Author: Mike Schussler Source: Economists.co.za
Budget 2013 Presentation 28 February 2013
Author: Mike Schussler Source: Economists.co.za
Budget 2013 Presentation 28 February 2013
Author: Mike Schussler Source: Economists.co.za
Blinding speeches hid facts from a speeding light.
This week the President opens Parliament with his state of the nation address. Again direction will be given and promises will be made and targets will get set. Faces with voices will provide comments and the press will scramble to print context. Colour will arrive and official sounding music will follow bangs from guns that salute. Deaf people will see the speech and the blind will see the vision too.
Outside; the insiders in the form of unionised workers will protest that not much is done for them. The Rand will scratch its new head heading back to where it was before. The President will show up some of our ills along with some medicine and we will again have a flashing light shown on the poor the down trodden folk and we will get direction for our direction to somewhere and vision and mission will again be relooked.
But the real truth even in long documents like the NDP will be lacking. Truth is in the eye of the beholder I guess but with only 4 out 10 adults working the truth is a bit harsh and solutions are more hidden but seemingly cruel.
Only a quarter of adults work in the formal sector and less than one out of nine countrymen are income tax payers; the poverty trap is now sprung. Speeches light up those in need of assistance from the taxpayers.
Our country has built a welfare state similar to Europe, while Europeans have found out that with 7% of the world population and half its welfare expenditure it cannot compete. We have more people on welfare than working folks; but still pseudo intellectual’s hearts tell them that the solution is more welfare.
There is no money for roads, dams or sewerage as is it is needed for welfare.
Everything we need from electricity to roads we have to pay extra for. So we have to ask for more money and the enterprises sit with higher wage bills as well as higher transport and electricity costs. A few more close or merge and again jobs are lost and inequality increases and the president shines his light on inequality again next year in an angry teacher tone. He teaches us that inequality cannot go on like this and says the insiders better be rewarded well as they cannot afford to support all of their extended unemployed family.
Already more than 60% of the revenue of JSE firms comes from outside our country’s borders and every unsaid fact points to even more expansion from outside and relatively small amounts inside. Even state owned companies are expanding in other countries as even they seek risk reduction.
Business says it certainly is not fleeing; it is only expanding and building a different risk profile. An enterprise explains that in Africa the risks are reducing fast and the rewards are still good while in our country the risks are increasing and rewards are frowned upon and taxed ever more.
Blinded by the light
Some solutions are coming at the speed of light; most are not comprehended yet. At the Nersa hearings on Eskom it was clear that government needs to sell equity and allow most of that to pay for overpriced power stations or not even those with jobs will be able to afford lights.
There is no money for more big roads, rail or dams unless we pay up front. South Africa has gone from post-paid infrastructure to pay as you go infrastructure; and that is impossible. The harsh dawn light is blinding us; still clearly South Africa like Greece and Spain will have to sell the airline, airports, ports and other so called jewels. Like unemployed aristocrats the expense of keeping up appearances of the castle is becoming an expensive farce.
Sure some uncles will kick up a fuss but an airline that cannot make it; competes with the many welfare cheques and welfare cheques vote while unaffordable electricity loses votes. Tolls help the opposition attract votes.
The big European social democratic experiment with an African flavour is a walking disaster. Within a decade Europe would have left most of the cradle to grave welfare state well and truly behind and will focus on things such as education and affordable people care to remain competitive. The African and Asian solution should be upon us and I bet in a decade or two there will be very few economic socialists left unless there is very little economic activity left.
I bet that in the end the light will go on for economic activity and only people with career limiting notions will have called themselves socialist then, just like it is very difficult to find National Party supporters at present.
The time it takes will be the time it takes to unlearn some of the propaganda that we have been fed over the years. South Africa was always a country with a socialist bend and while some social things will remain they will become less important for our future for the next few decades. Even the blind can see the bells toll for socialist policy.
