A case of talk left, budget right


On Tuesday, President Cyril Ramaphosa offered fine words: “The most important people in this country are not those who walk the red carpet in Parliament, but those who spend their nights on the benches outside its gates.”

On Wednesday, in spite of claims to the contrary, Finance Minister Malusi Gigaba’s tax strategy disproportionately hurt the nearly two-thirds of South Africans who survive below the poverty line (not the 55% claimed by Statistics South Africa, because the agency uses a poverty line at least a fifth lower than it should be, according to the University of Cape Town’s Southern Africa Labour and Development Research Unit).

And, for those above the poverty line with savings, an additional R500‑billion of the country’s R9.7‑trillion in institutional investor funds could soon move abroad as a result of looser exchange controls.

Value-added tax (VAT) replaced a general sales tax in 1991 at the behest of the International Monetary Fund, in spite of vigorous protests by labour federation Cosatu. At least Cosatu demanded — successfully — that a few basic foodstuffs be zero-rated. And thanks mainly to labour’s subsequent lobbying, the last VAT increase was in 1993.

Cosatu president Sdumo Dlamini recalled: “The apartheid government succumbed because they were under pressure as the country was in a transition to democracy. Now, 25 years later, we are increasing VAT. It’s not good at all for the poor. It’s not good for those workers who are toiling every day.”

Moreover, observed Business Day’s Carol Paton, “on the spending side it was poor communities that were the biggest losers, with cuts made to public entities such as the Passenger Rail Service of South Africa and infrastructure grants to provinces and municipalities savaged”.

The South African Communist Party added: “It is simply untrue to argue, as the minister of finance did, that the 20% poorest will be unaffected by the VAT hike. What is more, other indirect taxes, like the increase in the fuel levy, will further impact on the cost of living, especially for the poor.”

One of the country’s most respected anti-poverty nongovernmental organisations, the Pietermaritzburg Agency for Community Social Action (Pacsa), surveys a monthly low-income consumer’s food basket. It has found that because fewer than half its 38 items are zero-rated, monthly food-related VAT alone will now cost R221.59 (the 1% VAT increase translates to R15).

The monthly child support grant rises from R360 to R400 a month in April and R410 in October, a 6.6% rise as against an expected 5.4% inflation rate.

But Pacsa argues that for more than 12‑million children who rely on the grant, inflation has been rising much faster: “Over the past six months, the cost of feeding children aged between 10 and 13 years a basic but nutritional diet increased by R47.41, or 8.8%, to R583.”

The old-age grant given to 3.4‑million pensioners also rises above the official inflation rate, to R1 700 a month by October, but that is still below the current food inflation rate.

As for winners, several years of fierce student protests were rewarded with an average R19‑billion annual increase until 2020, so that at least the beginning of free tertiary education is budgeted for.

But, revealing where the real power lies in the world’s most unequal major country, Gigaba imposed no substantive wealth tax. Obviously pleased, John Campbell of Chartered Wealth Solutions remarked: “There were no changes to the marginal rates of individual income tax, the rate of tax on trusts (45%) or the rate of tax on companies (28%). Transfer duties on the sale of properties remained unchanged too, with a 13% tax on the portion of the transaction exceeding R10‑million. The feared removal of medical-schemes tax credits did not materialise either.”

To be sure, those in higher income brackets will suffer because inflation drag on personal income tax will result in a further R7‑billion take, but that’s less than a third of the R22‑billion raised from the regressive VAT increase. A few other tax hikes, including the 52c levy on a litre of petrol, will raise an additional R7‑billion.

As a result, Gigaba has shifted the total debt-to-GDP ratio from a trajectory rising from today’s 53% to just 55% in seven years’ time, instead of the 63% he had projected in October. That alone is expected to appease the Moody’s credit rating agency so that it does not deliver the final junk rating on South African bonds that was threatened within a month.

The leader of the South African Federation of Trade Unions, Zwelinzima Vavi, criticised Gigaba for leaving the main business tax at half its 1994 level: “Corporate taxes are not being touched and it’s a full-blown neoliberal assault on the poor. This is being done in the mistaken belief that, if the rich are spared, they would then invest their money and that the poor will eventually benefit. It’s the whole notion of a trickle-down economy, which has proven to be a disaster.”

