Invest your money offshore and die poor. This is a quip from Efficient Group chief economist Dawie Roodt. Speaking at the Free Market Foundation on the budget and fiscal condition of the country, Roodt emphasises the increased offshore institutional investment limits and says asset managers will certainly be maxing out on them.
And with an increase in estate duty, he recommends a good adviser to help minimise this death tax.
Roodt says that the budget is still very much a Jacob Zuma budget, presented by a Zuma minister. With national budgets being a three-year rolling design, there was simply no time to change the numbers. However, the medium-term October budget review could be more Ramaphosa-like.
A key concern for Roodt is the ever-ballooning state spend. "We are trying to spend ourselves rich," he says. "That is what wealthier developed countries can do. As an emerging market, we should rather be saving, investing and creating wealth — and we are certainly not doing this."
Way too much of state borrowing goes on current or consumption expenditure, such as this inflated payroll, rather than on longer-term investment spending. Interest on state debt is also the fastest-growing spend item and will soon be the biggest item
Roodt explains that if an economy slows, it’s fine for the state to increase spending. When the economy picks up, the government needs to limit its spend and focus on debt repayment. In contrast, when the economy revived, the government continued to spend, especially on public servants, state-owned enterprises (SOEs) and social grants — and there are plans for even more state spend over the next several years.
"This is our biggest problem" says Roodt. "The state is simply too big."
There are probably more than 3-million public servants in the broadest sense, and over the years they have received huge salary increases.
Roodt puts the average public servant earnings at 38% more than the private sector, when it in fact earnings should be lower, as the private sector worker takes on more risk.
Way too much of state borrowing goes on current or consumption expenditure, such as this inflated payroll, rather than on longer-term investment spending. Interest on state debt is also the fastest-growing spend item and will soon be the biggest item.
In this "awful" budget, Roodt notes the huge increase in personal income tax by stealth. He criticises the government for imposing such high personal tax rates, as well as relatively high corporate tax. In emerging markets, the model should be one of lower direct taxes and higher indirect taxes. "Instead, we are behaving like a wealthy country such as Japan."
On the value-added tax increase, he says this is the "least bad" thing to do if tax collection needs to increase.
Parastatals get a blast, especially Eskom with its constantly extended and increased guarantees. With Eskom’s recent downgrade, Roodt says this will pull the sovereign rating down. He is waiting for the death knell of Moody’s to seal junk status on SA’s international bonds.
And as if SA does not have enough ailing SOEs, Postbank is to get a banking licence and there is sure to be a bail-out in this regard. The bankrupt Road Accident Fund saga continues.
The appointment of Pravin Gordhan as public enterprises minister sits well with Roodt, who did not rate him highly as finance minister.
On state spend as a percentage of GDP, Roodt says things started going wrong on Gordhan’s watch. Under Nhlanhla Nene, this ratio came down, and Roodt is happy that the "technocrat" is back as finance leader.
Under Gordhan, running of SOEs will improve.
On state debt as a percentage of GDP, a key indicator for ratings agencies, Roodt says it took Trevor Manuel years to bring this down. But it has since been on the up, now at about 56%, excluding parastatal guarantees.
Roodt wants state spending to be reduced 2% in real terms annually, which is a whopping 8% in nominal terms. And he wants to see some ruthless moves from the new president.
• Gilmour is an investment analyst.
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