PUTTING A CORK IN IT
Jonas would be an excellent option, but he has turned his back on politics.
While the name of justice minister Ronald Lamola is flighted by analysts, political sources discount this possibility, in part because it would leave a hole in the justice ministry. The same reasoning would apply to health minister Zweli Mkhize, whose name is also mentioned as a possible replacement for Mboweni, but who has rapidly made
himself indispensable in the way he has been tackling Covid-19.
This leaves an increasingly narrow field of largely lightweight provincial ANC finance ministers to choose from, illustrating how thin the pool of talent has become.
While some sources say that former Gauteng finance minister Barbara Creecy (now minister of forestry, fisheries & environmental affairs) would make an excellent deputy, she, along with other provincial finance MECs, lacks the experience and international stature for the top job,
Senior ANC sources canvassed by the
FM, however, say this is not an intractable problem — it simply requires the same sort of creative, heterodox thinking needed to fix the Treasury and the economy.
A surprising candidate for the post raised while canvassing views in political circles is ANC treasurer-general Paul Mashatile.
According to sources in the province, Gauteng had lobbied for whoever was elected to the treasurer-general post to be made the finance minister at the party’s Nasrec conference in late 2017. That resolution, however, was abandoned.
For Mashatile to take up the post, the ANC would have to amend its constitution, which states that the treasurer-general post is a full-time one.
If these are the obvious options, who are the less obvious ones, either from the business sector, or from ANC structures outside the national executive?
The call for youth favours Mboweni’s presumptive successor, the current deputy finance minister, David Masondo.
Though Masondo has achieved results by shepherding Operation Vulindlela (a joint initiative with the presidency to accelerate economic reforms), he has a cloud over his head. The ANC’s integrity committee has recommended he be dismissed, after he asked the Hawks to arrest a woman he was allegedly seeing.
Masondo (who is married) insists he did nothing wrong, reportedly claiming that the woman had harassed his family. But either way, it does nothing to engender confidence in his judgment.
Schoeman says continuity is incredibly important, which is partly why people are quite comfortable with Mboweni.
“What matters now is [that] he will be tested as to whether he can stick to the expenditure plan from one budget to the next,” she says.
Perhaps, to flip the script, we need to ask who would agree to take the job, given the parlous lack of political support.
As analysts say, the problem isn’t that
SA’s policies are poor, or that the Treasury doesn’t know how to fix the economy; the critical weakness is that the government doesn’t implement any of the policies it has. The National Development Plan is just the most recent. Without that, “youth” or “new ideas” will make no difference.
Mboweni is simply the most recent finance minister to be hamstrung by political inertia. Any replacement may try to insist on being allowed to do the job, to orchestrate economic policy, with the full backing of the president. But whether Ramaphosa could actually guarantee that is another matter entirely.
So, an ideal job advert for the next finance minister would read: “Wanted — someone bold, technically competent, incorruptible, highly regarded by the financial community, and a political heavyweight who enjoys the full support of the president.”
On a good day, Mboweni already has most, if not all, of these attributes.
For some, the best outcome would be if he stayed in his post, but resigned from Twitter, put down his apron and rolled up his work sleeves.
In the end, it may just be that Ramaphosa has to swallow rocks, and keep Mboweni at the helm of the institution most critical to his reform agenda.
ealth experts believe SA has a drinking problem. But the alcohol industry believes it has a government problem.
Sales or excise taxes on alcohol have risen faster than inflation for decades, with the government making considerably more from the sale of a bottle of wine or spirits than the producer or farmer does.
The liquor industry believes these “sin tax” rates have become unfair, increasing above the rate of sales revenue year after year, and benefiting the government at the expense of the sector.
Health economists, the National Treasury and researchers justify excise taxes as a way to increase the cost of alcohol, thus making binge-drinking more expensive and in that way reducing the number of alcohol-related injuries that crowd out hospitals on weekends and paydays.
Sin taxes are needed to pay for the costs of alcohol abuse to society, the Treasury’s most recent alcohol policy document suggests, especially given South Africans’ drinking habits.
