Tax increases would spell gloom for SA retail stocks

Consumer spending power in Africa’s most-industrialised market is under severe strain.
Image: Waldo Swiegers / Bloomberg

Johannesburg’s retail stocks will likely bear the brunt of tax increases, should South African Finance Minister Tito Mboweni target consumers with revenue-raising measures in his budget Wednesday.

Consumer spending power in Africa’s most-industrialised market is under severe strain, with confidence at a two-year low against a backdrop of a 30% unemployment rate and an economy that hasn’t achieved a 2% annual growth rate since 2013. Economists see an outside chance that Mboweni will increase the valued-added tax rate, with such a move predicted by five out of 19 surveyed by Bloomberg.

The blow from a higher VAT rate would be felt more by clothing retailers than by food stores as consumers adjust, said Henre Herselman, a derivatives trader at Anchor Private Clients.

Increasing taxes could further reduce consumer spending and perpetuate the economic malaise, said Sandy McGregor, a money manager at Allan Gray. Raising the VAT rate is politically unpalatable, while increasing personal tax rates may accelerate emigration.

The market hasn’t priced in a VAT increase and a decision to do that could see retailers take a knock, said Investec Wealth & Investment Chief Investment Strategist Chris Holdsworth.

Higher taxes would translate to lower disposable income, which would filter through to stocks, said Casparus Treurnicht, a money manager at Gryphon Asset Management. If this happens, “expect depressed valuation levels for longer.”

Read more here about South Africa’s budget

More broadly, investors will be looking to Mboweni for signs of a plan to rein in debt and stave off the loss of South Africa’s last investment-grade credit rating in a review by Moody’s Investors Service due next month. Bailouts for power utility Eskom and other state-owned companies, plus a wage bill that accounts for 35% of spending have contributed to pressure on government finances.

“The key objective of this budget should be to table a plausible plan to manage the wage bill and interim funding for Eskom,” McGregor said by email.

For Investec’s Holdsworth, the primary concern for investors is the outlook for debt as a ratio of gross domestic product. He cited Treasury projections showing debt surging to 81% of GDP in the 2028 fiscal year unless urgent action is taken. “The first thing that investors want to see is that peak, and they want to see where it is going to start coming down.”

Here are more views from investors on what they would like to hear from Mboweni:


  • Increased spending on infrastructure, which is necessary to spark growth
  • Greater allocation to the South African Revenue Service, to enable it to tackle tax issues
  • Higher funding for the National Prosecuting Authority


  • The state payroll is bloated and any indications to concretely deal with this would be beneficial
  • It would be positive if state employees’ compensation was linked to productivity
  • No more free bailouts to state-owned enterprises
  • No increase to VAT



  • Allocating funds to alternative methods of energy production would definitely be cheered
  • Additional funding to non-key state-owned enterprises needs to stop
  • Focus on reducing the government wage bill and expenditure

Adrian Cloete, PSG Wealth:

  • Plans for a legal framework to make sure South Africa is well-placed to attract investment
  • A government focus on cutting expenses and end to the wasteful expenditure seen over the past 10 years

© 2020 Bloomberg


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….vat in crease will hurt ..those hurting from this washed out economy

I dubt we will see a reduction in the weight gain of President Cyril busta-girth or Tito

Looking at the share prices of the retail shares they have already factored in a tax hike of some description as well as the corona virus impact on Chinese production

Bottom line-we are going broke. The coronavirus isnt helpful, Eskom is ill as are many SOEs, Juju and Mshloshe dont have to go to Court where Hlope is wrestling Goliath(and Motata is on Pension counting his millions) and the ANCs many thieves have stolen the place bust. Education, NHI, EWC, SAPs all failing

Anyone who can afford to leave this unhappycountry should-if you have money or skills flee the failed state.

1. Salary decrease of 15% for all government, provincial and municipal employees earning over R 750k per annum.

2. Fire 80% of SAPS and SANDF generals-they do nothing the entire day.

3. Close SAA by liquidation.

4. Sell off all excess military equipment-we do not need fighters or submarines. reduce the SANDF to 20%( but keep those that work)

5. Privatise the best division of Eskom and reduce the debt

6. Sack Mantashe, Ace, Patel, etc.

7. Clean up the captured judiciary and NPA

8. Cancel NHI, BEE and EWC immediately

9. Reduce PArliament by 35% -we do not need 400 MPs who sleep, pick noses etc.

10. Distribute the Zulu Kings land ASAP

11. No work permits required if your job pays taxable income of R750k+

Yep.but this will only happen in a dream

More crime on the horizon, unfortunately.

Raising taxes won’t ever fix the problems we face. Government needs to implement difficult structural reforms reducing expenditure, including reducing the bloated public sector. More business and energy friendly policies must be implemented. If the necessary action isn’t taken quickly, South Africa’s future looks very gim. We will soon be the next Zimbabwe and Venezuela.

End of comments.



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