Fewer jobs means less tax as businesses shut down
BUSINESSES are finding the economic environment tough, with an increasing number closing up shop.
While devastating for the companies and their stakeholders, this also creates a problem for the state as fewer companies and fewer workers mean less tax is collected, while more people need financial support.
State revenue comes from various streams, including value added tax, business tax, enterprise income tax and personal income tax, among others.
US car maker General Motors (GM) announced it would be leaving South Africa at the end of the year after 90 years and that Isuzu would take over some of its operations. Trade unions are challenging GM’s decision, citing job losses.
The latest Experian Business Debt Index (BDI) released yesterday revealed a scary picture of business debt stress levels, which deteriorated in the first quarter of 2017, during which a number of companies applied for business rescue. Stuttafords is one such company.
Now, according to the latest BDI, organisations have had to guard against low growth following last year’s hopes of an economic recovery. Instead, GDP for the fourth quarter was weaker than expected.
The Experian BDI is an indicator of the overall health of businesses and the position of debt settlement between businesses in the economy. The zero line on the BDI distinguishes between improving and deteriorating business debt stress levels.
The other main findings from the Experian BDI first quarter results was that the average outstanding debtors’ days increased in the quarter, partly due to seasonality and the downturn in business confidence. This downturn, coupled with general anxieties surrounding political volatility and the Cabinet reshuffle in March, could see businesses less willing to make significant capital investments.
The BDI for the first quarter of 2017 was - 0.081. This represents a marginally lower level than the revised - 0.069 in the fourth quarter of 2016 and reflects a slight deterioration of business health, with organisations having to guard against low growth following last year’s hopes of an economic recovery.
Simon Russell, managing director of Experian South Africa, said organisations that were able to innovate and find creative ways to navigate this tough environment were the ones who would survive and retain market share.
Charles Meyerowitz, co-founder and CEO of Lamna, a speciality finance company, said business rescue meant that companies’ cashflow was under pressure and they were unable to pay their creditors on time.
WORST OF TIMES: Business debt stress levels deteriorated in the first quarter of 2017.