Nene has clear grasp of economy – experts

2014-10-22 21:42

Economists saluted Finance Minister Nhlanhla Nene for containing state spending and debt in his first medium-term budget, but opposition parties faulted him for not doing more to stem waste.

Wits economist Kenneth Creamer today said that with growth lagging at 1.4% of GDP, fiscal stimulus risked becoming counter-productive by pushing up national debt to unacceptable levels.

“Nene appears to have a clear grasp of this problem, and he has signalled a clear intention to change the fiscal policy stance from stimulus to consolidation.

“This is not an easy task and will require determined action by government, and clear communication with all stakeholders in South Africa,” he added.

He forecast that this implied tax increases early next year – when Nene tables his first full budget – because the sale of non-strategic state assets alone would not swell the revenue coffers sufficiently.

“In the context of an ongoing low rate of economic growth, increased tax revenues will require a broadening of the tax base, increased tax compliance and morality, and, possibly, increased tax rates on consumption and wage earners, particularly high wage earners,” he said.

“Such tax increases will pose difficulties and adjustments for South Africans, but as Nene has indicated, such a step may be essential if the country is to avoid falling into a debt trap.”

Deloitte economist Kay Walsh interpreted Nene’s comments on tax as a pointer that the overall tax burden on wealthy individuals will be increased.

“This could either be in the form of increased tax rates for high-income earners, or higher and/or additional ‘wealth taxes’ such as capital gains tax, luxury vehicle tax, etc,” she said.

Walsh said Nene took a strong stance on the need to urgently put in place measures intended to restore ailing public finances to health.

“It is clear that the forecast economic recovery is going to take much longer than previously anticipated, with GDP growth now only expected to reach 3% in 2017 (previously 2015).”

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