ZA Confidential attended the budget speech by finance minister Pravin Gordhan.  Here are a few highlights….

 

–          He won’t comment on whether he will serve another term.  This is “at the pleasure of the President”

–          We must create the rough climate for investment.  “Perceptions are stronger than facts.”

–          The NDP is happening, and can be seen in projects being funded through the Budget

–          The Carbon Tax was delayed by a year to give time for it to be properly tied in with other green measures

–          The White Paper on the New National Health Insurance scheme, together with funding details, should be with Cabinet before the election

–          There will be a crackdown on money being taken from pay packets, as this can often leave people with a fraction of their salary

–          Electricity supply challenges are a constraint on the economy. 

–          It is irresponsible and unwarranted for developed countries to be lectured by the developed world about the need to get their house in order.  When the G20 nations were in trouble, there was solidarity

–          Appropriate action must be taken against everyone who is guilty of corruption, including those who have abused state contracts

–          The decision to cancel government credit cards was a cabinet decision and no one has complained.

–          Since limits were placed on accommodation for public servants, hotels and guest houses appear to have come up with offers to meet the new spending ceiling

–          Reserve Bank Governor Gill Marcus accompanied Gordhan and spoke of the weak rand as a shock absorber.  She suggested ZA business should benefit from increased competitiveness, and look at the possibility of import substitution for more expensive imported goods.

Finance Minister Pravin Gordhan today unveiled his latest – and possibly his last – budget.  ZA Confidential was in Cape Town for the budget, and here is our summary of the key points…..

 

–       Gordhan noted that the global economy is still struggling, with an “unsteady” global economic outlook and he said the ZA economy needs to go in a “new, bold direction for higher growth, decent work and greater equality”

–       He stressed the importance of the National Development Plan (NDP) to prepare the ground “for the next phase of our economic and social transformation.”   He said job creation and poverty reduction will require annual economic growth of 5% or more.

–       He predicted a growth rate of just 2.7% this year for the ZA economy, with a budget deficit of 4% of GDP this year. Growth will rise to 3.5% in 2016.  The current account deficit will average 5.8% of GDP over the medium term

–       “Potential domestic risks” include further delays in new infrastructure, particularly additional electricity capacity, higher inflation due to rand weakness, and protracted labour disputes

–       He said ZA needs annual growth of 5% or more to make progress and create jobs, and he said initiatives underway include infrastructure investment, support for special economic zones, a tax incentive to support youth employment, the phasing in of National Health Insurance and further investment in renewable energy

–       There will be real government expenditure growth of 2%/annum over the medium term

–       Infrastructure spending has been R1 trillion over the past 5 years and will be R847 over the next three years

–       Unemployment benefits are to be extended from 238 days to 365 days if the claimants are actively seeking work

–       The number of people eligible for social grants will rise to 16.5 million by 2016/17 – but one million “invalid beneficiaries” have been removed from the system.

–       Old age and disability grants will rise in April from R1270 a month to R1350

–       A Financing Paper on the National Health Insurance scheme will be tabled in Cabinet “shortly”.  Gordhan says earlier that he hopes this will be before the election.

–       Government supports the NDPO’s target of creating 1 million jobs in agriculture and land reform by 2030, with R7 billion in grants to provinces to support farmers

–       Support for small business of R6.5 billion over three years

–       Red tape is to be cut for environmental impact assessments, water licences and mining licences – with 300 days from application for a mining licence to final approval.

–       Gordhan announced personal income tax relief for individuals of R9.25 billion, with 40% of this relief going to people earning below R250 000 a year.

–       There will be a boost to the tax-free lump sum paid out of retirement funds from R315 000 to R500 000

–       Excise duties rise, with 9c on a can of beer, 68 cents on a pack of cigarettes and R4.80 on a bottle of whisky.

–       The fuel levy goes up by 12c a litre from 2^nd April, with the road accident fund levy rising by 8c a litre.

–       Discussions will be initiated with the mining industry to find an “appropriate funding mechanism” to deal with acid mine drainage

–       The Carbon Tax is postponed to 2016 “to allow for further consultations”, and Eskom is to be given special treatment, to reduce the impact on electricity prices

–       Government is continuing to cut waste by cutting back on budgets for consultants, travel, accommodation and venue hire. Leases on government buildings are also being looked at.  As is procurement.

 –      No major changes to personal or business taxes

Food and wine guru Michael Olivier launches our latest wine tasting podcast with a classy and elegant white wine – the 2013 Constantia Glen Sauvignon Blanc.

John Fraser is joined in the Johannesburg Studio by journalist and broadcaster Benedicta Dube and by Corlien Morris from Wine Concepts in the Blu Bird Centre.

