‘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.

Join the conversation!

24.com encourages commentary submitted via MyNews24. Contributions of 200 words or more will be considered for publication.

We reserve editorial discretion to decide what will be published.
Read our comments policy for guidelines on contributions.

24.com publishes all comments posted on articles provided that they adhere to our Comments Policy. Should you wish to report a comment for editorial review, please do so by clicking the 'Report Comment' button to the right of each comment.

Comment on this story
Comments have been closed for this article.

Inside News24

Traffic Alerts
There are new stories on the homepage. Click here to see them.


Create Profile

Creating your profile will enable you to submit photos and stories to get published on News24.

Please provide a username for your profile page:

This username must be unique, cannot be edited and will be used in the URL to your profile page across the entire 24.com network.


Location Settings

News24 allows you to edit the display of certain components based on a location. If you wish to personalise the page based on your preferences, please select a location for each component and click "Submit" in order for the changes to take affect.

Facebook Sign-In

Hi News addict,

Join the News24 Community to be involved in breaking the news.

Log in with Facebook to comment and personalise news, weather and listings.