Gordhan faces taxing balancing act this yearComment on this story
It is that time of the year again. The time when our minister of finance has to try and balance the demands of two essentially “unbalance-able” interest groups – the electorate and the corporate sector as represented by the rating agencies.
If he gets the balance wrong Pravin Gordhan risks, on the one hand, even more violent township protests or, on the other, a cut in our ratings and an increase in the cost of debt needed to fund the government. The reality, of course, is that the budget balance is heavily determined by that old cast-iron economic rule: “He who pays the piper calls the tune”.
This means that the “success” or otherwise of the Budget will be determined by the extent to which it is in line with the wishes and needs of the rating agencies first and, second, with those of the corporate and individual taxpayers. Way off in the distance, even in an election year, is the need to placate the electorate.
Each year for the past 19 years the ANC government has been reminded of this grim reality. The initial grand plans to hoover up all the profits from the country’s gold and other mineral wealth and redistribute it to the country’s less well-off have had to be scaled back radically.
Now redistribution takes the form of a rating-agency-endorsed trickle of social grants sprinkled with egregiously generous black empowerment deals.
The rating agencies, who represent the corporate sector’s big stick, are themselves a tad ambivalent on what the balance should look like.
On the one hand they demand to see great discipline from the government, such discipline being defined in terms of what it does not “give away” to the electorate. But on the other they raise concerns about the urgent need to reduce levels of inequality and unemployment.
Sadly for the ANC government, the need to strike a balance between the country’s citizens and its corporate sector has been made more difficult over the years not by the increasingly violent demands of the citizens but by the increasing risk aversion of the corporate sector.
This increasing risk aversion is part of a global trend. It is a trend that has seen the “animal spirits” needed to drive economic activity in challenging circumstances being domesticated by the short-term demands of institutional investors. These are the people who control the money that washes around the globe in search of ever-increasing returns.
On a national and international scale they insist on as little risk as possible.
In a bid to shed as much risk as possible firms have “outsourced” what were traditionally regarded as core functions. Signs of any sort of commitment to employees – such as a pension fund, medical aid or training – are regarded with such deep suspicion by investors that they are often sufficient to entice in the private equity vultures with their equity-to-debt plans that include a “streamlining” of employees. Indeed, in this “risk-averse” era actually employing people is regarded with such disdain that even if the DA ruled South Africa and there were absolutely no labour regulations, the country would probably still be faced with a devastating unemployment problem.
The labour-averse strategy worked particularly well for companies during the boom years when China became the world’s factory. During that period firms such as Edgars and Mr Price were able to offer local consumers attractively priced T-shirts and jeans that were shipped from Shenzhen with their rand price tags attached ready to be rolled out onto the South African shop floors.
Inevitably as more and more South Africans either lost their jobs or failed to get one, the retailers had to bump up their credit offerings so that their sales and profit growth could be sustained at levels needed to protect generous bonus payments to executives.
With a sort of Murphy’s law inevitably the government generates reams of laws and regulations in a bid to deal with the consequences of the corporate sector’s demands. And on the last Wednesday of every February our finance minister is expected to balance the shaky edifice created by these conflicting demands.
And that is my final word on this subject – and every other subject. On Friday I leave my great colleagues at Business Report after 18 thoroughly enjoyable years.
Thanks to you all for reading what I wrote and particularly to those who wrote to occasionally complain but more frequently to encourage.