“More needs to be done” Minister 21/2/18 - SBI...2018/02/28  · • Appreciate work done to...

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“More needs to be done” Minister -21/2/18 Fiscal Framework and Revenue Proposals - 2018 Presentation to the Standing Committee of Finance and the Select Committee of Finance By Guy Harris CA (SA) Founder of KLOP Accelerator and Education & Governance Activist 28 February 2018 Updated for distribution with introductory comments, elaboration and response to questions 350 word written summary available as well

Transcript of “More needs to be done” Minister 21/2/18 - SBI...2018/02/28  · • Appreciate work done to...

Page 1: “More needs to be done” Minister 21/2/18 - SBI...2018/02/28  · • Appreciate work done to pivot SA reputation starting with reconstitution of Eskom Board, January 2018, but

“Moreneedstobedone”Minister-21/2/18

FiscalFrameworkandRevenueProposals-2018

PresentationtotheStandingCommitteeofFinanceandtheSelectCommitteeofFinance

ByGuyHarrisCA(SA)

FounderofKLOPAcceleratorandEducation&GovernanceActivist

28February2018

Updatedfordistributionwithintroductorycomments,elaborationandresponsetoquestions350wordwrittensummaryavailableaswell

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Outline•  IntroductoryComments•  RegainingourRightfulRatings•  TransformingforInclusiveGrowth•  OverviewofInput•  TheEconomicEnvironment•  ROIfromECD–threeDichotomies•  EffectiveEarlyChildhoodEducationistheFoundationforFutureSkills•  JobCreatingLeverOptions•  AnnouncedSMEFundingnotyetDelivering•  SupportiveEnvironmentforJobCreatingMediumSizedBusiness

Development•  SelectedCommercialisationforFundingPivotalProjects•  Reregulation•  InSummary•  Questions/CommentsandResponses•  ThePresenter

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IntroductoryComments•  AppreciateworkdonetopivotSAreputationstartingwith

reconstitutionofEskomBoard,January2018,butweneedeconomicgrowthforrerating–SME’scandeliver!

•  AppreciateworkdonebyTreasury,SCOPAandParliamentaryCommitteestoimprovegovernanceandreturnsontaxgatheredbutdailythenewsremindsushowmuchstillneedstobedone

•  ThelardwasspreadthinbyrecentrashpopulousdecisionsbutweshouldhavefoundsomejamforthetwocornersofECDandmediumsizedbusinessjobcreationthatwillputusontherightgrowthpathandassistjobcreationinthelongandshorttermbutthatrequiredevengreaterinnovationandbolderleadership.Theywillprovidethepathwaysoutapovertytoturnaroundthefreewaysintopovertybuiltbypastandcurrenteducationsystems

•  The45%marginaltaxratecanbemanageddownandeconomicgrowthupbyinvestinginjobcreating“real”S12J’s

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RegainingourRightfulRatingsEveryonecarriestheburdenintheinterim!

•  Whatistheplan?•  ShouldbepriorityNo1asitimpactsacrosstheboard

•  HowdidSouthKoreadoitsoquickly?Whatcanwelearn?

•  Whatareour:– Planstomakesurenofurtherdowngrades– Targetdatestoregainourpreviousratings,andimprove

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(radical)TransformingforInclusiveGrowth•  SAEconomyiscurrentlyanunstable,teetering,elegant

thinstem,topheavywineglass:–  Large,overlyconcentratedindustriesdominatedbyafewbigcompanies,supportedbybiggovernmentandbiglabour,inthebowloftheglass

–  FragilethinstemofSMEbusinesses–  Aneconomicallysmall(butlargepopulation)baseof70%ofSAhouseholdssurvivingonlessthanR6000permonth=R20-30ppd

•  Needtotransformintoamuchmorerobusttumbler:–  Concentratedbowltransformedtobemorecompetitivethroughsupplychaininclusion

–  AsubstantiallyexpandedandstrongSMEstem–  Acapacitatedbasethathaspathwaysoutapovertyintoformalbusinesssectorviajobs/entrepreneurshipviascalablebusinessesratherthanpovertyalleviationmicroenterprises

Noexcisedutypaidonwineglasscontents–justpureCapeTownwater!

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OverviewofInput•  Ratingsdowngradesneedtobereversedquickly!•  Educationisthekeydriverforreducinginequality

sustainablybutneedsamuchstrongerEarlyChildhoodDevelopment*basethatiswellfundedandhasclarityofwhereresponsibilitylies(Province,MunicipalorBasicEducation?)–FreeTertiaryispopulousandtoolate.

