Tax increases not an option, says BUSA

Johannesburg – Cost cutting and revenue generating efficiencies should be be priorities in the mini budget, said Business Unity South Africa (BUSA).

Ahead of the mini budget to be delivered by Finance Minister Malusi Gigaba on Wednesday, BUSA CEO Tanya Cohen explained in a statement that further tax increases may not be an option as they will stifle the economy.

This means cost containment and generating efficiencies are “imperative”, given weak economic growth and declining revenues.

“South Africa has simply run out of space to increase taxes significantly in the current socio-economic and political environment without doing undue harm to the economy,” she said. “Expenditure reduction is, therefore, the only sustainable avenue to fiscal consolidation.”

The cutbacks should not be at the expense of social spending, but rather generating efficiencies within government, explained Cohen.

Loss-making SOEs

BUSA called for government to take measures to ensure state-owned enterprises (SOEs) are governed “independently, responsibly and sustainably”. Bailouts by Treasury for SOEs continue to be a threat to fiscal consolidation, she explained.

“State-owned entities such as South African Airways, Eskom and the SABC complete a worrying picture of chronic overspending and underperformance.

“There is no doubt that poor governance, corruption and maladministration play a significant role in the dismal financial performance of SOEs, particularly those in the energy sector,” she said.

BUSA will be looking for details in the mini budget showing that the bailouts to SAA have been fiscally neutral.

Other spending commitments such as national health insurance (NHI), comprehensive social security and possibly the new nuclear build programme must be approached with “extreme caution”, said Cohen.

“While programmes such as NHI and CSS (comprehensive social security) are imperatives, alongside improved access to skills and education provision, fiscal commitments should be on the basis of credible cost-benefit analyses,” she said.  

“The lack of decisive measures to stabilise debt and address governance challenges will inevitably result in an extended period of enforced austerity that threatens our sovereignty.

“The main victims of this will, unfortunately, be the poor and most vulnerable. Losing control of our public finances will imperil the capacity of the state to address social developmental concerns,” she said.

Strong leadership and political will to curb overspending, stabilise debt and avoid further downgrades is needed. Governance challenges must also be addressed to restore confidence, said Cohen.

Craig Pheiffer, chief investment strategist at Absa Stockbrokers and Portfolio Management, shared concerns about the growing debt burden.

Pheiffer is of the view that further tax hikes will be used to fill the gaps.

“His options could include a variable value-added tax rate, meaning zero-rating more items, and hiking VAT on luxury goods.

“He could also increase the wealth tax, which was initially announced in February and results in everyone earning more than R1.5m a year paying 45% of that to the state,” said Pheiffer.

But even these efforts may not be enough and debt may continue to grow if the country has to borrow. “Already, taking into account what state-owned enterprises owe, for every rand of our gross domestic product we are indebted to the tune of 60c,” he said.

This may impact the state’s capacity to spend on social economic upliftment, job-creating projects, and other projects such as housing, water, electricity, education and infrastructure, he said. 

* Visit our Mini Budget Special Issuefor all the news, views and analysis.

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