Budget Speech 2013

Posted by Transcend
Monday, 11 March 2013  |  Comments

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THE first test for appointing someone to look after your money is moral fortitude. Finance Minister Pravin Gordhan has it. He has retained the moral high ground he brought to the South African Revenue Service in his broader role as custodian of the collection and distribution of our money.

There can be no doubt that there are global headwinds, that our growth in the next year will disappoint, or that our debt-to-GDP ratio is a little high. Are we up to it? Hell yes, we’re from Africa — we just have to believe.

In the context of the challenges here and abroad I was impressed, in particular, by three themes in this year’s budget: major infrastructure project spending; a disciplined and accountable approach to solving "tendernitis", our very own procurement disease; and the "social wage".

In the rest of the developed world (not here, mind you), misguided central banks and fiscal authorities have been doling out money to the financial system — not to the people whose deposits were vested in their care, but to the banks, the culprits of the near-miss global financial meltdown whose job it was to look after their deposits in the first place. Instead of investing money, governments have been printing the stuff in a contest where the weakest (currency) wins.

We’re planning to do it differently.

The social wage is going directly to the people and the infrastructure spend is going to build assets and create jobs — how about that!

He got so many things right.

First of all, the capital projects all seem to be creating or fixing real things, at last. Second, the projects are in all the right areas — energy, communication, health and education.

I was most encouraged by the diverse sources of funding and the envisaged partnerships: project finance (which benefits from fiscal partnerships through tax allowances), state-guaranteed corporate debt, private sector funding, revenue-based life-of-asset funding, World Bank loans to equity, and outright funding by the fiscus.

There is no substitute for aligned interest in realising our rainbow-nation dream. We will never be one country until our individual interests vest in a common cause, until we embrace the government as our partner, and until it embraces us in return. Of course, we actually have to spend this money. And we have to make sure that almost all of it goes into the brick and mortar and wages of the projects to which it is allocated — so, fewer middlemen, advisers and foreign feeders.

The social wage is going directly to those who need it — the old and the young. Pay the money into the household’s bank account and that’s where the benefit will be felt.

Black economic empowerment (BEE) was a part of the national imperative to distribute wealth, which I supported without reservation. But if wealth can be distributed more directly by the fiscus to the ultimate beneficiaries, then that must be the way to go. Broad-based BEE was introduced as an improved construct to BEE, but the broad-based intention never really achieved the reach we had all hoped for.

In any case, BEE (in relation to share ownership in particular) is fundamentally flawed, as it targets the smallest number on the income statement, dividends, as its source of revenue. Participation in a company’s economics would have been better served at the turnover line (the biggest number on the income statement) by awarding supply contracts and off-take agreements to broadly owned providers and users. The tax man eats two lines above the shareholders, so the pot is bigger and the government can rightly see to its proper application.

It is common cause that many undeserving intermediaries eat well in the government procurement chain. The rules of play can be centrally defined and policed here, and it’s about time that happened. At least those who feasted will now be followed to pay their fair share of tax.

Tax rates were widely expected to be increased for individuals, particularly for the upper-income brackets. What a relief that they weren’t, for now. There is a huge risk of blunting the spearhead of economic drivers by taxing the leading earners in the system. Surely it will always be better to tax closer to the source or use of income than the individuals who earn it. We pay value-added tax (VAT) anyway. The more disposable income in the hands of individuals, the more they can spend in the economy, creating a virtuous circle.

While on the subject of VAT, would it not make it so much simpler, cheaper to administer and less open to evasion if we scrapped income tax altogether, in favour of a differential VAT system? A "pay as you spend" system that can easily protect the poor by applying lighter (or zero-weighted) ratings to essential goods and getting that back from the extravagances of the rich? (Oh, thanks again for making my beer more expensive — why is it always okay to do that?)

Most important, though, was not where the money would come from, but where it would go and the process it would go through to be spent wisely and efficiently. That was Gordhan’s promise. I believe him to be a man of his word.

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