A Valentine’s Treat. Michael Olivier introduces a classy Cape bubbly to journalist and broadcaster Benedicta Dube, Corlien Morris from Wine Concepts in the Blu Bird Centre in Johannesburg, and ZA Confidential’s John Fraser. Very nice.

http://www.zaconfidential.com

Later this month, we will have arguably the most important economic event of the year – Finance Minister Pravin Gordhan’s Budget Speech. ZA Confidential is planning to be in Cape Town for the big day, to provide a timely summary of the main highlights. However, in the run-up to the budget, we asked a few of our experts for their expectations and fears…..

Chris Hart of Investment Solutions:
My approach is that, in the context of South Africa, what does the budget do or not do? We look at the government’s own identification of poverty, unemployment and inequality as the three big problems we actually face. We say on inequality that how they take the taxes, in terms of a highly progressive tax take, helps to deal with inequality – and how they spend, with an aggressive re-distribution, helps to alleviate poverty. The two together close the wealth gap. This means that while South Africa may be one of the more unequal societies on a gross basis, it is not on a net basis. However, in doing so the budget has neglected the resolution of unemployment. The problem is better described as an unemployment problem from which there is a poverty and inequality consequence. What the budget does is to focus on poverty alleviation, but does nothing for poverty reduction. This is a critical distinction, because poverty alleviation is shifting resources to consumption, whereas poverty reduction shifts resources to investment. So the past budgets can best be described as welfare budgets where resources are shifted towards consumption – and consequently have been more a hindrance to growth than a support to growth. Now we test the budget on how it is sold, and in the case of the last few budgets they have been sold as growth budgets, designed to produce jobs. You would then expect the government to be focusing resources into investment, and helping to reduce the tax burden. In reality, what the past budgets have actually done is the opposite. If they were sold as welfare budgets, it would have been spot on, but as growth budgets they failed. So when analysing the budgets one asks: how do they take the money? And the progressive nature is something we have to live with as we have a legacy of inequality and poverty to alleviate. When the government is loading on taxes on capital formation or the viability of investment, it becomes extremely damaging – in the context of a country that has a capital deficiency and huge unemployment. Or we would look, if this is a proper growth budget, to the government to constrain consumption expenditure and shift the tax burden towards consumption and alleviate taxes that affect capital formation and investment viability. In the context of South Africa, the taxes that do the most damage are capital gains tax, property transfer duties, and taxes on pension withdrawals and death duties – all of which reduce the ability of households to accumulate capital. In addition, taxes on interest earned, on dividends, and even taxes on rental income reduce the viability of investment in SA. From a job-creating point of view there also needs to be significant relief to small and medium businesses, with respect to the tax administration, red tape and compliance. Because at the moment, small businesses are hobbled by complex red tape that require economies of scale to administer, placing them at huge disadvantage against larger, established businesses. What do I think they will do? Unfortunately the government may well use the budget to look to resolve their own problems primarily, and the country’s problems will probably take second place.

Duane Newman from Cova Advisory:
We have the State of the Nation Address this week which will give us some clues to the Annual National Budget to be delivered by Minister Gordhan at the end of February. The Annual Budget has become relatively predictable over the years. It is clear that tax collections will be under strain due to challenging economic conditions and will most likely be slightly lower than budgeted. I would expect the lower tax collections to be mainly due to lower VAT collections, as lower sales in retail are immediately shown in VAT – while they take longer to reflect in income tax collections. We do expect an announcement on the future of the proposed Carbon Tax. Cova Advisory expects at least a one year delay in the implementation of the tax. We also expect comments on the underspent government grant budget, specifically on the Manufacturing Competitiveness Enhancement Programme. While the approvals under this programme have been over R1b, there have been slower than expected claims by companies, and payment by the dti.

Mike Schussler from economists.co.za:
The Budget deficit will be over 4% for the next two years, as the slow economy means that tax collections will be down – particularly from companies and from the VAT on vehicles sales. Pravin Gordhan is going to struggle to cut spending, as much spending is now entrenched. Moreover Infrastructure investment is going to take a lot of money and government guarantees.. Expect announcement on new taxes such as the Carbon Tax. Overall, I expect very little tax relief from the budget. There should be very small increases in welfare cheque amounts, but increases nonetheless. Many state-owned enterprises will not be able to fully pay back, and this will increase the debt burden on the tax payer. I expect the debt burden to grow as percentage of GDP, and this will be a cause for concern as we move forward – as deficit reduction targets have not been met. This will attract attention from the rating agencies, and we will have another round of downgrading before the next budget in 2015. Growth forecasts will be downgraded and the inflation forecast upgraded. This will be the most difficult budget as the country can no longer put off pulling up its socks. Real fundamental changes are required and more and more people are stating this in public, although much of it is still only at braais and lunches. The cupboard looks bare to start with and he will need some of his magic to make ends meet – even if it is again sleight of hand.

