Fin24

SA in for R5bn tax knock on pay freeze

2012-10-18 12:59

Johannesburg - Government will lose an estimated R5bn if salary hikes of CEOs and executive directors are frozen, a chief economist at Econometrix said on Thursday.

"Assuming that the executive directors and CEOs received an increase of 7% to 8%, South Africa would lose R5bn in tax revenue in 12 months," said Azar Jammine in a telephone interview.

He together with other analysts have warned that freezing salary hikes was dealing with the symptoms of inequality instead of the root causes.

"The cause is that South Africa has low levels of education and skills development... many of the people are not employable.

"The solution is in the government's national development plan. I was surprised it was not mentioned during this meeting," said Jammine.

Lulu Krugel, economist at KPMG, said freezing salary hikes could be a good gesture but would not end inequality in South Africa.

"If we want to address inequality we have to get a long-term solution. We should not think that we can use one thing to solve everything," she said.

She said freezing salary increases of those who earned high incomes could send a positive message to the workers, but would not end tension between the workers and their employers.

Independent economist Richard Downing echoed Krugel's view.

"We are trying to fix the symptoms and not the problem that is causing inequality.

"There is a dichotomy between what government thinks is the way the economy must go forward and what business views as the way... It is much more than just a labour dispute," he said.

Downing pointed to the lack of law and order as one of the main causes of the unstable economy.

"People can't keep to agreements."

He warned that freezing salary hikes would negatively affect the fiscus in the long term.

"Our tax base will be eroded and our economy base will be eroded."

Isaac Matshego, economist at Nedbank, was also not convinced that the freezing of salary increases would end the current tensions between workers and employers.

"It's an appropriate gesture in the current environment. Whether it will lead to any fundamental change in improving relations between workers and employers, that is not known," he said.

On Wednesday, President Jacob Zuma announced the outcomes of his second meeting with business, labour and community representatives which was aimed at addressing the economic challenges facing the country.

All parties made a call on CEOs and executive directors in the private sector and senior executives in the public sector to agree to a freeze in increases in salary and bonuses over the next 12 months, as a strong signal of a commitment to build an equitable economy.

They also called for an informed national conversation on income inequalities and how best to address them.

A committee would be set up to consider the local and international experience in addressing income inequalities and would develop further proposals within the next six months.

On Thursday, Economic Development Minister Ebrahim Patel reassured the public that the freezing of salary increases would also take place in the public sector.

"Everybody must show some restraint. We've got to do it in the public sector, we've got to do it in the private sector," he said.

Strikes in the mining industry that spilled over to other sectors caused rating agencies Moody's and Standard & Poor's to downgrade South Africa's economic outlook.

There was a general concern among analysts that the downgrading would reduce the country's attractiveness as a foreign investment destination, and that this would hamper job creation.

Comments
  • Cameron - 2012-10-18 13:10

    I guess we can expecting more violent strikes from those who will be affected by the freeze....

      rejeanne.nel.33 - 2012-10-18 13:17

      This was Zuma's suggestion. Think about yesterday's meeting when he and Vavi and a few others were brain storming about which direction SA's economy should be steered in. Our Economic future are in the hands of dumb and dumberer Eish I see a bad moon rising.

      mark.ross.779 - 2012-10-18 13:24

      From the high earners? CEOs, COOs, upper management etc? I doubt it. Not really the striking, violent type. I don't see how they would even monitor this. Silly proposal which will never be enforced.

      alan.gernet - 2012-10-18 13:36

      well when it comes to Juju - I also see a Bad "Moon' Rising, Moon being the operative word!

      daleinn - 2012-10-18 13:37

      people on the ground wont understand the effect of their actions, but rightly so , they have a right to a salary that meets with rising inflation,and and cost of living. those in management that would be affected public or private wont feel the pinch , but a cushioned when faced with rising costs. At the end of the day the government cant have its bread buttered on both sides, keep toying with hiking fuel , electricity , rates , transport costs.. benefiting from taxes received from eskom ,businesses fuel levies, incorrect billing, etc. and still expect consumers to survive, it has to bite back!!! Government needs to lower the cost of living for the consumer at the bottom, so that strikes do no escalate!!!

      gift.mushi.9 - 2012-10-18 13:38

      E-toll coming up soon, Petrol keep on rising, Food prices will be going up, Public transport (including Gautrain will rocket) and there wont be salary increases. I hope the freeze will only end at executive level and not the working class. What Education does JZ have. He earn R2.6m pa., he does not pay petrol, he does not buy groceries nor clothes, he does not buy lunch, he get bribes and millions channelled from Tenders awarded to his friends. What effect does it have to him and his exectuive because the status quo is the same?

