On Friday 24 May, Public Protector Busisiwe Mkhwebane issued a report which found that Public Enterprises Minister Pravin Gordhan had acted improperly when he approved the early pension payout for former SARS senior official Ivan Pillay. The early pension payout was granted in Gordhan’s capacity as Finance Minister.
Following the report, Gordhan filed an urgent application with the High Court in Pretoria on Tuesday, in order for the court to to review and set aside the public protector’s findings that he violated the constitution.
Gordhan has called the findings by Mkhwebane that of “stunning incompetence, irrationality and negligence”.
Mkhwebane found Gordhan guilty of “violating the constitution” and instructed President Cyril Ramaphosa to take disciplinary action against him.
Public calls for Gordhan to to suspend his participation in all structures of government until his name is cleared are growing.
Societal groups such as the African Transformation Movement (ATM) have called on President Ramaphosa to “act in consideration of the facts contained in the report”, as South Africa “can simply not afford to have elected and appointed individuals tainted by a grand authority such as the Public Protector”.
By Sibongile Khumalo for Fin24
Public Enterprises minister Pravin Gordhan says that Eskom has come up with a detailed winter plan that includes several possible scenarios.
Gordhan said the first scenario was if no load shedding was implemented.
“In this instance, we will ensure that unplanned outages or breakdowns are kept to less than 9500MW and that planned outages are within this range of 3000MW to 5000MW, so that we have some flexibility.
“In scenario 2, if outplanned outages go beyond 9500MW, a maximum of 26 days of Stage 1 load shedding (will take place) throughout this whole five month period,” he said.
There was also the expectation that the coal plants, Medupi and Kusile would soon be able to contribute in a more significant way, hopefully by the end of April.
The media was also told that power plants generally performed better during the cooler conditions in winter.
Gordhan along with Eskom board chairman Jabu Mabuza was briefing the media on the state of SA’s electricity supply.
This follows a previous briefing about two weeks ago.
At the time the country was in the midst of Stage 4 load shedding, which lasted for several days.
The power supply was so constrained that Eskom also implemented Stage 2 load shedding during the night.
Gordhan could not say then when load shedding would come to an end, but said they would know more within 10-14 days after the technical review team had had the opportunity to access the power plants.
Eskom has previously blamed ageing power plants and insufficient maintenance, among other things, for the spate of load shedding.
New Public Enterprises Minister Pravin Gordhan on Tuesday revealed that his immediate focus would be on revitalising state-owned entities (SOEs) and reversing the tide of state capture that has gripped key sectors of the economy.
The appointment of new boards at several public entities, including operational changes, was expected in the next three weeks, Gordhan told members of the Federation of Unions of South Africa (Fedusa) at a conference in Pretoria.
“It won’t be an easy task, nonetheless it is not impossible,” he said, adding that change was expected in state power utility Eskom following the appointment of a new board.
“There is a huge need to restructure the state entities to function in the public interest, not just to serve a few people,” said Gordhan.
The financial management of public enterprises such as Eskom, South African Airways and rail agency PRASA has been blamed for putting pressure on the fiscus, with billions of rands in guarantees extended to the entities to help them stay afloat.
“A good team at Eskom needs to assure South Africans that they would work to keep costs under control,” he said. “Given 3 to 6 months, we will begin to see some positive signs.”
Gordhan, who was named public enterprises minister on February 26, stressed that rooting out corruption and transforming state-owned enterprises was going to be a “tough ride”.
Treasury has issued R350bn in government guarantees to Eskom, of which over R200bn has been utilised, as the troubled state power utility has battled to rein in bulging operating costs.
The poor state of Eskom’s financial affairs has seen its long-term corporate rating downgraded by Moody’s in November to Ba3, a third notch below non-investment grade.
The ratings agency placed Eskom on review for a further downgrade.
Late last month rival ratings agency S&P downgraded Eskom’s long-term debt to ‘CCC+’, the seventh rung of non-investment grade, with a negative outlook.
Gordhan said he anticipated that those involved in state capture would try to “sabotage” efforts of reversing the damage and transforming the state.
“The damage is not something that happened overnight […] we are on a good wave in South Africa and it is possible to re-capture the state and re-orientate these institutions,” he said.
By Sibongile Khumalo for News24
The rand was weaker on Tuesday afternoon as it emerged that President Jacob Zuma had told senior leaders of the South African Communist Party (SACP) that he planned to fire Finance Minister Pravin Gordhan.
