You are currently viewing our desktop site, do you want to download our app instead?
Moneyweb Android App Moneyweb iOS App Moneyweb Mobile Web App

Covid-19: SA will need R3.4trn to recover

Undercollection of revenue blamed on lack of economic activity and tax compliance levels.
The renewable energy procurement project could be the model to follow – it’s based on PPP principles, but because of the energy crisis isn’t bogged down by onerous approvals. Image: Shutterstock

The South African economy will require funding of an estimated R3.4 trillion in the next three years, excluding off-balance-sheet infrastructure projects, says Martin Kingston, executive chair of Business for SA.

The undercollection of tax revenue because of the sharp contraction of the economy in response to the stringent Covid-19 lockdown regulations may well be worse than the R300 billion touted in June. Tax collections were down 20% in August compared to the same time last year.

Sars Commissioner Edward Kieswetter said in his opening address at the virtual Tax Indaba on Monday that the revenue service was able to collect R460 billion compared to last year’s R519 billion in the same time.

He said the undercollection is not only linked to the lack of economic activity, but also to the current level of tax compliance.

South Africa’s frustration

“I do understand the frustration many South Africans have when they witness inefficiency, waste and corruption in the country. I understand that many feel morally justified to fiddle with their taxes. But when we do, we hurt the vulnerable and poorest in society.”

Kieswetter referred to the corruption investigations into irregularities regarding the procurement of personal protective equipment (PPE), where 63% of the companies who were awarded tenders were found to be ‘tax uncompliant’, and 22 of the companies were linked to “politically exposed individuals”.

The ban on the sale of tobacco and alcohol during the lockdown also didn’t do the economy any favours.

“The price we are paying as a society, in addition to the lost tax revenue, is the fact that many of these [illegal] operators have embedded themselves in the supply chain,” said Kieswetter.

Read:

“It will take us years to reverse the impact these illegal and criminal operators are having on the economy.”

On the upside … 

There is however some good news. Chris Loewald, Head of the South African Reserve Bank’s Economic Research Department, said there are things happening in the global economy that are supportive of getting SA economy back on track.

“The terms of trade have been strong, pricing levels in the mining sector have been very strong, and that will continue as the Chinese economy begins to rev up.”

He added that although a lot has to be done to enable the economy to grow faster, the macro recovery trajectory is actually “a pretty good one”.

The Indaba, hosted by the South African Institute of Tax Professionals (Sait), looked at the fiscal and monetary framework the country finds itself in on the first day of deliberations. It also considered the viability of an economic recovery in the short, medium and long term.

Infrastructure is seen as a critical part of the country’s recovery post Covid-19.

Kingston noted that the 50 projects and 12 special projects worth R360 billion announced earlier by government will have to be “ruthlessly prioritised” to ensure that they offer appropriate returns.

Read: First post-pandemic-recovery infrastructure projects gazetted

The 2011 Renewable Energy Independent Power Producer Procurement Programme has been hailed as an example where public-private partnerships (PPPs) can make a significant difference.

Regulation stifling trust

Webber Wentzel partner Alexandra Felekis has been intimately involved in the programme, and says the country’s current PPP framework is highly regulated.

“This has resulted in a very complex, cumbersome and time-consuming process where it can take five years to get one PPP going,” she said during the Indaba’s morning session.

“That in itself has created a lack of trust in government to implement PPPs in a timely manner.” Government has acknowledged the need to relook the legislation in order to shorten the process, but still keep the checks and balances to prevent corruption.

Felekis said the renewable energy procurement project could be the model of future procurement processes in SA. The programme is based on PPP principles, but without the onerous approvals in light of the energy crisis.

The funding factor

Kingston noted that there are limited sources of capital for infrastructure development, including assets that are managed by pension funds.

He said South Africans placed their savings into these funds on the basis that they would be safe and secure, and that they would be able to rely on them for their retirement.

“To tamper with that is a flagrant breach, not only of the responsibilities of the trustees of the pension funds and the mandates of those funds, but it undermines the risk-adjusted returns offered to beneficiaries when they placed their savings with these institutions, regardless of their risk appetite.”

Kingston said business has been vocal in its disapproval of the use of funds managed by the Public Investment Corporation, especially in the context of the unsustainable Eskom debt of around R600 billion.

