Taxation gives new hope for improved GDP, except…
REDUCED CONSUMPTION AS CITIZENS FEEL BRUNT OF VAT AND FUEL INCREASES BOUND TO CONTRACT THE ECONOMY, BRINGING INTO QUESTION GOVERNMENT’S OBJECTIVE
JITHEN MAHARAJ
GROSS domestic product is a monetary measure of the market value of all final goods and services produced, in a given period, by the people and companies of a country; it doesn’t matter if they are citizens or foreign-owned companies.
GDP is one of the primary indicators to gauge the health of the economy. One of the objectives of the 2018 Budget is to improve our GDP through increased taxation.
In his Budget speech, then finance minister Malusi
Gigaba raised several taxes and acknowledged: “This is a tough but hopeful Budget”.
The main tax proposals in summary are:
An increase in the value-added tax rate from 14% to 15%.
A below-inflation increase in the personal income tax rebates and brackets, with greater relief for those in the lower income tax brackets.
An increase in the ad-valorem excise duty rate on luxury goods from 7% to 9%.
A higher estate duty tax rate of 25% for estates greater than
R30 million.
A 52c a litre increase in the levies on fuel, made up of a 22c a litre for the general fuel levy and a 30c a litre increase in the Road Accident Fund levy.
Increases in the alcohol and tobacco excise duties of between 6% and 10%.
The contents of the Budget speech, served cold, have yet to be digested by most of the population. A double-whammy of VAT and fuel levy increases means consumers will try to get in some shopping on general manager Ivan Fredericks told the Daily Maverick: “The PSA understands the need to grow the GDP, but the poor should not pay a higher price to get us there.”
Whether GDP will indeed grow is academically questionable at present. The minimal increase in personal income tax offers some relief, yet the combined effect of price and levy increases is bound to weigh heavily on consumers.
We have seen the 2017 GDP growth projection revised upward to 1%, which is higher than the 0.7% expected (based on a stronger rand and favourable inflation outlook), yet the real impact of the increase in VAT and fuel levy is uncertain.
Education is awarded priority with a budget of R792 billion over the next three years. Free higher education and training has attracted R57bn and assumes that the economy will absorb these graduates into the workforce.
The anomaly exists: our unemployed university graduates and skilled labour exist in an economy that has as yet to incorporate their knowledge and skills in improving GDP.
Overall, the Budget surreptitiously begs less spending as the new ethos while only alludes to hopeful, possible ways of improving the GDP.
“We contend that for a nation to tax itself into prosperity is like a man standing in a bucket and trying to lift himself up by the handle,” said Winston Churchill.
It is doubtful whether the increase in taxes, in particular VAT, has the potential to decrease the deficit and/or improve the GDP.
Maharaj is a lecturer at Mancosa.