂĐŚĞĚ Ś Ž ŐŚ

MĂŬŝŶŐ MŽŶĞ MĂ Ğ
ĮŶĂŶĐŝĂů ůŝĞ ĂĐ ďŽĂ Ě ŐĂŵĞ
• 2400 ĞŵůŽĞĞ ĂĐ Ž ϭϰ ŝĞ Ă ĐŝĂŶŐ ŝŶ
Motheo Financial Dialogues
• 9 ŚŝŐŚ ĐŚŽŽů Ă ĐŝĂŶŐ ŝŶ ĂŶ
EŶ
Ğ
ĞŶĞ
Śŝ P
ŽŐ
ĂŵŵĞ
• 8 ŚŝŐŚ ĐŚŽŽů ůĞĂ ŶŝŶŐ ŚŝůĞ ůĂŝŶŐ ŝŶ ŚĞ
MĞ
Ž KŝĐŬ SĂ

ŽŐ
Ăŵ
• 483 EĂ ů CŚŝůĚŚŽŽĚ DĞĞůŽŵĞŶ CĞŶ Ğ ĞĐĞŝŝŶŐ
ĮŶĂŶĐŝĂů ŵĂŶĂŐĞŵĞŶ
ĂŝŶŝŶŐ
MŽŵĞŶŵ͕ MĞŽŽůŝĂŶ͕ GĂĚŝ Ŭ ĂŶĚ Můů ĨŽŵ Ă ŽĨ MMI HŽůĚŝŶŐ GŽ͕ ĂŶ ĂŚŽŝ ĞĚ ĮŶĂŶĐŝĂů ĞŝĐĞ ŽŝĚĞ͘
budget 2017 policy opinion by Charlene Lackay

A DEEP HOLE
Government guarantee exposure had been accused of corruption from its top appointed to the board together with Martin
2017-2018 (Rbn) ranks immediately. Since then, seven executives Kingston, the CEO of investment bank Roth-
have either resigned or been fired, including schild’s SA unit.
Guarantee Exposure* former chief financial officer Anoj Singh and Though SAA’s survival remains precarious,
State-owned head of generation Matshela Koko. Gigaba said the airline would receive only the
enterprises (total) 466.0 300.4 It was a commendable step to improve gov- R3bn government had already promised it,
ernance, but Eskom didn’t have a choice. together with the R5.5bn that had been trans-
Eskom 350.0 220.8 Eskom’s major lenders said that for them to ferred to settle the debt liabilities in 2017. That
Sanral 38.9 30.1 keep their credit lines open, the utility had to R3bn would be paid to SAA next year, he said.
remove all those accused of the corruption that Of course, this is in addition to the R19.1bn
Trans-Caledon
Tunnel Authority 25.7 18.7 has crippled the utility and driven it to the brink debt guarantee government has extended to
of defaulting on its bonds. The electricity pro- SAA. Government has also maintained its
SA Airways 19.1 11.8 ducer still has R540bn in outstanding debt. R39bn debt guarantee to the SA National Roads
Land and Agricultural Quite when the new boards at the other Agency (Sanral), whose finances have been
Bank of SA 9.6 6.6 companies will be appointed is anyone’s guess. weakened by the revolt against e-tolls. Sanral is,
Development Bank On this point, Gigaba said: “The time frame of however, in the early stages of modernising the
of Southern Africa 12.3 4.2 board appointments for the other companies road infrastructure, particularly in the Eastern
SA Post Office 0.4 0.4 will be announced as soon as the president Cape, where it will build a new highway at a
Transnet 3.5
firmly takes charge of the presidential infra-
3.8 structure commission.”
But again, it’s not like there’s a choice. Gigaba
cost of about R8bn.
But it does seem as if these state-owned
companies are cutting back.
Rethinking
2.4 2.3
engagement
Denel said that “lenders have been saying they cannot In all, these entities will borrow about
lend to the companies before corruption is dealt R368bn from the capital markets over the
SA Express 0.8 0.8 with and those accused [have been] removed”. three-year medium-term budgeting time frame,
This has already happened at SAA, which last compared with R433bn over the previous medi-
IDC 0.5 0.1 year recruited former Vodacom Group execu-
C
um-term expenditure period.
123RF/lightwise
Independent tive Vuyani Jarana as CEO. Jarana’s appointment Railway and logistics operator Transnet has
power producers 200.2 122.2 put a stop to the revolving door of the executive said it would scale back its capital investment Lackay yril Ramaphosa’s state of employment and the protection of the Grameen microfinance bank, famously
is group CSI
Public-private
partnerships** 9.6 9.6 suite at Airways Park, the carrier’s head office.
Political and board interference under the lead-
plans because demand had been weaker than
expected. This will allow the transport utility to manager of MMI
the nation address
reignited the hope that it
most vulnerable remain — made worse
by government failure, as was crudely
said: “I looked at what the problem was,
then started a business.”
Holdings
ership of Dudu Myeni, the former chair and a pay down its debt over the next five years. was still possible to build evident with the Life Esidimeni tragedy. In SA, growth in social entrepreneur-
* Total amount of borrowing and accrued interest for the
period made against the guarantee friend of Jacob Zuma, resulted in SAA going There is a downside to this, however. Cur- an inclusive society How should we understand this? Did ship has been encouraging. The depart-
** This amount only includes national and provincial through no fewer than six CEOs in six years. tailing building railway infrastructure may have using our collective tal- we just waste R137bn? Or, is there ment of economic development is
public-private partnership agreements Myeni was last year replaced by corporate negative consequences when economic growth ents and resources. It was a presidential something fundamentally wrong with working on a policy framework to boost
veteran Johannes B Magwaza, who was picks up. But that is still some way away. x call to action, grand and inspiring. the way we think about CSI? this sector, which could make a tremen-
Then, during the budget speech, this In 2018, government committed dous contribution to growth, job creation
wave of enthusiasm crashed headlong R259.4bn for social development, which and youth unemployment.
ESKOM accused of corruption. to fund operations and pay salaries and sup- into the harsh fiscal realities facing SA. It makes CSI budgets seem like a sneeze Of course, tough economic times lead
In January, government appointed additional pliers. was clear it will be hard work. It will in a thunderstorm. So shouldn’t we use to a lockdown in funding from donors.
No freebies directors to the board, headed by chair Jabu

