Category: dearSA

Some years back when the US was fretting about high Government debt, a survey was conducted among citizens to understand how they would prefer to address the problem. By far the majority said they’d prefer a large one-off levy rather than the drip torture of higher taxes over many years.

That shouldn’t be a surprise. Most of us have learned to first tackle the least enjoyable item on our To-Do list. Similarly, when restructuring an underperforming businesses, savvy managers know it’s best to take the biggest hits up front. After clearing the decks they get on to build a better future.

After paying close attention to yesterday’s MTBPS, I got the feeling that finance minister Tito Mboweni might be lining us up for similar treatment in February next year. Circumstances are so dire, he pointed out, that big and tough decisions need to be taken. So he urged us to start talking about them.

With the double whammy of a R53bn revenue shortfall and R23bn in overspending, higher taxes are a certainty in February’s Budget Speech. Nobody likes paying more tax. But if we have to, it’s best to get it over with soonest. Collectives have long used large one-off levies when needing to bring the finances into order. It’s a principle which should also works with countries

Article by BizNews

South Africans should brace themselves for higher taxes next year as the impact of state capture, corruption, and mismanagement are starting to bite.

The National Treasury delivered its 2019 medium-term budget policy statement today, revealing that revenue collection fell far short of estimates.

Compared with the 2019 Budget estimates, total revenue shortfall for 2019/20 will amount to R52.5 billion.

This reflects a poor employment outlook, with job losses, lower wage settlements and smaller bonuses, reducing personal income tax collection.

There was also reduced profitability in a difficult trading environment, resulting in lower-than-expected corporate income tax collections.

Financial pressure on consumers resulted in weak household consumption which means domestic VAT collection was not as high as expected.

Tax increases planned

The Treasury said significant tax increases over the past several years leave only moderate scope to boost tax revenue.

However, given the size of the revenue shortfall, additional tax measures are under consideration for next year.

Chris Axelson, chief director for economic tax analysis in the Treasury, said that given the fiscal position South Africa finds itself in, all tax options need to be on the table.

“The 2019 Budget included R10 billion in tax increases for 2020/21. The tax policy measures to raise this amount will be announced in the 2020 Budget,” the Treasury said.

Taxpayers already overburdened

While the government wants to collect more money through higher taxes, the inverse may happen instead.

Efficient Group founder and chief economist Dawie Roodt said South African taxpayers are already overburdened.

This means that even when the government increases taxes further, they will not increase tax collection much.

It will also further frighten the existing taxpayers in the country, who are already faced with the highest taxes in history.

The consequences of ever-increasing taxes and mismanagement from the government include a potential tax revolt and skilled individuals and companies leaving the country.

The fact that South Africans are tired of paying for corruption and mismanagement at state-owned enterprises (Eskom, SAA, and the SABC), municipalities, and state departments only aggravates the situation.

Article by My Broadband

Trade Union Solidarity has released a new report on the incoming National Health Insurance (NHI) and its impact on the healthcare industry.

Nicolien Welthagen, a research psychologist at the Solidarity Research Institute, said that the report is based on questionnaires sent to healthcare practitioners in the private as well as the public sector across the country.

The general feedback shows that healthcare practitioners have huge concerns about the proposed NHI.

“The findings indicate that there is distrust towards the government regarding the way they want to implement and manage the NHI. 80% of respondents are negative or sceptical about the NHI,” said Welthagen.

“According to the results of this report, the respondents do not believe that the NHI will succeed in improving the healthcare system and service delivery.

“Only 15% of respondents believe that it would be possible to successfully implement the NHI, and 84.5% are of the view that the implementation of the NHI could destabilise the healthcare system in South Africa and could harm the high-quality service already being provided by the private sector,” she said.

Welthagen added that the report further highlights the enormous risk that the emigration of health practitioners poses to the future of healthcare in South Africa.

“There are serious concerns about a shortage of healthcare workers, the more so in view of the fact that 20.8% of the respondents indicated that they had already taken steps to emigrate, and a further 41.06% would consider emigrating when the NHI is implemented,” Welthagen said.

Emigration

In an August interview, Dr Chris Archer, CEO of the South African Private Practitioners Forum, said that his members are extremely concerned and that the bill may drive emigration as “those who want to leave see it as a reason to do so”.

Profmed medical aid CEO Craig Comrie said that health professionals are already emigrating.

