Collision course with unions; Telkom lay-offs challenged; Tax relief; Money for SAA, Denel; Market cheer

Written on 02/26/2020
Linda van Tilburg

By Linda van Tilburg

  • The government has set a collision course with labour unions as it was announced by the National Treasury that pay increases and promotions will be limited, saving R16bn over the next three years. Finance Minister Tito Mboweni told reporters before his speech that getting the ‘house in order’ was going to be a difficult process and everybody had to sacrifice. Cosatu, which has supported Ramaphosa so far commented that it would not allow workers to be retrenched or wages slashed. Mboweni told reporters that he believed the government and the unions would “find each other” but that it was going to take some time. The decision to slash the public sector wage bill was seen by analysts as a bid to appease the ratings agencies with the Treasury announcing that it wanted to reduce expenditure by R156bn over the next three years.
  • Meanwhile unions have challenged Telkom in court on its plans to cut as much as 20% of its workforce as the company seeks to reduce costs. The Communication Worker’s Union approached the court saying Telkom is rushing the process and it had not considered alternative to job cuts that could affect as many as 3000 employees. Telkom extended the deadline for voluntary severance and early retirement packages to the 6th of March following the court hearing. The Labour Court is expected to deliver a ruling on the cuts.
  • And to recap on the main elements of Finance Minister Tito Mboweni’s budget: Individual taxpayers have been given an unexpected boost by Minister Mboweni who announced a relief of R14bn including R2bn through the adjustment of tax brackets. Corporate taxes in South Africa will also be reduced and the exemption on foreign income earned by expatriates will be increased in a bid to attract investments and stem the emigration of high-earning citizens as revenue collections falter. Plans to reduce its corporate-income tax rate of 28% over the medium term are aimed at boosting the country’s competitiveness as an investment destination among emerging markets, while dissuading companies from “profit shifting,” the Treasury said. The exemption threshold on foreign income earned by South African taxpayers will be lifted to R1.25m from March 1.
  • Minister Tito Mboweni has almost doubled the level of funding for South African Airways to R16.4bn that will go toward supporting a restructuring plan for the technically insolvent carrier. The bailout will be used to service and pay debt previously guaranteed by the state over the “medium term. “R9.2 billion was earmarked for South African Airways in October last year. Mboweni said it was the very sincere hope of many that this intervention will lead to a sustainable airline that is not a burden to the fiscus,” Mboweni said. R32bn has been allocated to SAA by the Treasury over the past decade. Despite this it has been placed in business rescue. The only other state-owned enterprise that had been allocated extra funding was arms manufacturer Denel which will receive R576m from the Treasury.
  • Although the response of most analysts was muted with many expressing surprise that taxes were not increased, economist Dawie Roodt said that he felt that Mboweni was kicking the can down the road as he did not address the issue of where the money for Eskom was going coming from. Markets reacted favourably with the rand rising 0.8% against the dollar and the benchmark 2026 bond yields dropping to five year lows. Bank and retail stocks rose on the Johannesburg Stock Exchange. Standard Bank and Absa Group shares rose by more than 7% and Rand Merchant Bank stocks climbed by 6%. The Rand improved to R15.09 to the dollar before falling back at the end of the day to R15.22 cent. It was also a bumper day for retailers with Shoprite stock going up by 9.75%, Truworths by 8.48% and Mr Price by 6.04%. There is plenty more on Minister Mboweni’s budget on the Biznews website.