Tag: treasury

Tax increases are coming

According to a recent article by Business Tech,  Finance Minister Tito Mboweni has said that the National Treasury has no plans to boost certain taxes – even as the coronavirus decimates the nation’s finances.

  • Income tax – with a top tax rate of 45% – will not be hiked, as earners are already strained
  • Corporate taxes will likely not be hiked, as they already sit at 28%
  • VAT (currently 15%) will not be hiked as this move is unpopular within the ruling ANC, because it affects the country’s poorest people
  • There is the possibility of an inheritance tax
  • There is also the possibility of a so-called solidarity tax as a bid to raise additional finances, but this would be limited in duration
  • Mboweni said that government expects to miss its tax revenue target by over R300-billion this year

Treasury capture is something to fear

Pravin Gordhan’s axing as finance minister just more than six months ago was met with consternation, which was made worse by the man who replaced him.

Here was Malusi Gigaba – the man who had used his position as minister of public enterprises to lay the ground for the Gupta family to plunder Transnet, Eskom, Denel and other state-owned companies – being entrusted with running Treasury, the state’s most important ministry.

Many cried foul, arguing that the move was akin to entrusting a ravenous wolf with care of the sheep.

At the time, Economic Freedom Fighters (EFF) leader Julius Malema told reporters in Johannesburg that “[President Jacob] Zuma has captured Treasury, which means the Guptas have captured Treasury. He has achieved what he always wanted to achieve.”

At Gigaba’s swearing-in ceremony at the presidential guest house in Pretoria on March 31, local and foreign journalists mobbed him, demanded answers about everything from his suitability for the job to the impact his appointment would have on credit ratings.

He stunned the media with well choreographed responses. He appeared to be a man who had his job figured out.

A few days later, referring to a Save SA protest outside his office, Gigaba told his staff: “Forget all the noise outside. Do your jobs. What you see and hear will pass. Change brings with it such anxieties.”

Shortly after his appointment, rumours began swirling that Gigaba, who harbours presidential ambitions, was ready to disentangle himself from the intricate state capture network.

Many hoped he would hold off-the-record briefings with senior journalists and editors to inform them about how he would free himself from the web of Zuma’s friends, the Guptas.

One senior news executive told me this week that Gigaba’s people had arranged a meeting with him. It never took place.

Just what the doctor ordered

It is near impossible to completely capture the South African state without placing National Treasury on a leash.

This is not only because Treasury allocates each department its annual budget, but because through its public finance unit, it monitors government expenditure and reins in wayward ministers, directors-general and chief executives of state-owned entities.

Through the office of the chief procurement officer (CPO), Treasury monitors compliance with tender regulations and is able to refuse government departments permission to break the rules.

Having axed Nhlanhla Nene, Gordhan and Mcebisi Jonas for their refusal to sign off on the nuclear deal (among other reasons), Zuma needed someone whose conscience had been dulled.

What better man than Gigaba?

A trusted lieutenant, and a man whose footprints – a damning report by prominent academics found – will feature prominently in the story of how the Gupta highwaymen pulled off their great South African robbery.

A desktop review of Gigaba’s six months in the Treasury reveals a terrifying picture. Cabinet’s decision to move the budget allocation process from Treasury to the presidency has nothing to do with Gigaba.

But is it just a coincidence that something which has been coming since 2015 was implemented as soon as he arrived?

When all the make believe explanations are stripped away, only one reason remains for why Zuma’s Cabinet arrived at this decision.

The reason, as one senior government executive put it, is “for anyone who wants resources for projects that cannot be motivated for in the open to use nefarious means to achieve the directing of the budget one way or the other”.

This becomes increasingly clear when we take into account the fact that the budget allocation process is handled by an interministerial committee. All ministers have an opportunity to motivate for priority projects.

If the committee influences budget allocation, why would Cabinet want it handed to a presidency with neither the technical skill nor the research capacity to do the job?

The battle for the soul of Treasury

Two weeks ago, City Press reported that Gigaba had established a parallel administration, effectively undermining Treasury director-general Dondo Mogajane.

Gigaba’s spokesperson Mayihlome Tshwete denied the allegations.

But as fate would have it, minutes of a meeting City Press obtained revealed that acting CPO Willie Mathebula was undertaking a sweeping restructuring of his office without Mogajane’s knowledge.

The minutes revealed that, while Mogajane was in the dark about the proposed changes, Mathebula had already met Gigaba and his deputy Sfiso Buthelezi to discuss the restructuring.

The proposed changes reveal something sinister underway at Treasury: that Mathebula, Gigaba and Buthelezi were concerned that the office of the CPO “was a dictator and not an enabler” and believed the office “did not consult” their counterparts in other departments.

More alarmingly, they discussed withdrawing the office’s governance, monitoring and compliance (GMC) unit’s powers to decide if departments’ requests for tender deviations and extensions were justified.