When the market learnt on Monday that Zuma had recalled Gordhan and his deputy, Mcebisi Jonas, from an investor trip to the UK and US, the rand nosedived from 20-month highs it scaled last week.
The president is reported to have told senior leaders of the South African Communist Party that he plans to dismiss the finance minister.
After hitting a fresh 20-month best level of R12.31 against the dollar in Monday’s opening trade‚ the rand plunged more than 3%, or 52c, to an intraday worst level of R12.8295/$ in the afternoon.
The rand also weakened against global majors and went from being the best-performing emerging-market currency to one of the worst-performing currencies.
Rand Merchant Bank (RMB) analyst John Cairns said further runs on the rand were possible but Monday’s rand losses were nothing compared with what happened in the worst-case Cabinet reshuffle scenario when former finance minister Nhlanhla Nene was replaced in 2015. At that time, the rand shed 150c immediately and 250c within a month.
Cairns said the best rand scenario for the day was for the rand to stabilise above R12.50/$ within a 30-cent range, the worst case scenario would be a Cabinet reshuffle.
At 11.30am the rand was at R12.9766 to the dollar from a previous close of R12.7616. It was at R14.0954 to the euro from R13.8647 and at R16.3203 to the pound from R16.0221.
The euro was at $1.0859 from $1.0864.
By Reitumetse Pitso for www.businessday.co.za
Minister of Finance Pravin Gordhan delivered the national budget in Parliament on 22 February 2017.
Gordhan warned South Africans of tough times ahead while addressing the National Assembly in his sixth Budget Speech.
He spoke about the introduction of a new tax bracket for the rich earning R1.5 million and higher, touched on the growing state debt as well as some of the economic indicators that put our fiscal numbers at a lower rate than the budget last year.
He also indicated that our growth has been too slow – just 1 per cent a year in real per capita terms over the past 25 years. He highlighted government’s responsibility to the poor and the important of maintaining existing infrastructures instead always building new infrastructure.
The Treasury pointed out some key elements around the budget:
The proposed expenditure for 2017/18 totals R1.56 trillion and revenue totals R1.41 trillion.
Government debt will stabilise at about 48 per cent of GDP over the next three years.
Government’s wage bill has stabilised.
47.5 per cent of available funds are allocated to national government, 43.4 per cent to provinces and 9.1 per cent to local government.
The balance of R149 billion, or 3.1 per cent of GDP, will be borrowed
Government debt now stands at R2.2 trillion, or 50.7 per cent of GDP.
Gordhan introduced four game changers: Municipal standard charts of accounts – municipal finances, Target supply chain management systems, Revenue management – appropriate tariff settings and improved asset management.
Ater reaching 6.4% in 2016, consumer inflation is expected to decline to 5.7% in 2018.
Substantial additional allocation to higher education is again proposed, adding R5 billion to the R32 billion previous.
Spending on basic education next year will be over R240 billion, or 17.5 per cent of the consolidated budget.
Allocations for school building increase at 12.5 per cent a year.
Spending on learning and teaching support materials increases by 9.5 per cent over the next three years.
R3.9 billion has been allocated for small, medium and micro enterprises and cooperatives.
R1.5 billion fund to support small and medium enterprises has been established by private sector voluntarily.
Spending on agriculture, rural development and land reform amounting to nearly R30 billion by 2019/20.
The services sector was the main contributor to growth in 2016 bringing nearly 120 000 new work opportunities.
They have agreed to implement a minimum wage of R20 an hour with effect from next year.
An additional R28 billion will be raised in taxes.
The annual allowance for tax free savings accounts will be increased to R33 000.
A new top personal income tax rate of 45 per cent for those with taxable incomes above R1.5 million.
An increase in the dividend withholding tax rate from 15 per cent to 20 per cent.
Gordhan highlighted that income growth has been uneven with the bottom 20 per cent benefiting from social grants and better access to services.
The old age grant will increase by R90 to R1600 for pensioners over the age of 60, and R1620 for those over 75.
The child support grant increases by R20 to R380 a month.
The disability and care dependency grants also increase by R90 to R1600 a month.
R114bn for subsidised public housing.
Houses under R900 000.00 will not attract transfer tax.
Fuel, sin tax and VAT
Increases in the excise duties for alcohol and tobacco, of between 6 per cent and 10 per cent.
The fuel levy will rise of 30 cents per litre.
A revised Carbon Tax Bill will be published for public consultation and tabling in Parliament by mid-2017.
Further consultations are currently taking place on the tax on sugary beverages.