•  Jobcreationiskeytoreducingunemploymentandprimingeconomicgrowthand,iffocusedonentrylevelupskillablejobs,willreducepoverty–TheMediumSectorcandeliver

•  Tofundtheabovewithoutnegativelyimpactingongovernmentratiosandtemptingfurtherdowngrade–useselected,targetedcommercialisationandadditionalsintaxesforareaswithhighsocialcostssuchasFAS/substanceabuse,importsurchargeswherelocallymanufacturedsubstituteproductsareavailable

*HighlightedinSONA2018

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TheEconomicEnvironment

•  Ratingsdowngradearealitybutneedrealeconomicgrowth,alongwithregainedstrongfiscalmanagementandincreasedpolicycertainty,toregainfavour

•  Moststablelabourenvironmentinadecadeoverthelastfewyears–itisallofourjobsecurity

•  GovernmentandLarge(corporate)Businesscooperatingbutlittleinputfrommediumsizedbusinesseswhoarethemostlikelyengineroomofjobcreation,esp.forexistingpoorlyeducated

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ROIfromECD–threedichotomies

•  WecannotaffordECDastoomuchmoneyiswastedontertiarydropoutsandhighschoolrepeats

•  WecannotaffordECDasweneedtospendonprisonsfilledwith“necessity”criminalswhomissedapositivegrounding

•  WecannotaffordECDaswearedealingwithsocialillsandcorrectinglearningdifficulties

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EffectiveEarlyChildhoodEducationistheFoundationforFutureSkills

•  Atpresenttoomuchdumpinganddormitoringratherthanrealdevelopmentofthechildinfirstthousanddays,secondthousanddaysandpreGrade1.OnemillioninECDshouldbethreetofivemillion+andwhatqualitydevelopmentaretheygetting?Benchmarktestresultspoor

•  Mostbraindevelopmentoccurspriortoage6•  SupportviacapacitatingECDcentres:

–  “GogaorGrannyinabox”–  NSFsupportshouldbegiven–  BBBEESDexpenditureshouldqualify–  S18Ataxdeductionviadistributor

•  Needstobesupportedby:–  Reducedsubstanceabuse,FAS–  Increasedfatherinvolvement–  Householdlevelfoodsecurity–braincannotfunctiontoreasonablecapacity

onanemptystomachoronefilledwithchipsandcoke–  CommunitycollegestoallowparentsandNEETtocatchuptheirskillsthrough

secondopportunitiesandstartovercominglegacyissuesAlongwithECdumpingthesefourarethefivereasonsforourvenomousdowncycle

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JobCreatingLeverOptions•  Government–noasalreadyexceeding%ofspendingonwages

regardedassustainable,EPWPispovertyalleviationnotjobs•  Survivalistentrepreneurs–little,verylowmultipliers(1.3)•  Lifestyleentrepreneurs–bynaturelownumberofemployees•  Tenderpreneurs–notsustainableunlessahigh%of“normal”

businesstocountercyclicalityoftenderswhichiswhytenderpreneursaremainlyopportunistic“markup”distributersratherthanmanufacturersandsustainablebusinesses*

•  Smallstartupbusiness–yesbuthighfailurerate,smallnumbersuntilinvestableandstartacceleratingbeyond10employees

•  Bigbusiness–unlikelyasdownsizingandautomatingandmainlyrecruitinghighlyskilledsonodirectpovertyreduction,12iandotherincentivestargetinglargebusiness=highcostperjobcreated

•  Mediumsizedbusinessthatacceleratefrom10-50andscalefrom50-500employeesaretheremaininghope,policyshouldfocusonsteroidsforthesebusinesses

*PPPtargetsneedtobespentonviablesme’snotjusttoticktheboxandpromotefrontingandimports

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AnnouncedSMEFundingnotdeliveringyetandnotfocusedwheregreatestpaybackwillbe!•  Initiatives

–  CEOInitiativeR1.5bnSMEFund;focusedonPrivateEquityFoFratherthanVentureCapital;Governmentshouldmatchvia“nocost”deregulationstepsofR3bn

–  LatestbudgetR2.1bnDSB/DST/TreasuryStartupFundyettobedefined;overcomehighfailuresatstartupstage

–  FinancecharterR100bnblackbusinessgrowthfundyettobedefined;shouldemphasisnotbeonjobs?

•  FocusshouldbeonlaterstageangelsandtrueVC’s;lean,selfandFFF(family,friendsandfools)seldommorethan:–  Underresourcedentrepdifficulttoraise>R10k-R100k–  Wellresourcedentrpusuallypeakat<R100k-R10m

•  Howtofocusonfinancingjobcreatingscalingbusinessesquicklyandeffectively?