Author: Mike Schussler Source: BankservAfrica
BankservAfrica index reveals why you feel like you have less in your wallet
Pressure on South Africa’s consumers is reaching an all-time high, with disposable salaries showing the same declining trend that preceded the 2008 recession. This is according to the latest BankservAfrica Disposable Salary Index (BDSI). Although chief economist at economists.co.za Mike Schüssler remains upbeat about our economic prospects, saying that we should be able to work our way through the pinch, he does expect the decline to be felt in the economy at large.
“Over the last two months of 2012 inflation managed to outpace the increase in disposable salaries, resulting in a drop in domestic travel and car sales, amongst other things. This may be the reason why so many people feel as if they had less in their pocket over December. Truth is, they did!
“In addition to declining bonus payments, the overall trend in the last few months seems to indicate a continuous slowdown in disposable salaries. This will certainly make itself felt in consumer spending over the next quarter or so,” he explains.
According to BankservAfrica’s CEO for regulated products Brad Gillis, in November 2012 the BDSI indicated that disposable salaries only increased by 1.7% on a year-on-year basis, while disposable salaries were up by 3.8% in December on a year ago. Inflation currently stands at 5.7%.
The end of high salary increases – for now
While salary increases remained fairly strong until August 2012 (with delayed government salary increases catching up in that month), Schüssler points out that the current downward trend actually already started in May and June 2012.
“Over the last two months the BDSI has shown that salary increases are negative in real terms (after taking consumer inflation into account). The November 2012 real percentage change was the biggest decline on record,” Schüssler says.
“In the end, neither government back-payments, nor the higher wages paid by the mining and transport industries could help the average disposable salary much, as other sectors were unable to increase salaries at the same rate.”
Schüssler also suspects that many employees have come into higher tax brackets and along with more garnishee orders and higher debt burdens, this has reduced disposable salaries.
“A repeat of the double digit salary increases that occurred at the end of 2011 is unlikely for the time being. With government finances under pressure, the budget vote later in February will probably also not offer much relief.”
What happened the last time disposable income came under pressure?
Gillis explains last year saw the largest number of months with year-on-year declines (four) after inflation in disposable salaries on a year-on-year basis since 2007 (five). “The 2007 decline in salaries was followed by a recession when retail sales declined, and borrowing requirements became more difficult in 2008.”
Schüssler says that while there is sometimes a disconnect between consumer spending and disposable salary increases, having less money to spend generally does catch up with consumers.
“They often borrow to make up the shortfall, hoping for higher salary increases in the future. The bigger picture reveals that consumer borrowing cannot continue unabated.”
The next step: expect pressure on the retail sector
According to Schüssler, disposable salaries are a leading indicator for retail sales.
“We suspect that the current weakness in the increase of disposable salaries is already starting to carry through to retail sales. This is also evident in the decrease of over 10% in domestic air travel over the year up to December. Travel is one of the first things consumers tend to cut out on when under financial pressure,” says Schüssler.
“Unfortunately, real retail sales increases are expected to be in the low single digits for the time being.”
Weak retail car sales growth in December is probably also an indication that the consumer is a little stretched, as 40 consecutive months of year-on-year petrol price increases will be reached in February.
The new BankservAfrica Disposable Salary Index: Where the data comes from
The new BankservAfrica Disposable Salary Index (BDSI), launched by Africa’s largest automated clearing house today in Johannesburg, is ideally suited to provide the South African economy with detailed data on the amount of cash consumers take home every month.
The data presented in the index is obtained from more than a third of actual salary payments made in South Africa’s formal economy, explains Brad Gillis, CEO regulated business at BankservAfrica.
“Every day large companies, salary bureaus, remuneration companies, government and data centres send salary data for processing to banks. If the employee uses a different financial institution than his employer does, the data would normally go through BankservAfrica. This happens only when the transaction occurs between different banks and not within the same bank,” says Gillis.
The data received by BankservAfrica is defined as a salary, pension or wage payment. The ‘normal’ salary data is then extracted, resulting in between 4 million and 5.5 million transactions per month, with an average of more than 4.7 million per month over the last year. This number, however, does not reflect the full picture, as some salaries are paid weekly, whilst others may be bonus payments.
