THE MONEY IS GETTING VERY SHORT

Finance minister Pravin Gordhan is widely considered to be a sound fellow who understands the budgetary process and fights theft and corruption, but nevertheless he is a member of a socialist government infested with communists and unshaken in the belief that politicians know best how to spend everyone’s money. The budget he presented this week seems to have passed a watershed in the expression of this belief. It has substantially ramped up the confiscation and punishment aspects of state revenue collection with savage attacks on capital, whether the so-called white monopoly kind or not.

The headline grabbing increase of the income tax marginal rate to 45% is expected to collect an extra R4.4bn from the just 103 353 taxpayers who have an annual income more than R1.5m. Provided a few of them are prepared to stand on the grass, this tiny group could fit into a football stadium, which dramatically illustrates the flimsy nature of our tax structure. The total income tax contribution of these amazingly few successful souls is around R127bn, which is more than a quarter of the budgeted amount from that source! It’s worth remembering that almost half of the 14m registered individual income tax payers contribute zero because their income is below the tax threshold. They do not of course escape the many other levies and duties and taxes.

Getting rather less coverage is the 33% increase in the withholding tax rate on dividends. This is just the latest tightening of the screws on those who have savings to invest. A decade ago the 10% Secondary Tax on Companies (STC) was commuted into a Withholding Tax on Dividends and increased to 15%. Since Wednesday that rate is now 20%. Most companies conveniently “forgot” to pass on the benefit of this change to their shareholders who were now responsible for paying the impost and post-tax dividend flows were severely impacted. It has now got even worse.

The Budget also confirmed that taxes on carbon and sugar are on the way and that the VAT rate of 14% may not be as sacrosanct as imagined. Make no mistake our government are desperately looking for sources of income and if anyone could find a way to tax oxygen they would be all over that idea in a flash. But the real threat to our nation is the totally out of control corruption, theft and maladministration that results in inappropriate and fruitless expenditure.

Events around the campaign to replace Gordhan because he is “insensitive to the needs of the people”, are hotting up. A compliant and corrupt buddy of JZ has been fast-tracked onto the reserves bench. But it reveals that the campaigners have no idea how state finance works nor what a parlous condition ours is in. National Treasury is not a serene haven of cash-filled vaults ripe for looting. Almost every cent that it handles has a destination agreed to by Cabinet. It’s called the Budget. This defines exactly where Treasury must next year allocate an average of R6bn every working day. It also forecasts that SARS will collect on average of less than R5bn a working day. So, another Treasury task is to find out from the Reserve Bank regularly if the shortfall has been borrowed and at what cost. Meanwhile the switchboard is alight with calls from the likes of SAA and Eskom asking for a bit to tide them over.  And now, arbitrary mendicants claiming to represent the people and clutching a chitty signed by Number One plan to knock on the front door and be handed a bag of dosh. The first (and only) question any Finance Minister should ask before turning them away is: From which account do they propose diverting their own pay-out?  Perhaps National Treasury should keep at reception copies of a map marked with the location of the various Ministries so that prospective budget looters could more easily locate the civil servants to explain to them why they won’t be paid this month.

Just roll over and get a few more minutes doze and you’ve missed the cricket from NZ. These time zone thingies are unfriendly. But it does mean that the lengthy 2017 Super Rugby season is now underway before our own weekend begins. Nevertheless, the format does create a ridiculous calendar with many Saturdays offering 7 matches back to back. Good for sports bars. Poor for marital relations.

James Greener

Friday 24^th February 2017

BE GREEDY. BUY CHEAP SELL EXPENSIVE

The great sport in investing is to mock and deride confident predictions that go wrong. How, for example does one explain the rand on a 12-month high when there are so many (apparently) bad news stories to scare off buyers of rands – and equally -- sellers of dollars. The share and bond market indices (as opposed to the suspect foreign purchases and sales numbers) suggest that it is the latter the foreigners are going for.  Seeking yield perhaps?

Anyone looking for our army must come to Durban. Judging by the number of blue light motorcades whizzing along the freeway, all VIPs including Number One are doing just that. Our city is hosting a military jamboree culminating in Armed Forces Day next Tuesday. There’s great excitement in the town although the troopies billeted in a vast tent city down at the beach front will be hoping that Tropical Storm Dineo doesn’t come too far south and flood them all out. Preparations have included the nation’s submarine cruising past the beaches its fighter jet whizzing past and a flight of seven helicopters circling for hours over Virginia airport. Even the Silver Falcons aerobatic team have turned up after reportedly being grounded last year because of lack of funds for fuel.

Fortunately for the generals, funds for the shindig are coming out of this year’s Budget. The very next day Minister Gorhan will present the 2017/18 budget and this kind of showing off could well be axed. Acres of newsprint and screen space have been devoted to pointing out that there is scant wriggle room on the Revenue side and taxes targeting the “rich” are inevitable. It’s not of course popular to suggest that reducing spending is also a strategy. But the non-job civil servants won’t leave unless there are higher paying private sector jobs. So here’s an idea. Place the lowest paid one third of all civil servants on the much-hailed new minimum wage and reduce the top paid wage bracket to just five times that level -- a ratio much touted for the private sector by the theorists. Use the money saved to train the many who quit to begin filling the 180 000 empty skilled posts.  Let’s see how these liberal notions work in practice hey?

