‘Taxpayers are in for additional squeezing in coming months’

2014-10-21 00:00

TAXPAYERS are going to be squeezed for more money, but most likely only after tomorrow’s Medium Term Budget Policy Statement (MTB).

Old Mutual Investment analyst Izak Odendaal said yesterday while changes to tax rates are not expected in Finance Minister Nhlanhla Nene’s first MTB, “there is no question that taxpayers are in for some additional squeezing in coming months”.

Odendaal said the minister has little option but to announce some bad news to taxpayers, whether it be in this week or in February. Odendaal expects:

• Value Added Tax (VAT) exemptions may be eliminated: currently, a range of fresh food items are VAT free, benefiting rich and poor alike.

The blow to poorer households from this change could be offset by increased social grant payments.

• Increased marginal tax rates for high income earners, a form of wealth tax, are a possibility: this is likely more for symbolic than fiscal reasons, as high income earners are stringently taxed, so there is little extra revenue to squeeze out of them.

• Closing remaining loopholes and tax avoidance schemes are likely: particularly the practice by some companies of “offshoring” some of their tax liabilities.

Loane Sharpe, an economist at the Free Market Foundation, did not expect much changes from the MTB.

In 20 years the government had presented budgets of fiscal restraint that had generally been acceptable to markets, he said.

Sharpe said the problem was “predatory taxation” outside the Budget announcements, such as etolls, property taxes, electricity rates, fuel levies, excise duties — there were tax revolts of different kinds against each of these forms of taxation.

One third of households did not pay income tax.

At the same time, the government had, over 20 years, been steadily increasing its spending on cash payouts to poor people and on government salaries.

Social grants now accounted for 76% of the taxes paid by people who earn more than R500 000 per year, but had not succeeded in its aims of decreasing inequality.

And 88% of all government “value-add” was now consumed by government wages and salaries, he said.

Odendaal said that at the time of the February Budget, tax revenue was expected to increase by 8,6% compared with the previous year.

However, five months into the current year and tax revenue is only growing 6,9% over a year ago.

Meanwhile, expenditure growth is running ahead of budget, which means the budget deficit is growing, rather than shrinking, “which should be raising the alarm bells”, he said.

Odendaal said that while there is massive room for improvement in curtailing wasteful, unnecessary and fraudulent spending by government, that will not by itself close the budget deficit.

“Longer term, the economy needs structural reforms … a more flexible labour market, the professionalisation of the civil service, improved educational quality, and sustained infrastructure investment,” said Odendaal.

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