Professor Matthew Lester delivers his annual Budget Speech lecture, taking us through the all of the complex issues that came out of Finance Minister Nhlanhla Nene’s speech last week. Lester adds his expert insights to the details leaving us with a 360° view of South Africa and the delicate task of balancing its budget.
Good afternoon. Thank you very much. This is my 25th year of doing the BDO Budget seminar. That makes me feel older than topping up my retirement annuity.
It’s been an amazingly challenging year, working for Judge Davis on the Davis Tax Committee. I’ve never known an academic who can challenge a person better. I’ve never known a South African who is genuinely more interested in equity above all and he doesn’t tolerate fools so it’s a challenging thing, working for him. From this lecture, it’s nothing that Davis said or the Committee said. This is my interpretation and you can blame me for that.
It runs like this: We could pay for Nkandla in two hours, using the tax base. Yet, this has now become an issue that has completely dominated the media and parliament, and it seems that we are going to go on and on with this being prevalent when in fact, we have a national in crisis. That is the biggest scandal in the whole thing. We’re all trying to make a political move out of Nkandla.
I got to SARS and firstly, I worked under Barend du Plessis and Reserve Bank Governor, Chris Stals. When one measures change and one looks back at it over 25 years, a kind firm called BDO said ‘make us some Budget lectures’, which were normally, just about the cigarette price hike etcetera. It took three weeks to get them together.
Along comes the Mbeki era and we start to change things. We take SARS out of the civil service. The team that goes down at SARS – Tito Mboweni at the Reserve Bank and South Africa’s favourite couple, Ramos and Manuel, at National Treasury. Those were our finest hours, up until 2008. In fact, that was where the Budget became more popular than a ticket to the J&B Met was – absolutely fantastic. In spite of all the brilliance at SARS and National Treasury, what was driving that was the world economy and it all came to an end at end of the financial crisis.
Now we move into the Zuma generation and we have to say ‘well, we can’t have a Minister of Finance who’s married to the Head of Absa, so we promote Gordhan to Minister of Finance, replace Mbeki with Marcus, and then we ran with Mabushula until it all came apart. That looked like the team that had the answer. The big thing is they didn’t.
In 2009, I think virtually every politician in the world read Reinhardt and Rogoff’s Aftermath of the Financial Crisis. We’ve said that GDP growth rates would recover in two years. This was the graph of six years ago. Politicians said ‘no need to make people uncomfortable. We can borrow our way through the cycle and we will be back on the road again in three years’ time’.
Here we are, six years later. We forecast a growth rate of two-point-five percent for this year. It was down to one-point-four percent by the medium-term Budget framework speech in October and today, they say they’re going to do two percent.
If that is one of your biggest single drivers of tax collections in the country, you have a problem. It wasn’t Gordhan or any one particular person who made the wrong call back in 2009. If one looks at this graph for example, the World Bank, the IMF National Treasury, and the South African Reserve Bank – they all said that those rates would be above three percent by now and we would be on the road again. They’ve all been continually downgrading their estimates so everybody got it wrong.
Based on the effects of the policies of 2009, we said that by 2015, the National Debt trajectory would have gone past its apex and would have reduced. That’s the 2012 estimate. We tried again in 2013 and it still didn’t work. By October last year, the National Debt trajectory had increased to the level that it was unsustainable. We were starting to look a bit like Greece. At that point, you get the takeover of the new Minister of Finance, Nhlanhla Nene and he says ‘we have to stabilise the debt trajectory’, and so that’s our position. They said that R30bn was required as at October last year.
If one looks at the extent of change; what we’ve now done is we’ve said ‘redeploy Gordhan, replace him with Nene. That’s a promotion’. We want a promotion in the Reserve Bank. The Deputy becomes the Governor and we have an outside appointment in SARS. That is currently causing a huge amount of steam in the media with people trying to blow up resignations. They say ‘what’s going on? SARS is going on a process of internal self-assessment’ and that’s what’s wrong with that. I say nothing’s wrong with that. We’ve had SARS since 1998 and nobody has ever questioned what they’ve done. Yet, we as taxpayers know that there are issues at SARS that we cannot resolve. The modernisation program is going on too slowly. I have no problem with them looking at themselves. Let’s see what happens with that as time goes by.