      alan.gernet - 2012-10-18 13:38

      Of course it's a silly proposal and unenforcable. It was the best that the powers that be could come up with though, becasue there is no quick fix. Without the cornerstone of education and a good work ethic and productivity .. nothing can ever change in SA or elsewhere in the world for the uneducated workers. Sad, but true. So maybe Zoomzoom wants to address education, some 18 years on?

      clive.schonken - 2012-10-18 14:01

      Why do you think Zumaville (Nkandla), is equipped with an underground bunker and a helipad? Is it because he is so important or is it that he is aware of something something that we are unaware of?

      claudia.meads - 2012-10-18 14:10

      andre.rabie.14, "...people are not employable..." Then you said - "...brings us back to education..." - but these people are not only unemployable, they are.., UNEDUCATABLE So what now..?

      alan.gernet - 2012-10-18 14:28

      @rejeanne - yah with ZoomZoom and Vavi the Chameleon trying to plot the way forward, the outcome of the 'brain'storm was a foregone conclusion. Love the Dumb Dumber....!!

      lerato.kay.3 - 2012-10-18 14:38

      I think these analysts are economising with the truth to save their skin as most likely they fall in this category. By foregoing an increase of 7% to 8%, South Africa would lose R5bn in tax revenue in 12 months according to Azar. To break it down, SA has 13.7million registered individual taxpayers, despite some serial liars on this blog’s claim that we only have 5 million taxpayers! In 2011/12 tax year Sars collected R251.6 billion which grew by R23.5 billion (10.3%) year-on-year and were R1.0 billion (0.4%) above the Revised Estimate in the 2012 Budget, thanks to Sars efficiency. By not giving these fat cats an increase we are told Sars will lose R5billion, work it backwards it means these guys contributed R72billion in income tax last year. This implies that these guys contribute 28% of the nation’s income tax, wow! Its better to freeze their salaries and the government can either cut on its spending or take the R5billion from reserves. Freeze the salaries already!If these guys get an increment its inflationery since they represent 28% of SA's income hence by freezing it the gvt can contain inflation. It will work in the short term though!

      michael.mbatha.5 - 2012-10-18 14:51

      The second paragraph does not make sense to me. It does not link up with the headline. The headline says the gvenmnt will lose R5bn if salaries are frozen while in the second para they say the the same R5bn will be lost if there is a 7-8% INCREASE in salaries? A freeze and an increase same R5bn loss? Also none of these economists are explaining how the R5bn will be lost. I disagree with them.The opposite will happen. If salaries are frozen,the salary expense line drops from what it will have increased to, therefore the bottomline will increase because expenses are lower. So the gvenmnet will tax a bigger taxable income. Something is missing in this article to convince me otherwise.

  • seymore.butt - 2012-10-18 13:11

    That's bull, most of these high earners avoid paying taxes at all cost and the lawyers/CPA help them do that. No loss in revenue for the govt there!

      alan.gernet - 2012-10-18 13:39

      what utter rubbish! Where you get dem socks yah smokin?

      patrick.mbense - 2012-10-18 15:25

      Wow seymore you a fool.You almost as bad as Zuma uttering these statements while not even taking into account the consequences. We are being run by idiots in this country. We need a Ramaphosa or Sexwale as leaders!

  • koos.meyer.52 - 2012-10-18 13:13

    Fine for Zuma when us taxpayers spend R240m doing up his house, who is going to pay to upgrade my house???

      Eterni80 - 2012-10-18 13:38

      who is going to pay for us to secure our houses against the inevitable onslaught from the unemployed who become criminals, unlike the employed criminals who run the country in the form of the ANC..

      SarelJBotha - 2012-10-18 14:03

      If the taxpayers spend that money on Nkandla we want to own shares equal to what we spend and we want dividends on that money as well.

  • thethird.wors - 2012-10-18 13:16

    as usual these retards speak before any hint of a thought passes through those skulls.

  • motho.batho.98 - 2012-10-18 13:17

    Economists' comments are far fectched, we do have a lot of junior employees with higher and better education levels than CEOs. Remember that there are matriculants who are CEOs of JSE listed companies.

      gordon.turner.37 - 2012-10-18 13:27

      and nursery school graduates that are presidents. You miss the point... the concept of a pay freeze does nothing to lift the poor and only diminishes tax collection which will HURT the poor. Education and skills is what is needed at the bottom of the chain.

      henk.vanrensburg.31 - 2012-10-18 13:27

      Jip and standard 3 Presidents....

      denis.dendrinos - 2012-10-18 13:54

      gordon - exactly what I said last night, just getting less tax money (which is never used for the poor or the countries development anyway) to be used.

