Hello and welcome to the So What podcast, in
which political economic analyst J .P. Landman
discusses the issues uppermost in the minds of
South Africans. You can find a written version
of this content on J .P.'s website, jpluntman
.co .za. I am Ruda Landman, and I am your host.
Hello, and as always, a very warm welcome to
a conversation which... goes with an extraordinary
newsletter. Extraordinary in the sense that it
comes only three days after the previous one.
We recorded one for the 4th of April on the water
situation in South Africa. This one is dated
the 7th of April and the title is, of course,
of Budgets and Tariffs. Why are we doing this?
Because both those events, the approval of the
budget in South Africa and on the same afternoon,
The introduction of tariffs by Donald Trump are
actually quite momentous events, each one on
their own. And I thought it would be appropriate
that we combine them in one newsletter and discuss
both. So it's really two very different topics
that are things that occurred on the same day.
So first, tell us what exactly happened in Parliament
on Wednesday, the 2nd of April. What happened
in Parliament was that Parliament approved the
fiscal framework. And what is the fiscal framework?
It is basically the revenue, the expenditure
and the borrowings for the coming year, financial
year of the state, which must be set, has been
set by Parliament. So those figures are set in
stone? They are now set in stone. They are now
locked. But the budget has got four approval
processes. And the fiscal framework was the first
approval process. And the relevance of that first
approval process is, as you say, it sets in stone
those three very important numbers. To what revenue
do we commit ourselves? In other words, what
taxes? To what expenditure do we commit ourselves
or the so -called appropriations in the jargon?
And then thirdly, what do we borrow? And those
are really the critical numbers around the macro
budget. And that was approved on Wednesday afternoon.
And the way the approval works, just to give
you the detail, on the previous day, the Tuesday,
there was a committee meeting. Legislation requires
that a parliamentary committee must meet on the
framework, hear public representations, listen
to people, and then make a recommendation. And
that's what they did. And they recommended to
Parliament that the framework be adopted. And
that debate took place on Wednesday. And it passed,
but only just. Yes, very interesting. The number
was 194 in favour and 182 against, which means
a majority of 12. Now that sounds okay until
you realise that there were 24 members of the
House, of the National Assembly, who did not
vote. They were mainly members of MK and EFF,
but they were also members from other parties
who talked against the budget but walked out
of the Assembly before they had to vote. So that
number added up to 24. Now you can work out for
yourself, if the majority was 12 and 24 people
didn't vote, this thing could easily have gone
a different way. So it was, as Wellington said,
a damn close -run thing. That was of the Battle
of Waterloo, no less. How do the approval process
work from now on? There are a number of things
that have to be approved. Yes, correct. As I've
said, there are four rounds of approvals. The
first one now was approving the fiscal framework.
So that was done. The DA wants to go and challenge
that in court, and we will have to see how that
plays out. But Parliament has done that first
approval. The second approval, which must happen
within 35 days of the approval of the framework,
is to approve the division of revenue. South
Africa has got three levels of government, national,
provincial, local. Basically, all taxes, i .e.
all revenue, are collected by the national government.
There's a little bit in the provinces, a little
bit in local government, but essentially all
revenue is collected by SARS for the national
government. Then the constitution requires that
that pool of money cannot just all be kept by
the central government or the national government.
It must divvied up to the provinces and to the
local municipalities. That is the so -called
equitable share. And that bill is an important
one because it divides the money. And it must
be adopted within 35 working days, which effectively
takes it to about the 27th of May. By then, that
division of revenue bill must be passed by Parliament.
So that's the second one. The third level is
within four months from the start of the state's
financial year, which is 1 April, within four
months, the appropriation bill. which is basically
the expenditure of the state, must be approved.
