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Sarb gives, finance minister takes

Servicing Eskom’s debt will come at a ‘significant cost’ to taxpayers, finance minister says.

The boost South Africa’s central bank offered the economy by cutting interest rates last week may be fleeting after finance minister Tito Mboweni signalled tax rates may have to climb to help bail out Eskom. 

The debt-laden state power company, seen as the biggest threat to the nation’s economy, will get an extra R59 billion ($4.2 billion) over two years and together with lower-than-expected revenue collections, this “will come at a significant cost” to taxpayers, Mboweni told lawmakers on Tuesday.

The Reserve Bank made it clear that its 25 basis-point reduction to the key rate can only have a significant impact on an economy that’s forecast to expand just 0.6% this year if it’s complemented by other structural reforms. While Eskom’s finances and its inability to reliably supply power are major constraints to growth, funding the bailout that’s meant to help fix this may stifle household spending.

Read: One, two, three: cut

Having last year raised value-added tax for the first time since 1993, another increase to the levy may be too politically contentious, according to Elize Kruger, a senior economist at NKC African Economics. This would leave government “scraping all other sources” including personal-income taxes for additional revenue, she said.

Mboweni said the extra funding for Eskom could add to the government’s borrowing requirement. Higher debt costs would affect the performance of South African bonds and limit the scope for further interest-rate cuts to help boost growth, Kruger said.

The government usually doesn’t announce tax changes in the October mid-term budget but may rather use the opportunity to signal steps to take effect next year.

If the National Treasury doesn’t increase personal taxes outright, it will probably continue to leave the income-tax brackets unchanged instead of adjusting for inflation, which would result in a higher personal-income tax burden, said Jannie Rossouw, an economics professor and head of economic and business sciences at the University of the Witwatersrand.

The government raised income taxes for the first time in two decades in 2015 as it targeted mainly wealthy individuals to help plug a revenue shortfall.

However, an increase in taxes wouldn’t necessarily generate more income due to low tax morality because of less trust in the revenue agency, said Jeffrey Schultz, a senior economist at BNP Paribas South Africa.

“We need to get the economy going in order to try and arrest the deterioration in the fiscal side of things and that requires structural reform, it requires policy certainty, all of which has not been forthcoming yet,” he said. “In the absence of that, there is very little further that the National Treasury is able to do to generate the type of tax revenue that is required right now.”

© 2019 Bloomberg L.P.

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Reading,
We need to get the economy going in order to try and arrest the deterioration in the fiscal side.
Saying, work hard, earn more, so others will be happy?

That is very valid. The more you work, the more you pay so tax becomes a disincentive to working. I consult, so the first few days of the month I work for myself, but by day 12 then there is little incentive to push further, and I’d rather potter in the garden than work for half pay. Sad but true.
Ask Tito how it works with his avocado patch.

DogEatDog:

I have never encountered a successful businessman that chose not to do more, simply because of the after tax benefit. Money is not the only driver IMO.

If that is your case and the garden is pottered-out, go and help a Non Profit or somebody that can’t afford your normal consulting fees?

This taxpayer will be paying tax in UK next year. So will many others. So the remainder will need to pay more and then others will leave and the remainder will have to pay more etc….

Indeed, if one is able to work online, then considering some foreign countries which does not charge income tax if their residents earn income from abroad (e.g. Georgia, Eurasia) as deriving business within SA.

Known as a “territorial tax system”.

Max rate 20% Indiv tax. (local companies in Georgia pays 15% corp tax). What a pleasure….plus they have a functioning govt system. Montenegro may(?) also fall under this banner…need to check. If not, I’ll pay their 9% individual tax, with pleasure.

…and one will be working online there, seeing your pension/RA Funds being burned 🙁 Reminds me today I need to make my RA’s paid up & divert future savings abroad.

Like many in SA these days….we earn income here, but save/invest abroad. Until there is no business left in SA (to tax)…like our friendly northern neighbor.

Thank you for the info, Michael. If someone thought a slimy eel is a slippery thing, they haven’t seen an overexploited taxpayer yet!

NO Mr Mboweni! The answer is SIMPLE:

The size of the Govt service would NEED TO HALVE…whether you like it or not!

(Sir, the country’s economy is much smaller than you’d think…so small in fact, Eskom is able to power the whole tiny economy without load-shedding…)

If say all govt workers want to remain employed, then kindly advise on which months everyone are to receive their (normal/regular) pay-cheque: (i) at the end of the 6 even-numbered months, or (ii) the 6 odd-months?

Before the government asks for more of our hard earned money, surely the right thing to do is restructure Eskom to the employee numbers that it should have to operate cost effectively and efficiently using most of the installed capacity and not losing large portions of the available power grid to maintenance backlogs and lack of required skills.
Total installed capacity (megawatts) from 2007 to 2018 rose from 42 618 to 45 561 (an increase of 2943) while over the same period staff increased from 32 674 with a cost of 9.5 billion to 48 628 with a cost of 29.5 billion. Average cost per employee 647 483 per annum.
Coal purchases in 2007 of 117.4 million tons at a cost of 10 billion and in 2018 115.5 million tons at a cost of 53.8 billion.
Debt securities and borrowings over the same period rose from 40.5 billion to 388.7 billion.
The time has come for government to make the necessary tough and perhaps politically unpopular decisions to get Eskom back on the road to recovery.

EWC has been going on without people realizing it for a long time….

Whilst Gov are appropriating additional funds to bankrupt SOE’s, they are at the same time expropriating our cash without compensation…..

Soon they will expropriate our pensions on a non return basis…..96% of our earning population will be amongst the poorest in the world if it continues.

How can SA’s keep paying for bankrupt SOE businesses to stay open on the one hand and at the same time be paying for services provided by these same bankrupt SOE’s on the other hand. Double jeopardy and zero return. Surely SA’s should be able to choose and only do one or the other and not both….this is unacceptable!!.

Unfortunately, SA’s are accepting this as the new normal.

Realize your capital gains now, while you can still afford them…

For sure government will go after that. What they actually need to do is apply fringe benefit tax to free or cheap use of trust assets. I would venture that a very big portion of luxury assets such as Plett beach houses and Houghton Homes are sitting in trusts with the occupants not paying rent and the trust deducting expenses from other income. Those are as exactly fringe benefits as use of a company car is especially since a trust distribution would be classed as income!

It is time that nonsense stops

Okay, so we screwed up and now you’re going to have to pay. More tax, more vat, more for electricity and water, more assessment rates, more for petrol. Let’s have those e-tolls too.

Oh, and next time we screw up, you’re going to have to foot that bill too.

And by the way, and thanks for asking, but no…. we’re not going to stop screwing up anytime soon. Probably not ever.

So please go out there and work harder to earn more money so we can take it off you to as

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