BIG BUDGET HEADACHE
Finance minister faces raft of challenges on balancing his spending plan amid uncertainty over his future
Many issues facing Malusi Gigaba
MALUSI Gigaba, the Finance Minister, could likely have at least two pressing issues on his mind.
First, budget day is looming and Gigaba will be doing his best to make as good an impression on a watching world as he can on Wednesday afternoon, with very little to work with.
The second issue is his future. Like many Cabinet ministers, he will be anxious to shake off any vestiges of the Zuma regime and embrace the new Ramaphosa era.
If President Jacob Zuma is ousted in a parliamentary vote of no confidence today or in the next few days, Gigaba and all the other Cabinet ministers and deputy ministers will have to resign. Whether he will get his job back is an open question, despite his endorsement on international TV of a quick “Zexit”.
The far bigger issue for the country is the huge challenge he has in balancing the budget.
Eugene du Plessis, tax director of Grant Thornton, said yesterday the Treasury had never before had such a big challenge, with the funding gap now almost R60bn and very little in the cupboard.
“Gigaba may be left with little choice but to squeeze the trusty golden goose (the rich) even further.
“An increase in the VAT rate may be the easiest way for the government to find the money it so desperately needs but there will probably be scant appetite to go this route, given the impact on the poor. Instead, the biggest changes will likely affect the higher-income taxpayers,” Du Plessis said.
Calculations are that a one percentage point increase in VAT to 15% will rake in about R22bn.
He said the government’s liabilities include a bigger interest rate bill on its sovereign debt following downgrades suffered over the past year, as well as the cost of free tertiary education.
The bigger than anticipated projected revenue shortfall of R60bn announced in last year’s medium-term budget policy statement (mini budget) has made the Treasury’s task infinitely more difficult.
Du Plessis believes that while a possible increase in the VAT rate has been touted in the past and especially this year as a solution to the revenue quan- dary, it will likely not be considered in these circumstances, due to the effect it will have on the poor.
“As a result, the burden will likely fall on the small gaggle of golden geese that, although already squeezed, still have a bit more to give.
“Unfortunately for the wealthier, the biggest changes in the budget will probably affect them the most in the form of higher income taxes, as well as less relief from bracket creep,” he said.
South Africa has three forms of wealth tax: estate duty, transfer duty and donations tax. These bring in only 1% of tax revenue. A wealth tax, as opposed to an income tax, is based on the market value of assets and could be worth less than R5bn a year in terms of tax income.
Azar Jammine, chief economist of Econometrix, told The New Age Gigaba was likely to find himself under pressure in trying to balance his books.
“Already, Gigaba is moving to please the new ANC leadership in a bid to protect himself.
“This is a tough situation for Gigaba who has been seen as a close ally of Zuma,” he said.
EYE ON THE BOOKS: Finance Minister Malusi Gigaba has to grapple with the massive revenue shortfall.