That takes us, the target date for that then
will be, if you start on 1 April, will be 31
July, four months later. And that's a long and
tedious process where the budget gets scrutinized
in detail on the expenditure side. That's where
the various committees in Parliament for defence,
for justice, for education, for the environment,
where they go through their different budgets
and screen them. and interact with the government
and bureaucrats about them. So that's a fairly
important and a detailed process. And then the
last round has got no fixed date to it. That
is the approval of the revenue bills. In other
words, the approval of taxation laws. Traditionally,
that is done before Parliament rises for the
year. So there's a retrospective element. You
approve the revenue bills, say, in September
or October, before Parliament adjourns. But they
apply from the beginning of the tax year, which
is 1 March. And I suppose at some point, some
activist lawyer will question that and say, you
can't have a retroactive bill. But at the moment,
that's not on the table. So those are the four
levels of approval that are needed. But in the
meantime, the new tax year and the new financial
year start. So how does that? affect the whole
process yeah a very important point the fiscal
year starts on 1 april as i've said the tax year
as listeners would know starts on the 1st of
march now if you if you your fiscal year your
financial year starts on the 1st of april but
you have a tax increase only in may it means
for two months you don't have you don't have
the income from that increase If you now delay
it from May to June, the gap becomes bigger.
If you delay it to July, August, September, the
gaps become very, very big. In fact, if you delay
it to 12 months, there's no income from that
particular tax rise. So the reality of the date
is that you have to proceed with implementation
of tax increases quite quickly. And that means
that the half a percent VAT will be implemented
on 1 May. Let's just go back and see the whole
picture. The half a percent VAT increase is in
your revenue number, which is approved in the
fiscal framework. You must now give practical
gestalt to that fiscal framework. So you've got
to start the VAT increase to collect the money
for the year. And that date is 1 May. And then
what if Parliament after that says, no, we're
not going to raise the VAT rate? Well, that'll
come in the revenue bills towards the end of
the year. Parliament will then have to step up
and accept responsibility for the fact that there
aren't enough money collected to finance the
expenditure which they have authorized. It's
a decision that Parliament cannot really take,
and I think all responsible parties will cooperate
to avoid that. Now the big question, will the
DA leave the GNU? What's your take? As of today's
date, that is uncertain. There's a lot of noise
and dust. My own view is that it's not a foregone
conclusion. It is true that there are two factions
in ANC, but there are also two factions in the
DA. And in both parties, there's a faction that
wants the GNU to continue and a faction that
wants the GNU to break up. Or at least only continue
on their rather strenuous conditions. Will it
play out that way? I honestly don't know. We'll
have to see which way it goes. If they leave,
the ANC would be able to form a government with
about 202 votes in the National Assembly. Depending
on who supports them, maybe 210 votes or 208
votes rather. So it will be a very slim majority
and the whips will have their hands full to make
sure that every time there's a vote, all the
members are there and they all vote. Who is included
in that? Well, it'll be the ANC, it'll be the
IFP, it'll be the Patriotic Alliance, it'll be
good. The parties that have so far supported
the process. But not the EFF? No, not the EFF
and not the MK. I haven't included them in those
numbers. Now, that's okay. You know, you can
run the country if you have a majority of two
or three, but it's not a comfortable position
and it would, of course, be much better. If the
government of national unity has got a stronger
majority, if the remaining government then allows
the EFF or MK in, they can have more numbers,
but I'm not sure they will have more stability.
So I don't think that's a good situation. So
what at this point? Well, I think the first point
is the approval of the fiscal framework was important.
In the past, we've taken these things almost
as automatic. Now democracy is asserting itself.
There's no longer one party controlling parliament
or having a majority in parliament. And it was
kind of an experience in dealing with democratic
forces, shaping the budget. So getting that fiscal
framework through was an important thing. As
I've said, it sets in stone three important numbers
and everything else must now fit into those numbers.
So that's something to be happy about. Secondly,
the second so what, I think we must accept that
the VAT increase will come in force on 1 May.