Back to Nene at the medium-term Budget’s framework speech. Here’s the first salvo: ‘the choice we are considering is a difficult one and we can no longer postpone discourse’. Why? What’s he saying with that?
He’s saying that in the Budget, ‘sorry, we now don’t reduce expenditure by R15bn. We have to go to R25bn and we have to increase taxes by R17bn and not R15bn’. Why? At the NTBF, we were R10bn down on Budget for this year. That figure has been moved up to R14.7bn – not good news.
Take your big taxes. You have three big taxes in South Africa: personal income tax (the biggest and always has been), followed by corporate and VAT. Those are your big three. All the others make up the fourth tax. They don’t even come close to it. The big thing that we’re looking at is that Ramos and Manuel said ‘we can do it on three taxes. If your corporate tax now starts to really, have a tough time because of the economic cycle that have followed on since 2011 (Marikana and everything else), we have one cylinder missing. The question is how do you replace it?
The figures that come out today reflect this. Thank goodness for the individual tax value. They made R15bn ahead of Budget this year and saved the country for the approximately, the eighth time in the last ten years. Corporates are going to lag behind and even the upturn in retail that we experienced in December, is minus six. Then we have others down. For example, we can’t smoke enough. We can’t put the electricity on, etcetera, so we have other little ones making up the R15bn. Again, the pressure’s falling on the individual taxpayer.
We come up with a game plan today, which works as follows: we will stay with fiscal drag relief because we’ve done that every day for 15 years, looking after the lower end of the tax bracket. Instead, what we’re going to do is we’re going to put one percent tax increase on the top tax brackets. That will make back what we’ve given away on the fiscal drag adjustment. We’re going to give you a tiny medical increase to buy half a Viagra tablet each, per month. That will cost R920m. We’re going to double the energy-efficiency savings allowance, but it’s still too complicated for anybody to plan it. Transfer duty: we’re going to give an adjustment there, but cleverly bring in a form of wealth taxation, which nobody’s going to recognise. Then we’ll knock the hell out of the fuel levy, – everybody predicted that – hammer the smokers, and the booze, and we should make it. Well, that looks like rather simple stuff but what is the long-term implication?
There are your tax forecasts for the next year. Watch where the emphasis goes. Individual: pay an extra R43bn. Consumer: pay R43bn. The third cylinder (corporate) is only expected to give the 15, and that’s the big problem. We don’t have the big fourth tax, which in most of the rest of the world is Social Security tax. We haven’t brought in carbon tax because Australia can’t get it right.
We can’t afford to fiddle with the corporate tax rates, so corporate flat tax rate at 28 percent stays the same. CGT inclusion rates stay the same. Dividend tax stays the same. We can’t put it up because then the whole lot will collapse.
The important thing to look at in this is we are now in February. The biggest tax cheques in grey on your screen there are your second Provisionals, which are now fourth to be an estimate and the big ones come in, in February and March. They don’t know yet what those cheques are going to be and if you’re a Sasol, you’re calculating down (big time) with the reduction in the resources prices. We will only be able to assess how close they can get to that R15bn shortfall on the 1st of April.
What is also very important in this is mining (in light blue) has now declined to eight percent of total tax corrections in South Africa. We’re doing a report of IMF on mining in South Africa and the taxation of mining. Sometimes we wonder if we shouldn’t just exempt mines because it’s not the tax, which is the issue with the mining. It’s the foreign exchange earners. Fifteen percent of South Africa’s foreign exchange earnings still come from mining. What happens the day the mines run out or we just don’t mine any? Where is the foreign currency going to come from, to run our country?
Part of the issue with our corporates – and there is a glimmer of hope here – is that the level of assessed losses incurred after the financial crisis, has started to drop off. Maybe that will help next year. That’s about the only glimmer of hope that we can see.
Interestingly, as welcomingly in this, is CGT. We’ve had this huge fuss about it, since 2001. When one looked at it in the early years, it wasn’t worth having. If one looks at the 2014 tax collections from CGT, they’ve started to ramp up. Notice: it’s not the individual who’s paying, though. It’s the corporate because they have a higher inclusion rate. They have bigger capital gains. When one looks into the future, we’ll have economists saying ‘why should there be any difference between a capital gain and a revenue gain in a company? Not even for accounting do we make any difference on this’ and in the long-term, there is pressure on that upward CGT rate, but it didn’t happen this afternoon.
