Taxes Not Laws Stamp Out Smoking

Business Day February 1, 2007
Despite all the sound and fury surrounding tough new legislation on smoking, Finance Minister Trevor Manuel has emerged as the unlikely hero of the drive to reduce smoking in SA.

Public hearings have so far focused on the prohibition of tobacco advertising, tough new rules that will further restrict where people may smoke and a call for further restrictions on the industry.

A Cape Town economist has attributed the main cause of reduction in tobacco consumption to consistent increases in price.

University of Cape Town economist Evan Blecher told Parliament's health committee yesterday that, contrary to all the forecasts from the tobacco industry, tougher control laws had not had a negative economic impact.

In fact, the effect for tobacco companies was positive because all their revenues and profits were up.

This was also positive from a consumer point of view because fewer people were smoking and nowhere could it be argued that smoking was healthy, Blecher said.

He said that the first control legislation arrived in 1993 and for the next six years, until the law was made even stricter, the price of tobacco products almost doubled.

Total sales fell 25% and the total number of cigarettes smoked dropped 30%.

Advertising bans were introduced after 1999, but Blecher said one of the most effective tools had not been advertising bans or smoke-free areas. "The primary tool in reducing tobacco consumption" was excise taxes, he said.

Since becoming finance minister Manuel has strongly implemented the policy that excise taxes should amount to half of the retail price of tobacco products.

Blecher explained that in 1993 -- before the first control act -- excise revenue on tobacco products was at its lowest level in 30 years.

Also the share of the retail price that went to the producers was at its highest level ever, at 75%.

He said that since 1993, the price had trebled and the amount of excise tax collected from the industry increased to R4bn.

"It is all about consumption and prices. Dramatic changes in consumption occur as the price rises. Put the price up and people buy less, it is that simple."

Blecher said cigarette price rises were not due to Manuel alone; the industry had also increased its prices. Claims from the industry that the increases were solely due to tax were not true.

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Cookie jar cocaine

Fri, 19 Jan 2007
South Africa’s financial regulators sleep as the best minds in the private sector gorge on dividends of greed.

Nothing that happened in 2006 reduced the risks of the global financial system hitting a paranormal glitch and degenerating into a serious meltdown. Minor financial systems such as South Africa’s would be drawn haplessly into the maelstrom, and disappear down into the sewage pipes.

If anything, systemic risks increased during 2006. During the year, the UK’s super regulator, the Financial Services Authority (FSA), suggested that hedge funds could be the most potentially dangerous of legal creatures frequenting the global investment scene. The FSA identified 11 key risks associated with hedge funds, not least “serious market disruption and erosion of confidence”.

Around 10 000 hedge funds now populate the global financial scene. However, as the FSA states, it’s difficult to assess how many funds are operating due to “the largely unregulated and sometimes opaque nature of hedge fund operations”. Nowhere are hedge funds fully regulated.

The benchmark for hedge fund debacles remains John Meriwether, the once-fabled Salomon Brothers bond trader on Wall Street. Meriwether founded Long-Term Capital Management (LTCM), a hedge fund, in 1994. LTCM was populated with best-of-the-breed, including Nobel-prize winning economists Myron Scholes and Robert Merton, and also David Mullins, a former vice-chairman of the Federal Reserve, the US central bank.

Apparently smart investors, including the inevitable investment banks, charged to invest, pumping $1,3bn into LTCM up-front. Less than four years later, LTCM was technically bust; to avoid a possible systemic crisis in the global financial system, the Federal Reserve drummed up a $3,5bn rescue package from leading Wall Street investment and commercial banks. At one point, LTCM had around $1 400bn in gross exposures and, at one stage, displayed a leverage ratio of over 50 to one.

Hedge funds are among the supreme hyenas of the investment world. Many of their numbers (such as Meriwether) earned their dubious stripes at investment banks, where hyena royalty remains to this day. The growth of the hedge fund industry, and its size, may have galvanised recent interest by regulators, but investment banks remain the single biggest threat to the stability of the global financial system.