Mabuza. Others included Sifiso Dabengwa, a
In November, Eskom admitted it would run
out of cash at the end of December. It then
also challenge corporate social invest-
ment (CSI) decision makers about where
our comparatively small pot of funds to
take the risks government can’t?
In this context, experimenting with
investments in social entrepreneurship
former MTN group CEO who was previously a raised a R3.5bn loan from China to operate dur- to focus their efforts. If you ask Kerryn Krige, chief tech- could easily be seen as irresponsible.
this time senior Eskom executive; current Imperial Hold-
ings CEO Mark Lamberti; and former energy
ing January. The Public Investment Corp then
stepped in early this month with a R5bn loan.
Companies spend R8bn/year on CSI
— a contribution mirrored by R8bn in
nical adviser for the International Labour
Organisation, the answer is an unequiv-
But instead of trying to do what only
government can, companies should pro-
department director-general Nelisiwe The utility is talking to other local commercial philanthropic donations from high-net- ocal “yes”. We should look at ways to be vide new social investment models that
Market forces, not government, must Magubane. lenders to raise the R20bn loan worth individuals. catalysts for service delivery, innovation can, once established, grow to scale with
help haunted power utility navigate its Among the new board’s first it says it needs to keep oper- This doesn’t take into account con- and strengthening community systems. the help of government’s muscle.
way to financial stability decisions were the appoint- ating until the end of the finan- tributions towards skills and supplier Here is the snag: CSI departments
ment of Phakamani Hadebe as cial year next month. development. The 2017 Trialogue Busi- CSI has evolved from pure philan- are flooded with requests for funding of
Sikonathi Mantshantsha [email protected] interim CEO, and the shedding Eskom has relied on gov- ness in Society Handbook says compa- thropy where “strategic CSI” and busi- critical functions such as clean water
of seven executives, including ernment guarantees for R350bn nies have spent R137bn on CSI over the ness sustainability are considered supply, access to basic health care and
ý Eskom’s dire financial situation was not suf- chief financial officer Anoj of its debt, which stood at past 20 years. integral. What is frowned upon today education spaces that can build the dig-
ficient to persuade finance minister Malusi Singh and former acting CEO R540bn in the period to end- One can rightly argue about the qual- are old-school, transactional funding nity of children. These are honourable
Gigaba to bail out the power utility in his budget. Matshela Koko. September 2017. Most of the ity and impact of this investment. But the partnerships that do nothing to build causes that make a difference, but they
Instead, he said government had prioritised “The lenders are again funds have been used for Instead of fact is, our transformation and gover- the financial sustainability, independence can never be the core focus of CSI.
leadership changes and improved corporate engaging Eskom and it will be infrastructure investments, sneezing in a nance codes (such as BEE codes and and capacity of organisations. Companies should take their lead
governance to make Eskom and other state- able to sort its funding require- including three power stations. thunderstorm, King 4), ensure that companies are One area producing results is social from government priorities — but
owned entities attractive to commercial lenders. ments that way,” said Gigaba. Gigaba also failed to make firms should actively contributing, collaborating and entrepreneurship. Social entrepreneurs instead of sneezing in the thunderstorm,
Late last year, commercial lenders closed The utility has been teetering any changes to the utility’s be brave connecting with communities. follow start-up rules and try to address they should be brave enough to exper-
their books to Eskom, insisting it appoint a on the brink of financial col- Nelisiwe Magubane guarantee, which was last year enough to Yet the challenges facing us in edu- a social problem with a business solu- iment with ways to amplify the efforts of
credible board and get rid of senior employees lapse after running out of cash extended to March 2023. x experiment cation, health care, access to justice, tion. Muhammad Yunus, who started the government. x
Russell Roberts
budget 2018 spending
PENSIONS been some progress in the pensions industry. Sanlam, says that for the first time treasury has HEALTH
Changes to offshore regulations were quietly put a stake in the ground on retirement fund
Some progress slipped into the budget.

Soon, pension funds and retirement annuities
will be able to increase their exposure to off-
consolidation.
The Financial Services Board has been
directed to continue the policy of reducing the
NHI still somewhere
on the distant horizon
shore assets from 25% to 30%. number of retirement funds to fewer than 200,
Nedlac annuity talks bogged down, but Rowan Burger, managing executive at MMI, compared with the currently active 1,650.
budget generally signals positive news says this will give investors the opportunity to The subscale funds are likely to join umbrella
for pensions industry diversify from a highly concentrated local mar- funds offered by the likes of Sanlam, Old Mutual
ket, where Naspers alone can account for 25% and Alexander Forbes. But health promotion levy, which taxes it is concerning that treasury has substituted
Stephen Cranston [email protected] of the index. Michelle Acton, principal consultant at Old sugary beverages, will be implemented one service, which serves middle-income
It is quite a bold move when a stronger cur- Mutual Corporate Consultants, says it is inter- from the beginning of April workers by subsidising medical aid, to fund
ý Finance minister Malusi Gigaba admitted that rency makes offshore assets look cheaper in esting that the proposals include even those another, which is still under construction.
the stalemate continues in pension industry rand terms. funds that are exempt from annual audits Michelle Gumede [email protected] Van den Heever points out that the interven-
negotiations — the parties at Nedlac have yet to Burger says “project bonds” outlined by because they have less than R6m in assets. tion targets taxpayers, while the corporate and
agree on the future of provident funds. Gigaba will provide a new asset class for retire- And all funds should have independent ý SA’s ailing health system will get 13.9% of the financial services sectors remain untouched.
For now, members of provident funds can ment funds. They will give institutional investors trustees. national budget in order to increase awareness Gigaba said health remains a key priority of
take out their pension pots in a lump sum, the chance to participate in infrastructure pro- “They can ensure that there is a fair balance and access to services, establish a regulatory government and the 2018 health budget expen-
though government and business would like to jects through listed tradable securities that aim between the interests of the members and the body and fund universal healthcare. But the elu- diture points to a “prevention is cheaper than
see pension and provident fund rules aligned so to offer superior risk-adjusted returns. management trustees,” Acton says. sive National Health Insurance (NHI) remains a cure” stance.
that everyone would have to buy a regular They will be underpinned by the cash flow of “Ironically, when these small funds fold into vague concept.
annuity. But labour has dug in its heels. infrastructure or energy projects, for example. umbrellas they no longer have the right to vote Finance minister Malusi Gigaba revealed on Government strengthened tobacco laws
This stalemate notwithstanding, there has David Gluckman, head of special projects at for trustees. But the aim is for the governance of Wednesday that R191.6bn had been set aside for and introduced health-conscious tax proposals
retirement funds to be in line with the health in 2017/2018 and R205bn in 2018/2019. designed to increase revenue collection.
King 4 standards.” This is set to grow to R240bn by 2020/2021. The health promotion levy, which taxes sug- Alex van den Heever
Unclaimed benefits are a serious issue, About R126bn is earmarked for tertiary hos- ary beverages, will be implemented from the
with more than R40bn lying waiting for for- pital services and R66.4bn will support beginning of April 2018 in a bid to encourage
mer members to take their share. HIV/Aids prevention and treatment. SA has the healthier choices.
Treasury officials speak of consulting largest HIV/Aids treatment programme in the Sugar is a high-risk ingredient that leads to a The sugar levy is set to be coupled with the
with Nedlac to look at a more efficient way world, for 3.9m people. number of noncommunicable diseases such as launch of a public-awareness campaign that has
to find beneficiaries. They talk of centralised The health budget is the second-largest after hypertension and diabetes. Noncommunicable been allocated R368m to establish a health
data, not yet explicitly about a centralised education. diseases are linked to risk factors such as technology assessment unit. Part of the unit’s
government-run fund. The NHI fund was back on the cards after its tobacco use, unhealthy diet and alcohol abuse. work will be to analyse the cost-effectiveness of
Treasury also wants to strengthen mea- maiden appearance in the budget last year. In StatsSA data shows these diseases caused various health interventions.
sures to deal with criminal and unethical 2017, then finance minister Pravin Gordhan allo- more than half of SA’s 460,236 registered Prof Laetitia Rispel, National Research Foun-
practices and expects funds and adminis- cated R5.2bn to set up the NHI fund. But Gigaba deaths in 2015. They were responsible for 62.5% dation research chair at the Wits School of Pub-
trators to improve disclosure. And the same gave little detail about it during the medium- of the top 10 leading causes of death among lic Health, says the health interventions are
rules need to apply to state entities such as term budget policy statement in October. females aged 65 and above. encouraging in that they will result in less pres-
the Government Employees Pension Fund On Wednesday Gigaba sure on the country’s public health-care system.
(GEPF). This is by far the largest fund in the said an additional R4.2bn has Rispel says health complications associated
country, but raises governance questions by been earmarked for amend- with co-morbidity requires specialists — and SA
not giving its members the right to elect ments to the medical tax had a dire shortage of these.
trustees. subsidy over the next three The scarcity of doctors will be compounded
The Budget Review reports that the years. But the nature and by the decrease in top-ups to infrastructure
GEPF now has 1.3m members and 437,000 expenditure of funds HEALTH R38.6bn spending.
beneficiaries, mostly pensioners. Its total
contributions were up R5bn to R65.4bn.
remains unclear.
Government will increase
R90.2bn Central hospital
services
Gigaba said over the medium-term expen-
diture framework period, the health facility
District health
Membership was flat but beneficiaries the medical tax credit from services revitalisation grant and indirect health facility
increased by 3.3%. R303 to R310/month for the revitalisation grant, which fund infrastructure
It plays a huge role in the creation and first two beneficiaries, and programmes, would be cut by R820m.
preservation of wealth in the public sector,
paying benefits of R88.3bn last year.
from R204 to R209/month
for the remaining beneficia-
R204.5bn Treasury says the SA health products reg-
ulatory authority will be launched as a public
The portion of benefits that went to res- ries. The medical tax credit entity in 2018/2019. The authority will receive
ignations was 34%, down from 44% the will be reviewed after the R34.3bn R396.9m in transfers to oversee registration,
year before with more stability in the work- Davis tax committee pre- Provincial licensing, manufacturing and importing of active
hospital
force. The full GEPF actuarial review will
only be issued next year.
sents its recommendations.
Prof Alex van den Heever,
R8.5bn services pharmaceutical ingredients, medicines and
medical devices. It will also regulate clinical tri-
Facilities managment
The fund’s assets are divided between chair of social security sys- and maintenance R33.8bn als in line with national policy.
equities (R927bn), bonds (R538bn), money tems administration & man- Other health Treasury says the body will generate fees
123RF/Brian Jackson market (R71bn), property (R59bn) and agement studies at the Wits services from the pharmaceutical and health products
unlisted investment (R97bn). x School of Governance, says Source: Budget Review industry. x
Financial Mail Page 32-33 -21/02/18 11:51:36 PM