Gigaba’s trickle-out permission for insurance and pension funds to remove another 5% of their assets offshore also requires examination. Last October, the JSE’s ratio of market capitalisation to gross domestic product hit an all-time high, at more than R16.2‑trillion in share values against 2017’s R4.6‑trillion GDP, a 350% ratio (more than three times higher than the world level). Therefore, diversification would be welcome.

But to let the investors search abroad for higher returns than the 8.1% that South Africa’s own state bonds pay — still among the world’s highest, equivalent to Russia and Venezuela — is to invite yet another financial tragedy.

With part of the Old Mutual insurance company now returning to the JSE for a primary listing in the wake of its messy ordeals on the London Stock Exchange, and immediately following the multitrillion-dollar meltdown on the world bourses earlier this month, should such international financial volatility not be met with exchange control tightening, instead of liberalisation?

Gigaba admits that “high foreign debt redemptions” will hit hard within a year, but at close to $160‑billion (48% of GDP), as measured by the Reserve Bank, South Africa’s total foreign debt is now way beyond any historical precedent, including when PW Botha defaulted (at a debt rate of just 42% of GDP).

Given that Ramaphosa says he is committed to fighting illicit financial flows — and his own record of promoting tax havens at Lonmin, MTN and Shanduka suggests a certain familiarity with tax dodging — it would have been more logical for Pretoria to follow Beijing’s lead: sharpening and not blunting the state’s residual capital controls. But that reversal is consistent with Ramaphosa’s stated commitment to the poor, also sabotaged by Gigaba’s budget.

Patrick Bond is professor of political economy at the University of the Witwatersrand’s School of Governance

Subscribe to the M&G

These are unprecedented times, and the role of media to tell and record the story of South Africa as it develops is more important than ever.

The Mail & Guardian is a proud news publisher with roots stretching back 35 years, and we’ve survived right from day one thanks to the support of readers who value fiercely independent journalism that is beholden to no-one. To help us continue for another 35 future years with the same proud values, please consider taking out a subscription.

Patrick Bond
Guest Author

Related stories

The president, the preacher and the great escape

Malawi’s new president was furious after Shepherd Bushiri’s dramatic disappearance from South Africa

#CR17 fight heads to the Constitutional Court

amaBhungane’s arguments about the disclosure of campaign funding are also expected to be heard

Ace prepares ANC branches for battle

ANC secretary general Ace Magashule is ignoring party policy on corruption-charged officials and taking his battle to branch level, where his ‘slate capture’ strategy is expected to leave Ramaphosa on the ropes

Ramaphosa: We want investment pledges to translate into new jobs

To move out of South Africa’s economic funk, Ramaphosa is prioritising the materialisation of pledges made at the previous investment conferences.

Government gets $2bn more in pledges towards infrastructure development

The New Development Bank pledges billions of dollars towards infrastructure development in South Africa. Implementing infrastructure development is one of the measures the country is counting on to recover from the economic effects of Covid-19

African leaders must continue to press for talks: Ethiopia is too big to fail

The conflict in Ethiopia could spill over into the entire Horn of Africa region. AU and regional leaders need to step up their efforts to de-escalate the situation

Subscribers only

Covid-19 surges in the Eastern Cape

With people queuing for services, no water, lax enforcement of mask rules and plenty of partying, the virus is flourishing once again, and a quarter of the growth is in the Eastern Cape

Ace prepares ANC branches for battle

ANC secretary general Ace Magashule is ignoring party policy on corruption-charged officials and taking his battle to branch level, where his ‘slate capture’ strategy is expected to leave Ramaphosa on the ropes

More top stories

Journey through anxious Joburg

A new book has collected writing about the condition of living, yes, with a high crime rate, but also other, more pervasive existential urban stresses particular to the Global South

Football legend Maradona dies

The Argentinian icon died at his home on Wednesday, two weeks after having surgery on a blood clot in his brain

Covid vaccines: Hope balanced with caution

As Covid vaccines near the manufacturing stage, a look at two polio vaccines provides valuable historical insights

Under cover of Covid, Uganda targets LGBTQ+ shelter

Pandemic rules were used to justify a violent raid on a homeless shelter in Uganda, but a group of victims is pursuing a criminal case against the perpetrators

press releases

Loading latest Press Releases…