Comrie said Profmed’s members are mainly health professionals, of whom 17% leave each year. This rose to 30% in June and July.

Alex van den Heever, Wits School of Governance professor, added that he expects medical professionals to emigrate in their hundreds, joining their countrymen in countries like Dubai and Australia.

Doctor shortage

South Africa is also currently facing a doctor and nurse shortage due to a lack of funding, says health minister Dr Zweli Mkhize.

Responding in a recent parliamentary Q&A session, Mkhize said that the primary reason for this shortage is that the public health sector budget has not increased in real terms for the past 10 years.

This has impacted the number of staff that can be appointed, he said.

Mkhize added that the demand for health services in the country is increasing while there is no additional funding to address the change, which results primarily from immigration into the country and the increasing burden of disease.

“The shortage of health professionals is a global phenomenon and is more pronounced in low and middle-income countries as health workers are more likely to migrate to upper-middle-income countries in search of better living and working conditions,” he said.

Article by Business Tech

Proposed national health insurance will not improve efficiency and reduce costs, but will be a magnet for fraud and corruption

Universal health coverage is an important goal, which SA can attain with the right policies. However, the proposed national health insurance (NHI) will do far more harm than good (NHI will help create a more equal, productive society, October 24).

NHI proponents (in the presidency’s policy unit and NHI “war room”) assert, without evidence, that the NHI will end queues, improve efficiency, reduce costs, promote innovation and contribute to economic growth and socioeconomic stability”.

The reverse is true. Waiting times will double, as they have in (wealthy) Canada under its broadly similar “single-payer” system. Emigration will reduce the number of health professionals, increasing the burden on those that remain.

Costs will rise sharply, if only to pay for the huge bureaucracy needed to administer NHI controls over fees, prices, medicines, treatment protocols and medical technologies. Centralised top-down planning will stifle innovation and erode efficiency. Stock-outs and already defective maintenance will worsen as suppliers wait for payment from the NHI, the only permitted purchaser countrywide.

The NHI fund’s enormous revenue (about R450bn a year at the start) will be a magnet for fraud and corruption. Major additional taxes will also have to be imposed on a small and already overburdened tax base, ostensibly to fund the NHI. But without legislation ring-fencing this additional revenue for NHI purposes (the Treasury is averse to ring-fencing), the extra monies will soon be diverted to public service wages or more bailouts for state-owned enterprises.

Reduced choice, diminished quality, long waiting times and increased taxes will give the skilled middle class yet more reason to emigrate, curtailing economic growth, making it harder to sustain the social wage, and adding to destitution and despair.

Section 27 of the constitution does indeed require the state to “take measures” to expand access to health care. But it says these must be “reasonable” and match “available resources”. The NHI fails both these crucial constitutional tests.

Dr Anthea Jeffery
Institute of Race Relations

The Road Accident Fund (RAF) is hopelessly insolvent.

The fund was set up to pay compensation to victims of road accidents and provides support in respect of future treatment and rehabilitation.

Dependent on fuel levies to meet its ever-increasing liabilities, and with an accumulated deficit R262.2 billion in 2019, the RAF is deep in the red.

Board chair Dr Matsontso Mathebula, in his report to the 2019 integrated annual report, remarked that the RAF “has continued on its journey to be a key player in South Africa’s social security system …”, and notes that challenges remain in the “legislative and financial environments”.

Acting CEO Lindelwa Xingwana-Jabavu reported that: “Close on 2 100 fraudulent claims to the value of R1.45 billion were identified before payments were made and nine people were arrested for fraud against the RAF.”

She added that “the increase of 30c/l in RAF Fuel Levy” that came into effect on April 1 last year saw total revenue increase by 15.8% to R43.2 billion.

Cash flow constraints resulted in a 30% increase in the amount of interest paid during the year, from R224 million in 2018 to R291 million in 2019.

Claims of R42.6 billion were settled in the 2018/19 financial year: R3.6 billion was paid towards medical costs, R160 million towards funeral costs, R10.3 billion towards legal and other expert costs, R9.2 billion towards general damages (primarily to persons not seriously injured), and R19.4 billion towards loss of earnings and support for those who qualified.

The percentage of RAF fuel levy income that was used to pay claims rose to 97%  (from 93%).

The increase in total revenue for 2019 to R43.24 billion (2018: R37.34 billion) was mainly due to the 30c per litre (c/l) increase in the RAF fuel levy from the beginning of the financial year.

