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Oct 18, 2012

Salary increase freeze to cost SA R5bn in lost tax revenue

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Agriculture|Africa|Econometrix|Mining|System|Africa|Europe|South Africa|United States|Manufacturing|Product|Services|Azar Jammine|Infrastructure|Jacob Zuma
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Freezing salary increases at executive management level for a year would cost the country R5-billion in lost income-tax revenue, Econometrix chief economist Azar Jammine said on Thursday.

Jammine, who was speaking at a Decision Process International business breakfast, was commenting on President Jacob Zuma’s call for salary increase freezes in both the public and private sectors.

Zuma stated that CEOs and executive directors in the private sector and senior executives in the public sector should freeze salary increases and bonuses over the next 12 months, as a signal of a commitment to build an equitable economy.

Meanwhile, Jammine said that the lack of progress in educating the South African workforce, compared with the rest of Africa, was stunting economic development.

He also noted that the rest of Africa’s governments had increasingly improved governance of their countries, as well as macroeconomic improvements and stability, while South Africa seemed to be going in the opposite direction.

“We are lacking leadership and we need governmental intervention in the interest of reducing inequality,” Jammine said.

South Africa had the potential to exploit the opportunities for growth in the rest of the continent; however, the country’s strong links with advanced countries in Europe and the US would act as a drag on overall economic growth over the next five years.

“The structure of the South African economy (with significant exports and very little manufacturing) is one that is moving in a very unfortunate direction in terms of employment. Mining and agriculture have consistently lagged behind the national economic growth rate, and unfortunately those are the very sectors that can employ, gainfully, people without skills,” Jammine added.

Further, skilled sectors such as telecommunications, transport, financial services, retail and tourism were now taking the forefront in the economy. “We have an abundance of unskilled workers, but a declining unskilled sector to employ them into, which is problematic, as inequality is increasing” he said.

Jammine further said the solution to mitigate these problems had already been drafted in the form of the National Development Plan, which has now been officially endorsed by Cabinet.

“The plan is to spend about R845-billion over the next three years on infrastructure development, with the bulk, about 35% in electricity. Further, it aims to raise exports, increase the size and effectiveness of the innovation system, improve the functioning of the labour market and support small business.

“However, because Cosatu doesn’t support it, and the Presidential election is coming up, which means that certain parties would not want to upset its tripartite alliance, the plan is kept hush-hush,” he said.

Jammine concluded that the South African economy was growing, but  at a very slow rate. “Two per cent gross domestic product growth a year is boring, but it has been one of the most stable growth rates in the world over the last 20 to 30 years. If you keep growing 2% to 4% each year, the size of the economy is expanding and you would need more infrastructure as it grows,” he said.

Edited by: Mariaan Webb
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