Pravin Gordhan’s dilemma

2014-02-23 14:00

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Don’t expect Finance Minister Pravin Gordhan to make any dramatic changes to the budget in this election year.

According to Eugene du Plessis, Grant ­Thornton’s head of tax, major changes, including the skills development levy, the changeover from source- to residence-based taxation and the introduction of capital gains tax, were all announced in non-election years.

What Gordhan is expected to do:

The government will be reluctant to hike taxes in an election year and before the completion of the current review on tax reforms by the Davis Tax Committee, says Dave Mohr, chief investment strategist at Old Mutual Wealth.

Mohr says the government is eager to encourage savings, particularly ­retirement savings. “The government has been introducing measures to improve the attractiveness of retirement fund contributions and could be looking to change the way interest income is taxed.”

Nomura is expecting a slowdown in the pace of investment spending within the budget, although some can probably be offset through efficiency savings.

It is unlikely there will be major tax changes. “Last year’s budget highlighted the conundrum of the South African fiscus – seemingly stable on the surface, but a lack of momentum around consolidation beneath that couples with downside tail risks. That fact remains unchanged.

However, revenue performance surprised to the upside into December given a quieter strike season than expected, which means difficult choices are less difficult this time,” Nomura said.

Nedbank says personal income tax relief will be limited. “Despite growing fears of possible hikes in personal income tax rates, Treasury will probably opt to leave the top marginal tax rate unchanged at 40% and rather opt to buoy government revenue through smaller adjustments to the tax thresholds.”

What he should do:

Leon Louw, CEO of the Free Market Foundation, says South Africa’s ­unemployment rate is higher than during the Great Depression and the country is in a “national crisis”. He wants Gordhan to only spend on true welfare, which only considers truly destitute people.

Mohr says: “Over the past five years, the government’s current spending – mostly on salaries and welfare payments – has grown rapidly.” Analysts agree that the government should slow spending on current expenses.

In his mini budget speech in October, Gordhan showed his determination to spend less and reduce wastage, and analysts believe he should focus on this.

Louw says Gordhan will probably stick to raising sin taxes, but “it’s a silly tax. Enjoying life and happiness are how people reward their productivity.”

FACTS

Expert expectations

Nazrien Kader, national taxation services leader, Deloitte

Budget watchers know that Pravin Gordhan’s style is never to surprise. So while South Africans enjoy the anticipation of the “big announcement”, history has shown that we can expect little in the way of major changes.

Leon Louw, CEO of the Free Market Foundation

Stop taxing production of wealth. We want a more honest tax system where people know why they are being taxed and how the tax is used. We want transparency.

Zweli Mabhoza, head of tax services at SizweNtsalubaGobodo

To ensure the necessary change, the government should even consider withholding certain amounts allocated to provinces, departments and municipalities that have received qualified audit reports. Perhaps then the taxpayer will begin to see the increasing value of their taxes.

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