WHY SAA MUST GO

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evanb
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Re: WHY SAA MUST GO

Unread post by evanb » Thu Nov 29, 2018 1:38 pm

Jack Welles wrote:
Thu Nov 29, 2018 9:34 am
In any event, do you agree with the rest of what I wrote? Ie, it's only one half of one percent of the annual budget and, in an earlier post, that if they have to suddenly meet all the existing guarantees for one SOE many are interlinked and the govt would have to kick in on many, if not all, the others even though they would not have reached their maturation dates? (Caveat: depending on the terms of the various contracts)

Basically it's a relatively cheap way (0,5% of the annual budget) of kicking the can down the road and with the power of prayer ( :D - I'm an agnostic :lol: ) maybe the damn SOE's will come right.
Well, SAA might be "cheap" in your mind, but I still think it's money spent better elsewhere. However, the concern regarding systematic fiscal risk isn't SAA by itself, but all SOE's, some are bigger fiscal risks than others (e.g. Eskom). SAA, while not the biggest, seems to be closer to the cliff than others. What they do with SAA then becomes a precedent for others.

The important point being that it's "little picture vs big picture" situation ... IOW, it an't that simple as "shut it down" ...
Jack Welles wrote:
Thu Nov 29, 2018 9:34 am
Late Addition: Govt borrows money every year to help balance the budget - can't see why lenders should refuse to accept govt guarantees (perhaps the terms are not as acceptable?) when they are prepared to lend to govt? maybe it has something to do with the terms govt can get on, say bonds, while the terms on, say, an "overdraft" for SAA would be less attractive? There has to be some rationale for these moves? I suppose an additional point is that it's still borrowed money whether direct to SAA or via govt bonds etc.
The debt is very different. Treasury borrows money by issuing a range of bonds in different currencies (although mostly Rand), different maturities (everything from 90 days to 10 and 20 years) under different conditions (nominal coupons, inflation linked, zero coupons, etc). Thus they can manage based on their liquidity needs as well as the demand in the market. They issue these through public auction processes, but they are then tradable in the secondary market. So the holder or financial institution can always get out of a position.

SAA's overdraft or term loans are not tradable in a secondary market so a financial institution wants a premium since they cannot get rid of it until the term is over. If SAA default it'll take a costly and time consuming court process to attach assets (not that there are any), sequestration and liquidation proceedings in order to enforce the security and government guarantee. A financial institution isn't going to provide a loan if they believe the loanee will default, even if there is security, unless they're handsomely compensated for the extra effort and work it'll require.

The additional point is that the interest accrues to SAA on the one of the Treasury on the other. The challenge for SAA is that the debt on their own balance sheet meant significant interest burden and cash flow constraint (the loan and interest must generally be paid before anything else).
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Re: WHY SAA MUST GO

Unread post by Jack Welles » Thu Nov 29, 2018 1:54 pm

Thanks, guys, for all the detailed info. Very interesting. My take was very much an off-the-cuff overview. The stuff now been posted is very much more informed!

With the greatest respect though I must insist that R5 billion sounds a lot more to the uniniated than 0,5% of SA's annual budget.

It all comes down to spin, either way, and the trouble is that very few of the comments don't have a political animus of some description.
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Re: WHY SAA MUST GO

Unread post by MadMacs » Sat Dec 01, 2018 6:41 pm

SAA's debt is minor compared to Eskom, which is about R45 billion. I read a report that it's going to take a trillion to fix the Vaal river problem.
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Re: WHY SAA MUST GO

Unread post by expatdoc » Mon Dec 03, 2018 3:12 am

Jack Welles wrote:
Thu Nov 29, 2018 9:01 am
... because the money doesn't actually exist...
And therein lies the rub...the South African economy is a bubble.

For this bubble not to burst, we need:
1. Tax payers...that camel's back is almost broke;
2. Economic drivers...they're fleeing the coop to join the rest.
3. A functional SARS...broken; thanks ZUPTA!
4. Political leadership...nuf said.
5. Intact infrastructure; water and electricity is key. Let's ignore water and focus on electricity: it's December and everything is scaling down, yet ESKOM's Christmas gift is power cuts...what's going to happen next winter?
6. Lastly, hungry people are unhappy people...food security is at risk.

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Re: WHY SAA MUST GO

Unread post by Jack Welles » Mon Dec 03, 2018 6:55 am

expatdoc wrote:
Mon Dec 03, 2018 3:12 am
the South African economy is a bubble. For this bubble not to burst, we need:
1. Tax payers...that camel's back is almost broke;
2. Economic drivers...they're fleeing the coop to join the rest.
3. A functional SARS...broken; thanks ZUPTA!
4. Political leadership...nuf said.
5. Intact infrastructure; water and electricity is key. Let's ignore water and focus on electricity: it's December and everything is scaling down, yet ESKOM's Christmas gift is power cuts...what's going to happen next winter?
6. Lastly, hungry people are unhappy people...food security is at risk.
:D with that degree of certainty you're set to make fortune shorting the market :lol:

Actually the reality is that you might be right and you might be wrong. I personally wouldn't know.

