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Did the media read the same budget as I did?

SA needs new economic direction, but under current thinking, this won’t happen.

Forward to a socialist Azania!

Someone once asked Mao Tse-tung, former revolutionary  leader of  China, for his views on the long-term effect of the French Revolution (1793-1795).

Apparently he thought for a while and then said: “It’s too soon to tell…”.

I feel the same way about this year’s budget presented last week by finance minister Pravin Gordhan. The full impact of this budget will be felt for many years to come, as it represents a fairly dramatic deviation from the path of recent years. It’s a brutal speeding up of the policy of gradual socialism, which the ANC has been following for some years.

But first some background to serve as a canvas to how the annual budget is presented and delivered by the media. The accredited media are locked up in some room close to parliament on the morning of the budget delivery and given the budget and all the supplementary documents. There is a very strict embargo on the release of this information as to ensure that no market sensitive information is leaked.

Various sectors of the business community are always on the lookout for various bits of information. Bond traders, for instance, watch the financing requirements of government carefully as it can influence bond yields (up or down) while the equity market looks for signs of increased company taxes for instance.

The media, who has this information at hand, cannot phone around and get second and third opinions for instance, so they tend to rely on their own interpretation of the budget as it is presented to them.

When the embargoes are lifted the stories are sent electronically to their respective media outlets and within seconds appear on radio, websites and on television. It’s a far cry from the days long ago when copy was delivered via phone (if it was urgent) or telefax machine and then printed some hours later. Telefax machine? Go and Google it.

It’s only in the days and nights that follow at various post-budget seminars that the real meat is fleshed out of the budget and digested.

I was astounded when numerous media outlets, even business-aligned ones, praised the budget as a “masterpiece”, a stroke of genius and so forth. Did they read the same budget as I did?

I admit that I approach the budget from a generally free-market, business/investor point of view. That is, after all, my function. Other people approach it from different angle and will look for other things in the budget. It’s the same as a group of people looking at a Salvador Dali painting. They will all see something different and no one will be right or wrong.

Dramatic shift to the left

I do feel, however, that this budget represents a dramatic mind shift by government. We are, I feel, headed towards a far more socialist and confiscatory regime. The sharp increase in the tax of the so-called super rich and increases in dividend and trust taxation, is just the start thereof.

It’s a case of “if we can’t make the poor rich, then let’s make the rich poor”.

I deducted a certain sense of glee when Gordhan deviated from his speech and hailed the progressive nature of our tax system. Read this budget in conjunction with the announcement by president Jacob Zuma on Friday when he said that land confiscation without compensation will become part of SA law. Ignore these threats at your own peril.

Or the announcement that South Africans earning tax-free income in other countries (Dubai, Abu Dabhi, Qatar) will also now be paying taxes in SA, despite the fact that they receive no services for their taxes.

As former US president Ronald Reagan once said: “If it moves tax it; if it moves too much regulate it; if it stops moving subsidise it.”

Here are a couple things in the budget that stood out for me:

  • In his speech Gordhan had high praise for a certain Tony Atkinson. I was present with a group of financial types when the budget was read and not one knew who Atkinson was. Atkinson, I have subsequently learnt, is a British economist and author who had very strong views on income equality and a redistribution of income. He died earlier this year but was considered to be extreme left, even Marxist, in terms of his economic views and policies. For one, he was an advocate of a wealth tax of 65% for Britain. The fact that Gordhan, until very recently a member of the SA Communist Party, eulogised Atkinson says a lot. Expect more to come, especially if economic growth does not pick up.
  • He admitted that the unemployment rate was 35%. This is much higher than the official rate of 27% as calculated by Statistics South Africa and closer to the real unemployment rate as calculated by the Free Market Foundation and the Institute for Race Relations.
  • You are now considered to be super wealthy if you earn an income of R1.5 million or more. And there are only 103 000 in the whole country who qualify for this dubious distinction. This is not a great number (0.18% of the total population) and as I’ve said before, you could probably get them all into the Cape Town or FNB Stadiums on a Saturday afternoon to watch a game of soccer or rugby. Perhaps that’s what Gordhan (or any new finance minister) should do every year, to either thank them personally for their contributions which keep this country ticking over or to do a full medical to check on their health.
  • This small group, in my opinion, is made up of chief executives, directors, senior executives, lawyers, engineers, senior bankers and entrepreneurs who create jobs and revenue for the state via their enterprises. How they will react to these sharply higher taxes is hard to judge, but some of them almost certainly, will up and leave to “islands close by” as Gordhan mentioned in his speech. It’s no secret that many hundreds if not thousands of SA entrepreneurs have decamped to Mauritius to set up businesses, paying a flat rate of tax of 15% with no capital gains taxes, no dividend withholding taxes and no estate duty. Expect this to increase, especially if wealth taxes are increased next year, which I expect they will.
  • Government debt now stands at R2.2 trillion, above the level of 50% of GDP, which means that the cost of servicing this debt is now the largest item on the budget. This is up sharply from 25% in 2009, most of the increases while Gordhan was finance minister. And then there is still the national health insurance and nuclear plans bubbling in the background.
  • A downgrade of our global credit rating later this year, which is not off the cards, will push this number sharply higher, leading to less being spent elsewhere and more on our debt.
  • Tax morality is starting to deteriorate. Either that or the efficiency of Sars is dropping following on the departure of more than 50 top executives under the leadership Sars boss Tom Moyane. Revenue collections are falling way behind projections and could be as much as R40 billion (and not R30 billion) short by the time the SA Reserve Bank publishes the official numbers in April. Bingo! Another hole to fill as revenue collections come under pressure due to a weaker economy and more taxes being squirreled offshore.
  • Treasury has not been very good at forecasting economic growth. All of the budget forecasts in the past six years have over-estimated expected growth in future years, sometimes by a dramatic margin. Subsequent growth has been much lower, leading to the undercollection of revenue and hence our current problem.
  • The bulk of personal income tax is paid by a very small group of taxpayers. Less than 12% pay (based on 2016 numbers) about 62% of all personal income tax. More than half of those taxpayers find themselves in the financial services industry.
  • Likewise company taxes. A small group of companies (about 325) pay the bulk of company taxes – 58%. Again, about 35% of those companies are to be found in the financial services sector.

No boost for growth

There was little in the budget to stimulate growth and boost confidence. In fact, the whole ideological premise of the budget was one built on transformation, a word used more than 50 times by the minister. By itself transformation will not lead to higher growth, as the minister and his party seems to think.

How does this all end? I don’t profess to have a crystal ball, but I think not well.

Many economic indicators (Johannesburg Stock Exchange, capital outflows , luxury car sales, business and consumer confidence, residential property prices, retail sales etc.) are all flashing bright red on the economic dashboard.

On the same day of SA’s budget Hong Kong announced several measures to boost economic growth and business confidence which included a lowering of taxes and tax holidays for small businesses. SA’s small business sector, in which I operate, is drowning in red tape and regulation. I checked with my compliance officer the other day and there are 14 current laws which we have to meticulously adhere to. Break even one of them inadvertently and one could go to jail or pay massive penalties.

Things are not bleak altogether, however. Perhaps what is needed is a “draining of the swamp” in terms of economic thinking, to be replaced with new ideas to rejuvenate the economy and confidence will come flooding back into the market. But on current thinking that won’t happen.

Magnus Heystek is investment strategist at Brenthurst Wealth. He can be reached at for ideas and suggestions.   




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Well written and factual article – thanks Magnus.

The budget can only be described as “great job” from a socialistic perspective.

Do not be surprised if economic growth this year falls to below zero – there is no major infrastructure pipeline!!

Methinks the govt is now into the corner with only a vat increase to offset the reductions in tax revenues to come. -That may well be the final straw!!!

And indeed it must come sooner rather than later. Irrespective of what the leeches in power say to hold onto their votes.

As Margaret Thatcher said:”The problem with socialism is that you eventually run out of other people’s money”

One of the best observations …

Something my younger brother once told me comes to mind: “If you are in your twenties and you’re not a socialist you haven’t got a heart; and if you’re in your thirties and you’re not a capitalist you haven’t got a brain.”

Children get everything for free from their parents so they think that is how the world works, unfortunately it is not. Socialism is nothing but childish naivety.

In praising the budget, I understood that business leaders et al were lauding Gordhan and sending a message to Zuma – Keep hands off!!
I agree – the budget should not be, in normal circumstances, seen as a ‘masterpiece’.

I’m a great fan of PG; but I’m of the opinion that there is nothing radical to stimulate the econony; and its time for some fresh thinking to get a grwoth rate of 4 percent.

I too feel that taxing the super rich is a very very easy cop-out to raise moneies. We’ve going back to the tax structure of the apartheid government. Taxes was based on maritial status with mutiple tax bands. What I’m trying to get at; is highlighting the desperate situation treasury finds itself in. I’m going to be taxed on breaking wind in future.

