Tough task awaits Gigaba
D-DAY WITH MINI-BUDGET: TAX COLLECTIONS EXPECTED TO BE LOWER
The minister must convince South Africans, rating agencies and international markets that we’re on the right track.
Finance Minister Malusi Gigaba will be delivering his inaugural Medium-Term Budget Policy Statement (MTBPS) tomorrow. His approach to the fiscal challenges facing SA will be vital to quell concerns about the economy and the perceptions of corruption and wasteful expenditure.
He must be able to convince international markets all is under control.
Current economic climate
In February, government expected the economy to grow 1.3% in 2017, and 2% in 2018 as economic conditions strengthen. It raised taxes to fund existing spending programmes.
The economy contracted for two consecutive quarters and only came out the recession in the second quarter of 2017 when 2.5% growth was recorded. But comparing the first half of 2017 with the first half of 2016, the growth rate was 1.1%, according to Statistics SA.
Since February, there has been negative economic indicators. Employment figures have gone down, with many more retrenchments in the pipeline that may translate into less personal income tax collections. People are less inclined to shop when they’re unemployed and lack cash-flow, which translates in less value-added tax.
Few corporates are making profits, which may result in less corporate income tax collections.
Projected tax income for the 2017-18 fiscal year is R1.41 billion and the proposed expenditure R1.56 billion. Gigaba will use his policy statement to indicate to which extent these figures will have to be adjusted. Government debt had been around 50.7% of GDP in February – more than R2 trillion.
Expectations vs reality
Tax collections in all three of the major tax types are expected to be lower than foreseen in February.
South Africans will need clarity on whether he’ll be mindful of the additional cost of increased borrowings to make up for the anticipated tax collection shortfall.
They’ll also need assurance that government will keep expenditure in check, and even cut costs at non-performing entities.
It is essential that Sars remains efficient and robust in its collection. But there are concerns that there’s slippage in tax compliance and that taxpayers can expect more aggressive treatment from Sars.
Regaining taxpayer trust
The lack of accountability in terms of wasteful and fruitless expenditure continues to erode tax mo- rality in SA. To regain taxpayers’ trust they’ll have to be convinced that government expenditure is “reasonable”.
Sars is under pressure with media reports suggesting it may already not be able to meet targets this year. Procedures followed by Sars to collect taxes must be seen to be reasonable. More aggression is likely to lead to more taxpayer resistance.
The question stands whether the minister will stay on the course ex-finance minister Pravin Gordhan set, or present revised fiscal policy objectives and spending priorities going forward.
Ettiene Retief is from South African Institute of Professional Accountants