JZ and your taxes, quo vadis?
GRAHAMSTOWN – South Africa is “doing just fine” under the stewardship of President Jacob Zuma and in the face of a global credit crunch and a recession, says Rhodes University Tax Professor Matthew Lester.
Matthew Lester
And if “JZ” could curb the crime which is bedevilling South Africa’s growth, “anything is possible”, Lester said at a Rhodes Investec Business School’s (RIBS) business forum lecture.
The lecture, this year entitled “JZ and my taxes: New Government, New Stewardship; Quo Vadis?” is an annual event during which Lester looks at the budget for the current financial year.
Lester said that South Africa now had the “best possible” finance minister in the form of Pravin Gordhan and the country was “coming of the best possible (economic) platform”.
South Africa had been through an “extraordinary time” but was now facing all sorts of challenges including a recession, the global credit crunch and the Eskom electricity crisis.
“And being human we have to blame it on someone. It’s Dr Evil’s fault and Dr Evil is currently Jacob Zuma,” he said in a tongue-in-cheek reference to the chief villain in the Austin Powers film series.
But he said there was a difference between economies and presidents and the person who was president was “not the be-all and end-all” for the economy.
He said the country had, over the past decade, grown like “never before”.
Interest rates had dropped, commodities were up, exports were up and business confidence had peaked in 2006.
And with the economic boom came the “dramatic over-recovery” on individual and corporate taxes and, in particular, on VAT. In 2006/07, SA Revenue Services (SARS) had scooped R489 billion in taxes, an “over-recovery” of over R32 billion. Again in 2007/08, despite a changing economic climate, SARS brought in R570 billion in taxes, R14,5 billion over budget. Manuel had used the over-recovery as “savings”.
But, when the bubble burst in 2008/09, SARS under-recovered by over R14billion, bringing in R627.6 billion instead of the predicted R642 billion.
“Nobody was immune from the global credit crunch,” said Lester. Commodity prices had come “tumbling down”, platinum had plunged and the bubble generally had “burst”. Commodity companies, which had given SARS its huge tax receipt, had, this year, wanted a tax refund. Exports had tailed off and business confidence had plunged.
“Three years ago the consumer was spending like there was no tomorrow but now they have gone to sleep. They are terrified to spend.”
And how long will it take the markets to recover? According to Lester, it takes markets about three-and-a half years to recover after a banking crisis. The automotive industry was also in collapse and the housing market a “disaster”. He said “post a banking crisis” the property market was expected to take about six years to recover.
South Africa was now officially in a recession, he said and this would take at least two years to turn around.
He pointed out that South Africa had last experienced a recession 17 years ago. This meant that about 50% of South Africans had “never experienced a recession” and they were “worried and frightened” and were keeping their money in their pockets.
“JZ can stand on his head and sing ‘bring me my machine gun’ but that won’t make the consumer spend again and this means we can’t get to our tax collection goal.”
But Lester pointed out that SARS had still done “fantastically well” bringing in R58 billion more in 2008/09 than in the year before.
In that year, the government had overspent to the tune of R21 billion, 11 billion of which had gone on the “revised employment packages” for politicians. In total, government had spent R664.5 billion while collecting only R627.6million in taxes last year, leaving a deficit of R36.8 billion. And in 2010, government had budgeted to spend R106 billion more than in 2009 but predicted it would collect only R31 billion more in tax, leaving a deficit of 74 billion.
But because of the savings South Africa had made in recent years he predicted the country could still take a “substantial deficit” for the next two years before it “hammers us”.
“We hope by then the rest of the world will have come right and we can go forward again. It will be tight but it can be done.”
