By Bernard Mofokeng and Nico Alberts
It is shocking that the South African government seems not to regard the now regular power blackouts lasting four hours at a time as the single biggest risk to South Africa’s economic growth and to its relatively stable young democracy. This can only exacerbate the existing lack of economic growth, and this may soon undermine the government's social agenda and the country’s economic stability. Both are extremely important in enabling government to redress the legacy of apartheid and prepare South Africa for a prosperous future.
According to the Council for Scientific and Industrial Research (CSIR), there was more loadshedding in September of 2022 alone than during the twelve months of 2020. Considering that loadshedding has escalated since then and that during December 2022 we are now experiencing regular Stage 5 and Stage 6 of loadshedding, it is reasonable to conclude that it is at unprecedented record levels.
Economists estimate the damage to the economy at over R4 billion a day and that growth to South Africa’s economy may have been stunted by about 10%. According to the Sakeliga member survey, most of the businesses surveyed stated that blackouts came with notable estimated losses in revenue and damage to property. The repair costs will either be absorbed by the businesses or will translate to higher insurance costs or, if not repaired, will have detrimental effects on productivity.
Based on economists' views, various business organisations and surveys conducted, it is obvious - at least to us and perhaps some people in government (though it may not appear so) - that damage to government revenue must be reaching unprecedented, elevated levels since the dawn of democracy. This is exacerbated by the fact that it is the SMME sector, which provides jobs in the informal sector, which is suffering the most. A number of these small businesses may have to close which will lead to an increase in the unemployment rate, and this will put additional pressure on government coffers. There are also job losses in the formal sector which will have an impact on the collection in all main sources of tax revenues.
According to revenue statistics published by National Treasury (NT) and SARS, government revenue is made up of about 89% of tax revenues. These tax revenues consisted in the 2019/2020 fiscal year of Personal Income Taxes (PIT) at 39%, Corporate Income Taxes (CIT) at 16%, Value Added Tax (VAT) at 26%, Fuel Levies at 6%, and Customs Duties and others at 13%. Between the 2016/2017 and 2020/2021 fiscal years, tax revenues have remained stable with an increase or decrease over the five years of only 1%. This means that in the 2018/2019 fiscal year, tax revenues were R1 287 trillion and in 2019/2020 only R1 355 trillion, representing an increase in revenue of only less than 1%.
An increase of 1% or less in tax revenue should not be acceptable in a country such as South Africa where we have many social needs that must be addressed. Where will the government find money to pay for the increasing need for quality education, social grants, National Health Insurance, health, and infrastructure?
More tax revenues could be raised from the creation of more jobs. This will result in more consumer spending, and more investment in production capacity that will result in more tax revenues that should enable the government to increase its investment in infrastructure projects. All these means real growth in PIT, CIT and VAT which constitute over 80% of tax revenues.
However, these tax revenues are seriously compromised by Eskom’s inability to provide South Africa with reliable electricity over the past 15 years. In fact, the government is sabotaging itself in achieving its stated plans for the people of South Africa. With increases in social unrest, theft of crucial infrastructure such as electricity cables and railway tracks and recent natural disasters such as floods, it is incomprehensible how the government is failing to see the crisis looming due to the lack of a stable electricity supply.
Short term gains in increases in fuel levy revenues are not sustainable as the price of fuel is dependent on many factors that the government cannot control, and the revenue is earmarked for certain expenses such as compensation to victims of road accidents by the Road Accident Fund. It is not rocket science to deduce that more jobs and a growing economy will result in more tax revenue. This will reduce the need for more government borrowings which, according to NT, were R500 Billion for 2020/2021 fiscal year. In 2021, NT confirmed that South Africa spends R303 billion annually to service debt, and this expenditure could increase to as much as R1 trillion over the next three years. This means South Africa is currently spending over 20 cents (20%) in every rand to service its debt. To reduce the need for debt, SARS must collect more tax revenues, but its job is made much harder when the economy is not growing at a healthy rate.
Government’s solution is to establish a National Energy Crisis Committee, approve the development of electricity by independent power producers while Eskom continually asks South Africans to reduce the use of electricity - a unique marketing concept devised by Eskom. Eskom continually gives us empty promises that they are improving the reliability of their coal fleet. As we have learned over the years, when it comes to electricity solutions and Eskom, there will be a huge price to pay for South Africans, one way or the other.
While government’s inaction and Eskom’s inability to manage its coal fleet continues, tax revenues continue to suffer, and South Africa’s coffers are running empty at an alarming rate. When will the government wake up and realise that this is South Africa’s biggest crisis since 1994 and sort out Eskom inefficiencies for all our sake and for the future of South Africa?
Bernard Mofokeng is a Partner: Head of Tax and Nico Alberts is a Senior Tax Consultant at CMS South Africa
BUSINESS REPORT