Employers – Need Reducing Staff Conflict With Employee Rights?

Staff_conflictThe Companies Act gives directors wide powers to manage the organisation – the Act states “The business and affairs of a company must be managed by or under the direction of its board”. In a recent case a furniture company ran into economic difficulties and resolved that it needed to cut costs by reducing staff in its stores.

The company then issued a Section 189(3) Notice to the main union of employees – this is a Labour Relations Act stipulation that employees be notified when the company, for operational requirements, considers reducing staff numbers.

The Labour Relations Act states there must be consultation between management and employees and “the employer and the other consulting parties must, in the consultation envisaged …, engage in a meaningful joint consensus-seeking process and attempt to reach consensus on – (a) appropriate measures – (i) to avoid the dismissals; (ii) to minimise the number of dismissals; (iii) to change the timing of the dismissals; and (iv) to mitigate the adverse effects of the dismissals”.

Accordingly the company began an intensive process of meetings with the union – four meetings were held, information asked for by the union was given and the company considered all union proposals, including one that actually reduced the number of staff retrenched.

The union’s reaction

One of the documents forwarded to the union was the resolution to reduce staff. The resolution read “…as a result of the ongoing poor economic trading conditions, …the Group must further reduce store staff numbers through operational requirements to reduce operational costs.”  

The union read this as the company already having made the decision to retrench staff and that it was merely going through the motions of consulting with employees. 

What the Labour Appeal Court said

The Labour Court’s judgment was in favour of the company and this was appealed. Again, the Labour Appeal Court found in favour of the company.

A company, it held, is fully entitled to “…to form a prima facie view on retrenchments, even a firm one, provided it demonstrates and keeps an open mind in the subsequent process of consultation.”

The steps the company took in terms of meetings, considering union proposals and supplying the information the union asked for demonstrates that management fulfilled its obligations to take part in a “joint consensus-seeking process”.

This judgement gives a degree of certainty when approaching retrenchments – act in good faith as per the law and you stack the odds in your favour of getting affirmation from the Courts. It also highlights the fact that there need be no conflict between directors acting in the best interests of the company and Labour law. 

As always with our labour laws, there are complex issues at play here and the cost of getting them wrong is high. Seek professional advice on your specific circumstances!

This article is a general information sheet and should not be used or relied upon as professional advice. No liability can be accepted for any errors or omissions nor for any loss or damage arising from reliance upon any information herein. Always contact your financial adviser for specific and detailed advice. Errors and omissions excepted (E&OE)

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Quick Wins to Get Our Economy Going Again

shutterstock_230505103“I approach every problem with optimism” (Nelson Mandela)

The mood of optimism that pervaded a year ago is rapidly fading – the Business Confidence Index is on a steady decline. Every 1% rise in business confidence results in 0.5% growth in the economy – as President Ramaphosa recognises, growth in investment creates economic activity and from this flows jobs and a rise in GDP.

But there are always quick wins out there and these can start the momentum to getting the economy going again.

Boost tourism 

Tourism doesn’t require a huge amount of upskilling but 20% of global jobs created in 2017 were in the tourism sector – youth and women are major beneficiaries of jobs and are two groups currently experiencing high unemployment.

To kick-start tourism, change the Visa requirements for tourists whereby they get a visa on arrival – if it’s easy for tourists to come here, they will definitely come. We are on similar time zones to Europe (our main trading market), have a beautiful coastline and interior plus wildlife and have an interesting story to tell.

Building infrastructure for tourism is relatively easy and quick – for example, look at the number of B&Bs and Airbnb in your area. In Costa Rica, 27% of GDP comes from tourism.

Make it easy to do business

South Africa ranks 82 out of 190 economies on the world index in terms of ease of doing business – our worst ranking ever. With will and leadership, this can be swiftly changed. Government has targeted to bring this down to being in the top 50 in the next 3 years, but four years ago we were in the top 40 (our best ranking was 32 in 2008). Surely, this can be done quickly.

