South African authorities are unlikely to impose a tax on portfolio investment to curb the rand’s rally, Deputy President Kgalema Motlanthe and Finance Minister Pravin Gordhan said in interviews today.
The tax, as proposed by the ruling African National Congress, is “not going to happen in the near future,” Motlanthe said in an interview on Bloomberg TV in London today. Gordhan said a similar tax in Brazil hadn’t done anything to damp that country’s currency gains.
The ANC plans to discuss the option of a portfolio tax at a key policy conference next week as one way of helping to curb the rand’s 32 percent surge against the dollar since the beginning of 2009. Labor unions, which helped to sweep President Jacob Zuma into power, have lobbied the government to take stronger action to weaken the rand and save jobs.
“We will have to look at the experience other countries have had,” Gordhan said in an interview in London. Brazil’s inflow tax “hasn’t made any difference to the real and its appreciation.”
The rand climbed as much as 0.3 percent to 7.0637 against the dollar today and was trading at 7.1080 as of 1 p.m. in Johannesburg.
Brazil last year imposed taxes on overseas purchases of its stocks and fixed-income assets after the real rallied almost 33 percent in 2009. Japan yesterday intervened in the foreign exchange market for the first time since 2004 to weaken the yen from a 15-year high.
The rand has been boosted by carry-trade investors, who borrow in countries with low interest rates and invest in markets that offer higher returns. South Africa’s 6 percent benchmark interest rate compares with rates of between zero and 0.25 percent in the U.S., 0.5 percent in the U.K., 1 percent in countries using the euro and 0.1 percent in Japan.
“There are clear indications that the carry trade is still operating,” Gordhan said. “There are structural changes around the world that are attracting funds to South Africa and in particular into our bonds.”
The ANC will consider portfolio taxes at its national general council meeting, which begins on Sept. 20, and then in its economic sub-committee, which will compile a report of policy recommendations, Motlanthe said.
Motlanthe also played down calls from the ANC Youth League to nationalize the country’s mines, saying the government needs to consider how “practical” it would be to implement.
“It’s a debate that has to go through the economic sub-committee,” Motlanthe said. “For government, the critical question is what are the practical implications of any final position. Others don’t concern themselves with that question.”