  • steve.ritchie.739 - 2012-10-18 13:18

    A long term solution IS obviously what SA needs. EDUCATION, and the cANCer has seriously cocked that one up.

  • konstabel.koekemoer - 2012-10-18 13:18

    The pay freeze idea is another knee-jerk reaction by our incompetent leadership. Salaries are generally determined by supply and demand so the only way to decrease the huge difference is through education and significant growth in the economy resluting in job creation. In countries where the gap between high and low earners is smaller they generally have high levels of education and low unemployment. So Mr President, tackle the real issues instead of trying to score some cheap political points with your voters.

      denis.dendrinos - 2012-10-18 14:16

      the suggestion is simply to try and buy time - appease the uneducated masses into thinking it'll help while Zuma finishes Nkandla, then least he safe when they realise they still poor and uneducated and in fact probably worse off than now.

  • jurgen.eksteen - 2012-10-18 13:20

    No more Zumaville then?

  • luvo.luvos - 2012-10-18 13:23

    To mention one CEO who earns R800k per month and a band of other who earn R280k/month. Could someone please explain what do these people do to deserve these outrageous amounts. Worst of all is that their companies tend to plead poverty when they have to raise other workers salaries.

  • johan.erskine - 2012-10-18 13:25

    Yes but he doesn't think that far.. R5bn.. Think of how many houses you can built then.. FOR YOUR SELF...

  • gerald.marais.3 - 2012-10-18 13:26

    The President should be the example and decline the about 5% salary increase due to him and freeze the salary increase of the ministers too.

  • henk.vanrensburg.31 - 2012-10-18 13:26

    Ag asseblief! They have now Idea how to fix the mess called South Africa. Time that the people get rid of this bunch of terrorists

  • Rooinek007 - 2012-10-18 13:30

    Another fabricated headline by news24. Zuma doesnt have the power to control people's salaries, unless they're parliamentarians. Anyone with some sense knows that Zuma will say anything now just before the ANC choose who the next president of ANC is. Its this kind of news sensationalism that sells news papers and increases page hits, and gives extra power and coverage to people like Malema.

  • billyandrew.croucamp.5 - 2012-10-18 13:30

    That figure of R5bn is the same as amount that ANC spent this last year on entertainment and traveling according to recent article published by you this past week..... so what the hell, these fat cat bafoons can stop entertaing and traveling.

  • Eterni80 - 2012-10-18 13:34

    this is what happens when you set the alcoholics to guard the alcohol..

  • shaun.knoesen.9 - 2012-10-18 13:34

    Just some more proof (as if anyone needed more) that our very intelligent and highly capable government really did their research before coming out with this grand plan....

      alan.gernet - 2012-10-18 13:45

      hey - it's not their fault the text books never arrived when they were in Std6

  • israel.maseko.5 - 2012-10-18 13:36

    Zuma is indeed failing, I think we should make a vote of no confidence before is too late. HE MUS T BE REMOVED WITH IMMEDDIATE EFFECT.

  • TshilidziPhuravhathu - 2012-10-18 13:38

    I can just see the CEOs,MDs amd Directors downing their iPads and lap tops and going on strike...

  • LeahKnott28 - 2012-10-18 13:38

    And all this a few weeks AFTER Zuma and all government officials got their salary increases??? How about freezing increases and bonuses within government departments that aren't producing results, I know we don't get rewarded for poor work performance so why do they? Fix the education crises, there is the root of your problem, if people don't get proper educations then how can you expect them to get jobs at all? The solution is not to punish people for doing well, especially people whose earnings contribute to the economy via their taxes, isn't that what we learn from a young age - work hard and reap the rewards??

  • marian.ott - 2012-10-18 13:39

    So says the man who himself has just been granted a fat salary increase!

  • heinrich.spreeth - 2012-10-18 13:44

    Did someone actually take Zuma seriously????

      alan.gernet - 2012-10-18 14:30

      nah

  • Lana Van Der Berg - 2012-10-18 13:45

    I've been in my current job for 3 years and have had NO bonus and only a 4% increase! In the mean time petrol, food and electricity goes up and Zuma uses over R200m of the taxpayers money to upgrade his house while the rest of they country has to eat for less than R10 a day! What a bloody cheek! look at your own exorbitant expenditure first before taking away my livelihood!

      LeahKnott28 - 2012-10-18 13:50

      And don't forget the R500 odd million for the roads to his house in Inkandla.... That's on top of the R194 odd million he spent upgrading his various homes last year. I would love to know how it costs that much to upgrade an already existing home, why not just build brand new ones, it would certainly cost less.

