government could give the markets a leg up by doing away with the capital gains tax on listed securities, currently at 15%.
The government collects some R3,000 crore from this levy which, while not an insignificant amount, isn’t very large either. A zero% short-term capital gains tax could pull investors back into the market, boosting the sentiment like little else can; given how one year can be a long time in such a dynamic world, investors would be comfortable knowing they can quit when they want to without being taxed for it. More participation in the markets will only make them more liquid. In short, a strong market will allow corporates to raise equity while not pressuring the fisc too much; the biggest beneficiary of this move will be the government since it’s hoping to raise a bunch of money from disinvestments.
If the markets rally—as they should now that corporate earnings seem to be bottoming out — the government can more than make up the R3,000 crore from higher premiums on the shares that it plans to sell. What’s more, over-indebted corporates can de-leverage, taking the pressure off both their own balance sheets as also those of banks. As for the economy, there’s nothing like the wealth effect to get consumers spending.