FINANCIAL REVIEW: ECONOMIST: ” SOUTH AFRICANS- TAKE YOUR MONEY AND RUN!”

 

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Article posted  by: White Nation correspondent Cape Town November 07   2017

 

 

 

 

SOUTH AFRICA– FAILED ILLUSION OF COMMUNIST ANC ORGANIZED CRIME ,LIBFARTS, UNION CHAOS , MISDIRECTED RAINBOW MONKEYS – AND WHITE GENOCIDE

 

ECONOMIST  Dawie Roodt has advised South Africans to take their money out of the country amid looming downgrades which would send the economy into another recession.

Speaking to IOL following the release of the auditor general’s report on the financial health of state-owned entities last week, Roodt said that the country is in dire straits.The reports showed that irregular expenditure in South Africa increased by 55% since 2016 to R45.6 billion and could still rise to R65 billion as 25% of those audited acknowledged that they had incurred irregular expenditure, but could not say how much.

This, Roodt said, exacerbated the deteriorating economic situation in the country where, simply put, we can no longer afford to incur these costs. “This is the taxpayers’ money that is being misspent, which means that the state needs to cut back on its expenditure. This country is in dire straits,” he said. The South African government needs to cut spending by between 6% and 8% in the next year, which simply won’t happen, Roodt said. “We’ve reached the end of the line. Pushing the economy into recession is the only option. The best advice I give to my clients is take your money out of the country, Roodt said.

Ratings downgrades

Roodt’s position echoes sentiments expressed by many other economists and analysts, who say that South Africa is on a downward trajectory, with a rating cut to full junk status an inevitability. From the low-growth, high unemployment trend that has persisted for almost a decade, the economy has also been wracked by political scandals, policy uncertainty, and very real threats to the country’s independent banks. In finance minister Malusi Gigaba’s latest budget speech, he conceded that the country is effectively running out of money, with no political will to cut back spending – and a looming threat of a tax revolt putting a damper on ideas to hike taxes.

The tax revolt already started…

Following the Medium Term Budget Policy Statement (MTBPS) delivered on 25 October 2017 there is growing concern that South Africa has reached its limit in terms of the amount of tax revenues it can extract from taxpayers through further tax increases.This is according to Kyle Mandy, Tax Policy leader at PwC who was part of a number of commentators which warned National Treasury and Parliament that tax increases announced in the February Budget, particularly on personal income tax, would likely push tax revenues very close to the top of the Laffer curve.

This is the point at which tax revenues are maximized and beyond which tax rate increases will actually result in a decrease in tax revenues, said Mandy. The Laffer curve was developed by economist Arthur Laffer to illustrate the relationship between tax rates and the amount of tax revenue collected by governments. It suggests that as tax rates increase from low levels the tax revenues collected will increase.

However, at some point further tax rate increases will actually lead to lower tax revenues as the disincentive effects of higher taxes begin to dominate. While Laffer’s primary objective was to illustrate the relationship between taxes and production (i.e. that taxing any economic activity results in less of that economic activity and resultantly lower tax revenues), the Laffer curve also illustrates that higher tax rates result in a greater incentive for tax avoidance and evasion which could also cause tax revenues to fall.

“In this regard, it is important to recognise that a tax system does not operate in a vacuum,” said Mandy. “It is impacted by the social, economic, and political environment in which it operates.” “The result is that, where taxpayers perceive a government to be corrupt, inefficient and wasteful, not delivering benefits to taxpayers or the broader citizenry or a country is in tough economic times, this will result in the Laffer curve shifting downwards and to the left.” “The result is that the tax system will be able to deliver less tax revenues at a lower maximum rate than would be the case in the absence of such conditions,” he said.

Downward slope

According to Mandy, the evidence emanating from the MTBPS suggests that, in the current environment, South Africa has maximized the tax revenues that it can extract from its citizens and has possibly even gone past that point and is now on the downward slope of the curve. “The last few years have seen significant tax increases directed at fiscal consolidation in a low growth environment and amid growing concerns of levels of corruption and government inefficiency,” he said. “These tax increases saw the main budget tax-to-GDP ratio increase from 24.5% in 2012/13 to 26% in 2015/16, primarily led by increases in personal income tax. However, since then the tax-to-GDP ratio has stalled at 26% in both 2016/17 and in the revised forecast for 2017/18.