So just how bad is the problem? In short, health experts say those South Africans who do drink, drink a lot.
Corné van Walbeek, a University of Cape Town economist and director of the university’s research unit on the economics of excisable products, says his research shows only one in three adults in SA drink. But a “substantial proportion” of these drinkers — at least half — drink excessively.
“That’s a very high proportion, much higher than most other countries,” he says.
Professor Charles Parry, the director of the alcohol, tobacco & other drug research unit at the SA Medical Research Council, explains that binge drinking is defined as a person consuming more than five drinks — each representing about 12g of alcohol — in a single sitting, at least once within the past 30 days.
This is according to World Health Organisation criteria.
Parry says 70% of men in SA who drink fit this profile, as do a third of SA’s female drinkers. Binge drinking among men in SA is well above the world average (50%) as well
HThose South Africans who do drink, do so to excess, as measured against international standards. Would tax increases solve the problem?
as the average in Africa (39%).
Parry also points to new Western Cape provincial department of health data that shows what doctors have long been saying: alcohol abuse boosts trauma admissions as a result of vehicle accidents, drunken brawls and stabbings.
The province now monitors trauma cases in a select group of unnamed hospitals. Within two days of the third lockdown alcohol ban being lifted earlier this month, trauma cases in these hospitals spiked.
Alcohol was on sale from 10am on Tuesday February 2. On February 1, there had been 35 trauma patients in these hospitals. By February 7, that number had risen to 155.
Parry and Van Walbeek argue that increasing the price of alcohol by raising excise taxes is justified, as it will reduce consumption of what can be a harmful product. “If the price goes up, unless one is very well-off, consumption tends to decrease; it is called the elasticity of the product,” says Parry.
By Parry and Van Walbeek’s calculations, a 10% increase in price will reduce binge drinking by 2%-2.5%.
One possible problem with this, as Van
Walbeek points out, is that excise taxes discourage moderate drinkers, but are less successful at stopping heavy drinkers from finding a way to drink to excess.
“The implication is that you can increase the price of alcohol and it will have an impact on heavy and binge drinkers,” he says. “But it will have a bigger effect on your moderate drinkers of alcohol.”
And that doesn’t help the job-creating liquor industry, nor does it reduce the harmful consequences of excessive drinking.
Nonetheless, both Van Walbeek and Parry think sin taxes could rise — at least in line with inflation this year, in Parry’s view.
What it means: The liquor industry is fighting to preserve profits in the face of efforts to reduce excessive drinking
For its part, the alcohol industry is pushing back, explaining in media campaigns that ever-increasing excise taxes add to the costs of doing business. Operational expenses are also mounting as minimum wages mean labour costs are rising, and electricity prices are set to go up by just over 15% from April.
Excise tax is seen as a cost by the industry and though it is often passed on to consumers, producers ultimately have to ensure that sin taxes don’t erode the affordability of their products.
Boyce Lloyd, the CEO of wine and brandy producer KWV, says the assumption that taxes or tax hikes are easily passed on to consumers is incorrect. “The final price of a product determines consumer demand, and
if demand suffers too much, business has no other option but to absorb the tax,” he says.
And this, ironically, can lead to a drop in tax receipts for the Treasury.
Lloyd explains that if businesses absorb too many costs, such as sin taxes, then profit — taxed at 28% — drops, as do salaries. So what is gained through an excise tax increase may end up being lost in lower payroll and corporate taxes.
Less demand for alcohol also means a drop in sales and thus in VAT and excise tax receipts for the government.
Simply put, Lloyd says: “There is no free lunch.”
The local alcohol industry believes taxes are unsustainable in the long term if they rise faster than sales.
Distell, SA’s largest alcohol producer, whose brands include Nederburg wine, Savanna cider and Klipdrift brandy, says its revenue grew 7.4% between 2014 and 2019. But excise contributions to the government grew at 12.8% over the same period.
The wine industry through Vinpro, which represents more than 2,000 grape farmers and wine producers, points out that the government makes more money from the tax than wine farmers do from their product. Yet it is the farmers who take the business risks, dealing with drought, wildfires and rising costs of labour and electricity.