  • dave.ueckermann - 2012-10-18 13:45

    Didnt Zuma just get a salary increase? a few days before making this judgement, how nice Mr Prez. U ARE THE WEAKEST LINK - GOODBYE.

  • gvangreunen - 2012-10-18 13:46

    Is it just me or does everyone else also feel that our great leader JZ and his cronie Ebrahim Patel might of had the foresight to consider this ramification???

  • sisie.indola - 2012-10-18 13:47

    Now you see why Zuma & Zille will never debate the economy of the country, Zuma has no idea - he listens with half an ear and thinks "brilliant" even before it is thought through and all that happens is that the "saviour" thinks he is making such grand gestures and coming up with first rate idea, but really all that is happening is the ignorant comes to the fore and dumb becomes dumbest.

  • John - 2012-10-18 13:48

    JZ has stolen over 300 million Rand for 2 upgrades to his PRIVATE residence, not to mention all the other front companies and family billionaire deals concluded, yet he wants a pay freeze???? I wonder why he thinks this will make any difference when he himself keeps stealing from the country.

  • Notrax123 - 2012-10-18 13:49

    In any society there are inequalities in wealth. In an uneducated or education challenged society these inequalieties are more glaring. If the president wants to play Robin Hood, he should join a acting company...... pity though, he has not got the required level of education to become an actor......

  • denis.dendrinos - 2012-10-18 13:51

    "The cause is that South Africa has low levels of education and skills development... many of the people are not employable. Perhaps the unions should have training workshops to teach proper skills instead of going on strike and destroying everything. As for the eduction - it's only getting worse - how many sub-grade matriculants have we pushed out since outcomes based education was fully implemented? That's what happens when you lower the bar that to pass you need 3 h's and 4 g's and screw maths and science - getting a matric for "dance and art" won't help you much!

  • reginald.dube - 2012-10-18 13:57

    since the economic collapse being an economist is the same being a lawyer.

  • clive.kihn - 2012-10-18 13:58

    What might seem like a good idea at first often turns out to have a significant downside. Add to this the lost income tax on wages not earned during the strikes, the lost VAT on reduced retail sales, and we are heading for severe hard times. And Mr Gordhan will be "surprised" when it turns out so. Clueless union leaders and spineless govt.

  • hasani.malungana - 2012-10-18 13:58

    I said so

  • SarelJBotha - 2012-10-18 14:01

    Less money for the thieves so it is okay.

  • colin.spear - 2012-10-18 14:01

    I'm no economist but this seems very one-sided. Surely if you don't get a guy an increase of R100K it makes sense he won't pay tax on that 100k. Lets assume he pays 40% on it. This is 40k the tax man won't get. But that means we saved 60K isn't it?

  • geraldsebanda - 2012-10-18 14:11

    Im assuming these CEOs are the buffoons at SAA, Eskom and Telkom. Add to this list the govt ministers and we will see some progress

      klipkop.degroote - 2012-10-18 14:30

      Add the SABC fat cats to that list too.

  • SirFGrumpy - 2012-10-18 14:18

    Under no circumstances will I agree to any pay freeze. Why? Did Zuma say no I don't want a salary increase to pay for my 5 wives, 25 children and my Nakandla compound? You and that bunch of ANC clowns in parliament are clearly incapable of running this country, hand in your resignations. Bunch of morons!

  • sean.mkhize.1 - 2012-10-18 14:22

    We rather get Accountants to comment and not Economists. It these bonuses are an expense in the income statements than government will not lose but gain through higher profit before tax. These economists must first tell us how are these bonuses declared in the financial statements!!!! These guys are talking like politicians and soccer commentators!!!

      musaasaph.mashila - 2012-10-18 14:30

      I was jst as confused when I read this...I hev a Bcom and had accounting till 3rd year bt neva liked it...bt I do remember tht salaries are an expense, freezing salaries will result in higher profits. Tax is on profit, not income. Dude, maybe me and u are confused.

      alan.gernet - 2012-10-18 14:45

      the Govt gets virtually the same tax if the frozen salary increases are converted to profits instead. The problem lies in there being less money to spend in the economy which affects other businesses, and the negative effect such a proposal would have on investors, as well as a potential brain drain from SA, all of which stunt growth and would cause job losses. Govt needs to concentrate on educaction and building a strong work ethic in SA

  • Thandisizwe - 2012-10-18 14:22

    That's nonsense freeze them its too much these fat cats gets everything incentives and all freeze them

      alan.gernet - 2012-10-18 14:49

      that will happen when hell freezes over... You cannot blame people who are productive and start businesses for what they have earned. These people (and I am certainly not one of them) are a Godsend to us all by creating employment. By making them fail, we also fail. A win-win is to aspire to achieve what they have done through education,hard work and productivity. The duty of the Govt is to provide basic services and education. Thereafter .. it is up to the individual to achieve.