The focal point is BEPS (base erosion and profit shifting). The first report of the Davis Stats Committee is out on this and it reflects that between 2008 and 2011, nearly R50bn left South Africa – paying for non-good payments. R29bn of that was legal accounting and management services. You have to say it can’t all be kosher. What is still going on in South Africa’s third national sport after rugby and cricket (what’s called EVOM – ek vat kontant oorsee, meneer)? What are you doing with that? Is SARS inspecting it? Is it a big issue? This is played up daily in the media. Not locally, but internationally. Last week, the Swiss attacked the Head of HSBC. Well, they haven’t even dealt with all the hot money from 1945 and now they’re trying to get onto somebody who’s just trying to structure his package. What’s happening? This translates across and into the U.K. where Cameron in particular, is going and on about BEPS. What’s the issue? Well, it’s nice to have a whipping boy. Whom can you blame for the lot of your economy and the state of international transfer pricing? We can get the big names like Starbucks and Google, etcetera. When you bring it home to South Africa, can BEPS save South Africa – looking at transfer pricing and the 500 major corporates?
Well, if you take those numbers and you say that R50bn was spent in three years, they’d say it was all great. That only comes down to R14bn in total tax over three years, when we’re trying to collect R220bn per year from companies, so the war will come on transfer pricing and offshore structuring, and I’m sure that there’s going to be some big developments in that. It creates an enormous risk for a company.
They wrote seven reports last year and they are all very long. The Davis Task Committee report is over 300 pages long. I finished three bottles of Scotch before I got to page 100, but the bottom line on it is you’ve got to look at it in terms of Tax Governance.
So King 3 is now six years old. He said ‘create a chairman, then create board of directors, and create risk committees’. An Order Committee, a Risk Committee, and a Remuneration Committee. Now, King says, ‘watch out for the reputation of your company’ and what’s just happened in HSBC is their reputation is in tatters. What I’m recommending is that there’s time for a revision on King 3.
We need to have the Tax Committee, where we put the nerds who know what’s going on in this, and they report separately to the chairman about what is going on in a company’s tax system. Wouldn’t it be nice – and this is my recommendation – if, sitting on that Tax Committee was the stakeholder itself (SARS), so that we don’t have these things pitching up five years later and biting everybody in the bum, when everybody else who did it has left the company already.
What we could do in a Tax Committee Agenda is saying, (1) we’ve got this new Tax Administration Act, with a whole new load of laws that nobody has studied. That’s from two years ago. Nobody knows what to do when a query comes from SARS or how to respond to it. Then we’ve got to go and have a look at base erosion and profit shifting, try and understand 15 reports and all the different things that go on with them, from the digital economy to having foreign companies, the transfer pricing and all the rest of it. When we’ve done all that, we need to look at the thread of transaction taxes to our bottom-line, things like fuel levy and electricity levy, etcetera. I think that that should be a new committee. I am more worried about the management of tax then tax planning itself today.
Moving away from that, we come to the SBC Report of the DTC. This comes from the National Development Plan, (first time we’re going to mention that this afternoon), which says that we’re going to pin our hopes for 2030 on SME’s. What’s incredible about it is there is no common definition of an SME in South Africa. It’s all been sitting in the Department of Trade & Industry for years. We broke it up into three sectors. We said there is the informal sector, which we are saying are ‘survivalist businesses’. The job of SARS is to leave them alone, as far as possible. SME, where there is growth potential, is what Michael Spites refers to as ‘the missing middle’, and then you can have your formal sector of 500 companies up the top. We therefore have three levels, and they must be dealt with evenly.
We have the SBC tax rates, which have been around since 2012. We looked into them. It was absolutely incredible. Who gets the biggest benefit as a sector? Services companies, estate agents, and medics, etcetera. They’ve all got SBC’s, and they creep in there by using the three-person rule, where if you have more than three employees who are not related to the owner, they get into the system. That is now being abused even further, where every consultant can go out and hire three matrics who are doing nothing, pay them R2000.00 per month (tax deductible), and receive R1.000.00 per month each back on ETI (tax-free), and you’ve kept yourself in, to be taxed at the preferential SBC rate. We’ve found that a quarter of South Africa has benefited (or supposed to be going to the SME sector) are completely caught up in clever ways of getting in to the SBC formula.