According to Mike Schüssler, chief economist at economists.co.za, the data is then analysed to present further detail by separating salaries and pensions, for example.
Moreover, regular salary payments are made on all days of the month. Weekly payments show a repeating pattern with approximately 160 000 payments on Fridays, close on 100 000 on Thursdays, and 80 000 payments on Mondays. Even Saturdays have 15 000 regular payments, bringing the total number of weekly payments to nearly 380 000.
There also seems to be a bi-weekly pattern of around 75 000 payments.
“We adjusted the weekly data to come up with one figure of what an individual would earn had they been paid on a monthly basis,” explains Schüssler.
Once this figure was added to those who were paid monthly, it was clear that the BankservAfrica data represented about three million people out of a formal work force of about 8.3 million, excluding agriculture, using the Quarterly Employment Survey from Statistics South Africa as a guide.
“We believe that most of these employees are full-time and that our sample size on full-time employees is probably slightly more than 36%. Part time employees are more likely to get cash-in-hand type payments,” Schüssler explains.
Variables in the data are explained by the fact that many companies pay bonuses in November / December, and by seasonal patterns. Fewer salaries seem to be paid in May and June, for example, and many companies employ extra workers over the December holiday season.
All social security payments, representing around 3.8 million payments of about R1 000 per month, have been removed from the data set.
Some caution on what the data represents – and what it does not
• These figures represent the formal sector, but may over-represent larger employers. Indications are that over 90% of large employers use BankservAfrica’s systems, but less than 30% of small employers do.
• The data is not a good indication of employment trends and should not be used for that. They reflect disposable salaries paid electronically via the South African banking system.
• Actual monthly estimates are within a 5% range and should not be seen as an absolute number, since we have insight of about 36% of the formal workforce.
• Our figures do change from month to month, but to smooth sometimes volatile data, the BankservAfrica Disposable Salary Index uses three-month moving averages.
• Whilst the figures have a close relationship to retail sales, retail figures are also influenced by interest rates, which may increase discretionary income as well as economic cycles and its effect on consumer borrowing in the South African economy.
Launch of BankservAfrica Disposable Salary Index brings news of economic challenges
The BankservAfrica Disposable Salary Index (BDSI), launched today in Johannesburg, indicates that consumer spending is likely to face further challenges as disposable income seems unable to keep up with inflation.
The BDSI is the second economic index launched by BankservAfrica, Africa’s largest automated clearing house. The company has been offering insights on the economy through the BankservAfrica Economic Transaction Index (BETI) since March 2012, providing near real-time information on economic growth.
BankservAfrica facilitates electronic salary payments on behalf of the banking sector, and processes more than a third of all salaries paid in South Africa. By giving role players access to these statistics through the BDSI, BankservAfrica can provide a strikingly clear picture of South African consumers’ disposable income and their behaviour.
What the first BankservAfrica Disposable Salary Index is saying
Disposable salaries – income after income tax, UIF and company deductions had been made – grew at their lowest level since September 2005, at only 3.3% year-on-year, compared to 5.1% in May. According to Mike Schüssler, chief economist at economists.co.za, this confirms that the economy is slowing.
“All things considered, South African consumers will be increasingly under pressure as disposable salaries cannot keep up with the rising cost of living.
“The strongest expenditure sector in the economy over the recent past has been the consumer. This growth is likely to slow unless the consumer borrows more – but it is clear that the consumer is not in a borrowing mood.”
The average South African disposable salary
The median monthly disposable salary, when weekly and bi-weekly payments are taken into account, is currently between R8 000 and R9 000. Around 7.6% of salaried individuals earn this amount.
The biggest category, which accounts for about 12.7% of all employees, is the R10 000 to R12 000 bracket.
Only 20% of disposable salaries are above R14 000 per month, while just over 25% of monthly disposable salaries are below R5 000 per month. In June 2012, the average monthly disposable salary was R9 724.
