YOUR BELT

Wor­ried Moy­ane says an econ­omy in the dol­drums will hit tax rev­enue and ex­perts sound warn­ing that so­cial ten­sions may rise as re­ces­sion bites

CityPress - - Business - JUSTIN BROWN justin.brown@city­press.co.za

Bat­tered South African con­sumers face the pos­si­bil­ity of an­other credit crunch. This will be the re­sult of lag­ging tax col­lec­tion, which could see gov­ern­ment try to find new ways to plug its rev­enue gap. Con­se­quently, tax hikes next year could well be an op­tion. Rais­ing debt to plug any tax short­fall could be an­other op­tion gov­ern­ment could pur­sue, but this would place pres­sure on the coun­try’s credit rat­ing, which was down­graded to “junk” sta­tus in April. Cut­ting ex­pen­di­ture is in all prob­a­bil­ity the least likely av­enue the state will pur­sue to bal­ance its books.

On av­er­age, South Africans have been get­ting poorer since 2015. Gina Schoe­man, a Cit­i­group econ­o­mist, said this week at a con­fer­ence that this trend would re­main un­til 2020.

“So­cial ten­sion is likely to rise from things like this,” she said.

SA Rev­enue Ser­vice (Sars) com­mis­sioner Tom Moy­ane told City Press this week that tax col­lec­tion was be­hind tar­get be­cause the coun­try was in a re­ces­sion.

“We are in a tech­ni­cal re­ces­sion, which tells you that all is not good. The econ­omy is in the dol­drums. We have prob­lems. There­fore, as Sars, we are af­fected by ex­ter­nal fac­tors that are beyond our con­trol,” Moy­ane said dur­ing an in­ter­view with City Press af­ter an event at Sars’ Or­lando East branch in Soweto to launch the new tax fil­ing sea­son, which started on July 1.

Moy­ane’s com­ments come amid the first re­ces­sion since 2009, as well as de­pressed busi­ness and con­sumer con­fi­dence, and un­em­ploy­ment at a 13-year high.

In ad­di­tion, more job cuts – which will have a knockon ef­fect on con­sumer spend­ing and, con­se­quently, the econ­omy – are on the hori­zon.

An­gloGold Ashanti and African Bank are look­ing to cut up to 8 500 jobs and 652 jobs, re­spec­tively.

The JSE said on Fri­day it could cut 60 jobs to save costs.

In­vestec econ­o­mist Annabel Bishop said in a re­port this week that South Africa’s un­em­ploy­ment rate was fore­cast to in­crease over the next five and a half years, from 27.7% to 29% in 2022.

The In­ter­na­tional Mon­e­tary Fund (IMF) said this week it ex­pected lo­cal un­em­ploy­ment to rise to 28% next year.

“We hope and trust that the re­ver­sal in the econ­omy will hap­pen in the short­est pos­si­ble pe­riod so that we can see the gains that will en­able us to ex­tract rev­enue at about 10.5%. As it is now, we need to work hard to re­duce that slip­page,” Moy­ane told City Press.

“Sars is a re­silient or­gan­i­sa­tion. Peo­ple who have not seen where we come from – they need to look into the past three to four years when things were re­ally hor­rid and dif­fi­cult... We will do ev­ery­thing pos­si­ble.”

Fi­nance Min­is­ter Malusi Gi­gaba said at the Soweto event that he was “mind­ful of the state of the econ­omy” and for the tax col­lec­tion tar­get of R1.265 tril­lion to be achieved, the “econ­omy needs to be kick­ing”.

Gi­gaba said that, at the mini budget in October, which will be his first, it would be an­nounced whether the tax col­lec­tion tar­get had been changed.

“I’m op­ti­mistic. I be­lieve in the art of the pos­si­ble. If the econ­omy per­forms bet­ter – who knows – we might out­per­form [the tar­get col­lec­tions tar­get],” Moy­ane said.