With regards to SARS; the self destruct button has alreay been pressed. We’ve going to be watching as very ugly movie; where the bad guy wins.

transformation ….to zimbabwe and beyond.

don’t forget zim workers are better educated and harder working than our lot, so our gat is going to be much deeper

I recently refurbished my kitchen. I had a choice of 5 tilers (all Zimbabwean) chose one after seeing his work. He did a great job – worked from 8 am to 5 pm – no complaints no strikes no nonsense “Thank you for the work sir” – compare that to our local unemployed workforce !

“A downgrade in our credit rating, which is not off the cards”…

If memory serves correct, then Magnus and Bob and their mates used to say that a rating downgrade was “inevitable” (and not so long ago mind you, probably when the ZAR was hanging around 15 to the USD)

Now it is “not off the cards”??? Good for you Magnus! Maybe the ZAR hovering around 13 to the USD and 16 to the quid says something?

The budget was just another afternoon at the office, the cadres have no intention at all of adhering or even trying to adhere to it. Note Mining ministers new cars a week before. As with municipalities, SARS is now at the point where no matter what Gordhan needs/wants they are incapable of collecting it. So what’s the point? As some one mentioned we will shortly run out of some one else’s money.

You said it man:“If we can’t make the poor rich, then let’s make the rich poor”. Have Government offered anything in return? For example privatise or sell SAA, reduce the number of civil servants, announce an end to free RDP housing?? “No” in fact quite the opposite.

Unfortunately, there’s just not enough rich people to provide for the far too many poor people.

One cannot make the poor much richer by making the rich much poorer.

The State cant sell the SOE’s because anyone who buys them would expect a competitive business which would mean a reduction in head count and performance based remuneration for senior management. Where will that put the country? Increased unemployment and half of the ANC lapdogs running the SOE’s out of jobs.

If the US needed “draining of the swamp” then SA needs the “draining of the swamp and the driving out of the coruptor in chief”.

Very little is ever said in the budget about cost-containment and reduction in the fear that it upsets the “radical economic transformation agenda”!
Let someone else pay for our excesses…!

i don’t know where the 25% unemployment is sucked out – there are 17 million and growing already on grants. this puts us over the 33% mark already , before one starts scrounging for more stats.
those who could create meaningful employment are leaving the country in droves(11.000 millionaires in last 10 years)
don’t forget Gordhan was and still is a communist as are the bulk of the Anc cabal- their mantra is all should be equal(poor)as long as the rulers are more equal and no hard questions are asked.
Gordhan is looking after Gordhan, i am not buying his drivel

you should research how many americans receive support from govt!! you will be very surprised!!!

not a third of population!

Yep that is why Trump got in………… drain the swamp of the leeches that want to tax everyone outa sight.

the 17 million that receive grants includes children, disabled and elderly. so they are not part of the workforce.

children can’t draw a grant only adults

“The fact that Gordhan, until very recently a member of the SA Communist Party”.
Surely he still is? When did he change allegiance?

Given what Maggie said here, I am surprised that the offshore allowance was not trimmed.
I would have liked to take money out now, problem is a stretched bull run in global markets, also possibly a weaker dollar (so the R could actually still strengthen). So the timing is not great. Any thoughts please?

Ah cj1 I have wondered the same. My only answer is that those with the power to change it (and those who influence them – e.g. Gupta’s et al) are taking advantage of the present levels and stashing as much of their ill-gotten loot offshore as they can, and as fats as they can. Think Mzi Khumalo.

do it gradually whenever there is strength in R like NOW
one thing is for sure things are not going to get better when your tax money is being stolen and not used to build the nation
remember in the 70’s the Rand was stronger than the dollar and 25% or so was going to fight the border war , not mention the boycotts brought on by the cabal’s crocodile tears

Gordhan is basing local empowerment on models implemented in Malaysia to bridle Chinese companies established there with private financing. Could this indicate a shift in influence from FDI-hungry Reserve Bank to social empowerment focused Treasury? We all remember how chirpy the labour unions got with the Walmart deal. Even the PIC through the eponymous Iqbal Surve seemed to think returning shareholding of Independent Media to safer shores was some sort of achievement. Perhaps we should just be happy the rating agencies are enamoured by this budget and hope it’s not just the personality cult surrounding PG.

Walmart are looking to sell their 51% in Massmart- Mark Lamberti was a smart cookie
he probably saw how most of his staff at Makro etc hide away from clients in groups having a chat or scheming how to get the product out the back door with zero consequences if caught

“How they will react to these sharply higher taxes is hard to judge, but some of them almost certainly, will up and leave to “islands close by” as Gordhan mentioned in his speech.”

