More tax misery
Finance minister’s Budget speech likely to focus on how to improve financial gloom
TAXPAYERS are expected to shoulder the country’s dire financial burden as experts predict a 1% increase in VAT in Wednesday’s Budget speech in Parliament by Finance Minister Tito Mboweni.
The country’s economic growth projection for the next year is expected to dip to 0.8%, according to the International Monetary Fund, and a tax revenue collection shortfall has already been foretasted.
VAT also received a 1% hike to 15% in April 2018.
Economist Billy Joubert, a Deloitte Africa tax and legal director, said Mboweni had three options to boost tax collections to ensure a fluid fiscus: increase individual tax, up corporate income tax, and raise VAT.
“Pragmatically, we cannot raise corporate taxes because it would scare off investors and we are already highly taxed as individuals. That leaves us with VAT, which is effectively tax on spending,” said Joubert.
He said VAT was known worldwide as a tax on the poor.
“Even the donation a beggar receives on a street corner will be taxed when he makes a purchase.”
Economists.co.za chief economist Mike Schussler agreed. He saod there was also a good chance fuel tax could rise by as much as 60 cents a litre and the usual hikes for sin taxes (cigarettes and alcohol) and sugar can be expected.
While Mboweni is under pressure to reduce spending, Schussler believed social grants would not go up more than the rate of inflation.
He also anticipated some service delivery blockages because Mboweni wanted to keep a tighter rein on state salaries.
“He won’t fill vacant posts, which affects service delivery. I also don’t think we’re going to get the infrastructure investment we hoped for.
“He might project figures over a three-year period, but if you factor in inflation over that time we will effectively be getting less.”
Azar Jammine, director and chief economist at Econometrix, said Mboweni will be in a difficult position trying to avert credit rating downgrade and anything he tried to do to counter it will be met with opposition from opposing factions within the ANC.
“You have to be sceptical if there will be anything material in the budget to shift the sentiment about what we can do about the economy,” he said.
Apart from reduced spending, Mboweni is also expected to give more details on some ambitious plans as contained in President Cyril Ramaphosa’s State of the Nation Address.
These include public wage bill, the sovereign wealth fund, state bank, stateowned companies and youth unemployment initiative, among others.
Jammine said with the difficult financial situation the government was in, there was very little Mboweni could do in the short-term to fix matters.
“The only thing he can do is to focus on long-term structural issues, but he will be prohibited from doing so because of opposition within the ANC,” he said.
He said he did not understand the logic behind the proposed state bank and the sovereign wealth fund.
“Is it to really achieve anything? I think they try to make ideas for the sake of it because they are in much trouble.”
Economist Dawie Roodt said he expected troubled Eskom to “certainly be one of the things” to feature in the Budget speech.
“But we won’t get a full answer, maybe a part answer. Eskom needs a lot of money, but we don’t know where the money will come from,” Roodt said.
Cosatu spokesperson Sizwe Pamla said a VAT increase was out of the question: “That will be a blatant provocation, not just to workers, but the entire nation,” Pamla said, adding that it would be nonsensical to talk about a VAT increase when people were subjected to a new form of VAT through of load shedding.
He also said the government should rather talk about tax incentives given to the corporate sector.
Pamla said Mboweni should give a sense of what they were doing with the state-owned entities: “The auditorgeneral said we are losing 10% of our budget to wasteful expenditure and corruption. They have to correct that.”
Pamla also said Mboweni should also give a sense of whether the government has a plan of restructuring the state.
“In this Budget, we don’t expect an austerity measure that targets public servants as it has been the case.
“If they really feel they are under pressure financially, they need to talk about restructuring and rationalising the state.”