“It is not unreasonable to expect that the tax-to-GDP ratio for 2017/18 may fall below 26% in the final outcome. The stalling of the ratio comes despite significant tax increases in each of 2016/17 and 2017/18 which were expected to deliver R18 billion and R28 billion of additional tax revenues, respectively.”

Between a rock and a hard place

Regardless of the reasons, the evidence suggests that tax increases are no longer providing the desired result in the form of increased tax revenues, said Mandy. “Simply put, National Treasury have been placed in an invidious position,” he said. “Increasing taxes further in the current environment could be self-defeating and result in a decline in the tax-to-GDP ratio.” He noted that this was  particularly prevalent insofar as further tax increases in the form of personal income tax are concerned.

“Increasing the corporate tax rate would further dent investor confidence and economic growth while Value-Added Tax is politically sensitive due to its regressive nature, notwithstanding that this is the one area where large amounts of revenue could be raised across a broad tax base while minimizing the damage that further tax increases would do to economic growth,” he said. “Realistically, it is probably the only tax that could be increased and deliver increased tax revenues in the current environment.” The other option would be to cut expenditure, said Mandy.

This aspect of the budget, however, is also inherently political with significant pressures for increased spending stemming from new initiatives such as National Health Insurance, social security reform and higher education funding while also having to contend with negotiations for public sector wages increases and bailouts of state-owned entities.” “In light of all these issues, it is no wonder that we saw the Minister of Finance simply setting out an honest assessment of the state of affairs in the MTBPS while presenting no proposals on further fiscal consolidation measures. “One gets the sense that National Treasury is pinning its hopes on a more conducive environment come February 2018, which will potentially give it a greater level of flexibility on the tough fiscal choices which will need to be made. “In the meantime fiscal policy will mark time.” (Link)

No hope of retaining current ratings

Analysts at Anchor Capital said in a report that inefficiency and corruption has broken consumer and business confidence, and ratings agencies have taken note. “It is highly unlikely that we will retain our current ratings for the next 12 months and we need to adjust our base case to be that South Africa will be kicked out of the WGBI government bond index,” the group said. The expectation should be that rates will gravitate towards 10.25% and the rand towards R15.00 to the dollar at some point over the next year. After being kicked out of the World Government Bond Index, there will be a forced sell-off of at least R100 billion – with the outlook very negative, considering that the South African government appears content to ignore the growing crisis, Anchor said.

THEN BRACE YOURSELF FOR A MASSIVE FUEL PRICE INCREASE AS WELL….

South African motorists should brace themselves for a massive fuel price increase in December, says Hanré Rossouw, portfolio manager at Investec, speaking to Talk Radio 702. Rossouw said that an increase in the global oil price – to 2-year highs of $64 dollars per barrel – would compound pressures seen in the South African US dollar exchange rate, and push the price of petrol up by around 60 cents in December.

The global oil price spiked after the 32-year old crown prince of Saudi Arabia, Mohammed Bin Salman, arrested his political rivals on corruption charges. However, the $64 levels are a bit inflated, Rossouw said, and levels between $55 and $60 are more realistic. South Africa has seen successive fuel price increases in the past four months, as the South African economy continued to struggle.

According to the Automobile Association, the situation will be exacerbated by ongoing political uncertainty in the country, with the ANC’s elective conference in December increasing the volatility of the local currency. Following a recent cabinet reshuffle by  Jacob Zuma, the rand weakened to over R14 to the dollar, which will have an impact on December’s fuel prices.Another hike in December is likely to have a knock-on effect on inflation over the course of 2018,  Rossouw said, but could provide an added impetus to an interest rate hike.

However, he warned that oil demand was still growing, with further increases also a likelihood next year. South Africa also has to contend with the outcome of the ANC’s elective conference and ratings downgrades – which many analysts and economists view and inevitable – which will put added pressure on the economy and prices in 2018.(Link) 

EDITOR’s FOOTNOTE:

(AND who will these black communist criminals blame again? Yea- YOU guessed it right…”Apartheid.” My suggestion is to stop paying taxes wherever you can and do trading by CASH– as our new “friends”- the Chinese, Pakistanis, Nigerians, Arabs, – thousands black taxi drivers, millions of black street hawkers, illegal African aliens, et al is doing currently. Stop being the commi trash’s milking cows. Time to for once join the “majority”-  and sink the crippled ANC Titanic once and for all!! -Ed)

 

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