Allergy to privatisation increases tax burden
HOWEVER tempting it might be to label this week’s budget as a Robin Hood plan to take from the rich and give to the poor, it actually places a greater burden on everyone who earns more than R75 750 a year.
By emphasising the new 45% marginal tax rate for those who earn more than R1.5-million a year, the finance minister has disguised the fact that the vast majority of the tax burden still falls on middleincome earners.
Someone who earns a distinctly middle-class R35 000 a month, for example, will pay R8 000 a year more in tax this year than last. And it didn’t have to be that way.
Much of the additional tax burden could have been alleviated, in the short term at least, by the sale of state assets.
The government’s allergy to privatisation costs you money in two ways. This year, it came in the form of an increased tax burden, and there is the perpetual prospect of bailouts of serial underperformers like SAA.
Although no one in the National Treasury will say it, there would probably be Friday drinks all round if it could get it shifted off the country’s balance sheet.
Just as there is no need for the country to own an airline in a properly regulated environment, there is no need for it to hold on to its 39% stake in Telkom, an asset it allowed through its partial privatisation to be turned around financially. It is ripe for a sale.
However, anyone who has tried to sell anything to raise money in a hurry knows buyers can smell desperation and you will seldom get a decent price for something when your back is against the wall.
The Treasury seems to be gambling on a gradual recovery in the global economy and a few domestic factors, including good summer rains, to help lift growth to improve its revenue collections. But what if that doesn’t happen?
Pravin Gordhan raised the prospect of a VAT increase in his medium-term budget policy statement last year, and the argument that this would go against the tenets of a progressive tax system in which the rich pay the lion’s share of taxes may be out of runway. Many skills-rich South Africans can ply their trade globally, and the extra tax burden may be a tipping point. The minister sold his tax increases this year as a means to achieving social stability, but that argument can only take you so far when services don’t match the financial outlay of taxpayers.
Raising taxes leads to a drop-off in compliance and, in an environment in which the efficacy of the South African Revenue Service is being questioned for the first time since its heyday under Gordhan, it is dangerous to be so heavily dependent on individual taxes to fund budget shortfalls.
There are also no guarantees that government spending is nearly under control. There is a little trimming of the fat, but not much that is meaningful. This time last year, the finance minister vowed to bring debt as a percentage of GDP more under control, and it nudged above 50% with expectations that it will be reduced over the next three years to a more palatable level.
That is heavily dependent on the global economy, domestic politics, the level of confidence we as citizens show in our future and how this budget is perceived elsewhere. South Africa has had two close shaves with ratings agencies anxious to get their call on the ability of the country to keep funding its debts right. Presently, 13c of every R1 collected goes to paying interest. That rises quickly in the event of a political or economic shock and reduces our capacity to spend on driving growth.
We have likely reached a personal tax ceiling, and, unless we have a minor growth miracle this year, the hard choices will have to be made by whoever the finance minister might be at that point. Face it. Budget 2017 could have been worse. It might have been delivered by Des van Rooyen.
Whitfield is a public speaker on the political economy and an awardwinning financial journalist and broadcaster