Don’t do it, Trevor

Up­ping in­di­vid­u­als’ tax rate would dampen not stim­u­late con­sumer con­sump­tion

Finweek English Edition - - Companies & Markets -

IT MAY BE TOO LATE to send a tip to Trevor, as he would hardly go swan­ning off to the in­ter­na­tional gabfest in Davos un­less his Bud­get sched­uled for de­liv­ery on 11 Fe­bru­ary had been pretty much put to bed. But I hope he doesn’t lis­ten to a fatu­ous piece of ad­vice re­cently given by one of our lead­ing ac­count­ing firms. At a pre-Bud­get brief­ing, Ernst & Young re­port­edly sug­gested the top mar­ginal tax rate for in­di­vid­u­als might be hiked from 40% to 42%.

The lat­est SA Re­serve Bank data sug­gests the so-called lead­ing eco­nomic in­di­ca­tor has been fall­ing since as far back as April 2007 at an ac­cel­er­at­ing rate. Which means that – even if Manuel is in de­nial – we’re head­ing for a re­ces­sion. So the last thing we need is an in­crease in the tax rate, which can only de­press con­sump­tion fur­ther.

That would be as il­log­i­cal as the ef­forts by the de­vel­oped na­tions of the north­ern hemi­sphere to cure the ef­fects of an un­con­trolled ex­plo­sion of credit by print­ing ever more money. What we need is to stim­u­late con­sump­tion, not dampen it fur­ther.

A fur­ther point: SA’s cor­po­rate tax rate has been brought down to 28%. That’s the widest dis­count to the top in­di­vid­ual mar­ginal rate for many years and al­ready enough to en­cour­age those who have the op­tion to con­vert per­sonal into cor­po­rate earn­ings. To broaden the gap even more would sim­ply stim­u­late such ac­tiv­ity, so could even be counter-pro­duc­tive, lead­ing to a de­cline rather than an in­crease in fis­cal rev­enue.

I’m also a lit­tle alarmed by the sug­ges­tion the SA Rev­enue Ser­vice may be­come

{}“more ag­gres­sive’ in its at­ti­tude to rev­enue col­lec­tion. It’s moved a heck of a way in that re­gard in re­cent years, and while tax­pay­ers may have wel­comed the greater ef­fi­ciency of the fis­cus, we’ve re­verted too closely to the con­fronta­tional at­ti­tude that char­ac­terised the lat­ter years of the apartheid era, when gov­ern­ment was des­per­ate to fi­nance its mil­i­tary and iso­la­tion­ist poli­cies.

As in so many ar­eas, the Obama ad­min­is­tra­tion in the United States is show­ing the way to go, with tax cuts a key el­e­ment of its sup­port pro­gramme. That may not be pos­si­ble in SA, but now’s the time to cash in on the huge im­prove­ment in the State’s bal­ance sheet gen­er­ated by Trevor’s pru­dence over the past decade.

When Gor­don Brown was Bri­tain’s Chan­cel­lor of the Ex­che­quer, he ad­vo­cated the na­tional bud­get should be in over­all bal­ance through a busi­ness cy­cle. Sur­pluses in growth years would off­set deficits in slow­down years. Un­for­tu­nately, a to­tal in­abil­ity to keep pub­lic sec­tor spending in check made that a pipedream and the cost of bail­ing out (in ef­fect, na­tion­al­is­ing) Bri­tain’s bank­ing sec­tor will keep the na­tion in hock for decades. But for us, a ma­jor pub­lic sec­tor in­vest­ment pro­gramme is the way to go. All those ridicu­lously ex­pen­sive sta­di­ums we’re build­ing for the 2010 Soc­cer World Cup will no doubt end up as white ele­phants, as sim­i­lar lux­u­ries have world­wide. But at least they’re cre­at­ing de­mand and spending in the in­terim. They must be sup­ple­mented by spending on fa­cil­i­ties that will ac­tu­ally im­prove na­tional pro­duc­tive ca­pac­ity and pro­vide ba­sic liv­ing stan­dards for the mil­lions who still lack them. IN­VESTEC SEEKS A BIG­GER STAKE IN RAND­GOLD AT THE RE­CENT spe­cial meet­ing of JCI the com­pany re­fused to de­tail In­vestec’s in­ter­est in the com­pany, say­ing the trans­fer sec­re­taries now pro­vide only monthly fig­ures (a ma­jor sys­tem de­fect, di­rectly re­lated to how Strate works) and those were no longer valid. How­ever, it’s clear In­vestec is seek­ing to strengthen its po­si­tion if the Rand­gold & Ex­plo­ration/JCI merger goes through.

Ma­todzi Re­sources (soon to be re­named White Wa­ter by the new con­trol­ling share­holder, the Trin­ity group) has sold its 105m JCI shares to In­vestec. That will trans­late into just over 1m Rand­gold shares – in­signif­i­cant in per­cent­age terms, but ev­ery lit­tle helps. WHAT, NO GOLD-PLATED TAPS? SO JOHN THAIN, CEO of Mer­rill Lynch, who sold it to Bank of Amer­ica at a vastly in­flated price, is to re­pay the US$1,22m the firm spent on re­dec­o­rat­ing his of­fice at a time when he was al­ready seek­ing state aid. Call that R12,5m in round fig­ures.

Just how do you man­age to spend that much on an of­fice? Well, here are some of the items: $87 000 on Per­sian rugs, the same for mink guest chairs, $68 000 for a 19th Cen­tury cre­denza (and I al­ways thought cre­den­zas were a 20th Cen­tury cre­ation), $37 000 on six an­tique chairs and $28 000 for a hand-stitched Poly­ne­sian sofa. Oh, by the way: Thain’s per­sonal driver re­port­edly grossed $230 000/year.

Thain, at one time tipped to head the merged com­pany, has now left Bank of Amer­ica.

The more you read of such cor­po­rate ex­cesses, the more it be­comes ap­par­ent that, re­gard­less of the sub-prime mort­gage fi­asco, early 21st Cen­tury US cap­i­tal­ism was a ro­coco dis­as­ter wait­ing to hap­pen.

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