Johannesburg - When Finance Minister Nhlanhla Nene takes the floor on Wednesday afternoon to present his very first mini budget (Medium Term Budget Policy Statement), "armchair" budget observers will be looking for signs of consistency in messages to the South African public on tax policy and proposals in the long term, according to Nazrien Kader, national tax leader at Deloitte.
"Usually tax proposals are not addressed in this statement, but all eyes will be on Nene as he articulates his view on tax collections for the 2015 fiscal year and how much this is expected to deviate from targets," said Kader.
"A continued focus on cost reduction is vital, but can only yield so much. Whilst tax collections have always out-performed estimates, the consensus view amongst economists is that this trajectory cannot be sustained against the backdrop of current economic conditions and declining growth prospects – not just in South Africa but in Africa and the Brics [Brazil, Russia, India, China and South Africa] region."
With a rising tax to gross domestic product (GDP) ratio - hovering around 25.3% - the profile of tax collections is expected to mirror that of previous years, with individuals likely to retain the highest level of contribution, VAT a close second and company taxes third in line, with the focus to stay "tax anti-avoidance", said Kader.
This could be in the form of measures to counteract tax-base erosion and profit-shifting for companies and wealthy individuals - including the expat community, according to Kader.
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"The interest of ‘armchair’ budget observers like myself is piqued. Nene will be under intense scrutiny, firstly, because of the numbers he will present and the signals these are likely to give about government’s intentions - including the fiscal outlook for the next three years - and secondly, perhaps unfairly, because he will be compared to his predecessors."
The signals the market would be looking for, amongst others, would include the projected economic growth rate, the projected budget deficits and the overall debt burden.
The focus will also be on whether Nene can rein in spending, in particular the ever increasing government wage bill and any progress with the implementation of the National Development Plan (NDP).
Given the presidential commitment to an ambitious mandate involving a significant investment in infrastructure to revitalise the economy, Kader said she has great sympathy for Nene as he will try to build in "austerity" measures, while staying the course that Pravin Gordhan set with government’s commitment to a spending limit set for 2016/17.
This target was to hold real non-interest expenditure growth to an annual average of 2.2% over the three-year spending period.
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