In the first two months of Sars’ fi­nan­cial year, which started on April 1, the rev­enue agency col­lected to­tal tax rev­enue of R135.2 bil­lion – up by just 5.8% when com­pared with the same two months in 2016, ac­cord­ing to doc­u­ments on the Na­tional Trea­sury web­site.

The ex­tent of the in­crease in Sars’ tax col­lec­tion so far doesn’t com­pare well with its tar­get of R1.265 tril­lion for the year to March 2018. Sars is look­ing to in­crease tax rev­enue by 10.5%, or R122 bil­lion, rel­a­tive to the tax rev­enue col­lected in the year to March 2017.

If Sars were to in­crease its tax rev­enue by 5.8% in the year end­ing March 2018, then R1.211 tril­lion will be col­lected, which would see the agency miss its tar­get by R55 bil­lion.

A pos­si­ble sig­nal of things to come is that May’s tax NET DEBT (R BIL­LION) 3 000 2 500 2 000 1 500 1 000 500 0 % 6 5 4 3 2 1 0 -1 -2 % OF GDP 50 45 40 35 30 25 20 15 col­lec­tions were R74.7 bil­lion – just 3.7% up on May last year’s tax rev­enue of R72 bil­lion.

Mamello Matik­inca, an FNB econ­o­mist, said there was no way that Sars’ tar­get of a 10.5% hike in tax col­lec­tions was go­ing to hap­pen.

This was be­cause growth was weak and in­fla­tion was ex­pected to drop, largely be­cause of the record grain har­vest that has low­ered food prices, which means that nom­i­nal GDP growth, and, in turn, tax rev­enue, would be lower than an­tic­i­pated.

For the 2017 cal­en­dar year, FNB is fore­cast­ing the South African econ­omy to grow by just 0.4%, which is no­tably lower than the 1.3% fore­cast by Na­tional Trea­sury.

The SA Re­serve Bank and the IMF are both fore­cast­ing the econ­omy to grow by 1% this year, while the World Bank has a 1.1% pro­jec­tion for growth.

FNB ex­pects in­fla­tion to ease to about 5% dur­ing the year end­ing March 2018, Matik­inca said.

Gov­ern­ment was un­likely to meet its fis­cal targets set out in the budget speech given the ex­pected un­der­per­for­mance in tax rev­enue, she said.

Gov­ern­ment needs to find rev­enue and it was likely to in­crease debt and try to go for tax in­creases next year, in par­tic­u­lar by hik­ing VAT and in­tro­duce a wealth tax, Matik­inca said.

In ad­di­tion, gov­ern­ment could pull back on cap­i­tal ex­pen­di­ture, es­pe­cially at state-owned en­ter­prises.

Be­tween the op­tions of rais­ing taxes or in­creas­ing debt, Matik­inca said gov­ern­ment was likely to go for tax hikes as in­creas­ing gov­ern­ment debt would place the coun­try’s credit rat­ing, which is al­ready rated at junk sta­tus, at risk.

On the tax side, with con­sumers and busi­nesses un­der pres­sure, gov­ern­ment couldn’t hike taxes too much with­out suf­fo­cat­ing the econ­omy even fur­ther, Matik­inca said.

Isaac Mat­shego, a Ned­bank econ­o­mist, said that the taxes that could be hiked next year in­cluded cor­po­rate tax or VAT.

He said that the or­di­nary tax­payer was al­ready squeezed by tax hikes, so gov­ern­ment could look else­where next year.

A hike in cor­po­rate tax would hurt lo­cal com­pa­nies as fixed in­vest­ment – which is key for long-term growth – is al­ready on the de­cline.

Hik­ing VAT, while a pos­si­bil­ity, was po­lit­i­cally sen­si­tive and was un­likely to be an­nounced next year ahead of na­tional elec­tions in 2019, Mat­shego said.

In the Fe­bru­ary budget speech, gov­ern­ment debt stood at R2.2 tril­lion, or 50.7% of GDP, with in­ter­est pay­ments on that debt grow­ing rapidly.

Mat­shego said any short­fall in planned tax col­lec­tions this year could see gov­ern­ment debt climb to­wards 53% or 54% of GDP.

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