It’s a tough job balancing books
INANCE Minister Pravin Gordhan will present his finance budget in Parliament today at 2pm. What can we expect? Minister Gordhan announced in his last budget that South Africa was a resilient nation. It has overcome many challenges of the past.
Is the difficult period we are experiencing at present as a nation just a routine hurdle?
Will we be able to cross it and look back and put it down to experience we have to face to become a stronger and a better nation?
We are striving to improve the lives of all South Africans – this was then-president Nelson Mandela’s dream in 1994.
Gordhan has a tough juggling act to balance the books. He has to find a way to fund the budgeted shortfall of nearly R30 billion.
In addition, President Jacob Zuma’s agenda of radical economic transformation of the economy creates more pressure on Gordhan to put the brakes on the fiscal consolidation path he has forged to keep South Africa out of the category of junk status.
There are several options available to Gordhan to fund the revenue shortfall, which include:
- Raise value added tax (VAT).
- Increase the income tax rate of individuals and companies. - Introduce wealth taxes. - Increase other forms of indirect taxes such as sin taxes.
- Cut government expenditure.
Gordhan will be reluctant to increase VAT.
A 1% increase in VAT will yield a R15 billion revenue for government, which will go a long way to fund the deficit.
However, VAT is a regressive tax – it hurts the poor.
He will certainly allude to the fact that the VAT rate may well be increased in the future.
The minister will most likely increase direct taxes in the form of income for individuals, particularly those in higher income levels.
There is no doubt that the wealthy people in South Africa will be paying more in the form of direct taxes.
It is unlikely that corporate income tax rate of 28% will be raised due to the poor economic climate and the lack in business confidence.
South Africa’s corporate tax rates are internationally competitive and we are trying to attract foreign direct investment.
The government faces a serious challenge in cutting expenditure, especially wasteful spending and fraud associated with such spending.
It must introduce the concept of value-for-money spending – for each rand that is spent what benefit does it receive?
The minister will tackle this problem in the budget speech.
The National Development Plan will feature in the budget speech.
This plan was formulated in 2010, which sets out the 20-year plan for South Africa to achieve economic prosperity and improve the lives of all its people.
Six years into the plan and little has been achieved as the document has become a plan in theory.
Gordhan will be expected to give the latest developments on the minimum wage framework, National Health Insurance, carbon tax bill, sugar tax and tyre levy.
It is tough to balance the books of the state, but Gordhan has been known to do an excellent job to ensure all South Africans improve their lives for the next year at least. Professor Dilip Garach Economist, academic, entrepreneur, CEO of Garach Incorporated Financial Advisory Solutions.