|
Related Topics |
|
In today's blog we take a look at our suggestions to the South African government for getting South Africa's economy out of the rut it is stuck in. Yesterday we covered South Africa's economic growth rate and we showed just how bad it's been over the last couple of years and mentioned the fact that the picture is not exactly rosy for 2017. So a few readers asked us what we suggest government should do in order to address the lack of economic growth and the high unemployment levels?
|
Short Recap
As a short recap we will take a quick look at South Africa's annual GDP growth over the last couple of years in the bar chart below. And its clear from the graphic that SA's economic growth has been growing at ever lower rates and that it keeps getting worse every year. So much so that South Africa's economy only managed to grow by a pathetic 0.3% in 2016.
Our suggestions for a prospering SA economy
Below will be a few bullet points we suggest the South African government implements in order to flog the dead horse that is the South African economy. It is currently on life support and it requires a few silver bullets for it to get back on track, And with it leaders with a open mind and a willingness to implement suggestions quickly and effectively. As the longer SA's economy slumbers on the more social issues South Africa is bound to experience with persistently high levels of unemployment and crime and extreme inequality between the rich and the poor.
1. Dont bite the hand that feeds you. And with this we mean overtaxing your citizens. We have been rather critical of SA's tax system and how it is geared to milking the rich (see article here) to the point that they cant take it anymore. And we have seen this starting to manifest with the tax revolt regarding E-tolls. Taxpayers want more value for money. And currently they feel they are not getting it. Corruption and tenderpreneurs (that charge crazy fees for work that could have been done better and cheaper if reasonable contractors were used), administrative errors and issues, delays in service delivery etc all eat into tax payers confidence with regards to whether they getting value for their tax money.
Dawie Roodt, well known Afrikaans economist said on a local Pretoria radio station the other day that the only way to force a government to spend less is to pay them less taxes. And it is a simple but profound statement to make. The less money they get in via taxes, the less they can spend/borrow.
Dawie Roodt, well known Afrikaans economist said on a local Pretoria radio station the other day that the only way to force a government to spend less is to pay them less taxes. And it is a simple but profound statement to make. The less money they get in via taxes, the less they can spend/borrow.
2. Lessen the amount of sway labour unions have in this country. And part of this is making SA's labour laws more flexible. We not saying let the employee pull on the short string, just saying make the hiring and firing of people a less painful and costly experience. Why would foreign companies open up shops here when its almost impossible and relatively expensive to get rid of non performing staff members?
Labour unions are supposed to fight for workers rights. That we agree with. But they should not be holding government or the private sector to ransom when it comes to wage demands and other pie in the sky demands they come up with these days.
Labour unions are supposed to fight for workers rights. That we agree with. But they should not be holding government or the private sector to ransom when it comes to wage demands and other pie in the sky demands they come up with these days.
3. Greater policy coordination. And with this we are talking about the whole economics cluster of government. As we have mentioned numerous times and highlighted in the past (in this article), South Africa's monetary and fiscal policy is not very coordinated, and this has a detrimental effect on South Africa's economic growth rate. Coordinated policy helps both monetary and fiscal policies to achieve its goals out faster. In addition to out monetary policy (South African Reserve Bank) and fiscal policy (National Treasury) our other economics cluster departments Trade and Industry and Economic development (heaven knows what they have been doing all these years) should have a coordinated strategy and policies in place that is in keeping with monetary and fiscal policy so that all the departments in this cluster know what the target and aim is and all set out in achieving it. No point in fiscal policy looking to boost foreign direct investment and department of trade and industry implements policies that adversely affects foreign owned businesses in South Africa.
