Questions ahead of mini budget
VIEW BAD: CAN SARS MEET TARGET POST RECESSION?
If not, where will funds come from to fill hole, including from irregular spend.
New Minister of Finance Tito Mboweni will have been in the job barely two weeks when he has to present the Medium-Term Budget Policy Statement (MTBPS) in parliament on October 24.
His own contribution is likely to be minimal as most of it must already have been finalised by Treasury and Cabinet.
He will, however, be the face of a serious government conundrum. In February, then finance minister Malusi Gigaba projected Sars would collect R1.345 trillion. The first major question Mboweni will have to answer is whether that target is still achievable. Given that SA was in recession for the first six months of 2018, will Sars still get there?
The impact of recession
“Revenue targets are aligned with our economy,” says Mike Teuchert at Mazars. “If the economy doesn’t reach the growth projections, there is a high likelihood we won’t [reach our targets].”
In February, the consensus view was that SA’s economy would grow at about 1.5%. That has since been revised down significantly such that 1% growth would be a good outcome. This indicates a very difficult operating environment for companies. If they struggle to generate profits, that creates a ripple effect with serious negative consequences for tax collection.
“[Companies] might also not give increases or they could trim their staff complement, and as a result personal income tax revenues could be affected,” says Teuchert. “If consumers don’t have income because they don’t have employment, value-added tax [VAT] collections could be under pressure as well.”
The problem this creates for Mboweni is that if Sars doesn’t achieve its collection targets, what can be done about it? SA has already had to increase taxes substantially over the last few years.
More tax increases?
Historically, no changes to the tax regime are implemented at the MTBPS. However, the minister may give indications of what the government is thinking. But there are few places left for hikes to take place.
Personal income taxes have already been raised to a point where further increases are unlikely to result in higher collections. Mazars’ Bernard Sacks says government has already raised the top marginal rate from 40% to 45%, but that hasn’t delivered even a 1% increase in revenues. There’s therefore little to be gained by lifting this further. SA’s corporate tax rate of 28% is already at the higher end globally.
That leaves VAT. Government’s decision to raise the VAT rate by 1% to 15% earlier this year was widely unpopular, even though it’s still fairly low by international standards. Sacks, however, believes that if tax revenues will fall well short of projections, Mboweni might not have much choice.
Expenditure
Mboweni still has to address expenditure. Something must be done to deal with the amounts being lost to irregular and wasteful expenditure too. Auditor-General Kimi Makwetu on Wednesday reported to parliament that irregular spending by national and provincial government departments and state-owned enterprises rose to R45.5 billion in March (2017: R45.3 billion).