PROVINCES expected to invest in infrastructure that can Gigaba said over the medium-term expen- students receive less than their fair share,
boost economic growth, and larger municipal- diture framework period, after providing for he says.
Less for ities are expected to invest more of their own

resources, offsetting some of the impact on the
debt-service costs and the contingency reserve,
funds available for spending on public services
Still, free higher education has seemed an
impossible task for treasury to achieve.
Business Day
reductions of the infrastructure grants, and to would grow by an average of 7.1% a year, Gigaba’s medium-term budget policy
services build partnerships with the private sector.
Underspending in national and provincial
increasing to R1.3 trillion next year, and project-
ed to rise to R1.5 trillion in 2020/2021.
statement delivered in October painted a
bleak picture of SA’s economy.
governments has stabilised, while weaknesses One of the highlights was the drought relief The consolidated debt-to-GDP ratio
Provincial and local governments take a in planning and budgeting at municipal level to provinces and municipalities Gigaba widened to 4.3% from a target of 3.1%, while
hit as Gigaba makes trade-off for free remain. announced in his address to the national the projected tax shortfall for 2017 was esti-
higher education KwaZulu Natal received the biggest chunk of assembly on Wednesday. mated at R50.8bn.
the provincial equitable share, with Gauteng The Western Cape, Eastern Cape, Northern Adding to the strained outlook, the Heher
Claudi Mailovich [email protected] receiving the second highest. Cape, Free State and parts of KwaZulu Natal are commission, tasked with looking into the
Gigaba said over the next three years, 48% ofaffected by drought, with Cape Town facing a feasibility of free higher education, found that
ý The provincial and local spheres of nationally raised funds would be allocated to real possibility of taps running dry this year. the state could not afford to provide free
government were left bruised following national government, 43% to provincial govern- “Government stands ready to provide finan- education for all students, while the Davis
finance minister Malusi Gigaba’s maiden budget ment and 9% to local government. cial assistance where necessary. A provisional tax committee said free university education
speech. “Of course, we would like to be able to allo-allocation of R6bn has been set aside in was neither affordable nor desirable.
The minister announced that the planned cate more to each sphere for service delivery, 2018/2019 for several purposes, including The recent presidential shake-up put a
spending for 2018/2019 was affected by and a larger share to local government, but the drought relief and to augment public infrastruc- huge question mark over the issue, but
reprioritisation and reductions that had been reality is that the rising cost of servicing our ture investment,” Gigaba said. Ramaphosa stayed true to Zuma’s word.
undertaken since the 2017 medium-term budget national debt leaves fewer resources available to Gigaba also said government would use the “In addition to promoting social justice, an
policy statement. invest in services across all three spheres of expanded public works programme to mitigate investment of this scale in higher education
The real effect for municipalities and provin- government,” he said. any serious economic impact of the drought, is expected to contribute to greater econom-
cial governments was R3.2bn less to local gov- including the loss of jobs. ic growth, reduce poverty, reduce inequality,
PROVINCES
ernment and R5.2bn less in the bank for trans- It was clear, however, that tough times await enhance earnings and increase the compet-
O
fers to provinces. provincial and local governments, and by impli- itiveness of our economy,” Ramaphosa said
ST
'The reductions in the budget focused cation residents who depend on these EDUCATION Announced just ahead of the ANC elective con- in his state of the nation address last week.
20
specifically on infrastructure conditional
E R 18 spheres of government to deliver ser- ference, it was a political move. Few expected it, But this promise, coupled with SA’s growing
grants.
The SA Local Government
S F - 20
1
vices to them.
DA leader Mmusi Maimane says Finding the and national treasury had no plans to fund it.
So where will the money come from?
debt levels and alarming budget deficit, meant
an increase in the Vat rate was inevitable, says
Association had pleaded with the cuts to the budgets of local In a press briefing just before the budget Citadel chief economist and advisory partner
93,384 funds for fees
AN
President Cyril Ramaphosa 55,179 and provincial governments is speech was delivered, finance minister Malusi Maarten Ackerman.
(R
GAUTENG
before his state of the nation one of the reasons the budget Gigaba and his deputy, Sfiso Buthelezi, adopted Worryingly, an increase in Vat is expected to
TR
LIMPOPO
m)
address that municipalities is an “is an assault on poor martyr-like personas. In spite of the budget’s hit poorer households hardest.
should be protected and people”. Gigaba’s self-congratulatory move other shortcomings, fee-free higher education “You can’t think about funding this without
supported in the harsh He adds: “I would hope to fund free higher education for would be their saving grace. changing one of the big tax instruments,” says
economic climate. that we begin to grow students from poor families comes “The children of the poor and the poor are Ismail Momoniat, deputy director-general at
32,392
392 with sacrifices
“The economic
crunch has seen local
NORTHH WEST 38,468
3 our economy so that
people will be able to
pretty much taken care of. This will break the
cycle of poverty and of unemployment,” said a
treasury.
Unfortunately, it is a sacrifice that will come
MPUMALANGA
MP
government fiscal bud- find work, but what Sunita Menon [email protected] self-congratulatory Gigaba. with other costs. Over the next three years,
get allocations shrink we saw today is a con- government expenditure will be cut by R85bn.
substantially. Insuffi- 12,475 sequence of nine years ý Free higher education can best be described Higher education & training received the Of this, R53bn will be cut at a national level,
cient funding of infra- NORTHERN CAPE of mismanagement as something of a scramble for SA’s government. largest reallocation of resources in the 2018 including from programmes and transfers to
structure projects will under the ANC.” Some had expected that free education budget. Gigaba announced that higher education public entities; infrastructure grants at local and
further undermine the
very same initiatives
47,447
47 But Theo Venter of
the North-West Univer-
would be a dream deferred, but President Cyril
Ramaphosa, at his inaugural state of the nation
would get additional funding of R57bn over the
medium term to fund free education. It’s the
national level will be slashed by R28bn.
But treasury’s leaders seem glib about the
WESTERN
RN
meant to turn the econ- CAPE
E sity’s school of business address, assured the nation that this promise fastest-growing spending category, with aver- effect this will have.
omy around and create
jobs,” it said.
99,264
99,26 and governance, says
Maimane’s comment is a
would be delivered on.
Since the 2015 #FeesMustFall protests, free
age growth of 13.7%/year.
This year, free higher education will receive
As Buthelezi put it: “Don’t look at having to
pay extra Vat or at our cost-cutting measures.
KWAZULU-NATAL
KWAZULU-N
But municipalities are cheap shot. higher education has been a hot-button issue. R12.4bn, which will increase to R20.3bn next Look at the black child who will finally have an
now out in the cold follow- He says the direct trade- With marches, and disruptions to lectures and year and R24.3bn the year after. The money will education.
ing the cuts, as the budget off made is savings on capital exams, the issue has come to the fore at the end go to funding fees, transport and food. “We did this for the children of 1976.” x
makes clear that this adjust- 65,500
65 500 expenditure, to contribute to of every year. “Fee-free higher education is a current trans-
ment will delay delivery of some EASTERN CAPE pay for free higher education. Then president Jacob Zuma’s unexpected fer to households and every year ramps up with
planned infrastructure. 26,178 “That is the immediate trade-off, announcement in December that government the influx of students. It’s about plugging holes Don’t look at having to pay extra Vat
or at our cost cutting-measures. Look
It requires departments responsible which may haunt us in the long term,” in the financial aid system,” says Ian Stuart, act-
7
FREE STATE will subsidise free higher education by the 2018
8
at the black child who will finally have
TO
RANSF ERS 47 0, 2
for front-line services to exercise “excep- Venter says, adding that there is no cer- academic year for poor and working-class stu- ing head of the budget office.
tional care” in allocating public funds to TAL tainty that the education of students would dents — referring to students from households The National Student Financial Aid Scheme an education. We did this for the
maintain core services.
T give the same economic foundation that build- with a combined annual income of up to makes it possible for more people to attend children of 1976.
Provinces and municipalities are also ing a new highway would. x R350,000 — threw a spanner in the works. university by making loans available, but poor Sfiso Buthelezi
123RF/Dmitri Luchinovich
INFRASTRUCTURE the Budget Review. The company’s governance structures have
Transnet, which operates the country’s ports, been earmarked for overhaul, along with those
Slow train fuel pipelines and goods trains, has over the
past few years spent hundreds of billions of
of other state-owned companies.
The government will soon appoint new,
rand on expanding its rolling stock capacity. more credible boards and management teams,
The most high-profile of these tenders as it dramatically did at Eskom last month.
Transnet reins in spending due to lack of was the R54bn acquisition of 1,064 locomotives What Transnet is not skimping on is expand-
customers from Canada, the US and China over the past ing its pipeline business. Treasury says in the
four years. Budget Review that this division will double
Sikonathi Mantshantsha [email protected] The transactions have been mired in con- over the next three years.
troversy amid allegations of corruption involv- Other than Eskom’s continuing investments
ý One of the major disclosures in the budget ing Transnet management and the Gupta family. in power stations, the next biggest slice of cap-
was that logistics and railway operator Transnet Reports allege that the Guptas creamed off ital will be spent on improving water and san-
will cut back on capital expenditure due to low- about R5.3bn in bribes from South China Rail itation infrastructure.
er demand. during the process. Government will allocate more than R118bn
This comes on the back of a modest 5.3% Together with other allegations of corruption — or 14% of the public sector infrastructure bill
increase in the company’s revenue to R65.5bn in state infrastructure projects, the Transnet — to this over the next three years. Of this
for the year ended March, assisted by a small locomotive deal contributed to an apparent amount, 25% will be transferred to regional
tariff hike in the fuel pipeline business. reluctance among lenders to extend credit for water boards for the provision of bulk sanitation
Overall, government will cut expenditure by such projects. infrastructure.
R85bn. A large part of this will hit national pro- Treasury has this to say on the matter: “To The Passenger Rail Agency of SA is also in
jects, including those at Transnet. maintain investor confidence, Transnet will have line for a big investment programme, with
“Over the next three years, Transnet will to address concerns about governance lapses, R41bn allocated to it over the next three years.
scale back its capital investment plans due to including concerns about its supply-chain man- The passenger rail operator will use some of the
weaker than expected demand,” treasury says in agement practices.” money to acquire 125 trains. x