  • toofaan.monsoon - 2012-10-18 14:25

    This does not make sense. I'm a junior employee, but everyone in my company gets a set of targets at the begining of the year. These are measurable, objective and in simple black and white. If you meet the target you are rewarded and vice versa. From shop floor to Chairman, the same principle applies. So if you add value, you get something or else you get zilch. Our governments targets were to create millions of jobs, houses, good education and grow the economy. They did not meet their targets, so should get no increase across the board. Following this principle is easy. Add value to get value. If you freeze the salary of someone who is doing really well, motivation drops, productivity drops and nobody wins. Or am I just being too simple minded. BTW. By this logic Eskom, SABC, SAA, Sanral etc should not get increases either.

  • smthembu5 - 2012-10-18 14:27

    Gorv Will loose estimated R5bn on tax, but wl save far more then R5bn, on the other hand.

      alan.gernet - 2012-10-18 14:50

      who will save more than 5 Mil on the other hand? What are you saying?

  • zwelithini.gagayi - 2012-10-18 14:39

    What the president is saying is if they do not increase the salaries of the executives, they will have more money to increase the salary of the lowest paid workers. If this happens it will help in narrowing the gap between the highest paid and the lowest paid employees of the same company without harming the top guys. If that happens workers who were not paying tax because they were below the threshold will be elevated to the level where they will start paying. If the companies choose to freeze the increase of salaries of the top guys and not significantly increase the salaries of the lowest paid emplyees, the government will loose in PAYE. But companies will make more profits and SARS will nail them on income tax. So the R5 billion the economist are talking about will be shared between the top guys and the bottom guys if they listen to the president. But I do agree that this is not a permanent solution but it will make a difference.

  • xmkungeki - 2012-10-18 14:41

    Thts economics 101 analysis...Azar you could hv done better!!...By the way Zumas suggestion is not original...some of these executives can do without increase for next two yrs and their spending pattens will not change (conspicious spending anyway)!!...agree with long long term solution suggested by other economist even though they don't give direct answers...who trust economist anyway!..

  • jdigwamaje - 2012-10-18 14:48

    Who are the president's advisors? Couldn't they foresee these things? This also assumes that these executives will be all too happy to have their increases and bonuses frozen. Even if they were to comply now, come the end of the 12 months freeze they will be given far higher increases to compensate for the lost pay during the freeze period. Some companies will treat it as a deferment of pay than an actual freeze. This proposal is senseless.

  • gido.verster - 2012-10-18 14:54

    haha.. VERY CLEVER Mr. president..

  • gido.verster - 2012-10-18 14:55

    haha.. VERY CLEVER Mr. President..

  • mo.haarhoff - 2012-10-18 14:56

    Gosh, I am so pleased to hear that Zuma will not be accepting the 5% voted to him last week. It's a start...

  • peter.hall.3956 - 2012-10-18 15:11

    he doesn't have a clue about consequences! Every time he opens his mouth it costs us money!!!

  • mzondistanley - 2012-10-18 15:29

    It is better to be without Marikana Disaster than have Five Billiuon Rand yet you are surrounded by striking Workers!! This is a Contradiction from your Gut feelings!! You are a Foreghn Employer much geared at exploiting disgrantled Workers!1 Do something Man!! Not just Maximising Profit Till back some of your Profit for the Welfare of your Employees!! Your Company is as good the workers morale in a given WORK enviroment.

  • ludlowdj - 2012-10-18 15:43

    If losing 5 billion in income hurts the ANC then I'm all for it.

  • hanzrauch - 2012-10-18 15:54

    I am very interested to see how they get to R5billion tax loss. 40% tax on individuals (highest bracket), 28% tax on companies - so the raises not made, would go into the company's income and therefore taxed at 12% less. So the guys at the top suffering a freeze was going to earn an extra R42billion (5bil/12%)!! If the average raise is R1million, then there are 42,000 people getting it? Wow!! How do I get to the top?

  • eric.martinsich - 2012-10-18 16:02

    I am no financial boffin but I am confused. The reasons for freezing Executives etc increases is to give this money to those lower down the ladder. Those lower down the ladder end up paying more tax when they get an increase. so where is there a money loss to government.

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