Build housing

Maggie Thatcher showed what a difference housing can make not just for the economy but also for long term sustainability. Housing gets construction moving (a quick job creator), stimulates the service economy (bonds and insurance) and there is plenty of value added in terms of appliances, gardens etc.

More important, encouraging ownership of property brings more people into the middle class which gives them a stake in ensuring stability in the nation.

Getting the economy going and improving morale can be done with quick interventions.

This article is a general information sheet and should not be used or relied upon as professional advice. No liability can be accepted for any errors or omissions nor for any loss or damage arising from reliance upon any information herein. Always contact your financial adviser for specific and detailed advice. Errors and omissions excepted (E&OE)

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Small Businesses: Make The Most of Your Tax Breaks!

vision“There are two systems of taxation in our country: one for the informed and one for the uninformed.” (U.S. Judge Learned Hand)

Whether you have recently started a new venture or have had a small business for a while don’t forget that SARS offers two types of favourable tax treatments for small entities:

  • Turnover Tax on micro businesses
  • Tax on Small Business Corporations (SBCs).

Turnover Tax

This is a tax on entities with turnover of R1 million or less per annum. Tax rates are:

TURNOVER TAX FOR MICRO BUSINESSES – NEW TAX TABLE
Taxable Turnover New Turnover Tax Rates
 
R0 – R335,000 Nil
R​335,001 – R500,000 ​1% of taxable turnover over R335,000
​R500,001 – R750,000 R​1,650 + 2% of taxable turnover over R500,000
​R750,001 and above R​6,650 + 3% of taxable turnover over R750,000

The maximum tax payable is R14,150 per annum assuming a turnover of R1 million. This is a very low amount – for example, assume the entity is a company and makes R200,000 taxable income, then it will pay R56,000 in income tax versus R14,150 above.

Turnover Tax businesses pay no other income taxes (such as Provisional Tax and Capital Gains Tax) but will need to collect and hand over Employee Tax, and VAT should the business entity choose to voluntarily register for VAT.

In terms of who may register for the tax the field is broad – companies, sole proprietors, partnerships, close corporations and cooperatives are eligible.

Another break is that these entities need only keep limited records as follows:

  1. Income received
  2. Dividends declared
  3. Any Asset over R10,000
  4. Any Liability over R10,000 at year end.

There are restrictions placed on the business, the main ones being:

  • Owners cannot hold investments in other companies except listed entities and other public-interest entities such as bodies corporate.
  • The business must have its year end on 28 February (to comply with SARS requirements in terms of dates when tax payments are to be made).
  • If more than 20% of income received is from investments or professional services, the business will not qualify.
  • NGOs, public benefit organisations and recreational clubs cannot apply.
  • Labour brokers and personal service providers are also not eligible.
  • The proceeds from the sale of capital assets cannot exceed R1.5 million in a three year period.

As soon as turnover exceeds R1 million in a business’ financial year, it must de-register as a Turnover Tax entity.

Turnover Tax is not that popular with organisations. Commentators have speculated this is due to:

  • The SARS administration workload.
  • Keeping only limited records reduces the business’ ability to analyse how well (or badly) it is doing. Having information is particularly important in the early stages of a business.
  • A further important aspect is that with turnover tax you cannot deduct your expenses – so if your business is a loss-making one (as many start-ups are) or if its taxable income (revenue less expenses) is minimal, you could well pay more tax on the turnover tax basis than on the normal income tax basis. You cannot carry forward any losses you incur from one year into the next year as this is only a tax on turnover. Over time, this can negatively affect cash flow.
  • To qualify for the Turnover Tax, you must register before the tax year starts and thus you need to weigh up carefully if Turnover Tax is best for your business.

Small Business Corporations

SBCs are one step up from Turnover Tax entities and must be:

  1. A company
  2. A close corporation
  3. A personal liability company or
  4. A cooperative.

Turnover cannot exceed R20 million a year and once taxable income goes above R550,000 the SBC becomes liable for the 28% corporate tax rate.