Investment banks deploy the muscle inherent in huge balance sheets, and exploit the brains of the brightest graduates available. These brains, which become scrambled within a relatively short period of time, are devoted almost exclusively to seeking and finding loopholes in the legal system, and exploiting the gaps like pirates hunting down hapless prey on the high seas.

Just as a high performance racing vehicle needs an appropriately qualified mechanic (politely called an engineer), investment banks work alongside lawyers, auditors, accountants and credit rating agencies. These combines go to extraordinary lengths to cover their tracks and confuse regulators and law enforcement agents, to say nothing of investors. On occasions, these royal hyenas are caught with their hands in the cookie jar. The results can be spectacular.

In June 2005, in a nine-to-zero decision of the US Supreme Court, erstwhile chief justice William Rehnquist ruled that Arthur Andersen, the once long-serving auditor of Enron, a Houston-based entity, had been wrongly found guilty on a single conviction of obstructing justice. Yet the failure of Enron ruined Arthur Andersen; its 2002 conviction forced 85 000 employees around the world to go find work elsewhere.

The perpetrators behind the Enron failure (beyond certain Enron executives) were, as it turned out, a motley crew of Wall Street investment bankers. Last year a US federal court approved a $6,6bn civil settlement by three of the banking entities accused of helping Enron hide financial abuses that led to its collapse.

There have been - or still are - Enron-related cases against, among others, JPMorgan, Barclays, Credit Suisse First Boston, Merrill Lynch, Canadian Imperial Bank of Commerce, Toronto Dominion Bank, Royal Bank of Canada, Deutsche Bank, and Royal Bank of Scotland. None of the investment banks that have offered settlements have admitted any wrongdoing. No doubt they’re all stone innocents.

Auditors and accountants – even when dressed in drag – can also stray, notwithstanding the innocence of the late Arthur Andersen in the Enron catastrophe. In August 2005, the US authorities announced that KPMG LLP, part of KPMG, one of the “big-four” global auditors, had admitted to criminal wrongdoing, and agreed to pay $456m in fines, restitution and penalties as part of an agreement to defer prosecution of the firm in respect of selling tax shelters between 1996 and 2002.

KPMG – “audit, tax, advisory” - admitted that it engaged in a fraud that generated at least $11bn in phoney tax losses. A US tax authority stated that “the only purpose of these abusive deals was to further enrich the already wealthy and to line the pockets of KPMG partners”.

If there is a golden thread in this putrid tale, it’s in conflicts of interest. On December 20 2002, New York State attorney general Eliot Spitzer announced a $1,4bn settlement with ten investment banks “to resolve issues of conflict of interest”. The names included most of Wall Street’s biggest: Bear Stearns, Credit Suisse First Boston, Deutsche Bank, Goldman Sachs, JPMorgan, Lehman Brothers, Merrill Lynch, Morgan Stanley, Salomon Smith Barney, and UBS Warburg.

This breakthrough was accompanied by reaction to Enron. The US federal government enacted fierce new laws, not least Sarbanes Oxley, in full the Public Company Accounting Reform and Investor Protection Act. In the UK, there was the coming-of-age of the all-encompassing FSA. Believe it or not, some major pieces of new legislation have also hit the South African statute books in the past few years. But has anyone even heard of, for instance, the Securities Services Act, 2004? This statute has big and very sharp teeth.

The main problem is that South Africa’s regulators are just not up to scratch. Right now, there are a good number of disgusting deals present in the markets, right under the noses of the JSE, the Financial Services Board (FSB), Securities Regulation Panel, and Competition Commission. Ask the leading lights at these entities about why they’re sitting it out, and the buck gets passed. It’s very frustrating.

