A holding budget for 2014 election

2013-03-01 00:00

A REVIEW of the tax regime, poorer economic growth and the failure of the National Development Plan (NDP) in the long term could force a heavy-handed approach from the taxman in years to come.

This was one of the key insights into the national budget from Dr Cees Bruggemans, consulting economist at FNB.

He was speaking at the annual FNB/Witness post-budget presentation in Pietermaritzburg yesterday, a day after Finance Minister Pravin Gordhan delivered the R1,15 trillion budget.

Bruggemans described Gordhan’s address as a “holding budget in an election lockup” — referring to the upcoming 2014 national elections.

He stressed that Gordhan’s speech raised the possibility of increased taxes in the years ahead.

However, this would depend largely on the performance of the economy, as well as the success or failure of the NDP.

“What was significant was what he did not speak about. There is something out there that we do not fully understand. The minister spoke about a review of the tax system, which is asking whether the tax system gives us enough of the resources we need. But on the other hand, if the economy grows and the NDP is successful, then the taxman will leave you alone.”

Bruggemans added: “It takes a long time to turn this ship around. The NDP is a long-term plan and in the meantime, we have a relatively slow performing economy.”

He said Gordhan is mindful of the message that the budget sent out to credit ratings agencies. The avoidance of further downgrades remained critically important.

“The agencies put us on notice, saying that there were too many populist demands for more spending. They sent the message that they’ll downgrade us to junk if this continues, without saying this directly. The overall picture is that we have to maintain discipline with our finances. The minister’s message to the agencies was: ‘We had a short-term hiccup but in the years ahead we’ll do what you want us to do: shrink the budget deficit and arrest the debt level’.”

Bruggemans expressed concern over the lack of emphasis on domestic economic challenges.

“To the Minister, the world economy is under-performing. The South African Reserve Bank…also sees the world as a risky place for you and I, and that informs their decision-making. However, everything is blamed on the world, not on our domestic challenges. South Africa is under-performing for its own domestic reasons due to the government’s policies and issues on the supply side of the economy.”

Some of the domestic woes include constraints in electricity supply, a public sector shortage in technical manpower, infrastructure bottlenecks and labour unrest, which has resulted in lost output.

“These are real circumstances on the ground which make businesses less confident,” said Bruggemans.

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