SMALL BUSINESS CORPORATIONS – NEW TAX TABLE
Taxable Income New SBC Tax Rates
 
R0 – R79,000 Nil
R79,001 – R365,000 7% of taxable income over R79,000
R365,001 – R550,000 R20,020 + 21% of taxable income over R365,000
​R550,001 and above R58,870 + 28% of the amount over R550,000

These are attractive rates as a normal company would pay R154,000 when taxable income is R550,000 – so at that level SBCs save just over R95,000 in tax.

The restrictions applicable to Turnover Tax (above) also largely apply to SBCs. Also the company’s shares must be held by only “natural persons” (some trusts also qualify – take specific advice if applicable). Importantly all shareholders in a SBC may only hold shares in that one SBC and no other company, CC or co-operative (there are some exclusions including for listed share investments), otherwise it will be disqualified from the special tax regime.

In addition, SBCs qualify for accelerated tax depreciation – if plant or machinery is used in a process of manufacture then the whole cost can be written off in the first year of acquiring it. Other assets also qualify for faster tax write offs.

As a rule of thumb if choosing between the two tax regimes, SBC favours capital-intensive or low mark-up entities.

Take advice!

Both the Turnover Tax and SBC allowances can be attractive to small businesses, but the above is of necessity only a summary. Speak to your accountant if you think your business may qualify for, and benefit from, either of these dispensations.

This article is a general information sheet and should not be used or relied upon as professional advice. No liability can be accepted for any errors or omissions nor for any loss or damage arising from reliance upon any information herein. Always contact your financial adviser for specific and detailed advice. Errors and omissions excepted (E&OE)

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Sugar Tax: Good for the Taxman, Bad for the Sugar Industry

Sugar_Tax_2018_img-750“If governments tax products like sugary drinks, they can reduce suffering and save lives. They can also cut healthcare costs and increase revenues to invest in health services” (World Health Organisation)

The Sugar Tax was introduced last April and has met with a mixed response.

The Sugar Industry

The sugar industry has been struggling with drought and cheap imports in recent years. The Sugar Tax has worsened this situation with losses in revenue of R1.3 billion since the tax came into effect. The industry warns of 10,000 potential job losses.

The soft drink market was also predicted to suffer losses. Whilst sales are down, companies such as Coca Cola have reduced these losses by increasing production and marketing of sugarless drinks such as Coke Zero and Diet Coke. They have also reformulated their products using less sugar. In the UK where Sugar Tax was also introduced last year, 60% of Coca Cola’s products are not subject to Sugar Taxes due to Coca Cola adopting similar measures to South Africa.

SARS

When the tax was introduced, it was expected that the tax would bring in R1.7 billion in tax revenue in its first year. After eleven months, SARS had revenues of R3.4 billion from Sugar Tax.

In fact the Sugar Tax was increased further in the recent Budget from 2.1 cents per gram to 2.21 cents per gram.

The sugar industry is looking for relief as it is clearly suffering. However, SARS has found a winner with the Sugar Tax and is highly unlikely to reduce this tax, especially considering the pressure SARS is under to collect taxes.

This article is a general information sheet and should not be used or relied upon as professional advice. No liability can be accepted for any errors or omissions nor for any loss or damage arising from reliance upon any information herein. Always contact your financial adviser for specific and detailed advice. Errors and omissions excepted (E&OE)

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The CIPC Is Taking On Wrongdoing by Directors – A R4.3bn Example

shutterstock_644234083The Companies and Intellectual Property Commission (CIPC) has often been viewed as just an administrator and recorder of decisions made by companies.

In February however, the CIPC issued a Compliance Notice to the Public Investment Corporation (PIC) instructing it to recover a R4.3 billion investment in AYO Technology Solutions.

What is going on and what is a Compliance Notice?