During the 2019 financial year the RAF fuel levy was set at 193c/l (2018: 163c/l).

The total amount of claims paid (including net effect of ‘requested not yet paid) increased by 21% to R41.96 billion (2018: R34.6 billion).

Claims liabilities increased by 27% to R272 billion (2018: R215 billion).

The RAF is hopelessly insolvent.

Auditor-General’s report to parliament

The Auditor-General (AG) notes that the accumulated deficit of R262.2 billion, together with the excess of liabilities over assets of R262.1 billion, indicates that there is a material uncertainty relating to whether the RAF is a going concern.

This will not absolve it from its debts. The total claims liabilities amount to R271.9 billion.

Other notable concerns were:

• Material misstatements were identified in the annual performance report submitted for auditing.
• Management did not implement proper record-keeping in a timely manner to ensure that complete, relevant and accurate information is accessible and available to support performance reporting.
• Management did prepare regular performance reports, however, these reports were not accurate and complete and were not supported and evidenced by reliable information.

Executive remuneration

Despite leading the company into an unsustainable loss position, the board and executives received performance bonuses for the year.

Amounts paid to the board members and executive remuneration amounted to R28.8 million (2018: R28.9 million). Performance bonuses amounted to R4.6 million (2018: R6.5 million). Non-executives were paid fees of R6.6 million (2018: R6.8 million).

Crawling out of the mess

The government cannot continue to hike the fuel price to bail out the insolvent RAF.

The latest fuel price is R15.79 per litre. Fuel price increases have a devastating impact on the poor, leading to higher transport and food costs.

The RAF as a concept is not viable. It is time to bring in the expert insurance companies and plot the way forward.

Article by Moneyweb

The office of the public protector’s COO will be vacating his position at the end of the month.

The office of the public protector’s chief operating officer (COO), Basani Baloyi, has been axed by Busisiwe Mkhwebane.

She has also suspended four senior officials and investigators: executive manager Pona Mogaladi, chief investigator Abongile Madiba, chief investigator Lesedi Sekele, and senior investigator Tebogo Kekana, News24 reports.

Office of the public protector CEO Vussy Mahlangu said in a letter that Baloyi lacks the skills or conduct for his position, the publication reports.

It was further reported that at least one of those suspended is believed to have been involved in a complaint lodged by Economic Freedom Fighters (EFF) leader Julius Malema against the Financial Services Conduct Authority, which resulted in a report that is currently under judicial review.

The Citizen has contacted spokesperson for the office of the public protector Oupa Segalwa for comment, and will update this article once it’s received.

More to follow.

(Compiled by Daniel Friedman.)

The Bill must now be approved by the National Council of Provinces before it can be signed into law by the president.

CAPE TOWN – The National Assembly has passed the Special Appropriation Bill, which aims to provide Eskom with a R59 billion bailout for the rest of this year and the next financial year.

The Bill must now be approved by the National Council of Provinces before it can be signed into law by the President.

Debate on the bill saw opposition parties blame the ANC for state Eskom finds itself in, with some, like the EFF and the Freedom Front Plus, saying they could not support it.

Wrapping up the debate, Finance Minister Tito Mboweni told the House that Eskom’s problems were not just financial.

“One of the key issues that we need to solve is by appointing the correct people to run Eskom. That’s what we need to do. We must appoint the correct board of directors, we must appoint a competent management team and we must then be in a position to hold the board of directors and the management team accountable for the operations of Eskom.”

Mboweni said that Eskom’s problems are many and complex.

“The problem at Eskom is not just financial and if we’re going to reduce a complex problem to the lowest common multiplier, being the financial problem, we’re not solving the problem. We need to approach solutions to Eskom via complex theory – understand the complexity of the institution we’re dealing with, to come up with complex solutions.”

The Bill passed with 200 votes in favour and 105 against. There were no abstentions.

Article by EWN

Tax revenue for the first 5 months of the tax year is running significantly behind target.

Experts are now forecasting a record shortfall for the tax year ending March 2020 – of as much as R60 billion.

That will bring the accumulated tax undershot over the last 6 tax years to over R215 billion.

That gap has to be plugged, and that is going to inflict collateral damage on consumers.

A widening tax shortfall is going to blow another hole in state finances – and ultimately leave ordinary people poorer.

Every tax year since April 2014, Sars has fallen short of the tax collection target set by National Treasury in the prior year’s Budget Speech.

