Tax shambles: bailing out flailing SOEs
Rescues will end if brightest can be enticed to work for state ventures
OUR country faces what is said to be the highest marginal tax rate since the end of apartheid. This and other tax increases are the measures we must take to fund increasing government expenditure.
It is imperative that we maintain the kind of national budget that guarantees a good investment-grade status. As such, when faced with the challenge of rebalancing the budget, there are only two ways to go: increase collections and decrease spending.
The average citizen always feels the pinch the most when taxes go up, as will be the case this coming year — even more so for those who face the new “aggressive” tax bracket introduced for high-income earners.
The more we feel the pinch of increased collections, the more curious we become about where the money is being spent. Of course, there are essential services that the budget needs to fund. But what about the fact that we are allocating more funds towards bailing out state-owned enterprises?
Finance Minister Pravin Gordhan announced that billions of rands will continue to be allocated to various SOEs — including loss-making businesses such as SAA and the South African Post Office. We continue to provide funds to SOEs despite the fact that they are struggling to maintain sound business practices — as is expected for any other business out there.
Their return on equity continues to decline year on year as they are plagued by operational inefficiencies and poor corporate governance.
Being owned by the state is not a reason to maintain bad business practices, have poor financial health and forever rely on bailouts.
If we continue along this path, we might as well acknowledge that each year the collections will grow to fund their growing bailout needs.
Given that there is a limit to how much we can increase taxes, there should also be a limit on the extent to which we are prepared to bail out nonperforming SOEs.
Under normal circumstances, when a business cannot continuously sustain its own operations without external support, drastic measures are taken.
The board becomes firmer on holding management accountable to set targets, and changes take place to address the big issues. Sometimes the entire management team is replaced when the results show that their actions are not in the best interest of the business.
Some would argue that SOEs have a developmental mandate and hence should be treated differently to other businesses. However, the facts are simple: having a developmental mandate does not preclude one from maintaining a financially viable organisation. This is why we have the Public Finance Management Act.
There is a reason that even developmentally focused private enterprises choose to invest their time and effort in becoming organisations that can sustain themselves. The model would not work if they relied on external cash infusions and bailouts each year.
The shift towards managing our SOEs in the same manner as any other business is critical.
We also need to be mindful of the root causes of the issues.
One is the lack of interest from talented individuals. When our best and brightest are looking to start their careers in the workplace, mentors and career advisers hardly ever encourage them to work for state-owned businesses.
The majority end up in private businesses, especially since enticing employment offers from the latter are hardly matched by SOEs.
Given that our best and brightest are probably going to succeed and become good income earners, they, too, will feel the pinch of continued increases in government spending — a reality that could have been avoided if these individuals were able to work in these organisations and transform them, ultimately becoming the high-calibre leaders these businesses require. There would be no need for bailouts.
It is time we start advertising working for SOEs at our schools and universities and become mindful that these campaigns should target broader audiences, not just those in specialised fields designed exclusively for working in state organisations. We also need to make SOEs desirable places to work.
They need leaders who are worthy of respect. You earn respect by delivering on the mandate that the organisation has been given — in a seamless and sustainable way.