The CIPC does have widespread powers, including issuing of subpoenas, and if it feels that on “reasonable grounds” the Companies Act (the Act) has been breached or someone has benefited from a contravention of the Act, then it may issue a Compliance Notice instructing relevant person(s) that the action taken by the relevant company:

  • Be stopped
  • Be reversed
  • That the assets of the company be restored to their value prior to the action being taken.

Should the steps required by the Compliance Notice not be taken, the CIPC can apply to the Courts for an administrative penalty to be levied or may refer the matter to the prosecuting authorities.

Someone who has received a Compliance Notice may appeal to the Courts for the Notice to be set aside.

In the PIC case, the CIPC maintained that the R4.3 billion investment was done at a very inflated valuation of AYO (the market price since the investment has been 50% below the valuation). It was alleged in the PIC hearings that the PIC did very little due diligence when making the investment. Accordingly, the directors of the PIC are accused of harming the company (a contravention of the Act).

The High Court has set aside the Compliance Notice, but tellingly the PIC have also instituted a legal process to recover the R4.3 billion investment in AYO.

The implications for all directors

This action by the CIPC has set a precedent and directors need to be aware that they could potentially face a Compliance Notice if they do not take their fiduciary duties as directors seriously. It should be noted that in recent years the CIPC has been diligent in going after delinquent directors.

This article is a general information sheet and should not be used or relied upon as professional advice. No liability can be accepted for any errors or omissions nor for any loss or damage arising from reliance upon any information herein. Always contact your financial adviser for specific and detailed advice. Errors and omissions excepted (E&OE)

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Companies: Don’t Inadvertently Encourage Unethical Behaviour

student-loan-forgiveness-2“So much of what we call management consists in making it difficult for people to work” (Peter Drucker)

In a recent interview of a prosecutor, he expressed surprise that most of the people charged with commercial crime were normal and honest. Yet in a recent survey of a company, 41% of the staff had observed unethical behaviour over a twelve month period.

What causes this dichotomy?

Leadership giving a bad example 

It is human nature for staff to hold management to a higher standard. This places an obligation on management to assess the effect of their actions on employees. For example, take a manager who is vying for a promotion and is aware that one of the selling activities he is responsible for is potentially resulting in product returns from customers. One of his staff has to write a monthly report on selling strategies and the report received by the manager indicates the need to investigate the selling strategy to establish if it is causing product returns. The sales manger faces two choices:

  1. Forward the report up the line knowing it may weaken his/her chances of promotion, or
  2. Say to the employee that as the reason for the product returns isn’t clear, let’s do our own investigation to verify if the strategy is the cause of product returns. Only then should we inform senior management.

If the manager chooses the second option, it tells the employee the manager is prepared to compromise on transparency and ethical behaviour. If the employee or other members of the manager’s staff then act dishonestly, it will be impossible for the manager to act since the manager is now effectively compromised.

Discouraging whistle-blowers and employees who speak up

If staff are aware of a culture where speaking out on unethical behaviour is either ignored by management or, worse, the staff member speaking up is victimised, then accountability essentially goes out of the window.

Speak to your staff often about the importance of ethical behaviour – not just when staff or management are caught out. It is important that staff are made aware that ethics is not a relative matter but often involves painful choices.

Setting unrealistic goals

If staff are measured on goals that are virtually impossible to achieve, then there is the likelihood they will cut corners or “fudge” the results. No one wants to be seen as a failure or underachiever, so set realistic goals.

Setting conflicting goals

Some goals can encourage staff to act dysfunctionally – if say management wants to see a growth in sales but also needs to cut marketing costs, then sales staff could decide to oversell to customers. In the short term this will mean achieving sales targets but it will also lead to customers returning the excess stock, increasing administration costs and risking the potential for stock write-offs.

Staff see this situation as unfair and thus could think they are entitled to act in a way clearly against the interests of the business.

Think through the objectives you set for your staff and always act in a fair and transparent manner – in the long term it will be worthwhile. The last thing you want to do is to inadvertently encourage your employees to act in an illegal or unethical manner.