The results of an intellidex survey I took after the budget show that 45% will consider emigrating …

“There was little in the budget to stimulate growth and boost confidence.” refer the above …

The only way out of the swamp is to sell off EVERY SEO and appoint international professionals to manage them.

I see the new head of PRASA has given himself a 300% increase …sigh.

It has been shown before (using the Laffer curve) that if you raise the tax rate above 35% , the total tax collected actually goes down.

1. People start thinking more about dodging tax than thinking about building business.
2. The most productive people leave.

If you want to get people to invest in South Africa you need to make it attractive for them. Everyone agrees that we need investment but at the moment it is not attractive relative to other countries! This budget does zero to inspire investment!

The emphasis of the ANC is to stay in power and this translates into policies that are extremely investor unfriendly! Winning elections so that the party, for the few can continue, trumps economic growth and prosperity for all!

Radical Economic Transformation ….. ANC-speak for “more cash for cadres”.
But all the government services have already been transformed… radically.
The SABC has been transformed into a shambles, Eskom has been transformed into a “scam operation”, the NPA has been transformed into a crime syndicate, the Education Department has been transformed into a circus: witness the international standing of S.A.’s grade 5/9 maths and science results, the Health Department has been transformed into a “murder operation”: witness the 100 or more deaths of patients transferred to unlicensed “care units”, etc……..

If I remembered correct in Rapport oktober2016, Zuma said on a black business forum or something in Sandton that 500miljard could not uplift black empowerment and that more money is needed. If 500miljard had no impact, I just wonder how long taxpayers can afford this overprized government.

There is something deeper, something uglier going on here and it is to be found in section 9H of Income Tax Act. When you immigrate, you will have a deemed disposal of all your assets. For an individual you will pay 18% capital gains tax and for a trust 36%. Therefore do the calc before you emigrate and see what you can do with your 82% once you have sold your house and everything, especially if the Rand deteriorates. But here is the question: is it better to leave now or leave later? In 2002 CGT on individuals was 5%. Today its more than 3 times that at 18%. What if it goes up to 50% or 60%? Will we all eventually be taxed to death here because (1) we stay here or (2) because we can’t leave? Will we become prisoners in our own country?

Great article, morose but honest. Loved the subtle Trump reference at the end – just as in the US, we need to toss out the politically correct rhetoric that hides the real issues.

Make SA great again 😉

Good article to note how many of the 103 000 are overpaid government/ national/provincial/local/parastatal employees.
One such employee phoned in saying the R1.5 million will hit the African middle class the hardest.

The fact is the ANC is just a name, its the vehicle for South African politics. A name linked to the struggle years and more familiar to attain voters. The driver for this vehicle is the SACP – from Mandela to now all at one point members of SACP.

Just as Gordhan true “soloist-freedom charter” influenced budget speech, we know where he comes from – true socialist. lets make the populace equally poor, so no one can complain.

What they don’t think about – history do repeat itself- every socialist country in the world did end up in a revolution or civil war.

That bit about the super rich under threat being whom you mention, bs, that’s sloppy Magnus. The top tax bracket is on salaries. Those you mention do not receive the bulk as salary. Those who do receive money instead of equity are mostly new jobs or where equity and secondary income is not, or not supposed to be included, state work, etc. That is why it is likely to hit the new rich blacks and not those you mention, though they too are being hit.

Hitting that group is otherwise the easy thing to do, as with dividends tax. The real surprise is in the mad hero worship of Gordhan, very nice man though he is. That hurrah masked the socialist bent he always had and why he was Zuma’s minister to start with. Short memories, one tweet away from a twit.

Otherwise, you might well have answered my question, why is it there are so many new listings from Mauritius domiciled companies, it’s the new Bermuda. In property listings this is a major advantage, those dividends are taxed at the withholding rate rather than as income which is the case with all REITS in RSA. Many of these will increase the dividend cover to compensate for the increase in withholding tax, as will some preference shares, Grindrod, for example pays at a coupon of 88% of prime now. Discovery previously increased theirs from 85 to the full 100% of prime. But the Mauritius info is probably the answer to why there are now so many Mauritius listings.

The budget, probably in line with what would have been discussed at Davos. It has been clear Trump is not going to get the money needed for major programmes, the new line is that the deficit is too high. This would mean RSA does not pass a progressive budget to stimulate growth out of step. The only surprise was capital gains tax wasn’t raised further, probably will next round.

End of comments.



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