PRAVIN GORDHAN found a sneaky way to avoid raising VAT and it isn’t healthy. Promoted as a health tax, the sugar tax quickly snowballed into an all-out tax on anything sweet, including dividends.
The problem with the finance minister’s health claims, is that they don’t hold up to scientific scrutiny, for starters, South Africa is a major fruit producing nation, and in the battle between fast food, sugared drinks and cola’s, the beneficiaries have invariably been the export fruit market and consumers overseas.
Now with a whopping 11% tax on sugared drinks being extended to literally everything, including ‘intrinsic sugars’, read 100% fruit juice, the health alternative is going to be even more out of reach of the poor, as well as pensioners, who are expected to consume what?
And to live off what, five and dime spaza stores?
There is a major and significant difference between the active ingredients in all these products, financial, health or otherwise.
Fructose found in fruit breaks down in your liver and doesn’t provoke an insulin response. Glucose found in cola drinks starts to break down in the stomach and requires the release of insulin into the bloodstream to be metabolized completely. Fruit juice contains plant phenols and antioxidants, while ordinary sugar drinks do not.
Conflating the two, like the conflation of dividends and the banks who dish them out, will prove to be a costly and unhealthy error by the treasury.
For years, the sin taxes authored by treasury have targeted alcohol and alcohol drinkers, driving the beer market at the expense of more refined and hardtack liquor. Now with sugar in its sights, treasury has found a convenient scapegoat. Taken to its logical conclusion, we are likely to see a hit on fresh fruit and the proverbial fruit tree itself, which may feature alongside sweets and chocolates, and milk products, in future budgets.
Talk about taking popsicles out of the hands of children, but this is exactly what Mr Gordhan has achieved this year.
The reason why budget 2017 is hugely problematic, more so than any previous budgets, is because of two vectors:
The first, is the ANC and its ‘tax and spend‘ strategy which has resulted in a budget deficit and resulting need to service debt, the cost of which runs at an enormous R162.4 Bn. According to reports, this burden is not projected to come down any time soon, and can only get worse.
Far from austerity and prudence, the budget is rather shy when it comes to trimming spending. To give you an indication, this interest figure is almost the same amount of money the government spends on healthcare each year, projected to be R187.5 Bn.Then there is the enormous burden placed upon individual taxpayers, who must feel a bit like victims of a hit and run.
Personal income tax in South Africa is currently in an alarming disproportion to income tax generated from corporate taxation. Private taxpayers thus contribute almost 2.5 times as much as corporations, the figure grows to 3.6 times if one adds VAT and even more when one considers the fuel levy.
This trend is global, as more corporations hide behind tax havens, while ordinary citizens increasingly fork out more tax to cover the deficit.
The state will continue feeding SOEs such as ESKOM and SAA in the dirigiste economics that has become the hallmark of the ruling party. Tax on road transport has increased via the fuel levy. On a brighter note, the government intends to roll out new trains and public transport services. One can only remark on the contradiction between the national airline, and the rail agency.
NOTE: At writing this, there was no clarity from the media on whether there is a current exemption for fruit juice or not, and exactly how the new intrinsic sugar regime is being implemented. Health24 reports that fruit juice is included while The Herald reports that the deputy director-general Ismail Momoniat has told journalists that ‘Treasury proposed to introduce a threshold that would make the first 4g of sugar per 100ml beverage exempt from the sugar tax. He said 100% fruit juices and milk products would be exempt.’
TODAY marks the moment when South Africa finally bit the bullet of State-owned Enterprises (SOEs). Admittedly, we all knew this speech was coming, but when Pravin Gordhan, finally got around to it again in his budget, a loud cheer came from the ranks of the opposition. The Rubicon of Economic Reality versus Political Ideology, has finally been crossed.
The problematic of a mixed economic model, which has a market economy on the one hand, and a directed state economic sector on the other, has plagued economists for the past twenty years. The annual bail-outs of state-owned airline SAA now look to be a thing of the past, at least, if the plan already announced in January, and which is now part of the budget, is implemented.
SAA and SAA Express, the international and domestic wings of the national carrier will in all likelihood merge. An equity partner will come on board. The state will relinquish some control in a manner outlined by Gwede Mantashe on the steps of Parliament: “We’ve learnt from the Chinese, we will keep a minority section.” He said to reporters on the question of SOEs. (Exactly what opening up SOEs to private investors means, read here).
Other SOEs such as Transnet could face similar rationalisation, non-performing SOEs will simply be phased out. The public service will be trimmed. Redundant or non-essential vacant state posts will not be filled. The money saved will be better spent on worthier projects.
Little over two months ago, South Africa was facing a major crisis in a sudden cabinet reshuffle, resulting in the country going through three finance ministers in less than a week and causing an unpredictable devaluation of the Rand.
