A spoon (less) of sugar could sweeten budget

19 February 2017 - 02:00 By BRUCE WHITFIELD
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When Finance Minister Pravin Gordhan steps up to the podium this week to deliver his 2017 budget, he will carry the weight of expectation of a cash-strapped nation on his shoulders. He might do well to consult some Victorian-era literature.

It's not the stuff that radical 21st-century economic transformation will be built on, but one piece by Rudyard Kipling contains pearls of wisdom still useful today.

"If you can keep your head when all about you/ Are losing theirs and blaming it on you," Kipling wrote in 1895. "If you can trust yourself when all men doubt you,/ But make allowance for their doubting too;/ If you can wait and not be tired by waiting,/ Or being lied about, don't deal in lies,/ Or being hated, don't give way to hating ..."

If was presented as a rousing letter to his son John. It was inspired by Leander Starr Jameson, whose failed invasion of the Transvaal republic set in motion events that led to the bloody South African War of 1899-1902.

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Regardless of its origins, it reminds those under extreme duress to be stoic.

And Gordhan, caught between the lofty populist promises of the state of the nation address and the brutal reality of a possible ratings downgrade come the June review, is under extraordinary pressure. He has to deliver the political and economic equivalent of crossing a minefield blindfolded.

There will be tax rises. He warned last year that while he would cut R20-billion off government expenditure, he would need to raise another R28-billion in taxes. Just how he is going to wield the axe to failing government departments such as water and sanitation and ailing state-owned enterprises such as SAA remains to be seen.

South Africa has a gaping hole in its budget. The biggest problem with plugging such a hole is that you have to dig another hole to do so, or go and mine elsewhere.

That mining will come in the form of a rise in personal income tax for the highest paid, a continuation of the steady increase in wealth taxes for the rich in the form of capital gains and other duties on luxury, plus the usual fill-ups on fuel and sin taxes.

Raising VAT, even with the further zero rating of more basic goods, is politically contentious, so he will need to be creative.

Introducing a new tax is proving to be a hard sell. The powerful sugar lobby has been working hard to dilute the message that sugar is bad for you and amplifying the threat to jobs and inflation of making it more expensive. The complexities around regulation and labelling are also stumbling blocks.

There is a simpler way to tax sugar, one that extracts the most revenue and puts the onus on manufacturers to think differently about how they run their businesses. CEOs will revert to "research", "focus groups" and "changing consumer tastes" when challenged on the levels of sugar in processed food.

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If it became sub-economical to add an extra spoon of sugar to a jar of jam, the sauce of a ready meal or a carton of custard, they might find other ways of delivering superlative products and, in keeping prices lower, appeal to consumers that way.

By framing a sugar tax as part of a war on obesity, the department has made a rod for its own back and given lobbyists an opportunity to challenge much of the science around excessive consumption.

The National Treasury needs to admit the country is short of money and, by taxing sugar the way it does tobacco and alcohol, it will reduce the need for much higher personal rates.

The focus on fizzy drinks is also too narrow, and adding a tax on just one item is cumbersome. Also, a proposed 20% hike in prices could be a shock to the industry. Just tax sugar at the factory gate. Learn lessons from the failed e-toll scheme.

Start low and build incrementally. That way, the fiscus makes a turn on every gram sold, it's simple to collect, and, in time, it will simply be part of normal revenue collection.

Whitfield is a public speaker on the political economy and an award-winning financial journalist, broadcaster and writer

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