South Africa, we put our shoulders to the grind 9 to 5, 5 to 9.

We see you. We’re for you.
Together we can.
Metropolitan, a division of MMI Group Ltd, an authorised financial services provider.


SOCIAL GRANTS JUSTICE
Trevor Samson
eases. The increase him from facing criminal charges, elite crime budget makes sense given the rising crime
will do nothing to fighting unit the Hawks was rendered toothless statistics.
On the brink
assist children who
are being stunted Security gets a and the state security agency was said to be
using its powers to fight political battles.
He adds that even though there are fewer
functional police officers on the ground, one has
by hunger.” As part of the efforts to improve access to to take into consideration that the aim is to
of desperation Wilson says fami-

lies of five are surviv-
helping hand court, the budget reprioritised R121m to the
department of justice & constitutional develop-
grow the public order police force from about
4,500 to about 9,000 members by 2019.
ing on R760/month ment. This amount has been allocated to the Cosatu has, however, warned that the cutting
and the additional Ipid’s allocation of R158.5m will address office of the chief justice, the National Prose- of public service posts by 3% over the past two
R50/month will do weaknesses in its internal controls and cuting Authority and Legal Aid SA to begin years has already been detrimental to the ser-
DA says 6.6% increase in child grants nothing to alleviate the boost its case-management system operations at the Mpumalanga high court, which vice to the public. The trade union federation
will not be enough to counteract Vat effect of the increase Claudi Mailovich [email protected] is scheduled to open this year. says the police head count will be cut at a time
hike and the effects of inflation in Vat and other levies. The Independent Police Investigative when crime is on the rise.
Gigaba said govern- ý SA’s peace and security functions will have Directorate (Ipid) receives R158.5m. Steve Swart from the African
Ann Crotty [email protected] ment had taken delib- spending growth of 5.2% over the medium term, The funds will be used to Christian Democratic Party says
erate steps to adjust the budget tabled by finance minister Malusi increase staffing and finalise that if law enforcement agen-
social grant values Gigaba shows. the review of its founding cies such as the Hawks and
ý The Black Sash is cautiously upbeat about above inflation “to at The peace and security functions are defence legislation in line with a the Asset Forfeiture Unit
the above-inflation increase in social grants least partially cover for and state security, police services, law, courts 2016 judgment by the con- were given additional
announced by finance minister Malusi Gigaba the proposed increase and prisons, as well as home affairs. stitutional court. capacity, “they could recov-
on Wednesday. in Vat”. Home affairs has been given the smallest This money will also be er the billions that have
“The fact that [treasury] attempted to mitigate With effect from piece of the pie — just R7.9bn — while the used to address weakness- been wasted and stolen
the impact of the one percentage point increase April 1 the old-age, dis- expenditure budgeted for police services goes es in internal controls and through corruption and state
in Vat is encouraging,” says Hoodah Abrahams- ability and care-depen- up from R93.7bn in the revised budget of Ipid’s case-management capture, and this can assist
Fayker. dency grants will 2017/2018 to R99.1bn for 2018/2019. system. in balancing the books and
She says social grants remain a vital lifeline increase by R90 to The justice cluster was eroded by former Johan Burger, research ensure that we are on a fiscal
for 17m South Africans living in poverty. R1,690/month. On president Jacob Zuma in his almost two terms associate for the Institute for consolidation path — which
But she says it will take some time to deter- October 1 they will in office. The National Prosecuting Authority has Security Studies, says the will [boost] business confidence
mine if the increase will be sufficient to cover increase by an addi- been accused of colluding with Zuma to keep increase to the police services and reassure our investors.” x
123RF/Kristina Kuznetsova
the combined effect of inflation and the 15% Vat tional R10 to R1,700 —
rate. She also notes there is a large group of equivalent to a stag-
vulnerable people between the ages of 18 and gered increase of just HUMAN SETTLEMENTS delivery of new houses and serviced sites, the funding without the possession of a title deed.
59 who do not have access to any social grants over 6%. Child support sector is still expected to build 316,813 houses “About 1m state-subsidised properties still
but will have to deal with the increased Vat.
The DA’s Lindy Wilson is less impressed and
grants will increase
from the baseline of Getting value and upgrade 417,391 sites in informal settle-
ments by 2020/2021.
need to be registered for title deeds. Eradicating
this backlog would increase the proportion of
says the budget once again proves the ANC R380 to R400 on April The Centre for Affordable Housing Finance state-subsidised properties on the deeds reg-
government does not care for the poor and vul-
nerable. “We are disappointed in the 6.6%
1, with an increase to
R410 on October 1.
Lindy Wilson via title deeds estimates that about 1.8m — or 29% of the 6.2m
formal residential properties on the SA deeds
istry to 39% of the formal housing market,
thereby unlocking an estimated R180bn of value
increase in child grants. Currently 135 children Gigaba said R6bn registry — were financed by the public housing for low-income households,’’ Gigaba said.
per month are dying of malnutrition-related dis- had been added to the Government plans to unlock an programme. This reflects assets with an esti- Government has also confirmed its ongoing
social grant budget estimated R180bn of value for mated value of R326bn. commitment to improve the living conditions of
since the medium- low-income home owners However, Gigaba said that the full benefits of those in inadequate shelter.
SASSA GRANTS term budget policy statement last October. ment currently pays Net1 for each of the 10.7m government’s housing programme have not Over the next three years, R123.3bn will be
He also assured South Africans that govern- recipients collecting grants (on behalf of 17m Joan Muller [email protected] been realised because a large number of houses spent on subsidising public housing pro-
ment will ensure that social grants will continue beneficiaries). Kotze says the recipients could built through state subsidies are not on the grammes. Gigaba said government’s housing
Number of to be paid without disruption after April 1, but then decide which payment option to choose. ý In what appears to be a shift away from deeds registry. programme will provide more than 417,000
Number of social
recipients grants paid provided no details to support this assurance. Social grants are set to remain one of gov- the previous focus on providing housing for the As a result of this, owners cannot access the households in informal settlements with access
10.7m 17.3m
With less than six weeks to go before the con-
troversial Net1 social grant distribution contract
ernment’s three big expenditure items, with a
budgeted spend of R528bn over the medium
poorest of the poor, government is now looking
to help bring more lower-income households
full value of their properties as no property can
be sold or used as collateral to access bank
to basic services.
In line with government’s urban renewal and
is due to expire, uncertainty remains around term. This places it third behind basic education, into the formal property market. densification policy, 62,000 rental housing units
how grants will be paid. with a medium-term spending budget of In a bid to speed up broader participation in are also expected to be built, while an additional
The SA Social Security Agency’s current R792bn, and health with a R668bn budget. The SA’s housing market, government is creating a 98,000 finance-linked individual subsidies for
communication strategy, which is aimed at health budget is part of government’s social title deeds restoration grant to help speed up the the affordable housing market will be provided.
Value of CPS
five-year contract
encouraging beneficiaries to open a commercial protection system, designed to protect the registration of state-subsidised houses in the Bulk infrastructure for water and sanitation ser-
to distribute grants or Post Office bank account, has led to much country’s poorest and most vulnerable. deeds office. vices will be supported through funding of 73
Annual expenditure
confusion among beneficiaries. There are efforts For the 2017/2018 year, spending on social The title deeds restoration grant will be fund- regional projects and 180 small, interim projects
