Transformation ahead of growth in economy

Ryan Hancocks.

Large tax hikes may further destabilise a struggling economy. The government needs to focus on removing domestic roadblocks to investment and economic growth, writes Transformation came through dent Jacob Zuma’s case that a call for inclusive growth. (IMF) for emerging-market ahead of growth in this year’s “the requirements for transforEconomic and social transand developing economies in financial path set out by Fimation and change in South formation remains a contenthe same period. nance Minister Pravin GorAfrica are wide-ranging” and tious issue in South Africa. Achieving a higher growth dhan on Wednesday in the anfurther emphasised the need In 2016 the country’s GDP rate is a fundamental requirenual National Budget Speech. for more radical transformagrowth rate stood at a meament in stimulating the creaGordhan mirrored Presition of economic models and gre 0.5% and is projected to tion of employment and inonly achieve a rate of 1.3% creasing per capita income in 2017, a number far lower nationally. than the 4.5% forecast by the Broad unemployment figInternational Monetary Fund ures in the country stand at 35%, a sizeable part of the population who are unable to find work or who have given up hope of finding work. This stands in stark contrast to the figures that echo South Africa’s history with over 95% of wealth in the country residing in the hands of just 10% of the population.

The disparity has given rise to the term “White Monopoly Capital” being thrown around Parliament in recent years.

Transformation is, however, a costly exercise and the 2017 budget looks set to continue that cost.

SA’s government debt to GDP now stands at 50.7%, a number that has steadily grown year on year from the lows of 27.8% in 2008. The 2.2 trillion Rand in debt outstanding now costs the country R162.4bn in debt-servicing costs.

SARS in previous financial years has managed to increase revenue collections to feed the continual growth in the government’s often inefficient appetite for expenditure. Tax revenue this year has lagged behind the economy and there has been a shortfall of R30bn compared to projections from a year ago.

Gordhan cites the revenue shortfall as being “mainly in personal income tax, value added tax and customs duties. This reflects slower growth in wages, employment and bonus pay-outs last year, among other factors.”

Wealth taxes

Gordhan’s plan to increase tax revenue to make up some R28bn for the Treasury is

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