The rate will be 2.1c per gram for sugar content above 4g per 100 ml.
Budget Speech 2017 is scheduled for 14:00 today – and it may cost Finance Minister Pravin Gordhan his job.
Finance Minister Pravin Gordhan has to weigh the impact of higher taxes and reduced government spending on growth as he tries to keep the country’s investment-grade credit rating.
Political infighting has stifled efforts to boost confidence in the economy and increase growth and therefore tax revenue. Economic expansion probably decelerated to 0.4% last year, according to the central bank, the slowest rate since a 2009 recession. That’s hindered efforts to rein in the budget deficit and limit government debt.
“The only feasible, sustainable way of working ourselves out of this problem is to grow this economy,” said Ernie Lai King, head of taxation at Hogan Lovells in Johannesburg.
In October, Gordhan said tax-policy measures will raise an extra R43-billion ($3,3-billion) and spending will be reduced by R26bn in the next two years to narrow the budget shortfall.
Gordhan may raise personal-income taxes, following former Finance Minister Nhlanhla Nene’s 1 percentage-point increase in the marginal rate in fiscal 2016, according to Andrew Wellsted, head of tax at Norton Rose Fulbright in South Africa. Raising the 14% value-added tax rate is another option, but may prove difficult to implement after a government-commissioned tax-review committee said an increase would hurt growth and inflation.
A 1 percentage-point increase in VAT could raise a much as R15bn annually in additional income, according to Muziwethu Mathema, an economist at KPMGin Johannesburg. Increases in estate duty and a doubling of capital-gains tax could deliver as much as R5bn in extra revenue and are probable given the tone that President Jacob Zuma adopted in his State of the Nation Address, said George Herman, head of South African portfolios at Citadel Investment Services.
Zuma repeated pledges by the African National Congress to use the state to reduce racial inequality and ease poverty. Together with some of his ministers he has called for more government spending on projects such as nuclear power plants.
In October, the National Treasury predicted the budget deficit in the year through March 2018 would narrow to 3.1% of gross domestic product. The gap is likely to be 3.2% in 2017-18, according to the median of 13 economists’ forecasts compiled by Bloomberg. The fiscal shortfall puts pressure to the government to borrow more, adding to debt levels.
Gross debt as a percentage of GDP exceeded 50% for the first time since 1999 in the second quarter of 2016, central bank data show. S&P Global Ratings sees this ratio reaching 54% of GDP in 2019, it said in December, when it kept the nation’s credit rating at one level above junk.
“He hasn’t been able to control the debt-to GDP-ratio and he would struggle to do that with growth as low as it is,” said Kevin Lings, chief economist at Stanlib Asset Management in Johannesburg.
The International Monetary Fund forecasts GDP expansion at 0.8% in 2017. Gordhan predicted 1.3% in October. Low economic growth rates hurt the country’s fiscal performance and debt stock, according to rating companies.
South Africa must do more than keep its spending under control to prevent being downgraded to junk, Gardner Rusike, an analyst at S&P, said on February 15. Better economic growth is one of the key factors, he said.
Fiscal consolidation isn’t easy and it isn’t popular. It may cost Gordhan his job.
By Arabile Gumede, Bloomberg News for Fin24
Finance Minister Pravin Gordhan’s first comeback National Budget, tabled on 24 February in Parliament, was relatively calm and workmanlike one after all the expectations of tax hikes and spending cuts amid tough economic times.
He stressed the need to reaffirm government’s commitment to close the gap between spending and revenue, implementing a plan for stronger economic growth and cooperation between government and the business sector. That should keep the rating agencies that want to downgrade SA’s debt position to junk status temporarily at bay.
Personal income tax rates were not increased as was expected and as Nhlanhla Nene did last year, although about R18-billion more will be collected in 2016/17. This will mostly be through yet another big increase of 30 cents per litre in the fuel levy as well as increases in capital gains tax, property transfer tax and an increase of about 7% in the usual sin taxes (alcohol and tobacco) A new tyre levy and a tax on sugar intake (only next year on sweetened beverages) will also be introduced.
The expenditure ceiling was also cut by R25-billion over the next three years to bring the budget deficit down to 2,4% of gross domestic product by 2018/19, and to stabilise debt as percentage of GDP around 45% of GDP.
The public sector wage bill will be cut, but provision for contingencies like drought relief and additional spending has been made and increases in expenditure on for example on higher education and small business development continue. Gordhan stressed that the government would not burden South Africans with “austerity measures”, and that social grants will also be raised.
