Rex Column 27 February 2017
Mixed signals 27/2
by Cees Bruggemans words 440
US and European growth appears to be gradually firming. Chinese performance appears to be stabilising. Commodity prices remain well supported compared to a year ago, lifting producer prospects. SA growth talk remains to the upside, even though its foundation isn't clear, and of the decimal point variety.
The political rhetoric is of a different quality. In the US it is revivalist in nature, while similar plain-talking battles are being fought all over Europe. In SA, the talk has become more populist, too. Whether the future will remain populist is another matter. Certainly complexity keeps increasing. And there are no simple answers to many issues, only hard ones.
The cocktails being bandied about, whether Trump (tax cuts, more spending, deregulation, jawboning businesses, changing the basis of trade, changing migration trends), or its European varieties, have yet to show their full reach.
Some markets respond positively, others hold back. Some people express rising confidence, others are less convinced.
The surprise this month in SA was to hear that the government revenue under-shooting was only partially attributable to a slow, effectively stagnant economy. Instead, SARS came under fire for being soft on collections.
The answer should be better policies, higher confidence and commitment, and this turning up our growth speed dial. Instead, we got household cash flow stripping on a spectacular scale, keeping only the rating agencies happy.
The successful ones find their tax rate over R1.5m income raised from 41% to 45%, raising R4.4bn revenue this coming year. Mostly these same people have their dividend withholding tax increased by a third, from 15% to 20%, raising 6.8bn. The income taxpayer base, the largest part of which contributed by high incomes, is not having its tax scales fully adjusted for higher inflation, collecting an extra R12bn. The fuel levy goes up 30c/l from April, and sin taxes (our daily addictions) are similarly raised, yielding an extra R5bn.
This is a professional striptease, attacking those who have least political say, or otherwise can't effectively resist what's being done to them. If you are going to drive, drink or smoke less, it won't last long, right?
Other than that, we are invited to patiently await the future. If we are unlucky in our national political leadership choices, the stripping could get a whole lot worse. Only if somehow the rudder can be thrown, and a new course laid, one that will inspire confidence, will our natural abilities start to shine through again, and will this systematic stripping at some point ease off.
That isn't much of an invitation, but it is the only one on offer.
Bruggemans & Associates, Consulting Economists