Experts are now forecasting a record shortfall for the tax year ending March 2020 of as much as R60 billion, bringing the accumulated tax miss over the past 6 years to over R215 billion.

Figures from the National Treasury released at the end of September show that Sars collected 3.1% more tax during the first 5 months of the tax year compared to the same period in 2018.

However, to meet finance minister Tito Mboweni’s February Budget Speech target for the full tax year of R1.422 trillion requires 10.4% more in tax, which means Sars is 7.3 percentage points off the pace.

Here are six ways Sars’ failure to collect enough tax is likely to make you poorer: 

You can expect more tax, soon.
The government deficit has to be plugged sooner or later.

The taxes that will be most likely be increased to do that will be personal income tax and valued added tax (VAT), Adrian Saville, Cannon Asset Managers CEO and a professor of economics at the Gordon Institute of Business Science, told Business Insider South Africa – not the corporate taxes that affect consumers less directly.

Government debt will cost you, eventually.
To plug the shortfall in tax revenue in the meanwhile, Mboweni is adding to government debt.

That expanding government debt has seen steadily increasing state bond yields to compensate investors for the worsening creditworthiness, says Glynos George, ETM Analytics managing director and chief economist.

The cost of servicing debt has been the top growing state expense for many years.

Eventually something has to give, and that something will be consumers one way or the other, most likely through more tax hikes.

Interest rates will rise if SA’s credit rating drops any farther.
The worsening creditworthiness of the government, with tax shortfalls at its heart, risks further rating downgrades. That would immediately push up the cost of debt – and would quickly require an increase in interest rates, rising the price of everything from credit card debt to home loans.

Fuel, food, and imported consumer goods will become more expensive.
The worsening state of government finances will make the rand vulnerable, and a weaker rand can have a dramatic impact on the cost of fuel and food, among other items dependent on imports or global prices.

A weaker rand will increase the price of maize, which will have an impact on the price of numerous foodstuffs from mielie meal to meat. South Africa is a major importer of wheat, so a weaker rand will also increase bread prices.

Other products that would be hit include chocolate, cell phones – and foreign holidays too, for those who can still afford them.

Electricity prices will go even higher.
Eskom has been burning billions of rands in imported diesel to try and avoid load shedding.

At the end of July, Eskom reported that the group and independent power producers had spent R6.5 billion on diesel-generated power in the year ended March.

That doesn’t get cheaper when the rand weakens, and ultimately Eskom recovers that money from consumers.

There will be even fewer jobs.
Whatever mechanism is used to plug the revenue shortfall will hit consumer confidence and business confidence, both of which are at the heart of economic growth. Nobody wants to invest when things are getting worse.

The impact of even lower growth will not be a decrease in the already sky-high unemployment – not as companies cut costs and consumers hit by higher taxes and other costs hang on to their money more tightly.

Article by Business Insider

Growing the economy will require the increase of both foreign and domestic financial capital, says deputy finance minister David Masondo.

Speaking at a recent private investors conference, Masondo said that while government was working to attract overseas investment, there is also ‘enormous power’ in the size of long-term fund managers, such as pension funds.

“At this point, let me be clear about our views. Firstly, from a Finance Ministry perspective, the savings of workers must be protected. In this regard, they should never be exposed to risks emanating from poor financial management in either the public or the private sector,” he said.

“Second, the onus must be on economic actors to ensure that the value proposition of the investment is sound. Government can never compel asset managers to invest their clients’ money in unsound or poor-return projects.

“But let us not forget that the size of long-term fund managers such as pension funds alone is a source of enormous power and influence in driving economic growth and reform.”

Masondo said that these types of funds have the ability to secure longer-term returns by insisting on high standards of delivery, governance, and social responsibility.

“We need to ask ourselves that: what prevents the full potential of these instruments from being unleashed on the economic potential before us?” he said.

Pensions

In August, President Cyril Ramaphosa said that South Africa should investigate using worker pensions to finance development and infrastructure projects.

“We need to discuss this matter (prescribed assets) and we need to discuss it with a view to actually saying what is it we can do to utilise the various resources in our country to generate growth in a purposeful manner,” Ramaphosa said.

The ANC has also previously floated the idea of using pensions to help fund embattled state-owned enterprises.

The DA’s Natasha Mazzone has said that the use of prescribed assets would cause incredible damage to the savings of millions of South Africans, and is unlikely to help the country’s state-owned enterprises to recover from debt.