Vinpro CEO Rico Basson says the organisation’s economists calculated that in financial 2019 the government earned R7.2bn in taxes, while grape farmers together earned R6.1bn before expenses.
Despite the high taxes the wine industry pays, the government does little to acknowledge its contribution to the country’s economy, job creation and export income, says Basson. What the industry needs, he adds, is policy certainty, reasonable taxation and stability.
Vinpro explains taxes from a farmer’s point of view as follows: a bottle of inexpensive wine that sells for R45 will earn the government R10.04 from excise taxes and VAT. The costs of retail, logistics and bottling equals R29.95. That means a wine farmer’s income after production expenses on that bottle will equal just 77c.
The body says the wine industry, which employs 269,000 people, has joined the wider liquor sector in asking the Treasury to consider keeping sin taxes in line with inflation. It also wants “open dialogue” with the government.
SA Breweries (SAB), owned by the world’s largest brewer AB InBev, is also unimpressed with excise tax increases. It recently started a social media campaign calling for no increase in sin tax this year.
The brewer pays lower taxes than many other alcohol producers because beer has relatively low alcohol content, to which tax rates are linked. But it says the yearly increases are disruptive to planning.
“Every year, our industry only finds out about excise tax the day the minister of finance announces it to the nation from his parliamentary podium,” says Hellen Ndlovu, SAB’s director of regulatory & public policy. “How can a business operate like this?”
She argues that business needs to plan and budget for long- and short-term investments, as well as its usual operating costs. But, “the annual mystery excise announcement throws a seriously big spanner in those works”.
She adds: “In many countries — even other countries in Africa — excise increases are often fixed for up to three years in advance.”
The annual “surprise” increase has been the order of the day for some time.
Using figures from the FM, economist Mike Schüssler calculates that excise tax on grain spirits rose 1,403% between 1991 and 2020.
With consumer price inflation stripped out, the increase is 153%, or 3.25% a year above inflation.
The excise tax on sparkling wine increased 480% above inflation between 1991 and 2020. Broken down into an annual increase, that’s 6% above inflation every year for 30 years.
So what can be done about SA’s harmful drinking in a way that doesn’t suffocate the liquor industry under the weight of taxes?
Frustrated industry executives often ask privately where the tax they already pay is going. (In 2019, the industry paid about R47bn in excise taxes alone.)
The Treasury declined to answer questions about whether additional taxes are needed to offset the costs of alcohol abuse, saying it doesn’t speak about taxation in the week leading up to the minister’s annual budget.
Parry and Van Walbeek say studies show SA’s tax revenue doesn’t come close to covering the costs to society from alcohollinked trauma, violence, ill health and chronic disease.
At the least, they propose minimum pricing at R5 per unit of alcohol (equivalent to 12g) — not a tax, but a “minimum floor price”.
Parry says this would increase the price of the very cheapest alcohol, and it would mean more money for the liquor industry per unit.
The number of units in a bottle or can of alcoholic drink depends on its strength, but Parry’s R5 per unit translates into a minimum base price of R13.75 for a quart of beer. It would mean the cheapest bottle of 750ml wine could sell for no less than R31.25, assuming alcohol by volume of just over 12.5%.
That may sound very low, but Parry says there are already cheap box wines that sell for less than R3.60 per standard unit of alcohol.
And you can purchase 750ml beers for less than R5 per standard unit if you buy them 12 at a time.
If minimum unit pricing were introduced, this practice would end. And it would probably have a bigger impact on heavy and binge drinking than, for instance, an increase in excise tax, according to Van Walbeek’s modelling, soon to be published in a medical journal.
The industry, however, says any increase in prices poses a risk to its business, makes illegally produced alcohol more attractive and is a threat to job creation. The industry already feels battered by surprise lockdown sales bans, rising power costs, existing taxes and a government that it complains has little time for it, except when it comes to collecting revenue.
If the price [of alcohol] goes up, unless one is very well-off, consumption tends to decrease
Charles Parry