Kick-start economy and redress blockages
Tax expert lists Budget priorities
INSTEAD of increasing taxes and duties, the government should focus on measures to kick-start the economy and deal with a variety of blockages holding back economic growth, Ernie Lai King, head of taxation at law firm Hogan Lovells, said yesterday.
Commenting on next week’s National Budget speech, King said while the country had been grappling with priorities such as eliminating poverty and transformation, it lacked basics such as good governance, good skills and good infrastructure.
“We have seen lots of promises but little by way of effective implementation. It is all about the economy and how we can implement a practical sustainable growth plan in an environment of declining tax revenues, increasing social spend, all in the face of increasing national debt.” Inability King said blockages in the way of economic growth included an unwillingness or inability by national governments to control expenditure, hidden deficits and uncontrolled borrowing in the lower tiers of government, unanticipated bailouts of private-sector financial institutions, large issuances of foreign-denominated debt that grew rapidly as local currencies depreciated and underfunded social security systems.
He said gross tax revenue was projected to fall short of 2016 Budget projections by R23 billion in the current year, R36bn in 2017/18 and R52bn in 2018/19.
“To increase output, the economy requires investment in other productive assets. Spending on machinery and equipment has declined sharply. If investment is insufficient to replace worn assets, the resulting capital erosion can weaken the economy’s growth potential, with negative consequences for job creation.
“There has been a consistent decline in manufactur- ‘The (state-owned companies) are a problem.There are issues with accountability and competence.’ ing fixed-capital stock, which fell by 11.3 percent between 2008 and 2015, signalling an erosion of the manufacturing asset base.
“So we can fiddle around with fiscal drag, increase maximum marginal tax rates for ‘high-wealth’ individuals, increase capital gains tax rates, increase estate duties, talk tough about anti-avoidance, increase the ‘invisible taxes’, but the core issue is how to kickstart the economy and redress the blockages mentioned.”
King said Finance Minister Pravin Gordhan identified some of the problems in the Medium-Term Budget Policy Statement in October last year. These included unclear policy statements and commitments
Finance Minister Pravin Gordhan has identified unclear policy statements and commitments made without clear resource plans as problems to be tackled. Photo: Reuters