This article is a general information sheet and should not be used or relied upon as professional advice. No liability can be accepted for any errors or omissions nor for any loss or damage arising from reliance upon any information herein. Always contact your financial adviser for specific and detailed advice. Errors and omissions excepted (E&OE)

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Expat Tax: How Will The Changes Affect You?

SA CurrencyA fine is a tax for doing wrong. A tax is a fine for doing well.” (Ecard humour)

(Note: If you aren’t yourself an expatriate, please think of passing this on to someone who is – forward planning is important here!)

Legislation has been passed that will remove the current tax exemption available to South Africans employed abroad. Despite intensive lobbying, there can be no doubt that the tax authorities intend to push ahead with this tax.

The tax comes into effect from 1 March 2020.

How it works, and the “183/60 tax exemption”

Prior to the latest amendment, tax residents living and working abroad for more than 183 days in any 12 month period (at least 60 days being continuous) were not taxed in South Africa on their foreign earnings.

From 1 March next year, foreign income of over R1 million per annum will be taxed in South Africa.

As this income includes fringe benefits and the Rand is weak compared to first world currencies, many employees will fall into this threshold.

Are you liable?

If you are resident for taxation purposes, then you are liable for the new tax.

SARS applies two tests to determine if you are a tax resident:

  1. Where your home, family and assets are located (the “ordinarily resident” test). If these are in South Africa you pass this test.
  2. Where you physically reside (the “physical presence test”). This is based on:
    1. Did you spend 91 or more days in South Africa in the current tax year?
    2. In the past five years have you spent 91 or more days in South Africa in each of those years?
    3. Have you spent 915 days or more in the past five years in South Africa?

If you answer “yes” to any of these questions, you are a tax resident, but you cease to be one if you are outside South Africa for a continuous period of at least 330 full days.

These two tests, complicated as they (ask your accountant for advice in doubt) are fairly broad and will catch many taxpayers in their net.

Should you emigrate as a tax resident?

It is going to be difficult to come up with a satisfactory strategy to deal with this but at least SARS have given taxpayers time to consider all their options.

One option being touted by tax practitioners is for the taxpayer to emigrate as a tax resident. This is a very complex process and we will cover it in future articles.

Whilst this will solve the offshore tax liability, it is an onerous process with many implications for taxpayers and it depends on each taxpayer’s circumstances. Specific advice from your accountant is essential here.

Good or bad for employers and South Africa?

This new tax could be detrimental to the country. There are two main categories of people who work offshore – those whose employers have overseas offices and professionals who are looking to accumulate hard currency assets.

In terms of the first category, it will clearly cost employers more to send their staff on overseas assignments and for the second category, it is likely that many if not most of them will move their tax residency to a more friendly tax environment.

This would result in South Africa losing crucial skills it cannot afford to lose and it also puts into question how much revenue SARS will get from the amended legislation.

This article is a general information sheet and should not be used or relied upon as professional advice. No liability can be accepted for any errors or omissions nor for any loss or damage arising from reliance upon any information herein. Always contact your financial adviser for specific and detailed advice. Errors and omissions excepted (E&OE)

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VAT Taxpayers: New Relief on Correcting Tax Invoices

A5

There has been an anomaly in VAT law which new legislation has now largely resolved.

The problem with the old position 

It has always been simple to correct calculable errors in tax invoices, such as price. A VAT debit or credit note would fix such mistakes. However, other errors such as an incorrect name or VAT number were legally insoluble. This is because the Act prohibits the issuing of more than one VAT invoice for a supply of a product or service. In terms of the law, a deduction for VAT is not allowed if there is an error (even a technical error) on the invoice.

The solution

An amendment to the VAT Act allows a corrected tax invoice to be issued. This needs to be done within twenty one days after the customer has requested a correction.

In addition, the vendor must keep an audit trail of the correction in case of a SARS query.

