I nearly choked when I read this…
On August 31 President Jacob Zuma told the Business Day Newspaper that: “The economy is sick.” and that only “government tightened its belt.”
(After handing around above CPI wage increases to all manner of public workers - and bailing out SAA, the SABC and any number of other state-funded white elephant money-pits. Not to even mention Nkandla...)
Then our dear president said “Shouldn't the private sector and workers also tighten their belts to save jobs and tailor the economy?”
(Forgetting that it is the tax-paying private sector that pays his wages, and indeed, who ultimately fund every single public sector job)
But wait, it gets better…
The president also said that it’s "not government’s job to run the economy". Government, apparently, only runs the country…
Wake up Mr President, the mining industry isn’t sick… It’s dying
Zuma saying that private sector companies should tighten their belts and reduce their profits to increase their wage bills is a complete joke.
Lonmin lost $188 million in 2014.
Harmony Gold reported a R4.536 billion loss for the year on 18 August 2015.
Anglo Gold Ashanti reported a $2.2 billion loss in 2014 and another $58 million loss in 2015.
Fixing these companies can’t be done by simply ‘tightening the belt’.
The truth is, it's the labour force that's become too fat. And when you’ve become too fat to tighten your belt any further you need to go on a diet. The fat needs to be cut.
Higher minimum wages, more unionisation and other socialist private sector taxes will only make things worse
It all started with Marikana. With the R12,500 minimum wage demand miners made there.
Then in 2014 Zuma announced “Government will investigate the possibility of a national minimum wage as one of the key mechanisms to reduce the income inequality”.
I’ve got news for him…
Increasing minimum wages now will only increase income inequality. That’s because the end result will be even more people becoming unemployed.
Clearly government is biased on the issue. They’d much rather see 10 people receive R12,500 a month than 20 people receive R6,000 a month.
It means more tax for government.
Screw unemployment, grow the tax base at all costs…
According to Investec economist Kamilla Kaplan, “The increase in the minimum wage in the agricultural sector in March 2013 likely contributed to the loss of 55 000 jobs in the sector.”
Remember, South Africa’s industries are built on manual labour. They’re not mechanised. So an increase in labour costs can very quickly outstrip the costs to mechanise.
Farmers, miners and factory bosses are catching on to this, and mechanising at an alarming rate.
Since 2007 Anglo Platinum has cut around 42,000 jobs (including contractors and subcontractors).
Between April and June of 2015 23,231 South African employees received notices that they will be retrenched.
This is no longer a fight for profits, it’s one of survival
I despise job losses. And I’m in no way defending these mass layoffs by companies.
But what our government misses is that these retrenchments in the mining industry aren’t about keeping higher profit margins.
These companies are fighting for survival.
If government was serious about ‘tightening the belt’ why are we seeing increased income tax? Why did they increase property transfer cost this year? Why is the Davis Tax committee looking at increasing VAT, Estate duty and a couple other taxes to put more money in government coffers?
Cabinet ministers earned R143,021,079 in total for 2014.
Ministers are allowed to purchase a car in Pretoria and a car in Cape Town for ‘official’ use. These cars are allowed to cost up to 70% of their annual salary. This means each minister can purchase two cars worth up to R1.5 million each, funded by the state… Without even touching their salary.
Cabinet ministers are allowed 30 business class flights a year. Their children all get six flights a year. And if the ministers don’t like flying they get the option of using the ‘Blue Train’ at a cost of R25,545 for a one way trip between Pretoria and Cape Town.
Deputy ministers received a R370,000 annual salary increase in 2013/2014 was R370,000. That’s equal to the entry level ANNUAL SALARIES OF THREE PROFESSIONALLY QUALIFIED NURSES.
So who's really "tightening their belts"?
When will things change?
While our president and his ministers are bathing in milk and honey the rest of us are struggling.
It’s an easy call for Zuma to blame all our problems on the private sector’s retrenchments.
It’s easy to say government isn’t responsible for business, government "only runs the country".
But the fact is, government controls taxes.
Government controls Eskom, and the electricity price that doubled in the past five years.
Start creating an environment where investors want to put money into our economy. An environment where businesses don’t get regulated more, but less. Where taxes drop, instead of rise.
That’s when business will flourish again.
That’s when unemployment will drop.
Until then the Rand will continue its downtrend and inflation its uptrend…
Here’s to unleashing real value
Editor, Red Hot Penny Shares