Recession could cost taxpayers

2009-10-27 13:33

TAXPAYERS could find themselves getting deeper into their pockets

to finance future government cash shortfalls, which could be a frequent

occurrence if the economy fails to rebound strongly from the global


According to the medium-term budget policy statement (MTBPS),

tabled in Parliament on Tuesday by Finance Minister Pravin Gordhan, the tax

revenues have fallen by 3.2% of the GDP, thanks to declines in VAT receipts,

company taxes and trade taxes.

“As the economy recovers, tax revenues will rise automatically.

However, this will not be sufficient to reduce the deficit to sustainable

levels. Other means of broadening the tax base include improving tax compliance

and introducing new taxes such as environmental levies may have to be

considered,” the MTBPS said.

The global financial crisis pushed South Africa to its first

recession in 17 years at the beginning of 2009, causing tax revenues to drop

sharply and the budget deficit to widen to 7.6% of the gross domestic product

(GDP) in the fiscal year 2009/10 from 1% of the GDP last year.

Gordhan said although the doom and gloom of the recession was

nearing its end, “no one knows how steep the economic recovery would be”.

National Treasury projections are that government revenue will lag

expenditure up to 2013. The gap between the revenue and expenditure, or the

so-called budget deficit, has to so far been financed through borrowings. This

is not sustainable in the long run and the government will have to increases

taxes to prevent debt servicing costs spiraling out of control.

Gordhan said tax policy announcements would be made in the main

budget in February.

Government expects to collect R657.5 billion in tax revenue in the

current fiscal year and spend R841.4 billion. After spending, the government

will be left with a deficit of R183.8 billion, which is equivalent to 7.6% of

the GDP. Budget deficit is forecast to gradually fall to 4.2% of the GDP in


The pressure on state finances has forced President Jacob Zuma’s

cabinet to introduce a cost-cutting exercise that will target non-core

activities. In July, a high-level Ministerial Task Team comprising Gordhan,

Minister in the Presidency for Performance Monitoring and Evaluation Collins

Chabane and Public Service and Administration Minister Richard Baloyi was set up

to spearhead the exercise.

The team has already identified potential areas where government

can cut costs. National departments have been asked shave off R14.5 billion over

the next three years while provincial governments will save R12.6 billion.

The task team was set up to, among other things, develop policies

to reduce wastage and fruitless expenditure, combat corruption and fraud and

eliminate leakage and irregularities in the government procurement system.

It will also review the controversial Ministerial Handbook, which

has failed curb excessive spending by ministers on luxury cars, entertainment

and accommodation.

Gordhan also announced that the government would spend an

additional R12 billion to cover salary increases emanating from the

occupation-specific dispensation agreements with doctors and teachers.

The troubled Land Bank will receive R1 billion to recapitalize its

operations while the new departments, which include the Economic Development

Department, will receive a cash injection of R589 million.

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