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ANDILE KHUMALO: Gigaba walks a tightrope - while eating cake

25 February 2018 - 00:00 By ANDILE KHUMALO

The 2018 budget speech has come and gone, forcing Finance Minister Malusi Gigaba to adopt the skills of a funambulist. The tightrope walk he had to do was never going to please everyone.
His defence is that we have a revenue shortfall of R48-billion thanks to slow economic growth and slower tax collections. In addition, his previous boss announced fee-free higher education and training in December, necessitating a large new allocation of R57-billion over the next three years.
The DA lamented that the budget "hammers the poor and is a legacy of Jacob Zuma's disastrous management of the economy of South Africa, as the increase in taxes is symptomatic of a government which has failed to plan ahead and make the necessary cost-cutting measures to shield ordinary citizens from poverty".
The EFF viewed the budget as still committed to the protection of capitalist accumulation - proven by the government's "refusal to raise corporate income tax instead of punishing consumers by raising value added tax, fuel levies [and] personal income tax".
In my view, all three parties are right.
A friend recently shared with me his modified version of the English idiomatic proverb "you cannot have your cake and eat it". It literally means "you cannot simultaneously retain your cake and eat it". Once the cake is eaten, it is gone.
My friend's revamped version says "you cannot have your cake and eat it and lose weight". What he means is that sometimes in life, you can actually have your cake and eat it. Every once in a while, the universe allows you to get more than you may deserve and actually get the best of both worlds.
However, you cannot have all that you want, all at once. You literally cannot have all your cake, eat all your cake and still lose weight. Something has to give.
The opposition parties are correct. The government could've avoided this. The past nine years have created a very uncertain and investment-unfriendly South Africa. There is no credible way the government can argue against this assertion. Even if it can argue that it may have not created the slow growth, government certainly had it within its power to stop scoring own goals and bring back confidence - the cheapest form of economic stimulus.
It took the victory of Cyril Ramaphosa 10 weeks ago to bring it back. That in itself is an indictment.
Be that as it may, we are where we are, and it is in the context of today's realities that the government is also right with its budget.
Remember, "you cannot have your cake and eat it and lose weight".
The only way to fund a deficit is borrowing. We do this with our own finances at home. If we need to buy something and our income is inadequate, we do one of two things. We either learn to go without, or we borrow. That is why most financial advisers will never encourage you to buy luxury items on credit. Borrowing should, as much as possible, be reserved for the necessary things in life, such as shelter and education.
To apply this analogy to the state coffers: we just got a salary cut of R48-billion this year and a new expense of R57-billion over three years, on top of the inflationary increases for the "necessary things in life" such as basic education, healthcare and social security. As in our households, the minister has to find more revenue, cut more costs where we can go without, and only borrow for what's necessary.
Raising taxes is never a good thing, due to the domino effect it has on investment, consumption, standard of living, job creation and inequality.
Our borrowing is also too high and is sucking in R180-billion this year alone in interest charges. Compare that to the mere R36-billion we will get from the tax increases in this year's budget.
It's clear. We cannot have our cake and eat it and lose weight.
• Khumalo is chief operating officer of MSG Afrika and presents Power Business on Power98.7 at 6pm, Monday to Thursday..

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