One of the reasons for the lack of action is the clear and present danger posed by lawyers. Teams of them move around like flocks of well-fed vultures. They arrive at meetings in large numbers, acting on instructions to intimidate by deploying mental pyrotechnics. If that fails, the lawyers are expected to issue direct threats, like bully boys bathed in testosterone during a break at school.

Conflicts of interest lie at the root of South Africa’s rotting corporate culture. Fortunes, running into hundreds of millions of rands, are being generated and paid as the dividends of greed. While global surveys continue to see South Africa slip in practically all rankings, concerns on the investment front are thankfully largely limited to errant investment bankers and their howling packs of professional supporters.

In the wider domestic financial markets, South Africa’s domestic hedge funds are small and ineffectual, and of nuisance value at best. There are, by contrast, some very big characters among the investment banking community. In Wall Street parlance, these characters are known as “big swinging dicks”. Let them swing, and let the vapours intensify.

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Probe skills training in SA

Probe skills training in SA
22/01/2007
Trade union Solidarity welcomed the launch of a R600m community survey on Monday, but asked that Stats SA also investigate the available levels of training skills in the country, a union spokesperson said.

"We should like to see the country's skills shortages, as well as the serious problem of mismatched skills, being evaluated by means of programmes that are based on reliable data," Solidarity spokesperson Jaco Kleynhans said.

He said a method of establishing the skills and training that are available among South Africans was needed.

The survey to collect demographic, geographic, social and economic data was launched by Finance Minister Trevor Manuel on Monday.

The survey, to be undertaken by Stats SA, would take three weeks to complete and the results would be published in October.

The survey would be suitable to study the shortage of skills in the country since it would not be necessary - as with a census - to include every citizen, Kleynhans said.

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Power cuts are normal

January 23, 2007
Last week's power cuts will not harm South Africa's economic growth nearly as much as some people have predicted, Finance Minister Trevor Manuel said yesterday.

"The numbers that they generate are complete and utter garbage ... It will not affect growth," Manuel said.

Manuel said Eskom's capacity was sufficient for the present and that it was normal for power plants to be shut down for routine maintenance, as occurred last week.

The cuts, which Eskom attributed to station maintenance and the shutdown of a unit at Koeberg nuclear power station, caused power failures from Cape Town to Johannesburg and Durban.

Meanwhile, Eskom will soon be flighting power alert messages on television to ask consumers to assist in the power crises by turning off all non-essential equipment.

In order to prevent instability and total blackouts municipalities all over the country have been requested to shed a percentage of their non-critical loads.

The eThekwini municipality is participating in the programme and has already put together a schedule that will be implemented in the event of it being necessary.

The power outages are expected to last for about two hours at a time.

eThekwini municipality's head of electricity Sandile Maphumulo said the department would "endeavour to notify all customers in advance of the interruptions".

He said the shedding would not only ease national capacity problems but would also prevent widespread outages that had the potential to cause "city-wide blackouts".

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Tax fundis fear SARS is overegging the tax pudding

ONE of the most controversial changes that the South African Revenue Service (SARS) introduced to SA’s tax laws last year was an initiative aimed at cracking down on businesses transactions that fell outside the tax net — the anti-avoidance rule.

Under the new general anti-avoidance rules, commonly referred to as “GAAR”, the receiver brought in far-reaching taxing powers to scrutinise all commer-cial transactions and decide whether to tax them.

Tax experts have since described the country’s taxation system as having experienced “a quantum leap in complexity” since the introduction of the worldwide basis for taxation, and capital gains tax.

“The introduction of complex tax legislation has resulted in loopholes, more sophisticated tax planning and, inevitably, more anti-avoidance provisions,” says Ernie Lai King, head of Deneys Reitz Tax Services.

How far will this spiral continue? Will SA eventually end up with a tax system which is as cumbersome as that of the US? And what happened to the call for simplifying SA’s tax system made by President Thabo Mbeki, among others?

These are just some of the questions tax fundis are asking.