“It is possible to mobilise capital from wheresoever we can, if it is done in terms of appropriate terms and conditions.”

The introduction of prescribed assets and interfering with regulations will undermine SA’s credibility, the quality of its financial services sector, and trust and confidence in the country, Kingston warned.

Ismail Momoniat, Deputy Director-General at National Treasury, said Treasury is not designing any “prescribed asset regime”. It is however looking at changing regulations to enable investments into “greater” options.

The ultimate decision where and how to invest will be determined by the funds’ board of trustees.

Please consider contributing as little as R20 in appreciation of our quality independent financial journalism.

AUTHOR PROFILE

COMMENTS   23

Sort by:
  • Oldest first
  • Newest first
  • Top voted

You must be signed in to comment.

SIGN IN SIGN UP

I understand that many feel morally justified to fiddle with their taxes. But when we do, we hurt the vulnerable and poorest in society.”

Sure…like the BEE fat cats who’re who need to buy Bentley’s for their wives and girlfriends.

Don’t know how you can make that statement with a straight face.

Unfortunately Amanda that is incorrect, if SA R3.7tril were to be given that amount it would be like feeding a family who live on their credit card. We have to admit the reality which is that SA is in a position to default

South Africa needs to reconcile all of its debt
R3.7 Trillion for Federal debt
R4.8 Trillion for Municipal debt
R8.5 Trillion for job creation (17 mil unemployed x R500,000 per job)
R3.0 Trillion to bailout the consumers
R20.0 Trillion Required ($1,200,480,192,076.82)

The debt clock is ticking up at R6,106.00 per second
https://commodity.com/debt-clock/southafrica/

If you are going to approach the IMF at least make it worthwhile and stop wasting everyone time and attention with this singing, dancing and blaming.

At what point can we start to blame the anc and their voters for causing the pain, suffering and humiliation?

“many feel morally justified to fiddle with their taxes. But when we do, we hurt the vulnerable and poorest in society”

Actually, no. The poor never received these funds in the last 26 years. Doubt they’ll notice any difference now

Who of those being questioned at the Zondo commission have faced a level one audit . My guess is none ……..Please SARS telll is that this is not the case !

If you were approached to donate to a charity, ostensibly to help the poor, but you knew that your donations would never reach the poor, but would instead be stolen and used for nefarious purposes, it is the morally right thing to do not to donate.

It goes much further than not donating too. To donate would be the same as knowingly aiding and abetting crime. You are in effect buying that Aston Martin that the criminals allege they forgot about. There would be a strong moral imperative on you to do anything you can to keep your money away from the criminals running the racket.

LOL — what is the difference between paying tax and buying illicit tobacco ?? It goes to the same criminals in any case.

When I see total and flagrant corruption and theft of the money I have diligently paid over to SARS for the last 25 years in support of the education and redress I supported for the poor majority I lose faith. Combined with the total lack of accountability displayed by Ace and his cohorts I will be doing EVERYTHING in my power to reduce my tax bill. I paid in faith, you lost it, let me see some action and good faith from the ANC government for a change and I will return but until then, no way.
Also my money is heading offshore, local pension funds are just to close to Ace and his illiterate but extremely skilled thieves for my comfort.

Much ado about nothing. How do you count from 1 to 3.4trn?

The article is misleading. Initially a very gloomy picture is painted by quantifying the level of our distress at R3.4 trn over 3 years.

‘On the upside’ we have no quantifying of our upside. Is it R3.5 trn over 1 or 2 years. If this is the case, we have zero worries.

Re the prescribed asset rule. A simple argument for me is that the rate of return must be in line with the underlying risk. Simply this means that if the cANCer govt legislate that pension funds have to hold a certain amounts of it’s funds in govt bonds/stocks etc. it must also legislate that the prescribed funds earn interest/dividend at current market rates.

Having said that, it is disappointing that Moneyweb allows such poor articles to appear on it’s www. We as (paying) members deserve better.

@ReginaldWatkins the problem with using current market rates is that this level of control seem good on paper however fixing the return of investment of comes at the cost of other investments which could otherwise spur development.