on social grants R10bn to develop a low-cost banking product but as grants is expected to be R150.8bn. The bill is set ed through a reprioritisation from the human amounting to R34.2bn.
R150bn yet there are no details about the cost implica- to rise to R189.7bn by the 2020/2021 tax year. settlements development grant, which will be Government plans to increase spending on
tions for the beneficiaries. Government may be hoping that, over time, reduced by R7.2bn over the next three years. public transport infrastructure, water, sanitation,
Net1 CEO Herman Kotze suggests social the steep spending on education will lead to a Finance minister Malusi Gigaba said in his electricity and human settlements by an average
Source: National treasury grants should be increased by the R22 govern- reduction in poverty and dependency. x budget speech that though this will slow the 7.4%/year over the next three years. x
budget 2018 spending opinion by Peter Tshiguvho

LAND & AGRICULTURE significant amount of budget for land acquisition spent on idealistic dreams and ideologies.
has been directed to other functions in the “Unfortunately, the dream of a new dawn by
Speeding up department,” he says.

Gigaba told parliament land reform had
become urgent.
a president who inspires hope can quickly
become a nightmare if land ownership and
property rights are played like a chess game,
the transfer In an effort to strengthen the agricultural
sector’s global market access, government has
using either only white or only black chess
pieces,” he says.
allocated R40m to upgrading infrastructure and “The success of the game lies in using all the
More money for redistribution but some equipment for analytic services laboratories. pieces, black and white, with great ingenuity
doubters still fear the state retains “This will provide assurance to global trading and insight, not in misrepresentations and false
smash-and-grab ambitions partners that SA agricultural products meet perceptions.”
internationally recognised standards for human Schoeman’s sentiments appear to ignore
Theto Mahlakoana [email protected] safety, thereby facilitating our ability to export guarantees by Ramaphosa that the land reform
unhindered,” Gigaba said. process will be handled in a meticulous way
ý Government has put its money where its
mouth is on land restitution and redistribution,
by allocating more than 50% of the department
The funds were located in the R7.8bn budget
of the department of agriculture, forestry &
fisheries.
that will avoid “smash-and-grab” state
interventions.
Wessel Lemmer, senior agricultural
Towards
financial
of rural development & land reform’s budget to The department also plans to create and sup- economist at Absa AgriBusiness, commends
the two functions. port 450 “sustainable and profitable” black com- Gigaba’s decision to earmark funds for black
While ANC policy advocating expropriation mercial farmers over the next five years. producer commercialisation.
of land without compensation is still a long way “An estimated R581.7m is expected to be “The announcement of an estimated R581.7m
from becoming government policy, finance
minister Malusi Gigaba’s budget address sug-
gested efforts were being made to address it.
reprioritised for the black producer commer-
cialisation programme. By creating opportuni-
ties for black agricultural producers, we are
earmarked for the programme is most wel-
come,” he says.
“This will go a long way to boosting efforts
inclusion
President Cyril Ramaphosa has already indi- radically transforming the agricultural sector of to transform the agricultural sector of our
T
cated that the policy needs to be located within our economy,” Gigaba said. economy.”
123RF/lightwise
a “broad and comprehensive land redistribution The Afrikanerbond interest group warns that He adds that government’s provision to pur-
and agricultural development programme”. the initiatives could destabilise the country and chase agricultural land needs to be implement- Tshiguvho he greatest challenge exponential growth of middle-income economy, they gain the skills to manage
To this end, the department intends to accel- create uncertainty. ed efficiently in order to make use of the R4.8bn is head of faced by our ANC-led earners emanating from SA’s previously their finances along with their financial
erate finalisation of 2,851 land restitution claims Chairman Jaco Schoeman says that too allocated “within the willing-buyer/willing-sell- channel at government since our disadvantaged households. service providers.
Metropolitan
over the next three years by allocating R10.8bn. much time, energy and scarce funds are being er market framework”. x democracy came into But this pattern has slowed in recent The financial services sector can also
A further R8.8bn will be allo- being in 1994 has been years. Our unemployment rate is 26.7% create innovative financial products and
cated for land redistribution. to build an inclusive — extremely high compared with our service models relevant to people’s
The department’s total budget economy and, more importantly, to Brics peers. According to the World needs. Kenya, for example, has created
is R31bn. kick-start a chain of events that allows Bank, Brazil has 13.4% unemployment, an innovative product: a one-day loan.
Theo Boshoff, legal intelli- prosperity to filter down to all. China is at 4.6%, India at 3.6% and Russia For instance, a vendor can take out a
gence manager at Agbiz, says Unfortunately, this ideal has been at 5.3%. Besides the human toll, our high loan in the morning to fund wholesale
that even if expropriation through some trying times. We have unemployment hits investor confidence. purchases for resale. At the end of the
were already government been buffeted by macroeconomic head- day, the vendor pays back the loan, with
policy, large sums of money winds and a host of political factors, The winds of change are blowing interest, and keeps the profit. This can be
would still be needed to including credit-rating downgrades and through our political landscape, but repeated until the vendor has raised
accommodate those claimants allegations of state capture. there’s a lot more to do. The new lead- enough working capital to sustain his or
who prefer financial compen- It is an uncomfortable truth that the ership has shown resolve to fix state- her business. Small businesses are crit-
sation to actual land transfer. emerging market in SA is highly owned entities and prosecute cases of ical in driving economic growth, so cre-
Government also intends exposed to economic shocks and set- maladministration. If successful, this will ating an enabling environment for such
to acquire about 290,000 ha backs, and it generally lacks the sustain- free up funds for development. businesses is essential.
of “strategically located land” able buffer of financial security to hedge More spending on education, health The emerging and informal markets,
for farming initiatives at a cost the effect of these fluctuations. and public safety saves consumers hav- though different, are rich with opportu-
of R4.2bn. The Momentum/Unisa consumer ing to pay for these services themselves. nities and present similar challenges.
Boshoff, however, warns financial vulnerability index shows that This means more money in their pock- Financial planning and financial literacy
that it is too soon to tell if the consumers are becoming more finan- ets and more need for financial services are important to withstand these chal-
department will spend the cially vulnerable. The four components — a positive step to financial inclusion. lenges, whether you earn R1,000/week
funds exclusively on land of the index — income, expenditure, sav- However, consumers and the private or R100,000/month.
acquisition and not channel it Sustainable ing and debt servicing — worsened for a sector also have roles to play in creating By cultivating the right financial
towards other activities, as it wealth second consecutive quarter last year. wealth. For the financial services indus- habits, in partnership with a trusted
has often done in the past. can be Government and its policies remain try, this means driving education, which financial partner, we will be able to build
“I think one of the more built by the primary gatekeepers when it comes is critical to ensure broad-based finan- sustainable wealth. In turn, having active
important aspects is that cultivating to the emerging-economy consumer’s cial inclusion. participants in the economy will help to
the right
Sunday Times
when the department spends quest to build wealth and play an active Ideally, financial literacy would move build a stable and inclusive base from
the money, how it will do so. financial role in the formal economy. Nowhere in parallel with financial inclusion, so which the entire country can move for-
A panel report recorded that a habits has this been more evident than in the that as more people enter the formal ward and thrive. Together, we can. x

