Matthew Lester: The thing that keeps me awake at nightDate Released: Thu, 13 November 2014 09:03 +0200
It must be damn tough to be South Africa’s minister of finance. Personally I would rather gut fish.
But it was not always like that. In the old days the minister only had to look at commodity prices and the resultant mining taxes and then write a budget speech.
Mining taxes used to be the stuff that kept RSA going. How else did president Paul Kruger arm the Transvaal republic to take on the British in the second anglo-boer war? How else did apartheid keep going for so long?
But those days are long gone.
Per the latest SARS statistics pack mining and quarrying only represents 8,7% of tax collections today. And it is declining. The Marikane trajedy and labour disputes are not helping. And ESCOM is doing its best to bayonet what is left of the mining industry with increased electricity charges.
The income has been replaced by the financial sector that now contributes 37,3% of the pie.
But there’s a new RSA hero in this story.
When SARS was established in 1997 Pravin Gordhan ‘PG’ was appointed commissioner. At the time the nerds scoffed ‘ what does a former activist and pharmacist know about tax?’
But PG knew that the primary job of a good SARS commissioner is good management of resources. He could hire as many tax nerds as he needed.
PG recognised that there was widespread highly aggressive tax planning in the financial sector. Effective tax rates of below 10 percent were widespread. So he tackled the sector head on. And he brought then on sides. Today financial sector effective tax rates are well above 20 percent.
Had PG not tackled the financial sector RSA would have imploded in the financial crisis of 2008/9 we would have been a poor province of Zimbabwe by now. He deserves a hat full of medals for this. His achievements rank right up there with Mandela’s in saving RSA.
But the game is not over yet.
RSA has got over its dependence on mining tax. But 50% of our foreign exchange earnings still come from mining. And the tourists are never going to replace a fraction of that.
So, if we carry on with no replacement for lost mining foreign exchange earnings and become ever more reliant on imported food and consumer goods from China, where is the currency flow coming from to keep RSA going?
And that my friends is what keeps me awake at night.
Article by: Matthew Lester
Article source: BizNews
Rhodes University Professor Matthew Lester (52) was educated at St Johns College, Wits and Rhodes universities. He is a chartered accountant who has worked at Deloittes, SARS and BDO Spencer Steward. A member of the Davis Tax Committee investigating the structure of aspects of the RSA tax system, he is based in Grahamstown. His passions include the regaining of the new South Africa, using information technology to simplify the teaching of taxation, the beach, the fishing and Great Dane dogs. @ProfMattLester