We have suggested a refundable compliance rebate. Not because it is a perfect solution but we would like to keep the R1.3bn that is currently made available to SME’s within the SME sector, instead of throwing it back into the bucket with all the rest of South Africa’s money. That’s the missing middle. That’s all we can say at this stage. If we are going to grow the SME sector, you are never going to design a tax package to grow an SME sector. We need other things like finances, space for people to trade, and security loans, etcetera.
I’m rather proud of this one today because this is one of my recommendations. When it comes to the informal sector, which is ‘turnover tax’, we have taken turnover tax and we have pushed it right up to the threshold there – up to R1m/day. If you are a small trader, your tax liability is virtually nothing. What we’re saying to you is go out there, trade and support yourself, and provide infrastructure for South Africa. However, your mandatory registration level for VAT will stay at R1m. We just want to keep track of who you are because at some stage, we’ve got to say ‘what’s hiding in the informal sector’ because I think that there’s as much tax evasion in the informal sector as there is in BEPS in South Africa.
Moving onto personal tax, we have two categories of taxpayers. A huge chunk (about 50 percent) of the taxpayers actually pay. Then a tiny, little bit at the top (five percent) of taxpayers earning over R100k/R500k per year. Between the two categories, we split the bill.
From the Manuel era, we’ve been saying ‘look after the lower-end taxpayer’. In fact, you can extend that all the way to the middle-income earner, and the tax benefits that have been going to the top-end taxpayer have been reduced over the last couple of years.
Now, what everybody was predicting in this year’s Budget was that if we just said ‘fiscal drag adjustment: R3bn’, nobody would notice. The Parliamentarians think fiscal drag is some sort of person dressed up in a cocktail dress, so they don’t look at that.
When they looked at 2016, they said (very cleverly) ‘we’re going to deal with this in two ways. We’re going to give a full fiscal drag adjustment to the first two chunks of the taxpayer. ‘Then we’re going to increase the tax rates on the next levels, all the way up to R700k and that is going to raise the additional R9bn, but by widening the brackets, we’re going to give back R8bn of it, so it looks like there’s no tax increase. But effectively, you have a very real increase of R43bn in personal tax budgeted for this year.
There are your numbers of taxpayers, so in total there are 15 million tax registrations at SARS. However, only seven million are actually anywhere near paying. Today, if you are under R70k, ‘good-bye. No tax’ and then it starts escalating from there. Until you get to one-point-five million, where there are only 78,000 South African taxpayers, who earn that amount. We could fit them all in the stadium outside here this afternoon. What they’re doing is they’re saying ‘leave the first two brackets alone (zero), and then take R1bn from each bracket, and for those over R1.5m like Cyril (who can afford to pay R40m for a Buffalo Bill); with that, at least you could pay two, and that’s for the 78,000.
When one looks at the distribution of the burden at the end of it, we find 78,000 taxpayers, earning over R1.5m will pay R89m in personal tax alone next year, or 22.7 percent of the PIT burden – just from 78,000 people. The problem we have in South Africa is that we need to find some more wealthy taxpayers. They’re as scarce as Romans, so we now move that on and say ‘well what about my personal financial plan’.
So we increase the interest free allowances a little bit. That is just to confuse students, who are writing the CA board exam. Then the big change comes with retirement reform. The 1st March, next week, was supposed to be what we call T-Day, the implementation of the new schemes.
What we were going to get is, we were going to take these weirdo tax deduction calculations for pension funds, which have failed thousands of students for years, and we were going to finally trash them.
Then we were going to say ‘look there’s an inconsistency on retirement proceeds, between Provident Funds and Retirement Annuity Funds and Pension Funds’. Provident Funds you can take a 100 percent lump sum and what Pravin Gordhan seems to be very keen on, was force preservation. We don’t want you to take your Provident Fund, pay a chunk of tax and lend it to your son so he can start a coffee shop in George with his friends, because we know it’s all going to be spent. We would like to make Provident Funds aligned with Retirement Annuity Funds. The only problem with that is that the Unions hate it. They said ‘no, when you retire or resign you must take that 100 percent and pay the tax and then pay back your loan shark’. As a result of that, in October last year, suddenly overnight T-Day gets delayed by National Treasury that says one year, and the Unions that say two years. Now, Patrick Craven, I think it was, said this is a massive victory for the Unions.
