SA’s Robin Hood Budget [Opinion]

- Article by Bruce Whitfield, EWN (2016)

Bruce Whitfield

The 2017 Budget buys the minister time to see if he can find growth levers to pull. Soon.

If you didn’t know it before, President Jacob Zuma is a master tactician. There is no need for you to replace a Finance Minister if he delivers what you need to make it appear you are driving a progressive economic agenda.

Finance Minister Pravin Gordhan’s 2017 Budget speech does just that. It leans heavily on the elite and promises greater distribution to the poor. And uses the language of the State of the Nation Address: “radical economic transformation for inclusive growth”.

It’s a smart Budget.

But not everyone, especially the rich, is going to like it.

The most populist, some would call it, most inclusive Budget in our modern democracy comes against a backdrop of the ever-present threat of a Treasury re-shuffle. The team responsible for the country’s finances attended their annual pre-speech media briefing, without the SARS commissioner, for a second year. That sends the signal that all is not well between Treasury and SARS and points to palpable tension outside the tight-knit group of DG, Deputy Minister, Minister and Reserve Bank governor – all of whom seem to get along.

Why does it matter who runs the Treasury? Well, it does. Any organisation going through a change in leadership knows just how unsettling it can be to have a new boss with new ideas shaking up the place. It’s important for staff morale and Treasury saw a spike in departures in December 2015, the last time there was a dramatic change.

There is no guarantee that the hefty tax burden Gordhan intends placing on a handful of higher income earners and investors will deliver the sustainable returns he needs to fund the growing gap between shrinking revenues and growing expenditure, but it’s a gamble he hopes will pay off, at least until growth recovers to a point where revenues naturally pick up.

The introduction of a new super-tax bracket of 45% over earnings of R1.5 million a year looks like it comes from the pages of celebrated French Economist Thomas Pikkety’s Capital in the 21st Century. Treasury may have set the bar too low here in an effort to ensure maximum revenues. There is a very real threat that a proportion of that elite will look at the value they are getting as taxpayers, in terms of health, security and infrastructure, and move elsewhere.

It’s a potential tipping point.

The Budget also targets those with investments and ups the dividend withholding tax by 25%.

Just these two moves will generate the fiscus R23.8 billion of the R28 billion in additional revenue the state needs to fund its activities.

It works on paper.

It’s whether the new tax regime will test the tolerance of higher earners to a point where they seek to ply their trade elsewhere.

But Gordhan didn’t have much of a choice.

When last year’s tactic to use the Hawks to sniff out dirt on the minister backfired and the spurious charges levied against the minister connected to extending the contracts of deputy SARS commissioner Ivan Pillay’s contract beyond his retirement were finally dropped, a new strategy seems to have hatched.

This year the Budget came with the tacit threat that the president is able on a whim (like he did with disastrous consequences in sacking Nhlanhla Nene) to replace Cabinet ministers. Waiting conveniently in the wings was Brian Molefe, ex-head of the PIC and former CEO of Eskom, out on a limb since last years’ resignation over his close ties to presidential besties, the Gupta family. The planned swearing-in of Molefe in Parliament as an ordinary MP on the same day as the Budget speech descended into chaos, with ANC branches falling over themselves and each other to claim him as their own. The ANC also created a convenient space on the parliamentary finance committee just days ahead of the Budget.

There was an implied threat.

The 2017 Budget speech looks like it is designed by Treasury officials to give Gordhan the best possible odds of keeping his job.

The Budget contains all the regular stuff. More for government departments, an inflationary increase for the elderly and disabled to R1,600 a month and smaller grants to other categories. It discusses the possibility of raising VAT in the not-too-distant future and scrapping the VAT-free status of petrol as early as next year. There are plenty of plan Bs in case the wealth taxes proposed in the Budget don’t kick in as planned.

The question is whether Gordhan’s gamble on a Robin Hood Budget, which takes considerably more from the rich than ever before, to distribute to the poor in a sluggish economy, will pay off or backfire on the scale of the e-tolls fiasco.

- Article by Bruce Whitfield, EWN (2016)