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SupportiveEnvironmentforJobCreatingMediumSizedBusinessDevelopment•  NeedAngelInvestorsratherthanhighendVentureCapital/lowend

PrivateEquity,newchannelsbeyondJewish,MuslimandStellies•  IncentivestogrowbeyondR50mtoR500mturnovernotdisincentives

tostaybelowR50m•  30daypaymentisnotworkingandnotenforced,rathergetTreasury

tofactorvaliddepartment,soeandmunicipaldebts–problemareaswillbequicklyhighlightedandmoreeasilyaddressed

•  Bigbusiness(>500employees,>R500mturnover)shouldalsocommitto30daysandnominatedbankshouldfactorthosevalidunpaiddebtsatbigbusinesscost

•  Aneffective12JthatworksquicklyandhasuptakesimilartotheUK,andonefocusedonjobcreationnot“adapted”tofundgamefarms,socalledBnB’s,equipmentpurchase,etc

•  Anincentiveforinvestingatangelstage•  Largescalederegulationtomakeiteasiertostartandgrowtocritical

massandbecomehighvolumeemployers

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SelectedCommercialisationforFundingPivotalProjects

•  Startwithnoncoreandnonstrategicassets•  PlaytostrengthsoftheprivatesectorandincludebroadbasedBEEcommunities

•  HelpputSOE’sontopropercapitalisation– recapitalisationviarevenueisveryinefficient-SARSistheonlywinner

•  Anexample–oldpowerstationsnearendoflifewhereStatecansettherulesandPrivateSectorcansweattheassetandextendtheusefullivesthroughinnovationandfocusedmanagementSupplementedbyincreasedsintaxesonproductsthatdetractfromeffectiveECD

andjobcreation–e.g.substanceabuse

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Reregulation•  Currentregulationdrivenvialargebigbusinessdominated

structuresinconsolidatedindustriesandcascadeddowntosmallerplayers,whoareoftenmorelabourintensive,withlimitedexemptionopportunities

•  Threetierproposal:–  Small–0-50ee’s–focusonhealthandsafety–  Medium-50-500ee’s–swingbalancetomanagementbutemployees

andtheirrepresentativeshavewaysoftakingunscrupulousandexploitativeownerstotask,encouragegainsharing

–  Big->500ee’s–currentmodelbutBargainingCouncilstasked(andtracked)withexpandingtheirindustry,ensuringjobcreationandenhancingcompetitiveness

•  Dramaticallysimplifytax,registrationandcomplianceforsmallandmediumbusinesses,esphighjobcreators

•  Makeentrepreneurshipvisasmoreaccessible,subjecttograduateddeliveryoflocaljobssustainably

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InSummary•  TheRatingsdowngradehasimpactedonconfidenceandiscosting

usalldirectlyandindirectly•  Educationisthekeydriverofreducinginequality,alongwith

redistributionwhichisnotsustainable–  Inaknowledgebased4.0economyneedeffectiveeducation+far

morethantheexisting4%*ofmatriculantsgetting>50%inmathsplusgoodreading,writing,arithmetic,codingandsocialskills

–  EarlyChildhoodDevelopmentisthebaseandneedsevenmoresupport#feesmustrisetofundECD

•  Jobcreation,mostlikelyviamediumsizedbusiness,iskeytoreducingunemploymentandavoidingan“ArabSpring”andifjobsareentrylevelupskillable,jobswillstartreducingpoverty

•  TofundtheabovewithoutraisingDebt/GDPratioorfurtherincreasingalreadyhighmarginaltaxrates(corporate,individualorindirect)requiresinnovativethinkingandstrongleadership

*Expressedasa%ofthosestartinggrade112yearsearlier

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Questions/CommentsandResponsesQuestion/Comment Response

ECDfundsallocatedforinfrastructure,MP’sandMPL’smustseemoneywellspent

NotclearwhohasrespforECD– ProvorNatlSocialDev,ProvorNatlBasicEducationorMuniciplaities.Needtogobeyondtheinfrastructure(hardware)andalsolookatteachers(warmware)andlearningtools(software).FromPRILSdoesnotlookgreat

ECDfundswerepromotedattheGoodHopeconference3yearsago

Doesnotseemadequateofonly1mof4-5mareinECDandnotestsonqualitybutteachershavetodealwithconsequenceofpoorornoECDholdingbackotherlearners.AmpersonallyinvolvedinagrassrootsECDinitiativeinLavenderHillandcommunitiesaredoinggreatworkunderdifficultconditions

HowelseshouldSOE’sberecapitalisedifnotviarevenue

UsingEskomasexample,makesprofitofapproxR6bnperannumandR2bngoestoSARS.Pricesup,Demanddown,competitivenessofSAdown,espEIUG,jobsdown.Versusselloffoldassetswithguaranteedbuybacktoaprivatesectorthatcansweattheasset,avoidscurrentconsumerssubsidisingfutureconsumers!

Exampleof30daypaymentproblem

LocalNPOthatdesignsandsellswheelchairsintoAfricaandtoprovincialhealthdepartmentsdoesnotgetpaidfor270daysputting40jobs,manydisabledworkersatrisk.240daysofunnecessarystressandeyeoffthebusinessballcouldhavebeenavoided!

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ThePresenter

•  GuyHarrisCA(SA)•  0825598755•  [email protected]•  20yearsatDeloitte– HeadofConsultingDurban•  20yearsatBellEquipmentasaDirector–50yearsagoBellwasamidsizescalablebusiness!

•  Nowfocusedonscalingmediumsizedbusiness,helpingPoP(PathwaysoutaPovertyforNEETYouthindisadvantagedareastostarttheirjourney)andvariousgovernanceandeducationinvolvements