Com­pe­tent fi­nance min­is­ter en­sures sta­bil­ity

Business Day - Business Law and Tax Review - - BUSINESS LAW & TAX REVIEW -

ONE of the most dif­fi­cult jobs in SA must be that of run­ning the fi­nance min­istry. SA tends to make po­lit­i­cal ap­point­ments to run this min­istry and has steered away from ap­point­ing financial spe­cial­ists, tech­nocrats or economists (ex­cept per­haps the brief ten­ure of min­is­ter Nh­lanhla Nene).

Be that as it may, if that’s the rule, one at least would ex­pect that we pick the right “man” for the job. Pravin Gord­han, the man cur­rently in the seat, is a veteran politi­cian and fi­nance min­is­ter, es­pe­cially in light of our fairly young democ­racy.

The fi­nance min­istry and the South African Rev­enue Ser­vice (SARS) have shared the spot­light in the past six months with the pres­i­dent, un­for­tu­nately mostly for the wrong rea­sons. Neg­a­tive head­lines have fo­cused on the three fi­nance min­is­ters ap­pointed in less than 19 months, the “rogue SARS unit”, the un­spo­ken “po­ten­tial” bat­tle be­tween the pres­i­dent and the min­is­ter, the “bat­tle” be­tween the SARS Com­mis­sioner and the min­is­ter and the Hawks’ in­ter­est in the min­is­ter, the min­istry and SARS. Th­ese very public bat­tles have not been in SA’s best in­ter­est, and dam­aged cur­rency and credit rat­ing prospects. Pres­i­den­tial de­ci­sions (whether in­formed by ad­vis­ers or not) around the min­istry have also done dam­age.

Gord­han, a phar­ma­cist by trade, was the com­mis­sioner for SARS from 1999 to 2009. Dur­ing his ten­ure as com­mis­sioner, he played a piv­otal role in trans­form­ing SARS into a world-class rev­enue au­thor­ity. This was done through var­i­ous means, in­clud­ing SARS’ public re­la­tions cam­paigns en­forc­ing the mes­sage that tax­pay­ers should file and pay their taxes as “it’s the right thing to do” and “make your con­tri­bu­tion to RSA”.

Al­though non­com­pli­ance with tax obli­ga­tions could re­sult in penal­ties, in­ter­est and im­pris­on­ment, SARS man­aged to drive and in­crease the “moral obli­ga­tion” to pay taxes. SARS also (in 2000) ini­ti­ated its drive to make SARS work bet­ter as a busi­ness, called Siyakha (“we are build­ing”), through which it set out to in­crease SARS’ ef­fec­tive­ness by in­creas­ing op­er­a­tional ef­fi­ciency, stream­lin­ing and in­creas­ing the ef­fec­tive­ness of its or­gan­i­sa­tional struc­ture, and reengi­neer­ing its un­der­ly­ing busi­ness pro­cesses; and rais­ing tax moral­ity.

SARS has also made use of tech­nol­ogy to en­hance busi­ness pro­cesses which as­sist SARS in un­der­stand­ing the risk pro­files of tax­pay­ers and in­dus­tries. SARS fo­cuses on em­ploy­ing high cal­i­bre peo­ple and creat­ing a cul­ture of team­work and learn­ing — all im­por­tant el­e­ments of Siyakha.

Gord­han also served as fi­nance min­is­ter from 2009-14. He has in the past (in the role of fi­nance min­is­ter) been crit­i­cised that he did not im­ple­ment suf­fi­cient con­trols to curb public ex­pen­di­ture, cor­rup­tion, and the bud­get deficit. On the other hand, Gord­han ar­guably faired rea­son­ably well in demon­strat­ing sta­bil­ity but could, ac­cord­ing to crit­ics, have done bet­ter.

Gord­han also man­aged to in­still con­fi­dence in him­self and the econ­omy, both in­ter­na­tion­ally and lo­cally. In 2014, Pres­i­dent Ja­cob Zuma, as party of his cabi­net reshuf­fle, re­placed Gord­han with Nh­lanhla Nene. Gord­han then briefly as­sumed the role as min­is­ter of co-op­er­a­tive gov­er­nance and tra­di­tional af­fairs from 2014-15. Nene lasted for about 18 months as fi­nance min­is­ter be­fore Zuma, in a shock an­nounce­ment, re­placed him with David van Rooyen, who held the es­teemed po­si­tion for four days.

Th­ese four days were enough to send the rand tum­bling and the rat­ing agen­cies re­con­sid­er­ing SA. In a bid pre­sum­ably to sta­bilise the cur­rency, Zuma an­nounced that Gord­han was re­turn­ing as fi­nance min­is­ter. This hap­pened to­wards the end of 2015, and saw the value of the rand in­creas­ing from the lows it reached with the ap­point­ment of Van Rooyen just days be­fore.

Just be­fore the bud­get speech in Fe­bru­ary, the Hawks sent Gord­han a list of 27 ques­tions around the “rogue unit” at SARS. With re­cent me­dia at­ten­tion on the Hawks’ ac­tiv­i­ties around SARS, its “rogue unit”, and Gord­han, the im­pres­sion may have been cre­ated that the min­is­ter may not have ev­ery­one’s favour. Al­though free­dom of press is mostly wel­comed, it could do a lot of dam­age.

The econ­omy needs sta­bil­ity and that in­cludes sta­bil­ity brought about by re­tain­ing our fi­nance min­is­ter if he/she is ca­pa­ble of do­ing the job for a rea­son­able pe­riod of time. If changes are re­quired this should be well-con­sid­ered and widely con­sid­ered and the im­pact on the eco­nomic in­di­ca­tors should be man­aged with care, re­spon­si­bil­ity, and with no haste.

SA just can­not af­ford to use this im­por­tant port­fo­lio to play po­lit­i­cal foot­ball.

Con­flicts and in­ves­ti­ga­tions into fi­nance min­istry’s head, Pravin Gord­han, have not been in SA’s best in­ter­est

Ferdie Schneider is head of tax at BDO South Africa.

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