However as said to the Bitcoin fans promoting $100k as a target or those saying that Zuma will never leave power or SA will soon have R100/$1 - only time will tell ... :idea:
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Re: WHY SAA MUST GO

Unread post by HJK 414 » Mon Dec 03, 2018 10:23 am

expatdoc wrote:
Mon Dec 03, 2018 3:12 am
Jack Welles wrote:
Thu Nov 29, 2018 9:01 am
... because the money doesn't actually exist...
And therein lies the rub...the South African economy is a bubble.

For this bubble not to burst, we need:
1. Tax payers...that camel's back is almost broke; ........

Just an interesting fact .....

Treasury budget review data for 2016/2017 is in the same ballpark (1.7 million taxpayers contribute 78% of income tax) and takes into account all taxpayers, but these figures are estimates. The latest treasury estimates show 1.9 million individuals are expected to contribute an estimated 80% of income tax.

That implies that 3 % of the population in South Africa are contributing around 80% of the Tax revenue
That is not a sustainable base with a shrinking economy.
The Government would be well advised to get the waterfall of funds into the SOE's like SAA under control.

Fact checked (https://africacheck.org/reports/1-7-mil ... ncome-tax/)

JK
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Re: WHY SAA MUST GO

Unread post by cage » Mon Dec 03, 2018 10:32 am

HJK 414 wrote:
Mon Dec 03, 2018 10:23 am

Treasury budget review data for 2016/2017 is in the same ballpark (1.7 million taxpayers contribute 78% of income tax) and takes into account all taxpayers, but these figures are estimates. The latest treasury estimates show 1.9 million individuals are expected to contribute an estimated 80% of income tax.

That implies that 3 % of the population in South Africa are contributing around 80% of the Tax revenue
That is not a sustainable base with a shrinking economy.
The Government would be well advised to get the waterfall of funds into the SOE's like SAA under control.

Not quite.
In 2017/18 the Tax revenue was R1217B, of this R460B was personal income tax (±38%).
The balance was taxes on businesses (±21%), levies/property/international trade taxes (±6%) and domestic taxes on goods (35%).
Most people will contribute through paying for taxable goods/services and the businesses that provide them.

http://www.treasury.gov.za/documents/na ... er%204.pdf
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Re: WHY SAA MUST GO

Unread post by HJK 414 » Mon Dec 03, 2018 10:36 am

Cage

My bad - I should have stated - Personal income tax .
Yet the fact remains that a very small taxpayer's base cough up the majority of the Income tax - and with capital leaving and a lot of trouble in the Industrial base of SA - all is not well.

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Re: WHY SAA MUST GO

Unread post by Jack Welles » Mon Dec 03, 2018 10:39 am

HJK 414 wrote:
Mon Dec 03, 2018 10:23 am
expatdoc wrote:
Mon Dec 03, 2018 3:12 am
For this bubble not to burst, we need:
1. Tax payers...that camel's back is almost broke; ........
Treasury budget review data for 2016/2017 is in the same ballpark (1.7 million taxpayers contribute 78% of income tax) and takes into account all taxpayers, but these figures are estimates. The latest treasury estimates show 1.9 million individuals are expected to contribute an estimated 80% of income tax.

That implies that 3 % of the population in South Africa are contributing around 80% of the Tax revenue
That is not a sustainable base with a shrinking economy.
The Government would be well advised to get the waterfall of funds into the SOE's like SAA under control. JK
Nope.

Benjamin Disraeli: "There are three kinds of lies: lies, damned lies, and statistics."

If he was still alive perhaps Ben would have insisted that together with the doomsday scenario just painted one should also take note that of the fact that Income Tax forms +- 37% of Govt's annual revenue. http://www.sars.gov.za/Media/MediaRelea ... 02017.aspx

So if the figures quoted by the previous posters are correct (I haven't bothered checking them) then it actually implies that 3% of the population is contributing 29,6% of tax revenue. While this is not good it's not quite as bad as 80%!

EDIT: Aaah! I see that my contribution was preceded by cage's ...
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Re: WHY SAA MUST GO

Unread post by HJK 414 » Mon Dec 03, 2018 10:49 am

Jack Welles wrote:
Mon Dec 03, 2018 10:39 am

So if the figures quoted by the previous posters are correct (I haven't bothered checking them) then it actually implies that 3% of the population is contributing 29,6% of tax revenue. While this is not good it's not quite as bad as 80%!

As stated Eddie,

I omitted stating that the article was about personal Income tax.