TELECOMMUNICATIONS ital migration project,” said one. programme were expected to amount to
Sapo’s equity injection was necessary to R797.4m over the medium term.
Drought after keep it afloat, according to CEO Mark Barnes

and the auditor-general.
Owing to the reduced broadband connection
budget, funds would be reprioritised to Sentech
Craig Pheiffer, chief investment strategist at in 2018/2019 for costs related to “dual illumi-
the flood Absa Stockbrokers & Portfolio Management,
says Sapo is considered critical to service deliv-
nation” – running analogue and digital broadcast
signals at the same time.
ery, particularly for the distribution of social The much-delayed shift to digital broadcast-
grants and provision of basic banking services. ing will unlock much-needed spectrum for the
Broadband and digital migration While it has been “modestly” reducing losses, telecommunications sector. Citadel portfolio
spending take the brunt of cutbacks as the R85bn expenditure cuts announced in the manager Nishlen Govender says though the
SA Post Office prepares to reap benefits national budget would be achieved only if Sapo budget commits to a speedy resolution to the
of huge cash injection. But not everyone and other state companies “can bring about the spectrum impasse, “there was no detail on how
is happy with the new spending efficiencies that have been pencilled in”. this would be done”.
emphasis Pheiffer says: “Sapo has to reinvent itself, He adds: “This has been an issue for some
diversify its income streams and become more time and [a solution] is crucial if SA is to move
Nick Hedley [email protected] efficient, and that may take some time.” alongside its global peers in terms of the avail-
Sapo hopes to secure a banking licence for ability of next-generation LTE [long-term evo-
ý The department of telecommunications & its Postbank unit and finalise its transition into a lution for wireless communications], 4G and 5G
postal services will have its budget slashed over commercial bank by March next year. This will data.” x
123RF/Guillermo Avello
coming years, following a one-off allocation of help it facilitate the payment of
R3.7bn to recapitalise the SA Post Office (Sapo). social grants.
The department’s annual budget more than Expenditure on the Postbank
doubled in 2017/2018 because of the Sapo programme is expected to nearly
injection, going from R2.1bn in 2016/2017 to double, from R302m in 2016/2017
R5.2bn in 2017/2018. However, the budget has to R573m in 2020/2021. Mark Barnes
been cut to R923m in 2018/2019. This is Finance minister Malusi Gigaba ENERGY instructed Eskom to conclude all outstanding make up 38.4% of the current Gauteng pump
expected to rise to R1.1bn in 2020/2021. said in his budget speech that the power-purchase agreements with independent price in February of 93 octane fuel and 41.3% of
Budgets were cut for broadband projects and
others related to the migration to digital broad-
competition commission would
complete its investigation into data Positive signs renewable power producers. Government has
guaranteed Eskom’s procurement of up to
the price of diesel, up from 36% and 39% in
2017/2018. Kieck says the increase in the fuel
casting, according to documents. prices by the end of August. R200bn of renewable energy from the private levy can be absorbed relatively easily because,
“Cabinet approved budget reductions over
the medium term of R1.7bn to the SA Connect
Victor von Reiche, portfolio man-
ager at Citadel Investment Services,
emerging sector. By March 2018 the value of signed pro-
jects will be R122.2bn. Eskom has procured
owing to the strong rand and lower oil prices,
local fuel prices fell in January and February. On
broadband project, and R764m to the Universal says the inquiry “is a big positive” 6,426 megawatts (MW) of renewable power out current trends, they will fall again in March.
Service & Access Fund for the broadcasting dig- since information and communica- Silence on nuclear procurement and of a commitment to procure 14,725 MW in total. Gigaba says carbon tax will be implemented
tions technology (ICT) is a key commitment to finalise Eskom deals with So far 3,774 MW has been connected to the grid. from January 1 2019. The new tax, which will be
private suppliers give reasons for hope
HONEY, THEY SHRUNK enabler of business. SA Wind Energy Association chief executive set at R120/t of emissions but will allow certain
Referring to the white paper on Brenda Martin says the budget did not contain offsets, will enable SA to meet its commitments
OUR SHARE national integrated ICT policy, Giga- Charlotte Mathews [email protected] any positive new announcements for the under the 2015 Paris Agreement of the UN
How the telecoms & postal services ba said the investigation would renewable energy industry. But she was Framework Convention on Climate Change. The
budget will decline (Rbn) “support the work by government to ý Government is leaning more towards pri- encouraged by President Cyril Ramaphosa’s department of environmental affairs also plans
improve competition in the telecom- vate-sector involvement in energy projects and state of the nation address, in which he empha- to publish shortly a brief which would use fiscal
5.17
munications sector”. Eskom’s restructuring as pressure mounts to sised the need to rebuild the economy and grow and regulatory measures to improve water-
To enable legislative changes, he spend on other priorities. the manufacturing sector, which are areas the resource management, reduce emissions and
said the department expected to Spending on energy projects over the next renewable energy industry will support. encourage recycling, Gigaba says.
spend R271.2m on the policy, three years will total R218.8bn, mostly through Simphiwe Masuku, a tax lawyer at attorneys
research and capacity development Eskom, representing about a quarter of public- The total amount allocated for energy pro- Norton Rose Fulbright SA, says the implemen-
programme over the medium term. sector infrastructure spend. At the same time, jects over three years includes completing the tation date for the first phase of carbon tax is in
Among other initiatives, the public-private partnerships (PPPs) in energy, R145bn Medupi power station by 2020 and the line with the firm’s expectations. A few changes
department planned to establish a municipal solid waste and accommodation pro- R161.4bn Kusile by 2022, as well as various grid are likely to be made to the draft bill that was
*1.09
state information technology com- jects are going to grow, treasury says, and it is projects. Government will spend R17.3bn on grid published for comment in mid-December and
*1.02
*0.92
2.08
pany and a state ICT infrastructure looking at ways to streamline PPPs by reducing and stand-alone electricity projects, providing the final bill should be tabled in parliament by
company by 2020. This would decision-making timelines and restrictive rules. 625,000 new grid connections and giving an the middle of the year. There is still uncertainty
1.57
1.30
involve merging different functions Charles Kieck, chief energy economist and CEO additional 20,000 households nongrid power. about the carbon offset regulations, which could
of the State Information Technology of independent commodity researchers Afri- The programme to roll out solar water heaters be published by midyear.
Agency, Sentech and Broadband foresight, welcomes the budget’s silence on will continue but the amount allocated will fall Andrew Wellsted, the firm’s head of tax, says
Infraco. funds for nuclear procurement along with the to R442.7m in 2020/2021 from R742.5m in the the proposed carbon tax has aroused huge
2014-15
2015-16
2016-17
2017-18
2018-19
2019-20
2020-21
Draft legislation would be devel- renewed commitment to buy power from inde- past year because of budget constraints. opposition from the private sector but apart
Russell Roberts
oped for these companies. Alloca- pendent producers of renewable energy. Levies on fuel this year will increase by from enabling SA to meet its climate-change
tions to the ICT enterprise develop- As one of government’s “confidence-boost- 52c/l, including 22c for the general fuel levy and commitments it also creates a new source of
Source: National treasury *Estimate ment and public entities oversight ing measures”, the minister of energy has 30c for the Road Accident Fund. Taxes will revenue for the fiscus. x

