Kick-start econ­omy and re­dress block­ages

Tax ex­pert lists Bud­get pri­or­i­ties

The Star Late Edition - - COMPANIES - Siseko Njobeni

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

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