I can’t understand that because when one comes to the proposals, when it comes to the tax side of it, the new proposal said ‘we’ll cut Pension Fund contributions all in at R350k or 27.5 percent of taxable income’, so somebody is making R100m this year. He can put 15 percent into an RA and reduce the average tax rate by six percent. That continues until at least per year from now, and capping will only come in, they hope, on the 1st March 2016. Now, I think that that regime will happen. The Union’s big issue was on preservation. Not on the tax issues of this, so there’s a one-year delay.
There was one for early withdraw, and there was one for that date that you retire. People started saying, ‘I’m going to take R3m lump-sum’. That table should simply read for every South African, ‘I will take up to R700k on the day I retire’ and that’s it. Why would you take a lump sum of more than R700k, potentially pay 36 percent tax to take the income out of the fund? Then you invest it and pay tax on the income that you’ve earned. Then your family steal it from you, okay, and to top it all, whatever is left, goes into Estate Duty. Just because we’ve always taken lump sums since mum and dad did it years ago, it doesn’t mean that we need to do it today. I’m saying that table is good to R700k and then stop but now National Treasury want to become financial advisors.
They are now pushing and they’re going to go on a road show next week I believe, where they are going to launch the tax-free investment. We are going to go back to the days that grannies loved, of a tax-free savings account and I’m sorry; those things have destroyed more South Africans than you can imagine. So we’re going to have an exemption from dividend tax, very valuable for the lower income person who doesn’t pay that 15 percent. No capital gains tax, no tax on income.
Sounds wonderful, doesn’t it? And we are going to allow you to contribute R30k per year. They haven’t put that level up since they first proposed this five years ago, and a maximum contributions of R500k in a lifetime, so it grows up from there. The problem that they’ve with that is if, while it’s growing, you withdraw some because everybody has a divorce once in a while, you can’t put that money back in. You start again from scratch, so the contribution levels have a problem with that and there’s a stiff penalty if you exceed the contribution levels.
Let’s put some numbers to it. So we’ve got a taxpayer here, who buys one of these products. It can have an equity component. He’s got a 40 percent tax break. He contributes R2.500 per month. That’s R30k per year for 20 years. On this scenario here, after tax, on all the income, if it wasn’t a tax-free interest, just a straight unit trust, R745k after 20 years. Then we say, okay that might help.
Now, if you now change the assumption to it’s a tax-free investment, same scenario, R1.2m. So if you look at that you say ‘these things are cool I must go and tell my mother about them and she’ll put in a tax-free investment and I’ll inherit it’. But what you should be saying is, ‘mum, no because that tax-free investment still doesn’t give me two things’. It doesn’t give me an Estate Duty cover, because that will fall in my Estate, and it doesn’t give me a tax deduction on contribution. If I made the same contributions to a RA investment, I’d be worth R1.2m. So when one looks at this, we’re saying the tax-free investment doesn’t do it, except for if you have to have a Retirement Annuity you have to stay locked in the fund until you’re 55. For me that’s not too far away. I can wait. If you are 25 and you are saving for your next divorce, don’t use a Retirement Annuity because you won’t be able to access it. Rather use one of these tax-free funds for divorces, kids, and education, etcetera – new product to be rolled out next week.
But then comes the question of tax rates and pensions, and we see the reduction in the average tax rate of South Africa, 34 percent down to 18 percent today, and people say ‘well that’s a pretty picture’. That’s just fine. I’d say, ‘well actually not’ because there is something in that that we can actually use. We say there is that tax table.
When I retire (this should be a board exam question), the components for my tax break will be capital gains, 13 percent, good to go. Insurance policies and tax-free investments are exempt, and then I’m going to get gross income from my Retirement Annuity Fund.
However, something magic happens to me when I turn 65. I change as a taxpayer. I get bigger annual allowances. I get a bigger medical rebate. I get a geriatric rebate and you’ve got to put all of those things together and using the living annuity principles, say the fact that I receive taxable income doesn’t hurt. Hit me with it because whatever comes out is paid to Discovery Health on my medical rebate. It will be absorbed by the medical rebate, no tax problem there. Then I can take some income, in to the lower-end of the tax table where I am with the group of lower-income earners in South Africa.