TELECOMMUNICATIONS ital migration project,” said one. programme were expected to amount to
Sapo’s equity injection was necessary to R797.4m over the medium term.
Drought after keep it afloat, according to CEO Mark Barnes

and the auditor-general.
Owing to the reduced broadband connection
budget, funds would be reprioritised to Sentech
Craig Pheiffer, chief investment strategist at in 2018/2019 for costs related to “dual illumi-
the flood Absa Stockbrokers & Portfolio Management,
says Sapo is considered critical to service deliv-
nation” – running analogue and digital broadcast
signals at the same time.
ery, particularly for the distribution of social The much-delayed shift to digital broadcast-
grants and provision of basic banking services. ing will unlock much-needed spectrum for the
Broadband and digital migration While it has been “modestly” reducing losses, telecommunications sector. Citadel portfolio
spending take the brunt of cutbacks as the R85bn expenditure cuts announced in the manager Nishlen Govender says though the
SA Post Office prepares to reap benefits national budget would be achieved only if Sapo budget commits to a speedy resolution to the
of huge cash injection. But not everyone and other state companies “can bring about the spectrum impasse, “there was no detail on how
is happy with the new spending efficiencies that have been pencilled in”. this would be done”.
emphasis Pheiffer says: “Sapo has to reinvent itself, He adds: “This has been an issue for some
diversify its income streams and become more time and [a solution] is crucial if SA is to move
Nick Hedley [email protected] efficient, and that may take some time.” alongside its global peers in terms of the avail-
Sapo hopes to secure a banking licence for ability of next-generation LTE [long-term evo-
ý The department of telecommunications & its Postbank unit and finalise its transition into a lution for wireless communications], 4G and 5G
postal services will have its budget slashed over commercial bank by March next year. This will data.” x
123RF/Guillermo Avello
coming years, following a one-off allocation of help it facilitate the payment of
R3.7bn to recapitalise the SA Post Office (Sapo). social grants.
The department’s annual budget more than Expenditure on the Postbank
doubled in 2017/2018 because of the Sapo programme is expected to nearly
injection, going from R2.1bn in 2016/2017 to double, from R302m in 2016/2017
R5.2bn in 2017/2018. However, the budget has to R573m in 2020/2021. Mark Barnes
been cut to R923m in 2018/2019. This is Finance minister Malusi Gigaba ENERGY instructed Eskom to conclude all outstanding make up 38.4% of the current Gauteng pump
expected to rise to R1.1bn in 2020/2021. said in his budget speech that the power-purchase agreements with independent price in February of 93 octane fuel and 41.3% of
Budgets were cut for broadband projects and
others related to the migration to digital broad-
competition commission would
complete its investigation into data Positive signs renewable power producers. Government has
guaranteed Eskom’s procurement of up to
the price of diesel, up from 36% and 39% in
2017/2018. Kieck says the increase in the fuel
casting, according to documents. prices by the end of August. R200bn of renewable energy from the private levy can be absorbed relatively easily because,
“Cabinet approved budget reductions over
the medium term of R1.7bn to the SA Connect
Victor von Reiche, portfolio man-
ager at Citadel Investment Services,
emerging sector. By March 2018 the value of signed pro-
jects will be R122.2bn. Eskom has procured
owing to the strong rand and lower oil prices,
local fuel prices fell in January and February. On
broadband project, and R764m to the Universal says the inquiry “is a big positive” 6,426 megawatts (MW) of renewable power out current trends, they will fall again in March.
Service & Access Fund for the broadcasting dig- since information and communica- Silence on nuclear procurement and of a commitment to procure 14,725 MW in total. Gigaba says carbon tax will be implemented
tions technology (ICT) is a key commitment to finalise Eskom deals with So far 3,774 MW has been connected to the grid. from January 1 2019. The new tax, which will be
private suppliers give reasons for hope
HONEY, THEY SHRUNK enabler of business. SA Wind Energy Association chief executive set at R120/t of emissions but will allow certain
Referring to the white paper on Brenda Martin says the budget did not contain offsets, will enable SA to meet its commitments
OUR SHARE national integrated ICT policy, Giga- Charlotte Mathews [email protected] any positive new announcements for the under the 2015 Paris Agreement of the UN
How the telecoms & postal services ba said the investigation would renewable energy industry. But she was Framework Convention on Climate Change. The
budget will decline (Rbn) “support the work by government to ý Government is leaning more towards pri- encouraged by President Cyril Ramaphosa’s department of environmental affairs also plans
improve competition in the telecom- vate-sector involvement in energy projects and state of the nation address, in which he empha- to publish shortly a brief which would use fiscal
5.17
munications sector”. Eskom’s restructuring as pressure mounts to sised the need to rebuild the economy and grow and regulatory measures to improve water-
To enable legislative changes, he spend on other priorities. the manufacturing sector, which are areas the resource management, reduce emissions and
said the department expected to Spending on energy projects over the next renewable energy industry will support. encourage recycling, Gigaba says.
spend R271.2m on the policy, three years will total R218.8bn, mostly through Simphiwe Masuku, a tax lawyer at attorneys
research and capacity development Eskom, representing about a quarter of public- The total amount allocated for energy pro- Norton Rose Fulbright SA, says the implemen-
programme over the medium term. sector infrastructure spend. At the same time, jects over three years includes completing the tation date for the first phase of carbon tax is in
Among other initiatives, the public-private partnerships (PPPs) in energy, R145bn Medupi power station by 2020 and the line with the firm’s expectations. A few changes
department planned to establish a municipal solid waste and accommodation pro- R161.4bn Kusile by 2022, as well as various grid are likely to be made to the draft bill that was
*1.09
state information technology com- jects are going to grow, treasury says, and it is projects. Government will spend R17.3bn on grid published for comment in mid-December and
*1.02
*0.92
2.08
pany and a state ICT infrastructure looking at ways to streamline PPPs by reducing and stand-alone electricity projects, providing the final bill should be tabled in parliament by
company by 2020. This would decision-making timelines and restrictive rules. 625,000 new grid connections and giving an the middle of the year. There is still uncertainty
1.57
1.30
involve merging different functions Charles Kieck, chief energy economist and CEO additional 20,000 households nongrid power. about the carbon offset regulations, which could
of the State Information Technology of independent commodity researchers Afri- The programme to roll out solar water heaters be published by midyear.
Agency, Sentech and Broadband foresight, welcomes the budget’s silence on will continue but the amount allocated will fall Andrew Wellsted, the firm’s head of tax, says
Infraco. funds for nuclear procurement along with the to R442.7m in 2020/2021 from R742.5m in the the proposed carbon tax has aroused huge
2014-15
2015-16
2016-17
2017-18
2018-19
2019-20
2020-21
Draft legislation would be devel- renewed commitment to buy power from inde- past year because of budget constraints. opposition from the private sector but apart
Russell Roberts
oped for these companies. Alloca- pendent producers of renewable energy. Levies on fuel this year will increase by from enabling SA to meet its climate-change
tions to the ICT enterprise develop- As one of government’s “confidence-boost- 52c/l, including 22c for the general fuel levy and commitments it also creates a new source of
Source: National treasury *Estimate ment and public entities oversight ing measures”, the minister of energy has 30c for the Road Accident Fund. Taxes will revenue for the fiscus. x
Financial Mail Page 42 -21/02/18 11:53:49 PM
opinion by Andrew le Roux
Don’t be
caught
unawares
T
123RF/lightwise
Le Roux he recent changes in environmental as well as political. And sake of it. Doing nothing is also an action
is chief business government and an as we see with the Cape water crisis, — sometimes it is the most courageous
transformation
enhanced expectation of the two factors are often intertwined. one. A robust business model should not
officer of MMI
Holdings consistent leadership In response, scenario planning and require knee-jerk responses.
and direction make it risk management can predict crises, and There are also opportunities in a cri-
tempting to believe that suggest the levers with which to miti- sis. To quote Warren Buffett: “Be fearful
our country and our region are entering gate them. Whether making decisions in when others are greedy and greedy
a period of relative stability. uncertain times or navigating shocks in when others are fearful”. Holistic crisis
However, we’re not out of the woods the environment, strategies are available management will identify business pos-
yet. We’ve come out of a period of policy to protect the proactive business leader. sibilities that come from challenges, and
uncertainty, ratings downgrades and one should intentionally pursue these.
currency volatility, but we have a new A reliable information-management One of the most valuable assets for a
period of change to look forward to as system provides a monitoring and early- company navigating a storm is a work-
we clean up abuses and seek solutions warning system. Emerging trends can force with confidence and a can-do atti-
for education funding, land reform and be measured and tracked. Accurate, up- tude. A leader should never “waste a
water management, among others. to-date metrics give an understanding of good crisis”. When the chips are down,
Dynamic change is perhaps the only what is happening and enable risk-man- staff observe management closely to see
constant we can expect — though the agement strategies to be implemented whether they live the values they talk
form it will take is not easy to predict. timeously. about. They also take comfort from lead-
Private sector companies should get Of greater importance is understand- ers who communicate and are visible
used to uncertainty. While government ing one’s business purpose, strategy and during times of uncertainty.
may show signs of more ethical leader- business model. This means clarifying The various stakeholders of a firm
ship and a renewed commitment to what the company does for clients, the should be engaged from the outset, both
growth, emerging trends outside politics means and the choices that make it in terms of giving input and being
also present threats to businesses. competitive, and the variables that have assured that the situation is being han-
Structural challenges such as inequality, an effect on profitability. As an example, dled. Consultation should not be an
Corporate unemployment and low economic rand strength represents a windfall for excuse not to act.
leaders need growth don’t have easy solutions. importers but not for exporters. Crises and industry shocks will
to formulate Corporate leaders need to formulate If and when a shock comes, manage- remain a fact of corporate life as we
strategies to strategies to anticipate these potential ment should face the situation head-on. enter a new political dispensation. The
anticipate shocks and their ramifications if they are The executive — and the board — should companies that navigate these new
and deal with to future-proof their businesses for the take the time to understand the issue waters best will be those that prepare
potential long term. and then respond decisively. for the storms and know how they will
shocks SA’s future shocks are likely to be However, one should not act for the respond. x