The average formal sector salary before taxes and pension, is estimated to be around R14 000 per month. However, salaries paid by larger companies are likely to be over R15 000 before tax, pension and medical aid deductions.
The BDSI represents an estimated three million salaried employees as of June 2012. Using Quarterly Employment Survey Data from Statistics South Africa, and Schüssler believes that this figure represents about 36% of all formal, non-agricultural employees.
The data has also shown that the average disposable (mainly private) pension was less than half the average disposable salary in June 2012, at R4 018. The BankservAfrica data allows for separation between pure salaries and a broader pension category, which seems to represent about one million people.
“All in all we believe that the data could represent a combined number of up to four million South Africans, although the Disposable Salary Index tracks only about three million people on a ‘pure salary’ basis,” Schüssler explains.
An opportunity to serve the economy
Up-to-date data about such a large section of the country’s workforce can be invaluable to institutions like the South African Reserve Bank, says Brad Gillis, CEO regulated business at BankservAfrica, as it will indicate if demand-side factors are playing a role in price increases.
“The index will also help us better understand household consumption, as this is the largest expenditure category in Gross Domestic Product (GDP). Retailers should be interested to know how much money consumers have available to spend, or to what extent they are accessing loans,” he explains.
“The index highlights the difference between salaries and pensions, which can be very helpful to policy makers and marketers alike.”
Author: Mike Schussler Source: BankservAfrica,Economists
Global economic woes hit South Africa
The global economic cold front has finally arrived with enough force to bring South Africa’s economy dangerously close to negative economic growth, with the BankservAfrica Economic Transaction Index (the BETI) indicating its worst level in a year.
Author: Mike Schussler Source: BankservAfrica,Economists
The BankservAfrica Economic Transaction Index (BETI) has slowed down further on a smoothed basis indicating that whilst economic transactions are still growing, the growth rate of such transactions are in themselves slowing down further.
Author: Mike Schussler Source: BankservAfrica,Economists
BankservAfrica Economic Transaction Index
Introducing the BankservAfrica BETI The BankservAfrica Economic Transaction Index (The BETI) is the broadest and earliest business cycle indicator that is released on the economic calendar.
Author: Mike Schussler Source: Moneyweb
Budget time always brings some alternatives and much debate across the country. But a little known fact needs to be put out in the public mind.
Only 4 out of every 10 adults are employed in South Africa. This is much lower than the 6.5/10 for the rest of the world. The local economy therefore has too few jobs and employers are hard to find.
South Africa’s economy ranks within the largest 25 economies in the world and is strategically very important. The economy should therefore have a better track record to attract long-term fixed investment employers.
Unfortunately, our track record is very poor. A surprising fact may have played a very big role in the non-investment in the country. What is this surprising fact? South Africa’s companies pay the second highest effective tax rate among the biggest 60 economies in the world. (2009/2010 data from Tax statistics from National Treasury).
Yet South Africa has one of the smallest tax bases in the world and one of the countries with the fewest number of employers and companies paying tax.
Over the past 8 years, the average effective tax rate in developed countries has been less than half of what South African companies pay.
Effective company tax rates are often compared across countries when companies have to decide where to expand to. The effective tax rate has very little to do with the corporate tax rates. Most companies today understand that is a political sleight of hand as many exemptions and write-off methods exist which lower the effective tax rate. It has to do with actual tax ratio as a percentage of the size of the market.
The OECD has kept very good tax statistics for some years now as do some other countries and it makes for eye popping reading – at least for South Africans.
OECD data released at the end of 2011 shows that the average tax payment as a percentage of GDP in the developed world is around 3% (2.8% in 2009). The highest effective corporate tax to GDP ratio in 2010 was in Norway, where it was 9.7%.
What is SA’s rate? The SA Effective tax rate is 6,2% or twice the rate of the developed world average, which one would expect would be higher than a developing country such as South Africa and certainly a country without a large tax base. This has been the case for the last eight years at least. In essence South Africa is the total opposite of Greece where companies actual pay a huge amount of tax and then also get blamed for all the world’s ills.
