As I have learned from reporting on budgets, what’s really interesting is what is left out of the minister’s budget speech or is glossed over.
The two areas I always look for somewhere in the budget documentation are black economic empowerment (BEE) and privatisation.
Well, there’s a bit about BEE in the speech read out by Finance Minister Trevor Manuel this week. On privatisation receipts there is nothing. Well almost nothing, unless you look hard at the footnotes. An amount of about R2,5-billion is put down under the 2006/07 fiscal year for proceeds from state asset restructuring, but this could include sales of strategic fuel stocks.
On BEE, Manuel, almost in passing, referred to the department of trade and industry receiving part of an extra R1,7-billion for this purpose. And he said the National Empowerment Fund (NEF) would get a capital injection of R380-million this fiscal year.
The finance minister does not, on the face of it, have tremendous enthusiasm for BEE, but keep in mind that BEE has become integrated into many aspects of the way government does business.
Apart from the money going to the NEF, R125-million is being used to “improve the monitoring and evaluation capacity of the expanded public works programme. This, Manuel pointed out, continues to train and give jobs to many. What he did not need to say was that the 385 000 job opportunities created in the programme’s first two-and-a-quarter years were for black people, and many were for black women.
More importantly, the budget directs an extra R8,1-billion over the next three years towards education. A good education is empowerment in its true sense, essential for employment equity and a growing economy.
The budget also had news for those interested in BEE in its narrower sense, that of the big deals. Tax laws are to be fine-tuned so as not to punish the participants in BEE transactions and other restructurings which are just that and not designed with tax avoidance in mind.
So, for instance, a typical BEE deal structure involves the cross-issue of shares. An operating company commonly issues ordinary shares, say 40%, to the BEE entity, which in turn issues preference shares (which pay set dividends and operate as a quasi-loan) to the operating company.
If the ordinary shares rise in value to a certain predetermined figure, the BEE party sells some of them, say 20%, to cancel the loan that the BEE preference shares represent. The BEE party then ends up owning 20% of the company outright. Rules are to be put in place to ensure these deals are neutral for the purposes of tax.
Similarly, companies doing BEE deals sometimes have to buy shares via a forced sale from shareholders to transfer to the BEE partners. Many of those forced to sell their shares for this purpose, especially the management of the company, simply buy back the shares as soon as possible. Selling shares triggers tax, but this is not fair to those shareholders who were forced to sell to bring about the BEE deal. To the extent that they do merely replace shares soon, treasury admits, they should not be liable for tax.
These are technical issues, however, and not as exciting as developments at the NEF referred to in the Budget Review. After many years of apparently being moribund, if not actually in rigor mortis, the NEF has displayed new life under the leadership of Philisiwe Buthelezi, and started doing the job it was created for, that is, to finance BEE. The Budget Review notes that about R2,8-billion in total has been allocated to the NEF, which, in the 2006/07 year, established 60 small- and micro-enterprises and created 884 new jobs.
When it was established, the NEF was to be capitalised from the proceeds of privatisation.
The p-word is nowhere to be found in the budget. Unless I missed it, there is not even a word about selling off non-core assets. Much emphasis is, however, placed on the role of State-Owned Entities (SOEs) in building infrastructure and paying dividends to government.
Interestingly, Manuel is budgeting for about R1,5-billion in revenue from four entities in the 2007/08 year, only two of which can really be considered SOEs. There is no figure for Eskom, which paid a dividend of R1-billion in the 2006/07 fiscal year. The SABC, Safcol and Denel are estimated to pay nothing.
Note that the R1-billion the part-privatised Telkom is set down to pay in the 2007/08 fiscal year is in addition to the substantial tax it pays.
Contrast our enthusiasm for SOEs with that of Zimbabwean Reserve Bank Governor Gideon Gono, who recently urged the government of that country to sell off its fiscally draining parastatals.
South Africa, now running a budget surplus, can afford to recapitalise its arms maker and South African Airways, and any other parastatal that temporarily — the problems are always only temporary — cries for help.
Privatisation, I think, is often motivated more by desperation than ideology. We’re just not desperate enough yet.