Weekend Argus (Saturday Edition)
‘Economy needs to be restructured’
VAT hike will hit poor worst, says expert
IF THE financial situation of the average South African is to improve, the economy needs to be restructured.
This is according to Stellenbosch University Business School managerial economic and statistics lecturer Nthabiseng Moleko.
Finance Minister Malusi Gigaba’s maiden Budget received a mixed reception. It came under fire for the hike in value added tax (VAT) by one percentage point to 15% and some other tax increases which would affect the pockets of the poor the most.
Moleko warned that the 30 million out of 55 million South Africans who live in poverty would be able to do little as the Budget meant an increased percentage of their income would be spent on transport and basic household goods.
“The structure of the South African economy needs to be changed for us to experience long-term sustainable growth,” she said.
According to Moleko, over-reliance on increased consumption based on increased public and household debt levels was unsustainable.
“Firstly, households are over- indebted as household debt to disposable income keeps rising.”
Gigaba’s Budget was slammed for increasing VAT as the poor would be less able to afford basic food items. These increases would further increase debt.
“Acting now to strengthen the fiscal position will improve the outlook for the economy and increase space for future investment growth,” Gigaba said.
He said tightening of the budget was necessary. “It has been a year of low economic growth, recession, ratings downgrades, and heightened concerns regarding the governance and sustainability of key state-owned companies.”
Associate Professor at the African Institute of Financial Markets and Risk Management Co-Pierre Georg said the Budget, while a difficult one, was “the right budget”.
He said the measures taken by the minister were a consequence of maladministration and were the first step towards a path of consolidation. It would not have been prudent for Gigaba to increase company tax as this was already high compared to other parts of the world, Georg said.
He cautioned that because of a perceived association with former president Jacob Zuma, Gigaba was not the best candidate to run the National Treasury.
He said South Africa depended on international markets for trade and it was important for them to see the Treasury being lead by someone considered credible.
The Cape Chamber of Commerce and Industry also weighed in on the negative effects of the VAT increase along with a hike in other taxes on consumers.
Chamber president Janine Myburgh said the increase in taxes reflected the price citizens had to pay for the decisions and actions of politicians.
“South Africans are paying for the Zuma years of corruption, wasteful spending and low growth. VAT and the other tax increases are going to hurt, but we really have no option but to deal with the damage and set the scene for some healthy growth in the future,” she said.
Myburgh said the chamber would have preferred to see cuts in government spending, such as salaries of civil servants.
“That would bring in some extra revenue,” she said.
Myburgh said the country’s VAT rates were still low by international standards and the increase had been expected.
She said the zero rating of some food items and an increase in social grants would cushion the blow for the poor.
“But the chamber would like to see some basic canned foods exempted from VAT as the poor don’t have fridges and they are forced to rely on canned goods,” she said.
For more on the Budget, see Personal Finance