The Budget as a service to the taxpayer

The South African taxpayer is still bruised and not yet recovered from the recession, and Finance Minister Pravin Gordhan wisely realised that it would not be in the interest of the economy to squeeze an extra few billion out of empty pockets that in the end are providing jobs for those who are clinging to it for dear life, writes Hein Kruger, financial markets analyst and managing director of Kruger International Wealth Management, as well as author of "Budgeting".

Tax is a government’s quid pro quo for the protection it should render to its citizens. This does not only include physical protection by the state security services but also health, education etc. The National Budget speech is a government’s announcement to its citizens what the protection and services will cost them in the future.

By now, most of us know that the goose that lay the golden egg was spared from the guillotine in Minister Gordhan’s first National Budget when he did not raise taxes in general, as feared by the figurative 20% of the population that provides at least 80% of the national income.

But this valuable goose that feeds the non-taxpaying majority cannot be blamed if it feels it is being prepared for the slaughterhouse over the long term to provide the foie gras meal for someone who does not have the money to buy a loaf of bread. This means that the goose which contributes the golden eggs will eventually have to make a life commitment to donate its expensive overgrown liver to feed the masses.

The new minister of Finance received a non-intentional hospital pass, to use the rugby term, when he was handed the hottest potato in Cabinet in the middle of a recession. But in a country that lacks skills at all levels, Gordhan is probably one of the most suitable people in South Africa for the job.

He was, as the previous Receiver of Revenue, responsible to change the country’s revenue services with great success into the most efficient – and many will say “only” efficient – state department in South Africa. The cracks at SARS are already visible since he has left to take up his position as minister of Finance.

It came as no surprise, therefore, that he delivered an excellent Budget speech that addressed the most important issues of the day in an extremely difficult global economic climate.

Gordhan could do his job at SARS without much political interference, as everyone in the governing alliance knew that this was the source from where their money came. And again, he did not heed to any political pressures in his first Budget speech. This is where the jury is still out and where the proof of the pudding will be in the eating.

Not only did he spare the taxpayer, but he also decided not to curb necessary government spending. He wisely – and typically from his track record as head of SARS – decided to find his savings in working more efficiently in various ways, but most importantly, by rationalising bureaucratic agencies and state departments and plug the holes where money was wasted in the past.

But this time, Mr Gordhan has to work with politicians, and I pray that my scepticism of his enjoying the same success as at SARS will be proven wrong. Nonetheless, he will be successful in closing tax loopholes and squeeze every cent that is due to Caesar out of tight fists, as this is his expertise and he again committed himself to it.

The taxation of certain preference share investment structures is one of the proposed loophole changes and is long overdue, as former Finance Minister Trevor Manuel started to growl at it nearly a decade ago when these structure were devised by certain banks and financial institutions.

The planned tax on vehicles with excessive fuel emissions and the increase in the fuel levy probably will hit his colleagues in Cabinet the hardest, although the taxpayer will have to foot this bill in addition to his own gas guzzler – as the taxpayer owns the luxury cars that are driven by ministers – and therefore it will not really infuriate the political elite. More fuel-efficient cars will be subject to a lower effective tax charge.

Whether this will lead South African politicians and captains of industry to set the example and start to drive smaller cars, must still be seen.

However, the government is showing some commitment to contribute to saving the planet.

But in his commitment to efficiency, Gordhan requires ministers with track records of non-delivery and who are more committed to their own personal and political agendas than to the people who are not known to vote for them or to the economic wellbeing of the country.

How the minister will succeed in changing a culture where there is more commitment to the non-taxpaying part of the population into one that will render the aforementioned quid pro quo services, is a question to which I hope he will be able to give a satisfactory reply during the budget debate that will follow in the coming weeks.

The positive angle is that Gordhan’s Budget created the impression that it attempts to focus on addressing issues at the source and not only the symptoms. As far as crime is concerned, the government apparently believes in job creation, education and training to create an environment where crime would not be a way of life and reduce crime as a threat, which has become synonymous with South Africa in the eyes of international investors, tourists and a large part of the population.

Over 800 000 South Africans lost their jobs during the recession. Gordhan does not foresee the economy to create more than a million jobs by 2014. This will not even be sufficient to address the normal growth in demand and definitely not address those who lost their jobs due to the economic downturn.

The cash reimbursement to employers to employ unskilled young people under the age of 24, which also seems doubtful to be implemented this year, falls far short of addressing the problem. Particularly when the minister blames employers of reluctance to hire inexperienced people.

But he does not announce any grand scheme by the government to employ such. Being an efficient person, he realises that would be the first place where his plans to save money through efficiency will fail.

The government paid R2.8 billion in unemployment benefits to approximately half a million people in the previous tax year, and Gordhan expects this figure to increase substantially in the next year. Unemployment benefits budgeted for is R3.8bn for the current year and R4.2bn for the next.

Unless Mr Gordhan succeeds in being a strong political leader and enforce his will on Cabinet and government officials, this Budget does not have the legs to improve services to taxpayers and create long-term hope for the unskilled, jobless masses.