In the recent medium-term budget policy statement, finance minister Nhlanhla Nene made it very clear that South Africa would be facing a revenue shortfall at the next Budget in February 2015, and this didn’t include bailouts for Eskom, Sanral and SAA. What he didn’t give a lot of detail on was how he would raise the money to cover this shortfall.
Nene mentioned gover nment austerity and curtailing civil servant sa l ar y i ncreases. Importantly, t he capacity to borrow more is severely curtailed, meaning that the most likely outcome is going to be tax increases.
Raising VAT is a non-starter and corporate tax increases are also highly unlikely. We may see another increase in the capital gains tax and maybe even the dividend withholding tax rates, but at the end of the day, most of the burden of the shortfall will be shouldered by individual taxpayers, mostly those in the higher tax brackets.
That said, there has been a rumour c i rc ulat i ng t hat t he government could sell its stake in Vodacom that it inherited when Telkom spun off the Vodacom stake. This 13.9% holding is currently valued at around R28.2bn, and that certainly would help plug the revenue shortfall.
But what of other JSE listed assets the South African government owns? It has a 39.76% stake in Telkom worth around R12.2bn, but seemingly the government considers this a strategic stake.
We also find three stakes held by the Industrial Development Corporation ( IDC). Set up in 1940, the IDC is owned by government and supervised by t he depar t ment of economic development. So anything it sells may not get transferred directly to National Treasury. It may also be used as security for loans the IDC has in order for it to lend money.
The IDC has stakes in three listed companies: Kumba Iron Ore (12.9% valued at R11.7bn), Sasol* (7.9%, R27.9bn) and ArcelorMittal South Africa (7.9%, R1.2bn).
Collectively, these f ive stakes are worth just over R81bn. This should be enough to plug some two years of tax revenue shortfall while government gets the economy back on track.
The bigger issue, aside from political will to exit these stakes, is that Kumba and ArcelorMittal are both under price pressure. This is unlikely to change anytime soon and while we may be accused of selling the family silver, the bigger question is why government wants to continue holding these stakes.
As a last thought, these JSE-listed assets, valued at over R80bn, generate dividends of around R3.7bn a year. Nice, but still worth selling the stakes and plugging the hole.
*The writer owns shares in Sasol.