High Budget Expectations Brought Low

High Budget Expectations Brought Low

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I would be remiss to not consider the compounded bad news that February ushered in to all South African entrepreneurs through the presentation of the 2014/15 budget. I had high expectations as did readers of Entrepreneur Magazine. They were also high from entrepreneurial listeners on Talk Radio 702 and 567 Cape Talk. Over the last year, I have collected and considered so many options of what an entrepreneurial budget could look like. Many entrepreneurs contributed to the thinking of these policies that I presented.

South Africa shamefully has one of the lowest entrepreneurial activity rates in the world when compared to its peers. About seven odd percent of our population engages in early entrepreneurial activity compared to 16% in Brazil and over 22% in Chile.   In his 2010 budget address, Minister Pravin Gordhan confirmed that approximately 68% of all private sector employment is generated by businesses that employ less than 50 people, the mean being 11. This is the domain of the entrepreneur.

Both government and big business claim that the single biggest threat to the stability and growth of South Africa is joblessness. No man with a full stomach throws a stone! The questionable statistics bandied around claim that about 25% of our population are jobless. I suspect that this is a far greater number.

Survivalist entrepreneurs are often affectionately cited by the media, government and big business as a demonstration that entrepreneurship is alive and thriving in SA. The life of a survivalist entrepreneur is utter hell. It is not entrepreneurship; it is a desperate plight to survive and a miserable one at that.

The SA business environment does not provide an incentive to risk capital with ease. With some of the world’s highest banking fees, mobile network costs and shoddy, unreliable, weak bandwidth which is compounded by a weak education system and poor bureaucratic service levels that we face in the raft of compliance legislation, building a business is a tough task and not for the faint hearted.

In addition, the enormous taxes on the transport activities from fuel levies, toll fees, vehicle licenses and the weak Rand along with the never ending rising costs of electricity compound the difficulties of small businesses. Relatively speaking, small businesses feel the effects of these rising costs disproportionately compared to big businesses and carry a dramatically increased risk of failure as a result.

Last month we presented 6 tax policies that would decrease the risks faced by start-up and established entrepreneurs running businesses with turnovers of less than R50m per annum. For example, in order to derisk SME survival (about 12-15% make it to their 5th year) establish a progressive tax system and change tax receipts from and accrual basis to a cash basis to ease the cash flow strain on a business. The costs to SARS would be negligible and repaid by significant benefits.

 

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The benefits include more private individuals investing in start-ups growing the business tax base of SARS, employing more people easing the social grant systems and generating individual tax revenues and compliance driven taxes such as registrations, tolls and the like through increased commercial activity and vibrancy.

In the medium term, increased capital gain taxes through the sale and purchase of these small growing businesses, idle cash turning into productive cash as private investors invest in private companies. A virtuous cycle would be guaranteed for all.

What we got as entrepreneurs in this budget was a mention. We were told that the responsibility to solve South Africa’s single biggest challenge, job creation, lies with us.

But here’s the thing. Talk has to turn into action. Telling someone you love them does not make it happen. Buy me roses and then watch will happen!