Lai King says that the receiver has the right to change tax laws which it believes are proving ineffective, just as taxpayers have a right to reduce their taxes legally.

However, in its mission to combat tax avoidance and close every perceived loophole, the receiver must be cautious not to create an overbearing tax regime which could eventually restrict normal economic activity. Such an environment would be problematic, particularly in the imple-mentation of black economic empowerment transactions, Lai King says.

Section 103 of the Income Tax Act contains a general anti- avoidance rule. It describes an impermissible transaction as one that is entered into for the main purpose of obtaining a tax benefit rather than for commercial reasons.

The receiver has found that the rule is inconsistent and an ineffective deterrent. Banks, “boutique” structured finance firms, multinational accounting firms and law firms have also complained that it is increasingly hard to market complex and sophisticated tax “products”.

Every year Finance Minister Trevor Manuel has had to introduce amendments to tax legislation to deal with aggressive tax-avoidance schemes.

Meanwhile, SARS hopes that it will eventually be able to identify all the characteristics of the schemes.

This means that empowerment deals will be hit by the new rules and SARS has said that it will be keeping an eye on these transactions from this year.

Apparently, it has taken government about two years to develop the GAAR rules, in close consultation with stakeholders.

The 2006 Revenue Laws Amendment Bill, which amends the Income Tax Act, proposes that parts of section 103 be replaced with 12 new sections effective from 2 November last year.

It applies to any arrangement entered into on or after that date.

Under the GAAR rules a new commercial substance test is introduced.

The test seeks to determine the economic reality of the arrangement, examining the effect of a transaction upon a party’s business risks and net cash flows.

It also sets out indicators for lack of commercial substance. For instance, the avoidance arrangement may involve round-trip financing, which ensures the presence of an accommodating, or tax-indifferent, party.

Should an arrangement pass scrutiny, there is a final inquiry to be faced and that is whether the transaction resulted directly or indirectly in the misuse of any provision of the Income Tax Act.

Lai King says this very broad and subjective test is a move from the literal approach of interpreting the law purposefully.

“It can be problematic through the uncertainty that it is likely to cause.”

The rules also allow the receiver to presume that the sole or main purpose of an avoidance arrangement is to obtain a tax benefit and therefore adopt this presumption to any step or part of a transaction.

In other words, says Lai King, an individual step or part of an avoidance arrangement may be viewed as different from the overall purpose of the transaction.

Des Kruger, a tax director at commercial law firm Mallinicks Attorneys, says it is going to be difficult for corporate taxpayers who enter into transactions and arrangements of this nature in the near future to know whether they have covered the legal and tax implications.

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Manuel's health data slammed

The Free Market Foundation has taken issue with Finance Minister Trevor Manuel's claim that only 20% of the population receives private health care while government deals with the rest.

Policy researcher, Johan Biermann, notes in the foundation newsletter that Manuel had declared this in a recent radio interview.

"We need to be concerned when such an astute minister becomes persuaded by fallacious and persistently quoted figures, especially if the figures are used to formulate budgetary and overall government policy."

Statistics South Africa revealed the true picture, he argues. Its figures note that in 1995 the private sector constituted the "place of consultation" for health care for 32.2% of the population.

This rose to 42.2% in 2002 but eased slightly to just over 40% in 2005. The government sector as a place of health care consultation dropped from 67.8% in 1995 - a year after democracy - to 59.9% in 2005.

And Biermann argued that according to the National Health Accounts, in 1995 28.8% of the population who were not covered by medical aid, made use of private health services.

"Ten years later the General Household Survey 2005 found that just over 40% of all consultations took place in the private sector in that year and that 55.4% of the consultations in the private health sector were for patients not on medical aid.

"Clearly the private health sector is used by substantially more than the 16% of the population claimed by government."

According to the National Health Accounts, Biermann reports, in 1995 28.8% of the population who were not covered by medical aid, made use of private health services.