(although that was clearly stated in the Fact Check article I attached)

And then we end up with 3% of the taxpayers paying around 80% of the personal Income tax.
Clicking on the link I attached would have cleared that up .....


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Re: WHY SAA MUST GO

Unread post by Jack Welles » Mon Dec 03, 2018 10:57 am

As a comparative measure, in India Income Tax is paid by 5% of the population and it represents 53% of the Govt’s annual revenue.

In the USA 40% of federal income taxes are paid by 1% of the population.

In SA 3% pay 29,6%.

Ah! Statistics - gotta luv 'em :wink: :wink: :wink:

But back on topic: the adverse fiscal, soci-economic and political consequences of shutting down SAA, completely eclipse the 0,5% of the Govt's annual budget that it costs to keep it going and - what the hell! - the new management team may just turn it around.

At the end of the day it's just a business. More businesses fail through being under capitalised than any other reason. That doesn't apply here (courtesy of you and me as taxpayers). If others can succeed why not SAA? And everyone talks about the lack of real value in hard assets, but what about soft assets like goodwill, institutional knowledge etc?
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Eddie Haynes-Smart
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Re: WHY SAA MUST GO

Unread post by danie.e » Mon Dec 03, 2018 11:26 am

Oh, I love the speculation, the ifs and buts, the value for the country, job losses and all kinds of excuses to continue wasting taxpayer money ad nauseam.

SAA is dead - please bury it as soon as possible. We have enough misery in S.A. so spare us the smell of rot as well.

Question to each and every poster on this forum who want to continue throwing good money in the toilet: Would you waste your own money on such a useless business or better still how long will you keep on wasting your own money before you cut the cord?

I know the answer but you should verbalise it yourself.
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Re: WHY SAA MUST GO

Unread post by expatdoc » Mon Dec 03, 2018 11:38 am

Jack Welles wrote:
Mon Dec 03, 2018 10:57 am
If others can succeed why not SAA?
To answer your question, I submit two good opinion pieces:
1. This one explains why SAA will fail:
Why Vuyani Jarana is doomed to fail at SAA, even in the best-case scenario

The only success the airline's new CEO could achieve would be to close it down altogether, writes Terry Markman

2. And this one explains why the SA Economy will fail:
Why SA economy is falling behind the rest of the world - BizNews.com


EDINBURGH - It's very obvious that the ANC-led South African government has failed its people by not putting enough strategic thinking, planning and resources into improving the education system and standards. This oversight was hardly surprising in the early years when the ANC was kept busy on changing discriminatory legislation put in place in the apartheid era.
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Re: WHY SAA MUST GO

Unread post by HJK 414 » Mon Dec 03, 2018 11:39 am

Jack Welles wrote:
Mon Dec 03, 2018 10:57 am
As a comparative measure, in India Income Tax is paid by 5% of the population and it represents 53% of the Govt’s annual revenue.

In the USA 40% of federal income taxes are paid by 1% of the population.

In SA 3% pay 29,6%.

Ah! Statistics - gotta luv 'em :wink: :wink: :wink:
..........

Uhmmmm....... nope

You are quoting INCOME tax in the other countries
So - then SA is 3% paying 80% .....!
Gotta luv them ... those statistics !!........ :wink:

On a serious note ....
The concern is that the 5 Billion is used to kick the can down the road - and whether or not it will succeed with the new management is rather moot. The question should be - what are we paying to keep 10.000 People employed - and what are the alternatives .

The personal income tax data is relevant ....
Personal income tax comes from wages and other direct income.
When you see the economy contracting - so will the wages base (less high paying jobs) and that will affect the income tax revenue.
Add that to profits declining and businesses shutting down - and therefore the lower income ratio's having less to spend - thus less VAT ..... And the circle keeps re-enforcing itself - until they are past a threshold and have to start printing money ......
You have seen the effects up North,

SAA shut down - (0.5%) or Eskom (6% !! ) or SABC ....... or any other SOE ....
Point I am trying to make is that the Government needs to put the brakes on ...... it is like a household book.
Once it is out of control - and you end up in debt - it becomes a hard slog to get back into the black figures and will require a electoral / and electorate discipline that will be hard to find in SA

JK
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Re: WHY SAA MUST GO

Unread post by Gary Lees » Mon Dec 03, 2018 11:42 am

@Danie.
Your argument to close down SAA should also include the likes of Escom, Prasa, Transnet and all the other SOE's. They are all in the dwang, SAA's debt is only a small fraction of the Escom debt that you and I are paying for. We buy the electricty and also pay taxes to keep it going.
You should really be saying close them all down, but be careful what you wish for.

(Return flight from ORT to Durban will cost you about R 1000 to R 1500 sometimes less, yet a return flight from ORT to Polokwane R 4800)
Close down SAA and see the costs rocket.

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