In 1942 the US under President Roosevelt started with price controls. When this was implemented the price of fuel stabilised and a few years later due to price control the US faced the Arab Oil Embargo and subsequently the US almost ran out of fuel or so the media reported. The main cause that led to the Revolt by the Arabs was the price control on Fuel which was set at $8.25 per barrel while the Arabs were charging around $14, due to the price control their was no incentive for US companies to invest in new oil fields nor to further develop better equipment, this would only have been possible had the been allow to enjoy the profits of a free oil market. The same users who enjoyed the benefit of cheap oil products in the early years of the law later became victims and as well the potential jobs which could have been created were now lost.

Fixing the profit that can be made will have a negative effect and unfortunately hurt both the investor and prospective job seeker.

Fewer restriction (laws) means more money flows through the system (economy) at a quicker pace. Better laws mean that money can diverted to where the risk and reward are at their greatest in the eyes of the investors this ultimately create a jobs and wealthier society.

R3.4Trn or R20trn all easy, they just numbers, the challenge comes in the cocktail of missing moral fibre in society and the diminished human vigor to go beyond, survival will remain the only game on the table. Gone are hope and prosperity of the poor and weak under the false pretence of the few and well off politicians we gave power to. Time for real opposition from all corners, its a proven recipe for success.

Yes my advice is a number of R20 Trillion but I do agree with you as well.

I would further propose that we hand the country to the IMF to baby sit us whilst they make the decisions that our politicians are afraid of making or are purposely not making because they are the ultimate beneficiaries of the so call facade of democracy.

R3.4 trillion? That’s a garage full of Aston Martins and the latest Bugatti for each cabinet minister.

Took these clowns 4 months to work that out.

Just like the tourism minister announcing that after level 2 announcement they would have a plan in 2 weeks.

Been doing nothing on full pay all this time.

Just ask the ANC to pay it. That’s about what they’ve stolen from the country in the last 20 years anyway.

I believe the economy will recover, corruption will be tackled, infrastructure decline will be stopped, state debt will reduce, jobs will be created, sanity will prevail. I believe this as much as I believe that the moon is made of cheese, the earth is flat, garden fairies exist.

If you want to stay in South Africa, by all means stay and make the best of the situation. But do not fool yourself in thinking there is any chance of the country turning the corner for the better.

I also thought South Africa wasn’t like the rest of Africa, but truly we are no different and we will make the same mistakes as all other African states did. One big difference is that we are the last Southern African stronghold, the collapse of this country will lead to untold suffering and death toll in Southern Africa.

But hey, Amandla! and all that other jazz I guess.

NOOO!! The govt has MORE THAN ENOUGH funds at their collection disposal, when corruptions & wastage is removed!

A few months or a year or so down the line, scandalous news will typically surface again regarding billions of corruption in this or that. It never ends…irrespective how low revenue collections goes.

(Pre-Covid 19, SA was already in a state of dire finances….yet to hear later, the huge corruption that enfolded. This is proof that the state has MORE THAN ENOUGH collections….as wastage remains high.

And they want to dump billions into a ‘new’ SAA?? NOPE…there is NO shortage of taxpayer funds to waste through corruption! All a big lie!

So it takes 5 YEARS FOR AN IPP PROJECT TO BE AUTHORISED??? That is flat disgusting. We need to cut the red tape and cut it NOW for the sake of South Africa. We could have ample electricity within 12 months if we freed up the private sector. But a Communist govt hates private sector efficiency – it makes them look bad.

Pay your tax so that it can be used to help the “poor and vulnerable”.
Well, i am sick of hearing this.

Firstly, the ANC government should stop STEALING my hard earned money so that they and their families can live a life of luxury. All forms of corruption should result in jail time and “orange overalls”.

Secondly, the ANC government should create an environment where the “poor and vulnerable” can work and take care of themselves instead of relying on the government a.k.a the tax payer to take care of them and their families for the rest of their lives.

Our current social welfare system which includes free housing, free electricity, free education, child grants, pensions, disability grants, etc is just not sustainable. So, instead of government continuously taking from the tax payer to feed this unsustainable welfare system government should concentrate their efforts on reducing the social welfare burden.