The refrain that Treasury is a dictator, a de facto government, or a stumbling block to development is not new. It is a common refrain we hear from Zumarite ministers such as Nomvula Mokonyane.

In February, the Sunday Times reported that Zuma himself had expressed frustration about Treasury’s processes.

Zuma and Mokonyane’s unhappiness stems from their repeated failure to get Treasury to approve the nuclear deal, estimated at R1 trillion, the R56bn Moloto rail development; and the R14bn Mzimvubu water projects.

Cabinet wants to appoint Chinese companies, without any bidding process, to finance and build the last two.

A Treasury report City Press reported on in April showed how the ministry put a stop to a government-to-government procurement agreement between Zuma’s administration and the Kremlin for a Russian company to finance and build nuclear power stations.

But without the GMC’s approval for projects to bypass legal tender processes, these megacontracts will never see the light of day.

It is for this reason that Mathebula, Gigaba and Buthelezi’s mission to hobble the GMC should set off alarms.

In the 18 months to June, the GMC halted more than 200 tenders amounting to more than R4 billion from being awarded through “deviations” – which include false emergencies and other excuses about single suppliers and continuity of service.

Treasury’s deviation reports do not attach values to numerous other requests for deviation which the GMC blocked during the same period.

They could easily amount to hundreds of millions of rands.

South Africans should not allow Gigaba and co to curtail the GMC’s powers.

One reason is that Eskom’s R1.6bn in questionable contracts with management consulting firm McKinsey and Gupta-front Trillian were awarded through deviations before the GMC was established.

Should Gigaba manage to neutralise it, it would be open season on tenders across government. This would be the final step in the capture of the state.

By Sipho Masondo for City Press. Published on News24

Gigaba staring into R40bn tax hole

Finance minister Malusi Gigaba faces a gaping budget hole — and will have to consider cutting spending, raising taxes and selling state assets if he wants to avoid further ratings downgrades.

The economy he oversees is hampered by a deteriorating growth outlook, partly stemming from a battle for control of the ruling party that’s stoked political uncertainty and deterred hiring and investment.

Gigaba will outline policy changes in his first mid-term budget speech on Wednesday at a time when economists estimate he confronting a R40bn revenue gap.

There will be push towards moving things off balance sheet. Gigaba is in a very, very hard place and he knows it
“We are entering a very dangerous phase in our budgetary process,” said Lumkile Mondi, an economics lecturer at the University of the Witwatersrand in Johannesburg. “It will be extremely difficult to stick to expenditure ceilings and deficit targets. There will be push towards moving things off balance sheet. Gigaba is in a very, very hard place and he knows it.”

While the minister is encountering political pressure to allocate money to the national airline and other cash-strapped state companies, a failure to keep government debt and the fiscal deficit in check would put South Africa at risk of having its local debt lowered to non-investment grade — a move that may trigger massive fund outflows. S&P Global Ratings and Fitch Ratings cut the nation’s foreign currency debt to junk in April after President Jacob Zuma appointed Gigaba to his post in place of the respected Pravin Gordhan.

Gigaba said in a 12 October interview the economy is going through a rough patch and the government needs measures on the revenue side and the expenditure side to achieve its budget targets.

Challenges

Bloomberg surveys conducted between 12 and 18 October illustrate the extent of the challenges confronting the minister.

The economy is expected to grow by 0.7% this year and 1.2% in 2018, according to the median estimate of 22 economists. That’s well short of the February budget’s forecasts of 1.3% and 2% expansion. The revenue shortfall for the year to March 2018 is set to reach R40bn, the median estimate of 11 economists shows.

The budget deficit for the current fiscal year is seen at 3.7% of GDP, more than half a percentage point higher than the February budget’s forecast, according to the median estimate of 16 economists.

What we do need is a bit of a miracle in December and that the person who comes in just starts cutting the fat
Gigaba may reveal how much money he intends raising through additional taxes and asset sales, while saving the details for next year’s budget speech, said Dennis Dykes, chief economist at Nedbank.

While higher taxes, spending cutbacks and asset sales could help South Africa get a temporary reprieve from ratings companies, the country needs a shift in its fiscal policy, said Arthur Kamp, chief economist at Sanlam Investment Management in Cape Town.

“The treasury can only do so much,” he said. “There has to be a very strong drive in other government departments and state-owned entities to improve governance, to improve efficiency and to improve their financial situations. If that doesn’t happen you will just continuously be looking to sell off the family silver.”

Gigaba’s speech comes less than two months before the ANC is due to elect a new leader, who will also be its presidential candidate in 2019 elections when Zuma steps down. Deputy President Cyril Ramaphosa and Nkosazana Dlamini-Zuma, the former African Union Commission chairwoman and Zuma’s ex-wife, are the front-runners for the post.

“What we do need is a bit of a miracle in December and that the person who comes in just starts cutting the fat,” Dykes said.

Source: TechCentral

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