What has also been welcomed is that there is no change to the date of the transaction i.e. if the invoice was issued in January but corrected in February, the date the transaction is to be accounted for is still January.

An outstanding question and a checklist for you

This change to the VAT Act has brought certainty to an issue that has bedevilled business. One aspect that is still not clear is whether a business can issue a manual correction if its systems do not allow for an invoice to be electronically altered?

It is also worth remembering the legal requirements of a VAT invoice. They are that the invoice must contain:

  • The words “Tax Invoice”, “VAT Invoice” or “Invoice”
  • Name, address and VAT registration number of the supplier
  • Name, address and, where the recipient is a vendor, the recipient’s VAT registration number
  • Serial number and date of issue of invoice
  • Accurate description of goods and/or services (indicating where applicable that the goods are second hand goods)
  • Quantity or volume of goods or services supplied
  • Value of the supply, the amount of tax charged and the consideration of the supply (value and the tax).

This article is a general information sheet and should not be used or relied upon as professional advice. No liability can be accepted for any errors or omissions nor for any loss or damage arising from reliance upon any information herein. Always contact your financial adviser for specific and detailed advice. Errors and omissions excepted (E&OE)

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How to Improve Risk Management in Your Business

A4

Risk management has become increasingly popular in the past twenty years. It is also a corner stone of good governance.

Despite this increased focus, businesses are still being blindsided by events which result in high costs being incurred.

Potential problems and unpredictability – think “out of the box”

Usually a risk assessment is done via a matrix and once all known risks have been identified, they are ranked in terms of cost to the business should they occur.

That’s a limited way of doing this process as recent events have shown just how unpredictable the world is getting, for example a volcano in Iceland shutting down most flights into Europe.

Don’t just think of risks you know about but think of some potential event that could close down your business for an indefinite period. Even if you can’t envisage something specific that could shut you down, you can prepare for such an eventuality.

Optimistic versus pessimistic

Most of us are optimistic when we look into the future and thus we tend to be optimistic when doing a risk matrix. The business would be better served if a more pessimistic or a more even-handed, realistic approach was taken.

Consider operational risks also

Most risk assessments tend to happen at a high level, such as “is our sales strategy sound with risks catered for?” But do we think of what can go wrong operationally? The BP disaster in the 2010 Gulf of Mexico highlights this issue – a maintenance failure led to an explosion which killed 11 people, led to 3 million barrels of oil leaking into the sea and caused the BP share price to fall 50%.

Why not include risk mitigation in job descriptions of middle and lower middle management in your organisation with an emphasis placed on operational risk?

Risk is a dynamic process – keep thinking of what can go wrong and of how to minimise the chance of it happening.

This article is a general information sheet and should not be used or relied upon as professional advice. No liability can be accepted for any errors or omissions nor for any loss or damage arising from reliance upon any information herein. Always contact your financial adviser for specific and detailed advice. Errors and omissions excepted (E&OE)

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Budget 2019: Credibility Restored?

A3“It is not the critic who counts; not the man who points out how the strong man stumbles, or where the doer of deeds could have done them better. The credit belongs to the man who is actually in the arena, whose face is marred by dust and sweat and blood; who strives valiantly; who errs … but who does actually strive to do the deeds…” (Theodore Roosevelt 1910)

One of the shining lights of the country was the ability of Treasury to maintain fiscal discipline and not overburden the government with unmanageable debt. Since 2015, debt has risen quickly whilst tax revenues have slowed – debt to GDP (Gross Domestic Product) was 2.5% in 2015 but is now over 4% whilst tax collections will miss their 2018/19 target by R50 billion. Government debt to GDP was just over 40% in 2015 but is 56% now and is forecast to go above 60%.