Today in measured tones, and with a speech crafted to reassure the public, Gordhan delivered some major surprises. Fizzy-drinks are set to join the annual Sin Tax. Henceforth, sugar beverages will be targeted by treasury, and yes, the annual rise in the cost of a tipple is starting to send drinkers over the edge, time for other classes of drinkers to contribute.
Other innovations included a recycling tax on tyres, and broadening the contribution of the fuel levy to pave the way for renewable technologies. The major stakeholders in industry will probably be gushing with praise, since an evolving ‘vehicle emissions tax’ will force manufacturers to adopt catalytic converters and other eco-friendly technology such as electric cars. It is unclear exactly how the tyre tax will work.
If you are an environmentalist then news that IPPs will now include coal and gas, is possibly a disaster, unless carbon mitigation measures are instituted. Scrubbers on the three new coal-fired power stations already being built by the state should be mandatory, if they are not there already. Gas to liquid fuels company SASOL has already demonstrated methods of sequestering carbon by growing food. The renewable energy sector has certainly come of age in the budget, and presents a positive side to the usual doom and gloom.
While not immediately obvious, Social Security and National Health Insurance are also big winners, as is Education. Thus a notable budget that will be talked about for years, the least of which is how normal it all sounded after decades of NDP campaigning by various civil society groupings (including Medialternatives) and the short drama which lead up to it.
PS: On the downside, Brazilians are probably cursing us all for taxing two of their major exports, sugar and rubber tyres. It is no coincidence that the South American country received a junk rating on the same day that our Finance Minister announced the BRICS bank would finally be setting up office in Gauteng.
South African’s can consider themselves lucky that it wasn’t us being junked.
SOUTH AFRICA is an astonishing country. Not only are we home to more millionaires than any other African country, (40% of all African millionaires live in South Africa) but this wealth coincides with extremes of poverty and unemployment. Some 25.5 percent of the population is unemployed and this figure is worse when the youth and first-time job-seekers are concerned, rising to 63%.
The reason why this picture is so, is not all that difficult to understand.
Let’s talk about the welfare disconnect. Although the country is one of the few nations on the continent to have implemented a social security programme, this programme is geared towards the elderly, disabled and child care grants. Thus the youth of today, are born into social security — their parents are recipients of state welfare not because they are citizens, but because they have children.
Once a child is over the age of 18, this grant falls away. The double-whammy of unemployment and poverty kicks in.
Today’s student unrest is a direct result of the situation where a pupil, having generated income for his or her family, simply by being a child, turns into a liability on becoming a young adult and tertiary student. In most cases, such a person is forced to fend for him or herself.
This is an enormous shock to both the youth and the family.
So far as social security in South Africa is concerned, we are a nation which has the cart before the horse.
The Focus on Labour at the expense of the Market
Command economies have failed wherever they have been attempted. Creating industries, whatever the cost, in order to create jobs, instead of producing efficiency, achieves the exact opposite. Labour for the sake of labour, is tremendously wasteful. Wherever it has been a state policy, communism has resulted in economic distortions and failure to deliver goods. Shifting the goal of humankind towards labour is therefore an exercise in futility.
Instead of paying families to have children, we should be paying people to stop working.
A social wage, comprising an unconditional basic income grant, health care and free education, would be the means by which the worst ravages of poverty and last vestiges of coercive labour was removed from our society.
The coervice labour market is a legacy of the apartheid system, which was dependent upon a labour pool, where workers were treated as nothing more than a resource to exploit. This situation has not improved under the ruling party, in fact it has gotten far, far worse. BRICS under Gwede Mantashe, has birthed South African sweatshops producing goods for Russia, low-wages and a shrinking Rand have become a factor of life.
Instead of forcing people into employment (or joblessness as the case may be). A social wage would redistribute income to each and every citizen, not by virtue of being a child, but by virtue of ones ability to vote.
Leisure should be our goal, not labour.
Labour should only be a means of achieving other goals.
Making goods should go hand in hand with Buying Goods. While Henry Ford may have had his faults, he produced cars for the workers who worked in his factories, not for the wealthy elite.
Citizens should thus be more than simply workers, they should be treated as adults and consumers.
While labour has certainly contributed to better work conditions — the invention of the long weekend, and other public holidays — it would be even better if labour were to permanently depose itself, by creating a 360-day-Vacation. Allowing robots to self-assemble and produce the goods, which we buy with our wages, which are in turn given to us, via a more efficient means of production and redistribution of wealth, This is an alluring proposition. Holland for instance had moved to end labour in mining. Machines are replacing humans wherever they are found, and the full automation of society is only a matter of time.