Tweet of the day:
Political Humor (@PoliticalLaughs): Little Known Conspiracy Fact: The Freemasons are not nearly as powerful as a far more dangerous organization known only as the Paidmasons.

ZA Confidential will soon be available in full only to subscribers. For details on subscription rates, please contact: zaconfidential@gmail.com. Media releases, invitations to presentations, and feedback on ZA Confidential can also be sent to the same address. Add some gravitas to your conference or event by hiring ZA Confidential Editor John Fraser as a speaker or MC. Follow us on twitter: @ZAConfidential and/or John on @clasfras1

Pop goes the cork on the Graham Beck Brut Rose. A world class, delicious Cape bubbly. And ideal for Valentines.

The wine is introduced by food and wine guru Michael Olivier.

John Fraser is joined in the Johannesburg studio once again by brander and writer Jeremy Sampson and by analyst Chris Gilmour.

After the tasting, the panel discusses the worrying trend towards booze-free journalist and analyst functions and presentations.

Pop goes the cork on the Graham Beck Brut Rose. A world class, delicious Cape bubbly.

The wine is introduced by food and wine guru Michael Olivier.

John Fraser is joined in the Johannesburg studio once again by brander and writer Jeremy Sampson and by analyst Chris Gilmour.

After the tasting, the panel discusses the worrying trend towards booze-free journalist and analyst functions and presentations.

In our latest podcast, Michael Olivier pops the cork on a Delicious Cape Bubbly- the Graham Beck Brut Rose.

John Fraser is joined in the Johannesburg studio by branding expert Jeremy Sampson and by investment analyst Chris Gilmour…

An ideal choice for Valentine’s Day.

The panel also discusses the current distressing trend towards hosting events with soft drinks only…..

Michael Olivier unveils an impressive Cape Red, the La Motte Millennium 2011.
John Fraser is joined by guest tasters Chris Gilmour from Absa Investments and Jeremy Sampson from Interbrand Sampson.
LaMotte Millenium 2011 7 Feb.m4a

Durban: Toyota South Africa today announced a new R1bn investment in its plant in Prospecton, Durban, as the production line slid into action to roll out the new Corolla model. This investment is in stark contrast to BMW, which last year announced it was pulling out of a R1bn expansion of its plant at Rosslyn near Pretoria.
Johan van Zyl, the ZA Toyota CEO, said that the investment came despite challenges:
“The seven week long production disruption in the last quarter of 2013 damaged our reputation as a trustworthy and stable supplier of vehicles,” he warned. “We will have to work hard to find a mutually beneficial solution with our labour partners to stabilize production for both the local and export market.” And van Zyl suggested the investment was an act of confidence by Toyota Japan in Toyota SA. He said that the investment is underpinned by the latest incarnation of ZA’s investment incentive programme for the automotive sector, known as the APDP – which will help encourage an expansion of local content.
This trend will also be supported by the weak rand. However, he pointed out that with the weak rand, manufacturers will not automatically be able to boost exports, and that the fluctuating currency makes it ‘difficult to establish yourself as a reliable supplier. A weak rand doesn’t mean that you suddenly export more…”
Van Zyl said the current investment was decided before the recent 7 weeks of strikes, but ZA needs stability. “If you are only a supplier to the domestic market, they may be prepared to accept this. But in a global market environment, you must behave like a global player. Strikes are not unique to South Africa, but you don’t have a seven week strike like this.”
He welcomed the project to transform the old Durban airport into a new harbor, as it is close to the Toyota plant, saying that once this has been achieved, Toyota will be able to reap “enormous savings” in getting vehicles on to ships for export.

Tweets of the Day:
Sixth Form Poet (@sixthformpoet): It’s so sad that zebras think they’re white horses visiting their friends in prison.
Latie (@latie_jonker): Jokes about cliques aren’t for everybody.
Mark Robinson (@robboma3): Only a few years ago, the average parents had four children. Nowadays, the average child has four parents.

ZA Confidential will soon be available in full only to those who subscribe. For details on subscription rates, please contact: zaconfidential@gmail.com. Media releases, invitations to presentations, and feedback on ZA Confidential can also be sent to the same address. Add some gravitas to your conference or event by hiring ZA Confidential Editor John Fraser as a speaker or MC. Follow us on twitter: @ZAConfidential and/or John on @clasfras1