All of these are alarming ratios but this was an unusual budget with the Eskom crisis the primary focus – the State-Owned Enterprise (SOE) only has sufficient funds to stay in business until April, has R420 billion in debt (R292 billion guaranteed by government) and cannot generate enough revenue to service this debt. The problem for government is that if Eskom collapses, then the economy basically stops – in the words of the President, Eskom is too big to fail. Yet its rescue is being closely watched by Moody’s – the only ratings agency not to rate South Africa’s debt as junk. Should Moody’s reduce us to junk status (and although they are scheduled to assess SA’s debt on 29 March they are expected to announce their decision after the May election) then off-shore institutions will be forced to sell R140 billion of government debt. This will have severe knock on effects, tipping our economy back into recession with a falling currency followed by interest rate hikes.

It is in this light that the Budget of Minister Mboweni should be judged.

In essence, the Budget is a holding operation in terms of tax changes as moves are made to deal with the Eskom crisis. The deficit to GDP will be 4.2% this year and will rise to 4.5% next year before declining in the out-years. Borrowing as a percentage of GDP will now breach 60% in 2024.

GDP will grow at 1.7% this year rising to 2.1% in three years. Inflation will rise from 4.7% now to 5.4% in 2022.

Government has taken R50 billion in cost cuts from the Medium Term three year budget – the main reduction is in government salaries with early retirement being offered to senior civil servants. Based on the assumption that 30,000 employees will take this up, the saving will be over R20 billion. The Minister emphasised that the government salary bill is unsustainable at 35% of government expenditure. Cuts were also made to overtime allowances, the government bonus scheme will be phased out and there is a salary freeze on senior SOE staff and cabinet and members of parliament.

Despite these savings the debt ceiling (a holy cow for Ratings Agencies) will be breached by R16 billion before coming back to within the ceiling.

Even before considering Eskom, these are sobering figures and the fact that the Minister laid them out starkly in an election year shows how the country cannot keep deferring the urgent issues it faces.

Eskom

The President had already announced the intended split up of Eskom into three units: generation, distribution and transmission. This would allow greater management focus on the discrete parts of Eskom. The Minister said that R23 billion will be set aside for each of the next three years to assist the SOE with its reorganisation into the three units and to help with its debt service costs.

Eskom will need to save R20 billion in costs per annum over this period. Although Minister Mboweni only gave a three year outlook, the restructuring of the SOE will clearly be a long term effort and government will need to be committed for as long as it takes.

In order for Eskom to access the R23 billion, it will need to get the approval of a Chief Restructuring Officer (CRO) who will be appointed by Ministers Pravin Gordhan and Tito Mboweni. The CRO will operate within restructuring requirements to be announced by the President in the next few weeks. The CRO will be the eyes and ears of the government.

Other SOEs will need to appoint a CRO if they wish to access government funds – R6 billion has been provided in the Contingency Reserve for this.

It is as if the recent loadshedding has brought a new urgency in tackling the sizeable problems that Eskom and other SOEs present. What is refreshing about the approach taken by Minister Mboweni is that he and the President are breaking the mould of government thinking – the fact that the Minister openly questioned the rationale for many of these SOEs and called for breaking away from old Soviet paradigms shows we are moving into a new era.

Will this be successful?

There are enormous risks ahead, not least of which is the Moody’s rating decision.  Moody’s are looking for a new credible approach to tackling Eskom and this is being laid out by the government. Trade Unions are already mobilising to fight the Budget and the reforms at Eskom. Perhaps the most encouraging aspect is that both Minister Tito Mboweni and President Ramaphosa seem up for the challenge.

If you strip Eskom out of the next three years, then there would be no breach of the debt ceiling and the debt to GDP ratio would not go above 60%. In fact the fiscal consolidation that Treasury has been desperately trying to instil since 2015 would be credible as the 2019 Budget would be in line with the projection of last year’s Budget.

This article is a general information sheet and should not be used or relied upon as professional advice. No liability can be accepted for any errors or omissions nor for any loss or damage arising from reliance upon any information herein. Always contact your financial adviser for specific and detailed advice. Errors and omissions excepted (E&OE)

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