Economists predict tax hikes to finance potential R28bn tax shortfall
Increases almost inevitable
FINANCE Minister Pravin Gordhan’s likely steps to finance a potential tax shortfall of R28 billion in the 2017/18 fiscal year have dominated speculation about this week’s National Budget speech, with most economists predicting tax increases.
Francois Stofberg, an economist at the Efficient Group, said on Friday that Gordhan could raise the money from various taxes. These included higher marginal rates for high-income earners, estate duty taxes, higher gains tax, sugar tax and fuel levy.
Stofberg said there was room for a slight increase in the deficit and debt levels without the country being downgraded.
He said the deficit should etch up to about 4.8 percent, maybe 5.1 percent, he said.
However, Stofberg expressed doubt that revenue would be under a lot of strain this year, given the easing off of inflation, stronger wage increases, no interest rate increases and a possible 1.5 percent gross domestic product growth.
Wishful thinking
He was pessimistic about any plans to cut expenditure that Gordhan might announce. “Expenditure cuts are wishful thinking… They will announce a lot of little cuts and trims, but no change to the real spending problem – civil servants, who are growing excessively in numbers, as well as in salary size and wage increases,” said Stofberg.
In his MediumTerm Budget Policy Statement in October last year, Gordhan said the government plans to raise R43bn through tax measures over the next two years. It intends to raise R28bn this year. The government intends to increase the taxes amidst weak economic growth.
Gordhan last year highlighted the importance of fiscal consolidation – the reduction of fiscal deficit and debt levels.
The government finance statistics in recent months have reaffirmed the National Treasury’s commitment to fiscal discipline which should appease credit rating agencies, according to Laura Campbell, economist from Econometrix.
“This is despite the fact that weak economic growth has led to lower tax collections and depressed the growth in government revenue,” said Campbell.
The South African Chamber of Commerce and Industry chief executive, Alan Mukoki said the organisation expected Gordhan to announce plans to fund infrastructure in areas such as water and sanitation, telecommunications and energy.
Mukoki said the National Treasury should also make funds available to the development of finance institutions in order to speed up the implementation of the infrastructure projects.
He was also unhappy with previous allocations to the Department of Small Business Development. For the 2016/17 financial year, the department was allocated R1.3bn. “It is a pittance,” he said.
He said he hoped that funding of higher education would also be dealt with. Students who could not afford higher education should not be denied education. “I understand it is a difficult matter,” he said.
Mukoki was steadfast in his opposition to tax increases, saying such a move would put businesses and individuals under strain.
Craig Pheiffer, a chief investment strategist at Absa Stockbrokers and Portfolio Management said there was pressure on the Treasury to stick to the deficit promises of the medium term budget policy statement. “Those numbers already reflected fiscal slippage from those announced in the February National Budget.
Gordhan last year highlighted the importance of fiscal consolidation.
“With all of the pressure on credit ratings, the National Treasury will do all it can to meet those numbers and not allow for any further widening of the deficit. With all of the pressure that Treasury is under in the current low growth environment, it will be near impossible to show a narrowing of the deficits this time around.
“Stability in the deficit and meeting prior estimates is the best result to hope for in this budget,” said Pheiffer.
He said the heat would be felt in the higher income groups and the only uncertainty is in the extent of the personal income tax increases. “A 1 percent increase in the tax rate across the board would generate anything up to R10bn, but the Treasury could increase rates by more than that and load it in the higher income tax brackets. The Treasury could also be less generous with raising the tax brackets for inflation.
“By restraining bracket creep adjustments or even keeping them unchanged, the Treasury would earn additional revenue as income taxpayers earned higher salaries following annual increases,” said Pheiffer.