The Government has been complaining that the local economy is getting too few green field projects that really create jobs. The most notable one we have received was in the motoring industry, but at a massive cost as the incentives and protection for the industry comes at a cost of nearly 1% of GDP.
Simple fact is that South Africa is chasing away foreign investment not only through rhetoric, but also with the high effective tax rate.
I have personally told the DTI that taxes are a big factor, but the officials did not welcome this view.
The fact that South Africa is one of only three countries that has had a consistent effective corporate tax rate of over 5% of GDP over the last eight years shows that the government is not serious to attract foreign investment.
In effect this strategy results in the perpetuation of poverty.
South Africa is the only developing country that I could find whose effective corporate tax rate is well above 5%. The average among most developing countries seems to be between 1% and 2% of GDP. This illustrates the pressure on firms and entrepreneurs to invest and to create employment.
Added to the high effective corporate taxes are other high rates for basic services such as electricity, water and property rates. Local businesses also spend more than most other countries on education of employees.
Effects of high effective corporate taxes
The most tangible effect of South Africa’s high effective tax rate is the absence of greenfield projects by foreign or local companies.
As a foreign businessman once told me – “you (South Africans) seem to believe that anti-business rhetoric and high taxes are not enough punishment (and therefore) you want even more punishment in the form of unemployment.” This will therefore mean that South Africa will continue to find significant foreign investment.
This fact is highlighted by the UNCTAD world investment report that shows that although South Africa has the biggest economy in Africa, it is only the tenth most popular investment destination.
The reality is that foreign companies do not want to do business in a country where too much of its profits go to the government in the form of taxes. Investment decisions are made on profit ratios. It is as simple as that.
Another effect is that the talk of nationalization is just hot air. If companies pay up to 8% of GDP into different forms of taxes, how the hell are you going to pay for nationalizing them? The act of nationalization will result in the government losing a third of its tax income. Unless you want welfare dependency to go cold turkey in a matter of months and the resultant political riots you had better leave all talk of nationalization.
A third factor is that business will have a bigger voice in the future. Apart from the high effective tax rate, businesses are required to adhere to labourious labour and empowerment laws.
I can tell you that if a country has ever fewer businesses in the bigger scheme of things they will have an ever bigger say as they are relied on more and more to pay the government machine. This is simple demand (Government has a demand for taxes to pay welfare cheques and salaries) and supply (The number of companies able to create wealth who can pay taxes).
In countries with only a few big firms as big employers as is the case in some developing countries, it is noticeable that in many (not all) effective corporate taxes are closer to 0% of GDP while published nominal corporate tax rates are often 50% or more.
If this continues will these companies and not the people then choose the president and his ministers or even the policies. Relying on too few companies is not good for democracy either. Maybe that also could be a lesson
The Alternative title could have been: Honey I sold the country and now the bastards want to let me go!
While SARS has become more effective, a high effective tax rate constrains companies to investment meaningful amounts in the local economy. The tail will wag the dog and South Africa will have to find ways to lower effective tax rates to incentives firms to invest and to create jobs.
I hope that the Treasury and the consultants drawing up the national budget take this into account. Government needs to learn that they should help companies and that additional costs will only result in lost investment.
Author: Mike Schussler Source: Business Live
This story has a bit of a complicated statistical start as the way self-employed or own account workers are counted has changed over the past ten years. But if you dig around a bit, you find that a million self-employed people have disappeared.
The story starts in 2002 when Statistics South Africa published a survey analysing Non-VAT registered Businesses for 2001. This survey showed that there were 2.3 million unregistered businesses with an estimated turnover of less than R300 000.
