R44?bln in tax hikes loom

2014-10-23 00:00

BRACE yourself as the government tries to shore up the bleeding economy by raising R44 billion more in tax revenue over the next three years.

Finance Minister Nhlanhla Nene said in his first Medium Term Budget Policy Statement yesterday that the economy “is at a turning point”. Tax revenues are falling and government spending is rising.

The economic growth forecast for this year was again revised downwards to 1,4%, compared with the 2,7% prediction made in February.

He blamed the weak global economy, energy constraints, labour problems, skills shortages, administrative shortcomings and difficulties with industrial transformation for the revision.

South Africa’s budget deficit — the amount by which government expenditure exceeds revenue — of around four percent is high among its major trading partners, a factor that led to international rating agency Standard & Poor’s downgrade of SA’s rating this year.Nene wants to bring the figure down to 2,5% over the next three years.

He proposed a “roadmap to safeguard the public finances” and reduce the budget deficit.

One measure was to increase tax revenues by R12 billion next year, R15 billion the next year and by R17 billion in 2017/18 — more than R44 billion over the period.

Although he did not mention the specific taxes, it means that tax increases are likely to be announced in the February 2015 Budget.

“I predict this increase will be targeted at the higher net worth individuals/higher tax brackets,” said Eugene du Plessis, partner and head of tax, Grant Thornton Johannesburg.

“The tax increases which the minister hinted at will affect individuals. We will have to wait in suspense though, until next year to find out exactly what this increase will be.”

Economists.co.za chief economist Mike Schussler said the plan to reduce the budget deficit seemed “optimistic” and while Nene seemed to be “a lot more realistic about growth” there was “a lot that could go wrong” with the Nene’s proposals.

For instance, plans to reduce the growth in the public sector wage bill to around the inflation rate conflicted with trade union demands for a 15% increase, and public servants were already being paid more than private sector employees, he said.

Schussler said the government was “running out of rabbits to pull out the hat” to get the economy going again and he predicted that within two years, it would have to close or privatise some of its fully-owned state-owned businesses.

Stanlib economist Kevin Lings said Nene had made “a clear step in the right direction” with regard to cutting government expenditure, and in terms of the sale of government assets, in the absence of enough economic growth.

However, there would be some “big tests ahead” for the government in meeting its expenditure ceiling, including implementing the plan to raise the government wage bill in line with the inflation rate, or at least close to it.

Nene also detailed a plan to reduce government expenditure by R10 billion in 2015/16 and R15 billion in 2016/17.

The plans include:

• Freezing non-essential goods and services budgets;

• Withdrawing funding for posts that have been vacant for a long time;

• Slowing money transfers to public entities;

• Cuts in national department spending on travel, subsistence, conferencing and catering;

• Cuts in advertising and communication budgets;

• Capping allocations for consultant services;

• Reviewing the need for vacant government posts, and;

• Only allocating money to state-owned enterprises if a sound business plan is in place.

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