And with that, we must accept that I do not think
there's going to be a reduction in personal tax
rates as proposed by Action SA. To not increase
the VAT rate and to give the reduced tax rates
will cost 31 billion Rand. Now, there are no
money trees in the country where you can go and
pluck money off. So I don't think it's possible
to find that amount of money. So I don't think
that income will be sacrificed. And your third,
so what is a motion of commiseration for the
whips for the next while? Yes, indeed. You know,
those numbers that we had, 194 in favor, 182
against, majority of 12, but 24 people didn't
vote. That means that in the further rounds of
approval, the other rounds that are still left
over, which we discussed, the WIPs will have
their work cut out to make sure that all the
members are there all the time. Sometimes people
are sick, sometimes people are on a study visit
or they travel or whatever. Well, they'll have
to be in the house when there's a vote. That
is what the WIPs are there for, but they will
have their hands full. And so it is quite possible
that we see in the three further rounds of approvals,
if the DA leaves the GNU, we may see in the further
three rounds of approval that it's again a very
damn close -run thing. That may become the hallmark
of this year's budget. Turning to tariffs, first,
just a summary, what has happened? Well, on the
same day that we approved the budget, Trump announced
what he calls Liberation Day, where he imposed
tariffs on the whole world, friends and foes.
A minimum tariff of 10 % on countries which did
not particularly offend him. And then a higher
so -called reciprocal tariff for countries with
whom the US has got a current account deficit
or a trade deficit. And he wants to force those
countries to change the numbers. So for South
Africa, he imposed a 30 % tariff of all exports
from South Africa into the U .S., effectively
making our products more expensive in America.
Now, that cost will, of course, be carried by
the American consumer. It's not carried by South
Africans. But South Africans will carry the cost
of fewer exports, lesser sales in the U .S. In
that way, we will have a cost. But the cost of
the higher products will be borne by the Americans.
Now, it's quite interesting, Rita, that about
50 % of our exports to the U .S. were exempt
from this 30 % tariff. Why? Because it's minerals
which the U .S. actually wants and need. So they've
neatly carved out what is in their self -interest
and said, okay, that we will not tariff. Diamonds
and iron ore are taxed or are tariffed. They
will carry the 30 % tariff. But then there's
a whole host of articles like copper. Zinc, manganese,
gold, the platinum group of metals, certain chemicals
and certain wood and nickel products are exempt.
As I've said, that makes up more than half of
our exports to the US. So, yeah, they will not
be affected. But it must be said that the sectors
that will be affected very seriously is farmers,
agricultural products, particularly citrus and
wine and fruit juices. And very importantly,
automotive exports. We've got automotive manufacturers
in South Africa, BMW, Mercedes, the Ford bakkie,
which is made primarily for exports to the American
market. Those tariffs will hurt them very, very
hard. No question. They will just not be competitive
in the American market. No. Trump waved around
a poster during this news conference, and it
had certain... quote -unquote facts about South
Africa's tariffs. Were they correct? The poster
that he waved around showed that South Africa
is imposing a 60 % import tariffs against American
exports coming into South Africa. Now, that's,
of course, completely nonsense. And there are
two sources for me saying nonsense. The one is
a US government agency. It is called the US Trade
Administration. And on their website, it says
the following. South Africa reformed and simplified
its tariff structure in 1994. Tariff rates has
been reduced from a simple average of more than
20 % to an average of 7 .1 % in 2020. Tariff
rates mostly fall within eight levels ranging
between 0 % to 30%. This was written in January
24 and I accessed it on the website on the 3rd
of April 25. So that's what the US government
agency said. mostly 0 to 30. Professor Johan
Furry from Stellenbosch analyzed the trade data
of trade between South Africa and the US, and
he found that there are only four categories
from more than 1 ,000 categories where South
Africa levies more than 60 % tariffs on US goods,
four out of 1 ,000. The total value of those
imports came to $379 ,000, and the total imports
from the U .S. were $6 billion. So you talk about
.0063. So I think what happened in the White
House, somebody didn't see the comma and assumed
.0063 is 60%. That's the only explanation I can
have for it. You know, quite frankly, the White
House and Trump are as informed on tariffs as
they are on the so -called land grabs. What does
this mean for AGOA? I think it means AGOA has
gone ruder. AGOA was supposed to expire in August
25, five months' time, but these tariffs clearly
overrule it. There are opinions to the contrary,
but I think effectively AGOA is finished. So
we can say goodbye to it. The impact? As we've
discussed, the impact will be serious on the
South African automotive industry. particularly
those three companies that export to the US,
Mercedes, BMW and Ford. It will be serious for
citrus farmers countrywide, but particularly
also in the Western Cape. It's serious for wine
producers and serious for fruit juice people.
