Gordhan's hands are tied, but . . .

Wednesday, 27 February 2013

Orlando Pirates FC coach Roger de Sa was not a happy man on Saturday.

There he was – steering one of our country's two flagship teams and receiving a 4-1 pounding from third division team Maluti FET College which saw the Buccaneers booted unceremoniously out of the Nedbank Cup.

The point, of course, is that even though De Sa is a good coach, and even though Pirates is well resourced and has probably the biggest support base in the country, it means nothing if the team is not up to scratch.

In many ways, that's what we have to look forward to with Finance Minister Pravin Gordhan's budget speech this week.

It's no secret that I rate Gordhan's capabilities quite highly. He turned SARS into a lean mean tax collecting machine of Orwellian proportions which allowed the Mbeki administration to turn greater-than-expected revenue into economic growth.

He was then drafted into the Zuma administration as Finance Minister, presumably as a more acceptable alternative to his internationally renowned predecessor Trevor Manuel in the eyes of Cosatu.

For his first couple of years in this current administration, Gordhan has managed to tread water, primarily on the back of the Mbeki legacy, and keep the fiscus on track.

This year, however, is going to be an entirely different ball game.

The economy is in a state of chaos, primarily as a result of wildcat strikes in the mining sector which have already cost the fiscus billions in lost revenue from platinum alone.

Industry is creaking along as a result of electricity costs which have soared at more than double the inflation rate for the past few years.

Meanwhile, the Medupi power plant which was supposed to be paid for by that additional revenue is tracking behind schedule and unlikely to go on line this year. Again, because of wildcat strikes.

Municipalities under ANC control are failing audit checks. Johannesburg has more that a billion rand of uncollected revenue and a billing crisis from two years ago which has yet to be resolved.

The city has run out of money for trash collections.

So that's Gordhan – a fine coach, the biggest support base in the country, and a team that can't find the back of the net.

We need to be honest and recognise that we have a very messy situation on our hands, and it's all because our president is terrified of pulling the unions in line.

The result is economic growth dropping to 2%, inflation pushing 6%, and jobs being lost.

The tragedy of our country is that there actually is enough money to fix things and get service delivery right – if only we were not diverting public money into the pockets of the ANC's associates in the name of Black Economic Empowerment.

Take the aforementioned Medupi Power Plant which is being constructed by Japanese giant Hitachi.

Their "empowerment partner" is Chancellor House, the investment arm of the ANC. What exactly do those guys know about constructing power stations and what value do they bring to the project other than to divert public funds to the ruling party?

How do we fix it?

Frankly, the only thing I can suggest at this stage is that the Finance Minster increase VAT.

We need to raise money to make up for the ANC's "inefficiencies". We cannot raise company taxes further because we are already seen as a less favourable choice as an investment destination than a few months ago.

We risk even more of a brain drain if we increase personal taxes on the upper end of the market, given that there are 1,5 million people in this country who support 40-something million others.

Our fuel taxes are already affecting the economy.

So we need to look at VAT. A one percent increase in VAT will hurt the poor (you know, those guys who get social grants to vote ANC) by 1 cent more per rand spent.

But it is the most democratic form of taxation because apart from the Spaza shops and minibus taxis, all other money has to transact through a VAT net.

Businesses are able to recover VAT that is incurred during the costs of production, so there is no nett disadvantage there. But a one percent VAT increase on the sale of a R100 000 car will bring an additional R1 000 into the fiscus.

I'm not completely pessimistic. Gordhan might well shut down unauthorised expenditure on a scale not previously seen and impose Treasury control upon entities failing audits. It is within his power to do so. He has done so before in the case of Limpopo province.

The question is, will he have the guts to do so? And will our president back him?

Tighten your belts. There's turbulence ahead.