For a person at the top of Maslow’s hierarchy of needs, it is simply impossible to have any meaningful conversation with people at the bottom. Their worldviews are worlds apart. They may speak the same language, but they don’t understand one another. When it comes to discussing the economy, entrepreneurship, sustainability, food security and law and order, they live on different planets, so to speak.

Here we are, a community of individuals from the upper levels of Maslow’s Hierarchy, expecting that those at the lower levels will act in a way that makes sense to us. They won’t. They will act in a way that makes sense to them. They are rational people, acting in, what they believe, is their self-interest, from their perspective. This is what the voters have been doing for the past 26 years, and what they will be doing for the next 26 years.

The Moneyweb community realises that this situation will cause people higher up on Maslow’s scale to migrate downwards to lower levels. Socialism will increase poverty and destroy capital formation. Only capital formation can create jobs and improve the lives of people. This is a negative feedback loop where people create an ever-worsening situation for themselves because they use the vote to change their environment into a manifestation of their mindset.

To cut a long story short. Zimbabwe and Venezuela have shown us that, if you live in a democracy where the majority of voters find themselves at the bottom of Maslow’s scale, then things cannot get better, it can only get worse. Democracy is a recipe for disaster if the majority of voters find themselves at the bottom of Maslow’s scale. Therefore, the South African constitution is a recipe for economic disaster. We have seen different chefs over the years, Ramaphosa is the latest one, but they are bound by the same recipe. Privatisation of all spheres of government is the only solution because it creates a barrier between the economic realities and service delivery on one side, and the mindset of the ANC supporter on the other side.

The lockdown chickens are coming home to roost. So it is estimated we need R3.4T to recover! Define recover.

So far then, this insane lockdown has cost R226m per life lost (R3.4T/ 15k). A life lost is tragic – but even your die hard lockdown apologists will admit that in most instances these lives would have been lost anyway, we were only ”flattening the curve”. The biggest killer on earth is POVERTY.

The government has seemingly kicked off a negative feedback loop of spiralling out of control expenses, stacked up against an ever shrinking income stream. In short – out of control poverty is here. When it is done it will take many multiples of the delayed lives that covid took.

The cost is tragically far higher than R3.4T – tax shortfalls in many instances are now permanent, if the job or business no longer exists. Criminality and their cartels, that did not exist (at this level) before some nonsensical lockdown rules were put in place, are now permanent.

This article is all over the place, what is the message? R3.4T is shocking (likely far to optimistic), but then we are told not all bad news – R360B in infrastructure projects and an uptick in commodity demand from China!? How does this remotely offset. Then we are reminded of the R600B Eskom debt… but hang on, we are told do not worry about the pensions and prescribed assets issue. I feel like i read a protein shake and left the lid off the blender.

As a matter of principle I now practice VERY aggressive tax avoidance and evasion. Let them eat cake I say …

Headline says “SA will need R3.4trn to recover”

SA needs a new electorate to recover. The electorate are by far the biggest obstacle as they continuously vote in a government that cannot manage an economy.

All the money in the world thrown at this failed project could never trickle down to the poor.

Kieswatter should put the blame for the whopping 63% of PPE suppliers who weren’t tax compliant squarely at the door of BEE architects at DTI – the Preferencial Procurement Policy Framework Act (PPPFA). Believe it or not, this piece of legislation primarily designed to regulate procurement of goods and services supplied to government and to widen the net of suppliers to now include specific groups like women, SMMEs black-owned and even military veterans, says NOTHING / ZERO in a long list of qualifying criteria, about any need to be tax compliant to get work from government!
The act itself does not stipulate that a supplier must be tax compliant but it calls for various other conditions to be met before being considered for a government contract.
It’s only the small Tax Guide by Treasury that makes any reference to tax compliance. But it seems this loophole in the B-BBEE regime and PPPFA regulations was a deliberate ommission to facilitate and speed up participation in the economy via government tenders by township economies and small black businesses.

End of comments.

LATEST CURRENCIES  

USD / ZAR
GBP / ZAR
EUR / ZAR

Podcasts

INSIDER SUBSCRIPTIONS APP VIDEOS RADIO / LISTEN LIVE SHOP OFFERS WEBINARS NEWSLETTERS TRENDING PORTFOLIO TOOL CPD HUB

Follow us:

Search Articles: Advanced Search
Click a Company: