Finance Minister shuffle: the bigger picture

The South African Institute of Professional Accountants welcomes the re-appointment of Dr Pravin Gordhan as the Finance Minister as announced by President Zuma on Sunday 13 December 2015.

Ettiene Retief, chairman of the National Tax Stakeholders Committee at the South African Institute of Professional Accountants (SAIPA)
Ettiene Retief, chairman of the National Tax Stakeholders Committee at the South African Institute of Professional Accountants (SAIPA)

However the fallout from the recent catastrophic shuffle in Finance Ministers will have long-lasting effects on the South African economy. However, it should not detract from the implementation of responsible long-term policies that will grow business, restore investor confidence and attract foreign investment.

That’s according to Ettiene Retief, chairman of the National Tax Stakeholders Committee at the South African Institute of Professional Accountants (SAIPA).

He says although the Rand has started to recover slightly following the announcement of Pravin Gordhan as Finance Minister, there is still a long road to travel in order to repair the damage and set the economy on a sustainable path to recovery.

In this Q&A session he outlines the steps necessary to make this happen:

Q:    Since December 9 it is estimated that the JSE dropped R169 billion in value, in addition to the Rand weakening against major currencies. What will it take to recover from this?
A:    Policy needs to be created and implemented that stimulates business and makes foreign investment attractive, easy, and lucrative. Policies can be created and implemented very fast; the real question is how long it will take for the results, and for foreign investors to have faith in SA’s stability again.

Q:    Is tax policy the fastest road to recovery?
A:    The fastest road to recovery is to immediately stop spending what the South African fiscus cannot afford, followed by taking action against those who allow wasteful spending. This needs to be supported by a budget that prioritises spend allocations that grow the economy, rather than keep the majority of citizens in a state of perpetual poverty through a dependence on social grants and other state interventions.

Q:    What about the millions of citizens that can’t survive without social grants?
A:    While social spend can not be stopped abruptly, we cannot sustain the demand as a substantial portion of the budget is towards social spend. We will always have a need for social spend, but we should start focusing on sustainable options. Previously, when Mr Gordhan was minister of finance he highlighted the need to move towards the principal of teaching a man to fish, and not merely to feed him for the day. So of the social spend can become self-sufficient through policy that requires everyone to make contributions towards eventual retirement while working, rather than forcing current taxpayers to fund those in retirement.

Q:    How can this work if unemployment is still rife?
A:    Government shouldn’t take responsibility for being the biggest employer, as it doesn’t produce income. It should spend the country’s resources to strengthen the economy through business growth, which will allow business to employ more people. We don’t need a large cabinet; we need an effective cabinet that consults with business on areas where they can work together to overcome the issues that continue to plague South Africa.

Q:    Other than a move away from a grant-dependent society, which areas of spend allocation could have the biggest impact?
A:    A focus on tourism, and increased cross-border trade. Exchange controls are still restrictive and not conducive for business when considering the currency volatility, and need to be amended in-line with international practice. South Africa must be able to compete internationally. In order to do thiswe need tax policy that allow for this, minimising complexity, creating certainty and consistence of tax treatment.

Q:    Is a tax revolt the answer?
A:    South Africa has excellent information and infrastructure at its disposal; what it lacks is a truly inclusive facilitation process with business to gain bigger understanding. Business should also understand that good corporate citizenship is not about paying the most taxes, but about the bigger economic impact. When taxpayers have to fund regular acts of wasteful expenditure, corruption, excessive spend on homesteads, to name but a few, then a tax revolt may well be on the cards. There is an expectation and social contract with government, which is funded by taxes. When that expectation is not met, or the social contract is broken, then people will ask why they are paying taxes!

Q:    Who holds the key to policy changes that can recover the losses resulting from last week’s announcements?
A:    The Finance Minister cannot undo the damage, or recover the wasteful spend, we can only hope to regain stability and re-build. The President has the real power, and the power lies in a zero tolerance policy to fraud and corruption on all levels, which should start with respect for the office of the public protector.

Q:    Will Gordhan be able to implement economic and tax policies currently awaiting decision?
A:    It’s not the ideal timing for such dramatic changes, especially when it’s such an important role , but there is still time to make changes for next year’s budget. The Minister relies on National Treasury and other parties to inform on policies. Also, Mr Gordhan has the experience in this regard.

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