Ten years later the General Household Survey 2005 found that just over 40% of all consultations took place in the private sector in that year and that 55.4% of the consultations in the private health sector were for patients not on medical aid.

"Clearly the private health sector is used by substantially more than the 16% (an estimate of those covered by medical insurance) of the population claimed by government."

An assessment of the available information led to the conclusion that the government health sector spent taxpayers' money on a potential 54% of the population - which amounted to 24 million people in 2001, he argued.

"Consider further that relatively few people actually need medical care in any given year, and those who get sick suffer from a wide range of illnesses requiring a range of treatments, which differ in cost of provision."

According to the General Household Survey 2005, 10.3% of the SA population consulted a health worker - doctor, nurse or traditional healer - and 6.5% of the population received some form of medical treatment at hospitals and clinics in that year.

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A Man Not Allowed to Do His Job

IT IS impressive amnesia that allows Finance Minister Trevor Manuel and the Financial Services Board (FSB) to be shocked by Vuyani Ngalwana's decision to quit as pensions fund adjudicator over frustration at the lack of support he's received from government.

A mushroom cloud of deja vu pulses over this saga. Ngalwana is, after all, treading the same path as his predecessor, John Murphy, who also pleaded -- to no avail -- for help to allow him to do his job properly.

Murphy, now a high court judge, opened the first adjudicator's office in 1998. "At the time, I borrowed a cellphone and walked the streets of Cape Town looking for an office," he says.

Ngalwana built on his foundation and became a celebrity as he tackled the life assurers head-on, providing the most potent obstacle yet to the companies that had extorted consumers for decades.

Consumers reacted, and complaints grew 105% last year. But when Ngalwana requested extra budgetary firepower to hire lawyers to handle complaints, the FSB vetoed his request.

Last month, Ngalwana said he had been "stymied at every turn by persons who seem concerned more with procedural niceties than considerations of pragmatism" and that "resources are less than adequate... to meet our statutory mandate".

Last week, Murphy said he faced exactly the same obstacles as Ngalwana, before he quit six months before his contract ended in 2004.

One problem, he says, is that the FSB, which holds the purse strings, has a "natural tension" with the adjudicator.

"Often the reason you have a problem is because of a failure of regulation. If the adjudicator pronounces on something that has come about as a failure of the regulatory system, this reflects adversely on the FSB," he says.

He says it doesn't surprise him that Ngalwana's relationship with the FSB has become strained. "My relationship with them was also fractious," he says.

Ngalwana has given two major reasons for leaving.

The first is that the FSB won't increase his budget to allow him to deal with a crushing backlog of more than 3000 complaints.

The second is due to frustration caused by the legal rule that allows life companies simply to take his rulings to court and get them overturned "by default".

Now, while Murphy's complaints at the time didn't relate to his budget, he most certainly raised hell about a framework that he says is "totally unworkable" for the adjudicator.

"I made certain suggestions in my time as adjudicator about coming up with a different model and I was politely but repeatedly ignored, and not given what I needed to carry on," he says.

When it comes to court appeals, consumers don't have the cash to fund a battle, and the adjudicator is forbidden from defending his ruling in court.

So what happens -- as we saw in the recent Old Mutual case -- is that life companies typically get rulings in their favour by default.

As evidence, Murphy cites the fact that every time he was allowed to defend one of his adjudicator rulings in court, the ruling was upheld; every time he was forbidden from defending that ruling, it was overturned.

"We need to rethink the model, and we need a new model where either the adjudicator can defend his rulings in court, or the powers of a court to review rulings are limited," he says.

When it comes to the cash, Manuel says this year saw a "111% increase" in the levy on pension funds (now R2,50 a year, from R1,18 last year), and a 17,3% increase in Ngalwana's R15,9m budget. But how could that 17,3% hope to address the 105% increase in complaints last year?

If brown-shoed bureaucrats cannot see the need for more funds in a year when life assurers have finally been forced to atone for their greed, should they be holding the purse strings?