We can do some amazing things when we do the budgets on this. Where we say, instead of talking to a financial advisor, when you retire, and drawing a lump sum and be condemned to a life annuity, you must condemn yourself to a living annuity. You see him every year and you say I want so much from interest, so much from capital gains, so much from annuity income and then buy another one. Because currently you can continue contributing to a Retirement Annuity until you die. The 70-year-old rule is gone, and then I’m going to have primary rebates, geriatric rebates and medical rebates. And you can see on that scenario there, where my average tax rates on retirement; on R500K is not 25/26 percent. It is actually eight percent. I don’t have a tax problem in retirement, so using that we are saying there’s a different way of doing this whole thing. We look at staying in the Fund and there’s a final reason to stay in the Fund, and this really freaks your kids out because when you die, the proceeds from your Retirement Funds are Estate Duty free and the reason for that is, we have to treat all our benefits the same, cash or annuity. Now, every Parliamentarian, Judge, etcetera, has a pension. A week before they die they generally, marry somebody much younger, so that they can inherit the pension, tax-free. That’s why all Judges have these young wives, and what we do with it is we say ‘okay be the same as the Judge’. Have everything in the Retirement Annuity. Treat it the same as the Pension Fund and there is a lot of stuff that we can do in saving tax on this basis and the Retirement Annuity Fund has become the tax-planning thing of the future.
However, I say that (subject to caveats) that the scheme of bullet premiums paid to a Retirement Annuity Fund, non-tax deductible the day before you day. Put everything in a RA as a washing machine. That is going to be stopped. They are looking at a mandatory retirement age, for Retirement Funds again. That’s still being considered. The Davis Tax Committee report on Estate Duty, we’ve done it now. It will be released very shortly. It’s with the Minister.
Notice a tiny number of vendors with an income of more than R30m per year, pay 80 percent of the VAT payments to SARS. They are going to get audited. The VAT system is going to sit there. The first Davis Tax report is out on the VAT system. Every economist in the world is saying, ‘it is too low it should be 17.5 percent’. We should take away all the zero ratings because that’s what’s helping the poor. And in South Africa, you’ve got to realise that once you’ve given something away you can never take back. Moving the VAT rate will, generally become the major challenge.
Then the blow that we took today is on the Fuel Levy. So last year, we go up by 12 cents a litre. Eight cents on Road Accident Fund, a total of four figure stats, R47m per year and the tax take on fuel is 22 percent of the price of the retail price of fuel. This afternoon, we go fuel R4.13 and diesel R3.98. Now, watch this. You’re going to freak out. Thirty cents will go into the General Revenue Fund and 50 cents/litre to the Road Accident Fund. No, I’m going to be an ambulance chaser, from tomorrow. They’re going to refund that thing and boy oh boy, I’m going to fall off my bike very soon. We have a massive amount of it going there. In fact, if you look at the increase of the tax collections, they’re not that great. It only takes it up to R49m. What’s sad about this is that we’ve looked at it and thought, well this is an opportunity, but the Road Accident Fund took it, but not too quickly.
Everybody was predicting the increase in the petrol price because the price of oil has halved in six months so a month ago, people started talking about this. The price of a barrel of oil, even with a lower exchange rate, has dropped from R1.200 a barrel to – low point – about R575.00. That’s magnificent.
Here’s a little calculation. We’re in February at R10.00/litre. Because of the movement, from 48 to 60, we will be in R10.70 by next week. Add 80 cents, and we’ll be at R11.50 by April, with no increase in the fuel price and no increase in the exchange rate. We are going to be back at R12.00 before you know it.
You say right, we’re getting towards the end of this presentation now. It’s time to drink. R1.24 per beer you’ve seen tonight. Dop went up R4.00 a bottle, and that’s R1bn of the R15bn that we needed, and we’re going to try and stiffen up another R600m on the smokers, but most of them have gone to dope and contraband from Zim anyway, so it is doubtful whether they’ll ever get that sort of money in there anyway.
Transfer Duties surprised everybody today because all the estate agents are already celebrating. There’s a transfer duty reduction, buy a new house. What they don’t read, down the right hand corner, they may have increased the basic threshold from R600k to R750k but go over to R2.2m and we’ve suddenly got 11 percent – up three percent. That makes it a lot more expensive to buy in Constantia. What’s interesting in that is that if one reads the European Union Report on wealth taxes, they say transfer duty is a wealth tax. It certainly is not an income tax. It is not a ‘value add’ tax there, because there’s a house and somebody has already paid tax on it. There is no more value, second hand, so by default it must be a wealth tax. Suddenly we’ve credited that in. In the numbers, they’re balancing off to within R100m (what we’re giving away at the lower-end), to what we’re putting on the top, at the higher-end. It’s quite interesting.
