28 Nov

South Africans to be hit with a R30 billion tax hike in 2018

Whether the ANC are pursuing free higher education like kamikaze pilots, or trying to add another room on to Nkandla, the party are now pushing for a huge tax hike to fill the holes in our economy, according to a report in Business Tech. 

There is a R40 billion gap in the country’s revenue, as identified by Malusi Gigaba in his mid-term budget speech. The government’s failure to stop tax dodgers – complimented by rampant corruption and lax regulations against avoidance – is now set to hit ordinary taxpayers right in their pockets.

They’ve effectively punctured their own tyres, and are now asking us to forfeit our own just so the ANC can continue their journey over the edge of a cliff.

Why a tax hike is planned for 2018

In total, they are looking to plug this rand black-hole over the next two years. South Africa’s shortfall actually stands at R80 billion. There is an expected R50 billion to come in expenditure cuts too.

This would equate to annual cuts in expenditure amounting to about R25 billion as well as revenue-enhancing measures amounting to about R15 billion, including where appropriate, tax measures, the presidency said in a statement.

A huge spanner in the works is the near-suicidal attempt to force through a free-fees plan for higher education. The Zuma regime are desperately trying to implement cost-free higher education. It’s noble in theory, but devastating in practice.

Areas facing cuts:
  • Social grants payments
  • Reducing the rollout of RDP houses
  • Freezing government wages
  • Halving the military budget

Tax hikes in the last two years have failed to deliver any expected revenue increases. 2015/16 failed to raise the predicted R18 billion, just as 2016/17 failed to earn the R28 billion it was forecast.

But, the third time is a charm right? Here’s the problem. Raising taxes has little-to-no effect on those that are causing the issue. If you aren’t cracking down on those avoiding tax, how are you going to get them to pay an increase?

Source:  https://www.thesouthafrican.com/south-africans-to-be-hit-with-a-r30-billion-tax-hike-in-2018/ 

27 Oct

The Bond Market Hates the New Plan for South Africa’s Finances

South African Finance Minister Malusi Gigaba took on the bond market, and he is losing.

As investors digested Gigaba’s intention to close a yawning budget gap by flooding the domestic market with an additional 122 billion rand ($8.6 billion) of bonds over the next three years, benchmark yields soared as much as 56 basis points to 9.42 percent, the highest in 19 months. That’s already closing in on the government’s own bad-case scenario of an 80-point jump in yields – and things could get a lot worse.

The market and rating companies “will hate” an increase in the debt ceiling, rising bond issuance, the lack of spending cuts, and the widening deficit contained in the budget proposals, Investec Asset Management said in a note to clients.
Foreign investors, who hold 41 percent of the country’s 1.97 trillion rand of local-currency bonds, dumped 5.1 billion rand of the debt in the hours after Gigaba delivered his medium-term budget statement to lawmakers on Wednesday. That’s the biggest one-day outflow since September 2011, at the height of the European debt crisis — but it’s small compared to what could happen if the debt gets downgraded to junk, forcing South Africa’s exit from Citigroup Inc.’s World Government Bond Index.
That would spark outflows of as much as 200 billion rand as investors that track the index divest their holdings, according to a recent estimate by JPMorgan Chase & Co. If that happens at a time when rising rates in developed nations curb demand for emerging-market assets, yields on benchmark bonds may climb close to 11 percent and stay there, according to the worst-case scenario painted by South Africa’s National Treasury.
“A downgrade and exclusion from the WGBI seems as though it is a foregone conclusion in the market,” Reezwana Sumad, an analyst at Nedbank Group Ltd., said in a client note. In addition, “South Africa’s vulnerability to global and emerging-market risk sentiment cannot be ignored. Any turn in foreign sentiment would yield large outflows from the bond market, and consequently higher yields,” she said.
17 Jul

South Africa considers privatisation to counter recession

South African Finance Minister Malusi Gigaba laid out an ambitious 14-point programme on Thursday to wrench the economy out of recession that included the sale of non-core assets and partial privatisation of state-owned firms.

The plans to stimulate growth in the continent’s most industrialised economy appear to represent an ideological shift by the African National Congress (ANC), whose political alliance with the unions has tended to make privatisation a dirty word.

A team commissioned by President Jacob Zuma to review state firms last year recommended that some should be sold. Now the government has set a date – March 2018 – by which to roll out a “private sector participation framework”.

“All of these items that we have announced … they constitute an important intervention to restore confidence and demonstrate action, and outline an action plan that we as government can be responsible for,” Gigaba said.

The government would also reduce the number of debt guarantees to this firms, especially those extended for operational purposes, he said.

Analysts said Gigaba’s plan could face opposition.

“I’m not sure how far he is going to be able to get with this because I think ideologically there’s a lot of opposition,” NKC African Economics analyst Gary van Staden said.

“The last time I heard the ANC even talk about privatisation or even talk about sale of state owned assets on any kind of level is when Thabo Mbeki was president. It’s been a long time.”

South Africa’s economy entered recession for the first time since 2009 in the first quarter and is also struggling with high unemployment and credit ratings downgrades.

The state of the economy is adding to the pressure on Zuma, who is also facing persistent corruption allegations and increasing calls for him to stand down from within the ANC. Parliament will hold a no-confidence vote on Zuma next month.

Many of South Africa’s 300-odd state-owned companies are a drain on the government’s purse. Ratings agencies have singled out some as threat to its overall investment grade rating.

The firms, known as “parastatals” in South Africa, include companies such as South African Airways, power utility Eskom and logistics group Transnet that are regarded as central to the functioning of the economy.

Gigaba did not say what would be going under the hammer first, saying that would be determined by an audit.

BNP Paribas South Africa economist Jeff Schultz said investors would want to see more details before endorsing it as a viable turnaround strategy.

Read More: Reuters