Ngalwana has done more than most to help consumers. Why is government willing to squander this political capital?

Poignantly, Murphy says Ngalwana's departure "leads you to question the commitment of those in the regulatory framework to seeing justice done".

The sobering part is that un-less the FSB appoints a simpering bureaucrat to replace Ngalwana, those in power will again feign shock when this scenario repeats itself in a few years.

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Fuel tax must not be implemented

The fuel tax that vehicle owners in the Western Cape will have to pay will prejudice the region's already overburdened fuel consumer, the Automobile Association (AA) said on Thursday.

The AA said in a statement that Western Cape drivers already pay substantially higher licensing fees than the rest of the country.

Moreover, the 10 cents a litre hike in the fuel price will make public transport more expensive, while "the people who can least afford it will be forced to live with higher transport costs and less disposable income for essential daily requirements".

Unacceptable to AA

The AA's comments follow the decision by Finance Minister Trevor Manuel to give the go-ahead to the Western Cape to increase the tax on petrol and diesel. The petrol price will rise by up to 10 cents a litre to start off with.

According to the AA, it has recently emerged that should an additional fuel levy be introduced, there was the chance that the monies would not be spent on roads or transport infrastructure. "This is also unacceptable to the Automobile Association," the group said.

"It is only a matter of time before the other provinces place the same additional burden on vehicle owners."

The group called on National Treasury to "consider the vast impact that the introduction of an additional fuel levy would have before making their final decision".

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Training system fails to deliver

Underperforming Sector Training Authorities (Setas) should be identified and improved to maintain the Setas system to produce skills.

Finance Minister Trevor Manuel said this on Tuesday after talks with the Federation of Unions of South Africa (Fedusa).

"It would be wrong to abandon this enormous potential for training and go back, or to recreate something else," he said.

"We have to recognise that is the shape of training and give it a shot".

The issue of training featured in the talks, including concerns around the dearth of artisans, such as pipe welders who had to be brought in from other countries to work at Sasol.

"We are worried that the training system is not delivering people," Manuel said.

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Outgoing Ngalwana blames FSB red tape

PENSION fund adjudicator Vuyani Ngalwana has blamed the Financial Services Board (FSB) for making it impossible for him to do his job, saying he would quit in April because he had been frustrated by the regulator.

He said he had been “stymied at every turn by persons who seem concerned more with procedural niceties than considerations of pragmatism”.

The FSB regulates how much money the adjudicator gets, but Ngalwana said yesterday that because the FSB had refused a request for more money to hire lawyers to deal with complaints the backlog was now more than 3000 and climbing.

This is the first time Ngalwana has put a number on this backlog, and the alarming volume shows it is now likely to take 15 months for his office to deal with a complaint, compared with the six months it took a few years ago.

Ngalwana said last month he would quit, and in his annual report he said Finance Minister Trevor Manuel should be aware that his “resources are less than adequate to enable us to meet our statutory mandate”.

Over the past two years, Ngalwana has clashed with life assurers over high costs and poor transparency on retirement annuities, a dispute settled a year ago when the companies signed a “statement of intent”, agreeing to introduce greater transparency at a cost of R3bn to themselves.

Because of the high profile his office has attracted as a consumer champion, Ngalwana’s office saw a 105% increase in the number of complaints last year.

Last year, the adjudicator’s office received 4901 complaints, 105% more than the 2387 in the previous year. To handle this load, Ngalwana asked the FSB for more funds to hire additional lawyers, but the FSB refused.

Yesterday Ngalwana said that “since I cannot accept responsibility for a failure of which we are not the cause, I must step down from this position and hand over to someone who could perhaps receive a more sympathetic audience from the regulator”.

The call for more resources had “sadly fallen on deaf ears”, with the result that the backlog was mounting.

