REGINALD PILLAY: Taxpayers are part of the solution not the problem

Tomorrow’s budget speech isn’t just another fiscal update — it’s the first under the government of national unity (GNU), setting the tone for a new era of economic policy. However, it arrives at a complex moment, with US President Donald Trump already challenging long-standing government policies, including BEE, and raising questions about trade and investment flows.

At the same time, SA must balance its position within the Brics bloc, where shifting geopolitical dynamics could influence everything from foreign direct investment to trade agreements. Throw in an enormous infrastructure backlog, cash-hungry state-owned entities (SOEs), a large public sector wage bill, expensive dollar-denominated debt and sub-par growth, and you can appreciate that finance minister Enoch Godongwana faces a delicate balancing act — crafting a budget that reassures investors, addresses domestic economic challenges and aligns with SA’s evolving global relationships.

This raises the question: with so many competing priorities, where does he focus his efforts? While we cannot lose sight of our place in the global economy, the focus should be on the SMME market and finding ways to encourage entrepreneurs to risk their capital. This goes beyond simply supporting incentives but making a tax system that is friendly and accessible to all.

At the moment it feels like the SA Revenue Service (Sars) is so intent on reaching revenue goals that it is penalising those who are creating the value in the economy. They can’t do this in a climate of fear.

If we consider that 57% of the SA personal income tax base is made up of those earning R70,000 — R350,000/year — we should not be trying to find ways to discourage people from becoming tax compliant. If we take this one step further and recognise that medium-sized businesses make up 67% of our GDP, we should be rewarding those who have been resilient enough to grow during the last decade.

With that in mind, there are some areas where we believe the finance minister can provide real value during the upcoming budget speech: 

• Taxpayers are part of the solution, don’t treat them as the problem. The debate around National Health Insurance (NHI) captures the challenge we face in SA. Historically, you were rewarded for having medical aid through a tax credit. Medical aid or medical insurance means the healthcare burden is removed from the state — yet the taxpayer is now losing the tax benefit in what feels like a move from the government to prime the taxpayer for an NHI that is at least a decade out.

The same tax base is hearing of a wealth tax and income tax rates nearing 45%. At the moment it feels like the taxpayer is not seen as part of the solution to some of the big developmental challenges SA faces, but as wrongdoers who need to be punished.

• Centralise or innovate. It has become too easy to talk about multibillion-rand bailouts for SOEs, and that without bailouts these organisations can’t survive. While SOEs play a vital role in any economy, let’s consider that since 2008 Eskom has received R496bn in bailout funding, while SA Airways (SAA) has received nearly R50bn. Transnet is looking for another R50bn, and the SA Post Office and SABC have each received more than R3bn in the past few years.

Yet over that period, considering that we have only just celebrated 300 days free from load-shedding, SAA now operates a fleet of fewer than 20 planes, Transnet’s inefficiencies are costing the SA economy R1bn/day, the SA Post Office has in effect shut its doors, and the SABC is struggling to create content. In a nutshell, these inefficiencies have led to job losses and have made SOEs increasingly uncompetitive in their respective industries.

Provincial data released by Stats SA in 2018 found that if Gauteng were a country, its GDP would make it the seventh-largest economy in Africa. This raises the question: instead of bailing out centralised SOEs — often just to service debt burdens — wouldn’t that money be better spent on investing in innovative SMEs that drive economic growth and job creation?

• Make incentives easy for the SME market. The government has actually been quite good at developing incentives such as the section12B allowance — which became popular for the rollout of rooftop solar — and things like accelerated depreciation for R&D and manufacturing. The challenge SMEs face is that these incentives are too complicated to navigate and implement, causing them to miss out.

• Be decisive around the Employment Tax Incentive (ETI). The ETI has not only been open to abuse but has also not had the desired effect on driving entry-level employment and hasn’t kept pace with the national minimum wage legislation. Our expectation is that it will fall away in the coming year, but if the government wishes to incentivise youth employment, they must make it attractive to businesses.

• Reward real-world skills development. This is probably not something that will be dealt with in the current budget speech, but it is an issue that is not getting enough airtime. Businesses are spending billions of rand a year via the skills development levy (SDL), yet our economy continues to stall, and the sector education & training authorities sit with unspent budgets. It would be great to find a mechanism to reward those who invest in themselves.

This is not an easy budget for the finance minister. He has to cope with geopolitical tension, regulatory issues around SA’s greylisting and trying to balance a developmental budget in a low-growth economy. The SME economy is one we can control and develop — if we place it at the centre of this budget and give them the room to operate, we might just surprise to the upside.

• Pillay is group CEO at Ariston Global.