But the alarming development in the real world is the move to raise revenue through punishments and fines for impossibly vague “crimes” by private sector enterprises. Recently there was the attack on the construction industry for supposedly ripping us off while building the many stadia required for the 2010 Soccer World Cup. No one responded to the patient explanation that without at least some co-operation between the companies the huge project was never going to be completed on time. The state was far more interested in  netting the R1.5bn “non-admission of guilt” payments from the players. Shareholders did not do too badly either. Prices at the time rose agreeably.

And now the Competition Commission is shocked to learn that banks have traders dealing in the most transparent and liquid market in the country who are driven by “unbridled greed”. Well yes. That’s how private enterprise works. Admittedly a market trading room is an extreme example and in the absence of honest, experienced and informed supervisors, competitors and clients, dealers will often push their luck. Even if counterparties and competitors are at first complicit in the dodgy deals someone will in the end become even more greedy and blow the show apart. Bank management and shareholders also benefit from ridiculously profitable trades and are reluctant to ask questions in case they get an answer they can’t understand. Banks do have a poor record in detecting rogue traders timeously but they catch up eventually. Interestingly, the SA Reserve Bank and the Financial Services Board have said that they found no evidence of serious and widespread misconduct in the South African foreign exchange market. Is the Commission more interested in a possible multi-billion rand penalty than in facts?

Since it has worked spectacularly in today’s T20 victorym one must not be too scathing about the new pyjama outfit for the Proteas.  But what happened to the green? Why try to make our lads look Australian? Other good sporting news is that it seems certain that the Commonwealth games will not come to Durban in 2020 and the Umgeni is infested with paddlers taking part in the Dusi canoe marathon. It must be hot in the valley though.

James Greener

Friday 17/2/17

RIP JOOST. THANKS FOR ALL THE MEMORIES

Despite what the experts say, money is flowing into share markets in the USA. Prices are tramping (trumping?) steadily upwards without pause. Conventional valuation metrics are howling in warning but there seems always to be a buyer prepared to pay more for a share than current owner did. Even US bond yields have stabilised.

The country’s mielie farmers are dealing with a plague of army worms which have the capacity to destroy huge swathes of crops in a very short space of time. Anyone following this story could easily have been confused by the sight of our army dressed in camo and well armed -- just like the aforementioned worms -- in the streets of Cape Town. Were they mobilised to retaliate against the worms? Had the generals had forgotten that there are no mielie fields in Cape Town?

The first reason offered for the presence of soldiers was that JZ was in town to deliver a speech in parliament about the State of the Nation, and the troops were there for ceremonial reasons. However, the truth turned out to be that Mr Zuma felt that he needed more protection than usual. Our president is at war with anyone who wants to challenge his intention to do whatever he wants to do. Particularly when that involves inviting his special chums to join him in raiding the cash box currently being guarded by finance minister Pravin Gordhan. This is not going to end well for the rest of us either.

The JSE and our bonds and currency seem to be as dispirited and indifferent to the goings on in Cape Town as the rest of the population. Maybe the Budget in a few weeks will liven things up with tax increases and debt horror stories. The slow and wary would do well to stand back

So now we know how many professionals it takes to draw up an Ikusasa Student Financial Aid Program. 60. This is how many lawyers, bankers, accountants and actuaries have been working (mostly pro bono apparently) on what is hoped will be a significant and useful cog in the gears of tertiary education. This Program will slot in alongside the existing National Student Financial Aid Scheme. NSFAS is a wholly taxpayer-funded outfit that this year has allocated up to R76 000 to about 175 000 successful student applicants. Now this rather substantial amount (for say 10 months of study) is almost double the new and much heralded national minimum wage of R3 500 per month. And the student should not normally be supporting a family. Our priorities and sums are skewed. Perhaps a developing nation like ours needs a lot fewer youngsters being admitted to university -- especially in the humanities. Just how many political science (oxymoron) and similar arm-waving graduates do we need?

Naturally this change in policy must be matched by the state withdrawing from micro managing the allocation of resources so that jobs become available and school leavers have a sensible chance of acquiring a job, skills and experience

Many readers of this letter will be suffering the worry and inconvenience of the latest recall affecting almost 40 000 cars.  Apparently, the problem is that an electrical short circuit can cause the seats of our Maserati to catch fire. Since it affects models from 2014 to the present it seems that this luxury marque has been just as tardy and uncaring as have Ford whose Kuga model locally also has a worrying habit of bursting into flames. Already no doubt someone is working up the Ford incident into a textbook case study in how not to conduct customer relations and how to destroy brand image.

Within hours we will know if the Proteas have completed the ODI white-wash of Sri Lanka. It’s a bit startling that the lads will be aboard the plane for a lengthy NZ tour before the champagne bubbles go flat.

James Greener

Friday 10^th February 2017 (thanks for all the responses to last week’s date line)