The highlights of the budget are:
- The budget deficit will fall from 3,2% in 2016/17 to 2,4% in 2018/19 (3,9% in 2015/16).
- Debt stock as a percentage of GDP is expected to stabilise at 46,2% in 2017/18 (43,7% in 2017/18).
- Government will lower the expenditure ceiling by R10-billion in 2017/18 and R15-billion in 2018/19 by reducing public sector compensation budgets.
- An additional R18,1-billion of tax revenue will be raised in 2016/17, with R15-billion more in each of the subsequent two years.
- Government has responded to new spending needs without compromising expenditure limits. An amount of R31,8-billion has been reprioritised over the medium-term expenditure framework period to support higher education, the New Development Bank and other priorities.
Spending programmes over the next three years
- R457,5-billion on social grants.
- R93,1-billion on transfers to universities, while the National Student Financial Aid Scheme receives R41,2bn.
- R707,4-billion on basic education, including R45,9-billion for subsidies to schools, R38,3-billion for infrastructure, and R14,9-billion for learner and teacher support materials.
- R108,3-billion for public housing.
- R102-billion on water resources and bulk infrastructure.
- R171,3-billion on transfers of the local government equitable share to support the expansion of access of poor households to free basic services.
- R30,3-billion to strengthen and improve the national non-toll road network.
- R13,5-billion to Metrorail and Shosholoza Meyl to subsidise passenger trips and long-distance passengers.
- R10,2-billion for manufacturing development incentives.
- R4,5-billion for national health insurance pilot districts.
- An amount of R9,5-billion will be raised through increases in excise duties, the general fuel levy and environmental taxes.
- Limited fiscal drag relief of R5,5-billion will be implemented for individuals, focusing on lower- and middle-income earners.
- Adjustments to capital gains tax and transfer duty will raise R2-billion. The effective rate on capital gains tax for individuals will rise from 13,7% to 16,4%, and for companies from 18,6% to 22,4%. Transfer duty on property sales above R10m will be raised from 11% tot 13% from March1 2016 .
- Government proposes to introduce a sugar tax on 1 April 2017 to help reduce excessive sugar intake.
- A tyre levy will be implemented, effective October 1 2016.
- The general fuel levy will be raised by 30c/litre to R2,85/l for petrol and R2,70/l for diesel, effective April 6 2016. The Road Accident Fund levy will stay the same on 154c/l as it will be replaced by the Road Accident Benefit Scheme.
- Tax credits on medical scheme contributions are increased to maintain the current level of relief in real terms.
- The plastic bag levy is increased from 6c to 8c per bag.
- Personal income tax will bring in 37,5% of government revenue, company tax 16,9%, VAT 25,6% and fuel levies 5,5%.
Sin taxes hikes
Beer 11c/340ml; fortified wine 27c/750ml; ciders and alcoholic fruit beverages 11c/340ml; unfortified wine 18c/750ml; sparkling wine 59c/750ml; spirits 394c/750ml; cigarettes 82c/packet of 20; cigarette tobacco 94c/50g; pipe tobacco 27c/25g; cigars 432c/23g.
- GDP growth is estimated 1,3% in 2015, 0,9%% in 2016, 1,7% in 2017 and 2,4% in 2018. This is considerably lower than last year’s estimates.
- Export growth is expected to grow by 9,5% in 2015, 3.0% in 2016 and 4,6% in 2017 while imports will grow an estimated 5,3% in 2015, 3,7% in 2017 and 4,5% in 2017.
- Consumer inflation will fall to 4,6% in 2015, accelerate to 6,8% in 2016 and is then forecast to consolidate somewhat at 6,3% in 2017 and 5,9% in 2018.
- Capital formation is forecast to grow by only 1,1% of GDP in 2015, 0,3% in 2016, 1,4% in 2017 and 2,7% in 2018.
- Household comsumption is set to grow by 1,4% in 2015, 0,7% in 2016, 1,6% in 2017 and 2,2% in 2018.
- The balance of payments wil stay in deficit (-4,1% of GDP in 2015, -4.0% in 2016, -3,9% in 2017 and 2018).
Social grant increases
- State old age grant from R1 415 to R1 505 per month.
- State old age grant for over 75s from R1 435 to R525.
- War veterans grant from R1 435 to R 1 525.
- Disability grant from R1 415 to R 1 505.
- Foster care grant from R860 to R890.
- Care dependency grant from R1 415 to R1 505.
- Child support grant from R330 to R350.