“South Africa has hundreds of SOEs, many of them are either completely dysfunctional, bankrupt, or frankly serve no purpose other than lining the pockets of the connected few,” she said.

The DA’s Geordin Hill-Lewis added that the proposal was equivalent to theft.

“This government is proposing to steal pensions of hardworking South Africans to pay for their mismanagement,” he said.

Article by Business Tech

A Special Appropriation Bill was recently tabled in Parliament to provide Eskom with much-needed finance over the next two years. If approved, it will see the troubled utility get R26 Billion in the 2019/20 financial year and R33 Billion in the following.

This is not, however, a blank cheque.

National Treasury, in consultation with the Department of Public Enterprises (DPE) have released these conditions, which are not only onerous, but some may be near-on impossible to implement.

Eskom’s responsibilities

Provide daily updated liquidity positions, including underlying income, operational expenditure, working capital, capital expenditure and financing cash flows.
Submit and present monthly management reports (signed off by the group CEO). Reports to include IFRS standard profit and loss, cash flow and balance sheet update, including commentary addressing all deviations from the annual budget that individually exceed R100 Million during the month (for each division such as generation, transmission and distribution, as well as at group level).
Submit a quarterly board-approved schedule of redemptions and interest payments for the full duration of loan agreements within a week after the enactment of the bill.
Use the additional finance only to settle debt and interest payments.
Submit a monthly report on the amount and actions underway to recover all and any sums outstanding for electricity sales.
Provide monthly updates on the status of actions being taken to dispose of Eskom Finance Company. The target disposal date is prior to March 31, 2020.
Provide a justification for the continued use of the Eskom Insurance Captive for risk written outside the Eskom group, and an independent valuation of the insurance captive by December 31, 2019.
Submit a plan to manage the cash of the business within its available resources. Not more than a month from the enactment of the bill.
Submit a monthly report on the initiatives being implemented to reduce the primary energy costs.
Provide a detailed cost, timing and benefit plan for completion of Kusile and Medupi. Not more than a month from the enactment of the bill.
Provide a monthly statement of expected capex spend. Provide a report on the defects on the build programme and how they will be fixed by not more than a month from the enactment of the bill, and quarterly thereafter.
Provide monthly reports on the measures being implemented to improve the Energy Availability Factor (to 80%).
Provide a report on the initiatives being implemented to address the irregular expenditure not more than a month from the enactment of the bill and thereafter quarterly.
Submit a report on the measures that have been implemented to deal with all the individuals implicated in the irregular, fruitless and wasteful expenditure in regard to 2018/9, to be updated quarterly.
Produce separate financials for generation, distribution and transmission for March 2020.
Provide monthly updates on the progress of the restructuring of the business.

DPE’s responsibilities

Ensure that that board is strengthened by December 31, 2019.
Ensure (through the board), that Eskom’s executive management performance agreements are linked to the deliverables as contained in the shareholder compact and the conditions as set out by the Minister of Finance by December 31, 2019.
Publish a special paper on Eskom restructuring roadmap. Not more than a month from the enactment of the bill.
Provide quarterly reports to Parliament (Standing Committee on Appropriation and Select Standing Committee on Appropriation) on adherence to conditions.
Ensure appointment of the permanent group CEO. Not more than a month from the enactment of the bill.
Approve, with National Treasury, the capital plans.
No incentive bonuses will be paid to executives in the years where equity support is provided.
Treasury shoots own goal

In its eagerness to get the ball rolling on fixing Eskom, National Treasury has shot too far, and has lost sight of the ball.

Producing monthly management accounts compliant with IFRS is, quite frankly, nonsensical. Management accounts are drawn up on a different basis to IFRS financial statements, and IFRS adjustments are made annually (for example, mark to market, capitalised interest, etc.) An IFRS statement of profit and loss does not contain the details that management would require. Why not do as other CEO/CFOs do, and study the cash flow statement and schedule of loan commitments on a monthly basis, and study the management accounts on a quarterly basis? Oh, wait …

Eskom’s financial woes are not due to inadequate financial management.

To name just a few problems: state capture, bloated inefficient labour force, procurement problems, coal transport, quality of coal, coal contracts, badly maintained plant, and all sorts of problems in completing Medupi and Kusile.

Introducing some cash management and financial planning into Eskom is ideal, but overkill is not.

Article by Money Web