Around 1.9 million of these businesses had no employees. The other 300 000 businesses were employing at least one individual, even if the person was not paid. (The two numbers do not add up to 2.3 million due to rounding.) The Labour Force Survey of 2001 estimated that another 260 000 self-employed individuals were registered for VAT. The survey showed there were close to 2.2 million people who were self-employed, either registered for VAT or not. Fast forward to 2010 to the recently released Labour Market Dynamics published by Statistics South Africa. While the jargon changed to “own account workers” to describe the self-employed, the statistics show that there are now only 1.2 million.
This means roughly one million self-employed entrepreneurs have disappeared between 2001 and 2010. This suggests a 45% reduction of self-employed entrepreneurs, a rather a large number which alone could reduce unemployment numbers by a quarter.
Remember that the self-employed are the basis from which the next set of new entrepreneurs should develop. These entrepreneurs will become employers and this is the key to address South Africa’s mammoth unemployment problem. The recession and tough economic climate of the past few years may have attributed to the apparent vanishing of the self-employed.
But the recession is not the big reason as by 2005 –well before the recession- the number of self-employed had reduced to approximately 1.6 million. This indicates that disappearance of the self-employed are not only a recent development but a longer term trend.
Perhaps the fact that in 2001 about 50% of our self-employed were African women who were dependent on their entrepreneurship to survive and now have access to Welfare cheques may be another contributing factor. But this alone cannot explain the disappearance of the self-employed. Today African women still represent around 40% of the self-employed today and many would have continued with their entrepreneurship as it would increase household income.
Perhaps it is the official red tape and attitudes of others such as local governments who chased the self-employed off the streets while creating “new markets” far away where there are no customers.
Perhaps it is that we as a country no longer want to run their own businesses, but rather wait for government. No simple reason can actually explain what happen to the missing million self-employed.
Internationally could it be an even bigger number?
Another factor that is puzzling is that a typical emerging market country has about 40% of workers who are seen as vulnerable, according to the ILO. Vulnerable workers would be so-called own-account workers and unregistered workers (informal employees and self-employed in plain South African English).
The self-employed make up only about 9% of South Africa’s employment and our total informal market makes up about 17%. Therefore about 40% of emerging market jobs are “informal” compared to about 17% of South African jobs.
The ILO reports that Self-employment in many emerging markets is usually over 20%. For example Thailand has 37,6% of its workforce as self-employed while Turkey is at 21,6%, Brazil 24,6% and Korea at 22%.
South Africa should in all likelihood have at least 3 million self-employed from which our next generation of employers can grow from. That is only 10% of our total adult population but around 20% of our labour force.
So the Mystery deepens as the “missing” self-employed. Using emerging markets as a base the missing could quite easily be 1,8 million self-employed people – assuming just 20% of our labour force in similar countries are self-employed.
South Africa currently have approximately 700 000 employers. We would need to see around 300 000 “self-employed” becoming employers to push this number to 1 million – the number of employers we would need to bring our employer numbers closer to the international average of 3.5% of adults.
In South Africa, the average employer employs just over 15.7 employees. If another 300 000 employers can migrate from the self-employed category, this could add 4.7 million jobs to the economy.
If the international norm is extrapolated to South Africa, we would see another 1.8 million self-employed individuals. This just shows how important the missing self-employed is.
These two numbers combined would add 6.5 million jobs or employed adults to our country’s statistics. It would add to everyone wealth and welfare and it would add huge numbers to our GDP say another 15-20%.
Interestingly, the number of unemployed and discouraged work seekers also number around 6.5 million.
The mystery of the missing million remains a reality, it will not be resolved by opinion pieces and fancy statistical manipulation. But it would suggest that it is a topic that should receive priority treatment and be investigated immediately. At least a part of the solution must be getting the missing million or perhaps even two back into the economy.
South Africa will not see the unemployment rate decrease if the unemployed merely wait for a decent job. We need people to try and start their own businesses – however small at first. Remember the typical net income for the self-employed is around R2000 per month. That missing million would add at least R24 billion to our GDP and reduce unemployment by a quarter to under 20%.
Solving the mystery of the disappearing self-employed may just solve our job crisis.
Mike Schussler economists and entrepreneur.