News in South Africa 3rd October:

1. SA has run out of money:

South Africa is facing a severe budget shortfall, and with a stagnant, over-taxed tax base and massive debt, the government has run out of ways to raise more money.

SA has run out of money
Photo by Nicola Barts

This is the warning from the South African Institute of Taxation CEO Keith Engel, who told Kaya Biz that South Africa’s tax base is not growing.

This becomes a problem as the government’s expenditure is growing. “So the problem is they’ve got to keep up with that, but we have had low to no growth for a long time,” he said.

“What’s happened is we’ve run out of options. South Africa can’t increase its taxes anymore because to tax people more is actually to reduce the economy.”

“So the best way to get tax revenues is to grow the economy that seems to be stalled for years and years.”

Engel said South Africa has expanded its tax base as much as it legally can. 

South Africa’s tax revenue comes mainly out of personal income tax. While corporate income tax is also a significant source, it is very volatile, Engel explained.

“As growth shrinks, the first thing that gets hit is the corporate tax so that when you’re not growing, you’re not going to get enough money out of it.”

Therefore, if the government wants to increase its tax revenue, “the best place to go is either personal income tax or value-added tax (VAT)”.

However, raising personal income taxes is not viable, as “at 45% top rates and the marginal rate kicking in so low, you’re actually just stripping the middle and the lower middle for the poor”.

Raising VAT is also a “politically unpalatable” option since it would affect all South Africans’ pockets. “If you raise VAT, you kill the growth even further. So that’s not much of an option,” he said.

2. Policy uncertainty eases:

Policy uncertainty in South Africa eased in the third quarter after better-than-expected economic growth data and as inflation eased to within the central bank’s target range.

The Policy Uncertainty Index compiled by the North-West University Business School fell to 71.8 in the three months through September, from a record 76.2 in the second quarter, the institution said in a statement on Monday. The baseline for the index is 50.

Uncertainty diminished after data showing the economy expanded by a better-than-expected 0.6% in the second quarter and inflation eased to 5.4% in June — within the central bank’s 3%-6% target range. Other sources of potentially positive news included closer collaboration between business leaders and the government on energy, logistics and crime, and South Africa’s successful hosting of the BRICS summit in August.

Still, the country faces a high degree of “volatility and uncertainty” in its growth dynamics, given ongoing power cuts and the strain that household finances are under, NWU said. Also weighing on sentiment is the renewed deterioration in South Africa’s public finances and uncertainty about how this will be managed when Finance Minister Enoch Godongwana presents his mid-term budget on 1 November, it said.

3. Worries over electricity price hikes:

The Portfolio Committee on Mineral Resources and Energy has completed its public hearings on the Electricity Regulation Amendment (ERA) Bill in Limpopo, with some members of the public concerned about the possible rise in electricity costs if it goes through.

The ERA Bill is seen as the most important piece of legislation for South Africa’s transition from a centralised electricity market to a competitive model, where Eskom can buy electricity from private generators.

The Bill aims to amend the Electricity Regulation Act of 2006 via the following:

  • To provide for the National Energy Regulator to consider applications for licences and the issue of licences;
  • To provide for revocation and deregistration of licences;
  • To provide for additional electricity, new generation capacity and electricity infrastructure;
  • To provide for the establishment, duties, powers and functions of the Transmission System Operator and transitional measures;
  • To provide for an open market platform that allows for competitive electricity trading;
  • To assign the duties, powers and functions of the Transmission System Operator to the National Transmission Company South Africa;
  • To provide for delegation and assignment; to provide for offences and penalties; and to provide for matters connected therewith.

The Bill received mixed views when the committee visited the Vhembe, Mopani, Sekhukhune and Waterberg districts in Limpopo.

Those who supported the Bill said that it would be better for South Africa to address the current shortage of electricity. Other supporters said they hoped the proposed amendments would take the pressure off Eskom.

However, there were some who were concerned that the new laws could lead to a rise in electricity costs as private companies start competing with Eskom in electricity generation, which would further disadvantage the poor.

4. Fuel price hike:

Motorists are facing another fuel price hike on Wednesday that will increase the price of petrol and diesel to only a few cents from the record highs of June 2022.

Of significance is that the records of June 2022 were the result of an extraordinary rise in oil prices when the benchmark Brent crude price spiked to nearly $140 per barrel, soon after Russia’s invasion of Ukraine.

Currently, oil prices are merely doing their seasonal uptick at the start of the Northern Hemisphere’s winter and sitting at a ‘reasonable’ $95 per barrel.

While the war in Ukraine is still a concern – leading to lower oil and gas supplies – the weak rand is a much bigger problem for SA motorists. In July last year, the rand fluctuated between R16 and R17 to the dollar.

The exchange rate has weakened since then, with the rand sitting at nearly R19 per dollar for the past few weeks and breaching the R19 mark in early trade on Monday morning.

Historic highs on the horizon

The prices of petrol and diesel, as well as paraffin and gas, are expected to increase to close to historic highs this week.

The Automobile Association (AA) warned in a recent report that South Africans should brace for more fuel price pain this month, based on unaudited data from the Central Energy Fund (CEF).

“Current data is indicating an increase to petrol of around R1.20 per litre and an increase to the wholesale price of diesel by as much as R2 per litre.

Illuminating paraffin is also set for another increase with the data currently showing an under recovery of R1.84 per litre,” says the AA.

“Should these significant increases materialise, they will push fuel prices to levels last seen in July last year, stretching the personal finances of South Africans even further.

“Higher fuel prices will invariably lead to higher prices at the till, and which will be a blow to many who are already experiencing financial distress.”

According to the CEF’s data, higher international oil prices are the main driver behind the expected increase. “The oil price has climbed substantially since August, mainly on the back of reduced output by major oil producing nations,” it says.

“The CEF’s data is showing that in the case of petrol, up to 80% of the increase can be attributed to higher oil prices while these prices are responsible for up to 86% of the expected climb [in] the price of diesel,” according to the AA.

The preliminary data showed that the exchange rate did not have a big effect then, but things have since changed.

5. End of load shedding by 2024?:

Speaking with JJ Tabane on Power to Truth, Electricity Minister Kgosientsho Ramokgopa said he expects blackouts to be gone by the middle of 2024.

He noted that more generating units are coming online, which has led to increased generation capacity.

At the same time, South Africa will receive the first consignment of power equipment from Chinese companies as early as next week.

This follows the agreements signed between the two countries on the sidelines of the BRICS summit.

All information sourced from articles posted by: DailyInvestor, Fin24, BusinessTech, Moneyweb, and eNCA.

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