State must sacrifice along with its citizens

Christmas is ten weeks away, but I’m praying for a miracle that will see it come early for the economy and the pockets of long-suffering consumers. The growth outlook continues to sour with each new forecast and to top off the bad news, some economists are predicting the government may take further drastic tax measures to rescue a desperate revenue situation.

The obvious options are hikes in sin taxes on alcohol and tobacco-related products and limited compensation for bracket creep. The latter results when inflation pushes income into higher tax brackets but there is no real growth in purchasing power.

An early Christmas gift could come in the form of finance minister Tito Mboweni announcing serious cost-cutting measures in the higher echelons of government when he delivers his first medium-term budget policy statement on Wednesday.

On my Christmas list would be a smaller cabinet, strict limits on travel spending for ministers and curbs on refurbishing the homes of senior officials — and oversight to make sure that this is adhered to. This would be palatable for the electorate ahead of elections, although not necessarily for the officials it would affect.

Perhaps it is time for society to apply pressure on members of the government to make sacrifices as a way of finding at least some of the extra cash they keep asking us to pay over. After all, the government did raise VAT this year and we have had to stomach record fuel prices, which are in part due to higher fuel levies.

As things stand, VAT is the bestperforming tax category, thanks to the hike in April. The collection of fuel levies and personal income tax has also fared better because of the tax hikes in April. But year-to-date receipts from company and property taxes are lagging compared to the same period in each of the previous five years.

The average tax revenue growth of 11.2% since January suggests state revenues could reach the target for the year of 10.6%. But the economy is in recession and growth forecasts have been revised downwards by many, including the South African Reserve Bank and International Monetary Fund. The implication is that taxcollection targets may be missed.

The question is, how much more can the tiny tax base endure?

Nedbank calculated that based on the April hike the tax rate for higher earners has risen from 41% to 45% and, using effective tax rates — that is, tax collected divided by total assessed income — SA may have passed the peak point of the Laffer curve. The Laffer curve theory suggests that higher taxes on production have an inhibiting effect on it because at some point people are discouraged from working.

Momentum Investments analysts, in a note this week, forecast more tax avoidance and evasion along with negative growth.

So increases in the personal income tax rate could be self-defeating. And SA can also not hike the corporate tax rate if it hopes to attract R1.2-trillion in investment over the next five years. A higher company tax rate is hardly going to help that cause.

Consumers have borne the brunt of higher costs, fuel prices and food prices. It is time for us to remind the government that it also needs to tighten its belt.

On my Christmas list would be a smaller cabinet and strict limits on travel