So it will hit agriculture and it will hit automotive.
The government is preparing to table a comprehensive
trade and relationship agreement with the US.
Do you see a future for that? I think it's a
good thing that government is doing it. It's
the right thing to do. It's the appropriate thing
to do. I think it has a zero chance of success.
Why do I say that? Because the gripes that Trump
has with South Africa are of such a nature that
I don't think there's room for a deal. He wants
us to suspend the court case against Israel.
Well, we're not going to do that. He wants us
to scrap the Expropriation Act. Well, we're not
going to do that. The Expropriation Act will
be changed in this country by this country's
constitutional court, not by pressure from Trump.
And so I can go through all five of his elements
or his gripes. So I would be very surprised.
I don't want to be negative. I think it's the
right thing to do. But I'll be very surprised
if, given these gripes, we can make a deal with
the U .S. So in your view, we should diversify.
We should find other clients. Absolutely. There's
no alternative. You know, people, the media makes
a lot of the fact that America is our second
biggest trading partner after China. And that's
true. But it's also true that our exports to
America is less than 10 % of our exports, sitting
about 8 % or thereabouts. Of course, it changes
from quarter to quarter. Now, 8 % is a lot. I'm
not trying to minimize it, but that means you've
got 92 % elsewhere. It also tells you that we
have successfully, over the last 20, 30 years,
diversified our exports, particularly to the
East. The East takes 35 % of our exports. Europe
takes 25%. Africa takes 25%. So that's 85%. 8
% to 10%, 95%. The Middle East takes about 3
% to 4%. And then Australasia and South America,
the rest. Now, particularly in the Middle East,
there is huge export potential. That doesn't
mean it's easy fruit to pluck from a tree, not
at all. But a country like Saudi Arabia has got
something like $25 billion of agricultural exports
every year. Of that, South Africa holds only
about 1%. You mean that's what they import? That's
what they import. That's what they import from
other countries. And we only hold about 1 % of
that. So there's chiaroscopy to that. China is
an enormous agricultural importer. So our government,
particularly DERCO, foreign affairs, agriculture,
trade and industry, have got to step up our game
of getting preferential trade agreements with
those countries and get our agricultural products
into their markets. In summary, so what? I think
the biggest so what is that Trump has essentially
launched a trade war against virtually the whole
world, friend and foe. People that have been
loyal friends of America and people who've been
loyal enemies of America. Everybody got a club.
And we will have to see how that affects international
relations, but it can't be good for America.
The 30 % reciprocal tariff levied on South Africa
will hit our growth rate. Up till now, we've
been working with a potential growth rate of
1 .8 % for 2025. That growth rate, I think, will
come down. We will have to see by how much the
different economists and research houses will
tell us over the next weeks as they run their
models. But essentially, our population growth
is 1 .3%, so you don't want to have economic
growth lower than that. You want to have it at
a higher number. Our labor force is expanding
at 1 .4%, so again, you want a growth rate higher
than that. We'll have to see whether that can
be achieved. The third so what is, I think the
prospects of a deal with the United States or
with the Trump government is very low. As I've
said, the gripes that he has are gripes that
we can't do much about, and that is going to
preclude a deal. Unless, you know, the man is
very volatile and transactional, maybe we do
get a deal, and then nobody will be more happy
than me. But I think we must be realistic about
the chances. And in the meantime, we must work
really hard to diversify our export markets.
Absolutely. That is where people must now focus.
Thank you very much. I hope we don't have to
come back to a microphone in the next week. You
know, it's a Chinese curse that you live in interesting
times. Indeed. Thank you for listening to the
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