GIULIETTA TALEVI: Just where will Mboweni get R40bn in tax hikes from exactly?
What form this huge deduction will take is not clear yet, but the taxing of inheritances will almost certainly come up for discussion at the Treasury
Now that we know that our future is toast – unless some deep and savage spending cuts are made – it’s time to hit the bottle. Via the stock market, that is.
And we don’t mean AB InBev, Diageo or Heineken. Rather, you may want to give the maker of Chairman Mao Zedong’s favourite tipple a whirl.
Ever heard of Kweichow Moutai? No? Neither had we, until we read this piece yesterday.
China’s most popular drinks maker has, thanks to a spirited 23% rally in its share price this year, just become the world’s most valuable alcohol brewer.
The company is regarded as a proxy for high-end consumption in China, and its tremendous stock market gains this year have also, writes the Financial Times (FT), helped it eclipse “the stalwarts of western capitalism, including Walt Disney, Coca-Cola and LVMH”.
It’s a timely reminder, given the devastation to SA’s finances, that the world is bigger than simply our locally listed stocks, particularly those that will have to grind their way through the next few years of terrible financial strain.
How, and where, we invest – as well as the debate on inheritance tax – suddenly became a whole lot less academic yesterday after finance minister Tito Mboweni delivered his “supplementary budget”.
This was the line that should scare you: “Tax measures of R40bn over the next four years will also be required. The government will announce details to these tax proposals in the 2021 budget.”
Sygnia CEO Magda Wierzycka was quick to ask, on Twitter: “What tax base?”
We’d bet, at this point, that taxing inheritances will almost certainly come up for discussion at the Treasury. But the (small) consolation is that we are far from alone in grappling with this.
This week, The New York Times published this fascinating read on the issue as part of a series of articles under the banner “The America We Need”.
“There are plenty of sensible options for increasing taxes on inheritances. Returning the estate tax to its 2009 levels would raise $270bn over the next decade. Further increasing the rate so that it rises to 65% on estates over $1bn would raise an additional $100bn,” it wrote.
Of course, the difference between the US and ourselves is that the US boasts the highest number of billionaires in the world and a far less fragile economy. In SA we have just a handful of billionaires left, as well as a very concentrated and rapidly diminishing tax base.
It seems clear, at this point, that a 100% inheritance tax (as UCT academic Pierre de Vos suggested) won’t happen, as it would effectively amount to expropriation. But you can expect that Mboweni’s R40bn in tax hikes will partly be funded by highest taxes on the largest estates.
If anything should drive you to drink (Nkosazana Dlamini Zuma willing), it’s this. Make mine a triple!
Duty to spend taxes wisely
But while we’re on the subject of taxes, citizens have a right to expect that it’s spent wisely. And while Kweichow Moutai clearly has no need of business rescue, there are thousands of companies worldwide that are recipients of the greatest corporate bailouts of our time.
Whatever happened to the capitalist mantra of “creative destruction”, you might ask.
In the FT Patrick Jenkins has written an excellent piece on how corporate rescues should come with strings attached – like the bank bailouts of 2008.
Still, it’s clear that Covid-19 has shattered the business model of the past 20 years – one that relied on “excessive leverage” – with brutal force.
Writes Jenkins: “The whole system of corporate ‘best practice’, involving just-in-time deliveries, minimal inventory and the use of gig workers in place of expensive permanent staff, is an exercise in operational leverage.”
It is because citizens have a right to expect that the money raised from us in tax is spent wisely that we have oversight bodies meant to ensure these taxes aren’t squandered.
And it’s why the 48% salary increase granted to the municipal manager of Steve Tshwete Municipality in Mpumalanga, or the 16% awarded to six of his colleagues (a decision taken by themselves, no less) is so utterly unconscionable.
As long as that keeps happening while everyone in the private sector is experiencing salary cuts or retrenchments, the credibility of any government tax hikes will remain justifiably low. Mboweni should bear that in mind as he sharpens his pencil.
*Talevi is the FM's Money & Investing editor.
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