4. Cut company taxes. Why you say? Government will be losing revenue since corporate taxes will be lower. Sure they will lose on the one hand but can gain significantly on the other if it's done smartly. Firstly lower taxes allows for more funds that can be used to employ more people, more people employed (starts to address SA's unemployment problem), leads to more personal income taxes as the "pool" of tax paying citizens increases.
n addition to this more employed people will lead to greater demand for goods and services and spending (leading to more VAT being collected), greater demand could lead to more staff being employed in these sectors where demand increased to cope with increasing demand, these new employees starts paying taxes and demanding goods and so the cycle continues. (Its called the multiplier effect).
If a policy is set that a company's taxes will be cut if it can prove the tax savings were used to employ more people then this should be considered. As the "multiplier effect" of demand for goods and services from new employees leading to demand for new employees in sectors where demand increased could be substantial.
South Africa's government keeps singing the song of it being "open for business". Really? How? By taxing companies at excessive rates and making it hard to hire and fire people?
n addition to this more employed people will lead to greater demand for goods and services and spending (leading to more VAT being collected), greater demand could lead to more staff being employed in these sectors where demand increased to cope with increasing demand, these new employees starts paying taxes and demanding goods and so the cycle continues. (Its called the multiplier effect).
If a policy is set that a company's taxes will be cut if it can prove the tax savings were used to employ more people then this should be considered. As the "multiplier effect" of demand for goods and services from new employees leading to demand for new employees in sectors where demand increased could be substantial.
South Africa's government keeps singing the song of it being "open for business". Really? How? By taxing companies at excessive rates and making it hard to hire and fire people?
5. Allow for greater competition in South Africa's markets. Greater competition leads to more competitive prices, which will assist in keeping inflation in check. ESKOM gets away with charging excessive tariffs on electricity as users have no other alternatives to go to. Unless they have massive amounts of money to lay out for solar installations to take them off the grid. And continue to investigate anti-competitive behaviour of firms such as construction collusion, bread price fixing scandal etc. that all has a detrimental effect on South African consumers.
6. Reduce the "gap" between the REPO rate (rate at which banks borrow money from the Reserve Bank) and the prime rate (the rate at which banks borrow money to clients). There is no need for such a big basis points gap (350 basis points) between the REPO and prime rate. All this is doing is lining bank's profits more. South African consumers end up paying way more for their debt than what they would have if the "gap" was at say 150basis points. Former Reserve Bank Governor Tito Mboweni raised this issue in 2009 already. Yet it still persists and no one is talking about it. A Fin24 article highlighting this can be found here: http://www.fin24.com/Economy/Mboweni-troubles-banks-20090518
7. Foster trade with countries with which South Africa has a positive trade balance (I.e we exporting more than we importing). And this excludes China please as South Africa has a cumulative trade balance with China since 2010 of roughly R385billion since January 2010. Thats right SA has paid R385billion more in imports from China than what we exported to them. This does SA's trade balance and local industries no good. Find Trade Balance article with China here.
8. Improve the business operating environment for smaller businesses. As there seems little in the way of assisting smaller businesses to become medium sized enterprises. South Africa's revenue and employment is very clustered in the small and large enterprises. And not a lot happening in the medium enterprises grouping. Suggests that policies and climate is not conducive for smaller firms to reach medium sized levels. Reward entrepreneurship and those smaller firms that needs a helping hand it taking their businesses to the next level.
9. Reward savings, dont punish those that save. Its no secret South Africa has significant savings problems. South Africans hardly save at all. Question is why would they when interest earned on say money market investments are taxed? And dividends earned from companies are taxed at 15% and soon to be pushed even higher. Government wants people to save but creating disincentives to save. The one hand is doing the one thing, while the other is doing the exact opposite.
If government implements these nine points instead of their much hyped "9 point plan" South Africa's economy would get back onto the road to recovery and eventually flourishing a lot faster than what they are currently doing. The definition of insanity is doing the same thing and expecting different results. Government has been doing the same thing for far to long while expecting South Africa's growth to miraculously hit levels it hasn't seen in many many years.
Time for action. The sooner we start the sooner we can reap the benefits.
Time for action. The sooner we start the sooner we can reap the benefits.