Regardless of the
budget, multiply your
money with Multiply
Multiply rewards you for every move you make to improve your life. Choosing Multiply
means discounts on our Momentum products and with our retail partners. Unlock your
financial wellness with us today. Live life. Multiplied.
www.multiply.co.za

Financial Mail Budget Edition 2018

Uploaded by

Copyright:

Available Formats

Financial Mail Budget Edition 2018

Uploaded by

Document Information

Original Description:

Copyright

Available Formats

Share this document

Share or Embed Document

Sharing Options

Did you find this document useful?

Is this content inappropriate?

Copyright:

Available Formats

Financial Mail Budget Edition 2018

Uploaded by

Copyright:

Available Formats

Financial Mail Page 1 -22/02/18 02:37:06 AM

Financial Mail Page 2 -21/02/18 11:44:48 AM

The budget plans

OVERVIEW 39 Towards Financial SPENDING REUTERS/Sumaya Hisham

4 The Big Picture Inclusion 30 Pensions

February 22 - February 28, 2018 . financialmail.co.za 3

special report budget

hopefully, growth. GREATER ALLOCATION

will take almost five years for debt to stabilise.

Claire Bisseker [email protected] OUT OF BALANCE

Tax hikes and pain: brutal times

demand brutal measures through higher taxes, including a hike in Vat

budget 2018 overview

budget 2018 overview

Highlights from Gigaba’s speech

“The country’s economic growth

Cloaked in sanctimony anyway. In that budget scenario, everything was

opinion by Herman van Papendorp

12 financialmail.co.za . February 22 - February 28, 2018

An Authorised Financial Services Provider

WHAT PARTIES THINK

Nqabayomzi Kwankwa “This was obviously a tax-driven

budget 2018 overview

He was kept on to deliver a tough

budget 2018 revenue

budget 2018 revenue

budget 2018 revenue

Source: National treasury

the SA market with an estimated mark. They allow taxpayers to 4

5.5bn illicit cigarettes sold in this deduct 150% of expenditure on

enue is said to be about long application backlog and the

R4.80 30c 14.6c R1.22

No relief for enue collection from transfer duties to recover

22 financialmail.co.za February 22 - February 28, 2018

February 22 - February 28, 2018 financialmail.co.za 23

Source: National treasury *Estimate

budget 2018 revenue

and a hard place

budget 2017 policy

No more bailouts — to soon be merged with its larger but equally

and clean up your

26 financialmail.co.za . February 22 - February 28, 2018

• 1000 ŚŝŐŚ ĐŚŽŽů  ĚĞŶ ĞĂĐŚĞĚ Ś Ž ŐŚ

budget 2017 policy opinion by Charlene Lackay

No freebies directors to the board, headed by chair Jabu

Some progress slipped into the budget.

budget 2018 spending

Less for ities are expected to invest more of their own

budget 2018 spending

34 financialmail.co.za . February 22 - February 28, 2018

South Africa, we put our shoulders to the grind 9 to 5, 5 to 9.

Metropolitan, a division of MMI Group Ltd, an authorised financial services provider.

budget 2018 spending

of desperation Wilson says fami-

budget 2018 spending opinion by Peter Tshiguvho

Speeding up department,” he says.

budget 2018 spending

Drought after keep it afloat, according to CEO Mark Barnes

budget 2018 spending

• 1000 ŚŝŐŚ ĐŚŽŽů ĚĞŶ ĞĂĐŚĞĚ Ś Ž ŐŚ