Ngalwana criticised the “statement of intent” signed by life companies and Manuel in December last year. He said while the assurers guaranteed no more than 35% of a retirement annuity fund would be deducted in costs, they ensured their costs always amounted to 35% of a fund value.

“This is clearly not what the statement of intent envisages ... this is sad and leaves (consumers) no better off than they were before the statement was signed.”

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The worst is yet to come

South Africans who still think the series of interest rate hikes is about to end and that the rand is over the worst, must think again.

Matthew Lester, Professor of Taxation studies at Rhodes University, says chances are good that interest rates could hit 16%.

"I'm not saying it's going to happen, but it can."

South Africans haven't kept up with the economic changes that have taken place since February.

At the same time, no one is saving and people are still buying as if there's no tomorrow.

South Africa's salvation is that US Federal Reserve chairperson Ben Bernanke has put the brakes on interest rate increases in the US for now.

If those brakes come off, South Africa would have to keep on hiking rates to keep and lure foreign investors to the country.

Lester describes the flow of more than R25bn in foreign capital into the country as "unthinkable".

The role of the three T's (Thabo Mbeki, Tito Mboweni and Trevor Manuel) in the economy is greatly responsible for this.

The foreign capital is the glue holding everything together. If this should turn around, South Africa is in big trouble, says Lester.

South Africa's image abroad is "tainted" with incidences such as "Oilgate, Travelgate, Spygate and Armsgate".

According to Lester the last time the graph of the huge deficit on the current account looked so worrying was when Barend du Plessis was still minister of finance.

This deficit is greatly financed through foreign capital.

Lester predicts better days if:

• The strong flow of foreign capital continues;
  
• Credit growth declines from 25% to 15%; and
  
• Oil prices stay at $60 a barrel.
  

He predicts bad times if:

• The strong flow of capital tapers off;
  
• Credit growth stays at 25%; and
  
• Oil prices climb to $70 a barrel.
  

The worst-case scenario:

• Capital stream runs dry;
  
• Credit growth climbs above 25%;
  
• Oil prices soar over $80 a barrel; and
  
• Inflation goes into double digits.
  

Lester also referred to a comment from Finance Minister Trevor Manuel in February this year.

Manuel said at the time that South Africa shouldn't count on international circumstances always working in its favour.

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Job-hopping black professionals

Reserve Bank governor Tito Mboweni recently complained in Parliament that the central bank was unable to retain skilled black professionals.

When they join the bank, they purchase cars, houses and other expensive items.

This whets their appetite for more pay, resulting in them being susceptible to poaching by other companies. A few months down the line, they leave for greener pastures.

The context of Mboweni's complaint was that higher salaries for skilled black professionals raise demand in the economy with corresponding inflationary pressures.

On the face of it his argument seems to make sense. On another occasion, Mboweni introduced another element in his argument: he likes the Afrikaner assistants at the bank. They stay long enough on the job and become experts.

The combination of the first argument and the second is deadly for black people in general and black professionals in particular.

Black people want to fill in those places at the top - in fact employment equity legislation (partly Mboweni's brainchild when he was labour minister) requires it.

In fact his latter-day successor, Membathisi Mdladlana, is at war with big companies for lack of compliance.

But why are black professionals under attack from their leaders?

Black professionals are a symptom of the wrong things that happen in the market economy, which government leaders caused and are now unable to control.

Take Finance Minister Trevor Manuel's ranting two years ago against black accountants. He blasted them for being paid high salaries caused by a shortage of accountancy skills.

He argued that this was creating a barrier to new entrants. But where is the evidence that blacks are responsible for this, when in fact, the accounting profession has always been paid handsomely long before blacks were allowed to practice?

He acknowledged that it took long for a person to qualify as an accountant and there was also the problem of quality education in our schools.

In an almost similar tone to Mboweni's, he went on to draw a similarity between the salaries of black professionals and the extravagant pay hikes given to chief executive officers such as Steven Ross of Edcon and Gold Fields' Ian Cockerill.

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