Freezing pay hikes ‘will erode tax base’

2012-10-18 11:27

Government will lose an estimated R5 billion if salary hikes of chief executives and executive directors are frozen, a chief economist at Econometrix has said.

“Assuming that the executive directors and CEOs received an increase of 7% to 8%, South Africa would lose R5 billion in tax revenue in 12 months,” said Azar Jammine in a telephone interview.

“He, along with other analysts, have warned that freezing salary hikes was dealing with the symptoms of inequality instead of the root causes.

“The cause is that South Africa has low levels of education and skills development... many of the people are not employable.

“The solution is in the governments national development plan. I was surprised it was not mentioned during this meeting,” said Jammine.

Lulu Krugel, economist at KPMG, said freezing salary hikes could be a good gesture but would not end inequality in South Africa.

“If we want to address inequality we have to get a long-term solution. We should not think that we can use one thing to solve everything,” she said.

She said freezing salary increases of those who earned high incomes could send a positive message to the workers, but would not end tension between the workers and their employers.

Independent economist Richard Downing echoed Krugel’s view.

“We are trying to fix the symptoms and not the problem that is causing inequality. There is a dichotomy between what government thinks is the way the economy must go forward and what business views as the way... It is much more than just a labour dispute,” he said.

Downing pointed to the lack of law and order as one of the main causes of the unstable economy.

“People can’t keep to agreements.”

He warned that freezing salary hikes would negatively affect the fiscus in the long term.

“Our tax base will be eroded and our economy base will be eroded.”

Isaac Matshego, an economist at Nedbank, was also not convinced that the freezing of salary increases would end the current tensions between workers and employers.

“It’s an appropriate gesture in the current environment. Whether it will lead to any fundamental change in improving relations between workers and employers, that is not known,” he said.

Yesterday, President Jacob Zuma announced the outcomes of his second meeting with business, labour and community representatives which was aimed at addressing the economic challenges facing the country.

All parties made a call on CEOs and executive directors in the private sector and senior executives in the public sector to agree to a freeze in increases in salary and bonuses over the next 12 months, as a strong signal of a commitment to build an equitable economy.

They also called for an informed national conversation on income inequalities and how best to address them.

A committee would be set up to consider the local and international experience in addressing income inequalities and would develop further proposals within the next six months.

Economic Development Minister Ebrahim Patel today reassured the public that the freezing of salary increases would also take place in the public sector.

“Everybody must show some restraint. We’ve got to do it in the public sector, we’ve got to do it in the private sector,” he said.

Strikes in the mining industry that spilled over to other sectors caused rating agencies Moody’s and Standard & Poor’s to downgrade South Africa’s economic outlook.

There was a general concern among analysts that the downgrading would reduce the country’s attractiveness as a foreign investment destination, and that this would hamper job creation.

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