Tax hikes and cuts in state spend on cards
Finance Minister Pravin Gordhan takes to the podium in Parliament on Wednesday to deliver the most important economic data of the week: SA’s budget.
Gordhan will do this against the backdrop of belt-tightening by the state, which has been met with some resistance, but SA has to contain its deficit and curb spending.
Tourism and migration, and the producer price index (PPI) numbers are also coming out this week.
Investec economist Kamilla Kaplan said: “Against a backdrop of weak growth, fiscal consolidation will be achieved through expenditure and revenue-side measures.”
The Treasury has forecast a 3.1% deficit in 2017-18. The deficit is expected to narrow to 3% in 2018-19.
But Gordhan has the huge task of raising taxes and cutting expenditure without compromising growth.
Old Mutual Investment Group economist Johann Els said: “With the current fiscal year running R5bn short, due to slower tax growth and slight overspending, they will need to go bigger on tax increases and expenditure cuts [in 2017] to make this up.”
To generate more revenue to fund the shortfall, economists expect higher taxes.
While value-added tax and corporate income tax increases are highly unlikely, sin taxes, fuel levy hikes and a change in personal income tax brackets aimed at middle- and higherincome earners are expected to be instituted.
Clarity on new tax avenues such as the impending carbon tax and implementation of sugar tax is expected.
First National Bank (FNB) economist Mamello Matikinca said: “Infrastructure underspending and a fluctuating exchange rate threaten the pace of fiscal consolidation. Contingent liabilities, particularly from state-owned enterprises, if not contained … also pose risks.”
Tourism and migration data will be released on Monday. With continued tourist inflows over the festive season, Matikinca expects the 2016 tourism receipts to boost SA’s trade balance, while narrowing the current account deficit.
PPI numbers are coming out on Thursday.
According to FNB economists, January PPI is expected to moderate to 6.9% from December’s 7.1%.