So it’s time to conclude, and this is the stuff that’s bugging Gilbert Grape tonight. Last year I got to 53, which is the average life expectancy of a South African, and that’s where you get worried. You go on websites and you start doing things, like looking at what’s my life expectancy and if you go on a world health organisation website, they say ‘no, 53 is for all South Africans, rich, poor, workers, and non-workers etcetera.’ However, if you live to the age of 60 your life expectancy is 78. There’s a huge difference between the life expectancy of rich and poor in South Africa – massive. So this got me worried and I though well let’s put this thing, and an app I found on the thing, called ‘what am I going to look like in the future’. It came back, like in 2023, and I looked like Ozzy Osbourne. I tried 2030 and it was Keith Richards. My daughter, Jess looked at this and said ‘that look’s good. Here’s a ring for Christmas, Dad’, and it’s wonderful because you can show your ring to everybody.”
Anyway, 1976, 16th June I was at St John’s College, somewhere in that building, in the chapel that morning we sang ‘For those who Peril on the Sea’ I think and by that afternoon, we had that picture and it has haunted me since I was the age of 12, the same age as Hector Peterson would have been, and always worrying, what would happen.
Then we see the evolution of that, is the pair-up (what’s that), that we got to the end of one struggle and started another one, and that struggle we are making some progress on. Then another struggle started.
Next year it will be 40 years, since that faithful day, and we see that something has changed in the population. The death rate got to its height in 2005, thanks to Thabo Mbeki, 710.000 people per year, and half of them were from Aids. We have to give credit, though. In the Zuma administration, the birth rate has gone up in a minuscule amount, but the total number of deaths has declined. In addition, the Aids death rate has halved due to the handout of antiretroviral, but we are adding 656.000 South Africans to the population every year.
In the National Development Plan (Trevor Manuel’s great cake). He made the estimate that by 2013 there would be 58 million South Africans. Stats SA last year published 64 million because in 2011, we thought that the death rate would continue. In our care document that drives South Africa, there will be six million more people than the NDP said.
People say, ‘oh the grants. Imagine the strain on the grants’. It’s amazing that the predictions of National Treasury and the World Bank, who modelled this thing in great detail last year, show that the effect or the stress created by the grants, on the system is reduced. Certainly, if you look at the increases in the grants today, they were tiny, so you would think well we can afford another six million, but there isn’t.
If one goes further into the World Bank studies of last year, we see that South Africa’s GINI coefficient, if one takes into account the grant system, has dropped to 59. It is the fastest dropping GINI coefficient in the world. Agreeably we started off on an awful base of above 70 and we have to take the grants into account, in determining the GINI coefficient.
We’ve told the NHI ‘at some time between now and 2020’. That’s a Thabo Mbeki promise from 2007, which went all the way to the Northern Transvaal and they said ‘we’re going to do it’. However, if you look at the expenditure profile of South Africa, we can’t afford it.
Then if we take all the other Government Policies, we see in gray, that’s standard revenue trend, and in red the trend, if they bring in the policies that they want. The NHI’s, the sector training and all the upliftment for the missing middle. This Budget today checked the rot on the debt on the existing game plan. No increase in benefits but that’s not going to get us to 2030.
If you go back the National Treasury, the working papers of November 2014. They said ‘we are going to be under huge pressure in years to come, as we look for the expansion of NHI, vocational training and growth in public works’. The money can only come from growth, where? Increased taxation, we saw that today, or shifting resources to other priorities. That is straight, word-for-word, out of the National Treasury papers, following the World Bank report.
I love these words of Tolkien. ‘From the ashes of fire shall be woken alike, from the shadow shall spring’, etcetera. We’ve seen that happen in South Africa. That’s what made us the Rainbow Nation. ‘Renew the blade that was broken, the crimeless will again be king’ and we’ve seen two South Africans do that. The biggest comebacks since Nazareth, both of them. They came from obscurity to major visibility. When I look at 2030, I say ‘who’s going to lead us’? Because we can have an Economic Policy and the Davis Tax Committee, and everything else, but who is going to provide that magnificent leadership that made it work for South Africa, in the early days of democracy instead of how we are seeing it now.
Thank you very much.