Johannesburg – Tito Mboweni, the Minister of Finance, faces a tough juggling act when he outlines the nation’s expenditure plan on Wednesday.
Mboweni and his National Treasury bureaucrats have a slew of challenges ranging from a once-in-a-century pandemic, weak growth prospects and ensuing job losses.
Rating agencies are concerned about the government’s debt trajectory, with Moody’s recently projecting gross debt to reach 100.7% of GDP in 2022/23.
Mamello Matikinca- Ngwenya, FNB’s chief economist, does not expect any tax rate increases, especially given the already elevated individual tax burden and that the economy was stagnating pre-Covid-19.
“Instead, the government should continue focusing on spending reprioritisation; improving tax collection efficiency; and swiftly implementing growth-enhancing economic reforms.
The tax base has undeniably shrunk, with people having lost jobs and incomes from layoffs and reduced working hours, and some businesses having partially or entirely shut down,” said Matikinca-Ngwenya.
The National Treasury is expected to record a budget deficit (the difference between spending and revenue that is mostly funded by borrowing) north of R600-billion.
Also read: Unemployment rate in South Africa rises to 32.5%
The hole in the fiscus puts more pressure on Mboweni to scramble for revenue, with some fearing that he might hike taxes to fund numerous urgent projects, such as Covid-19 vaccines while trying to also find a way out of the country’s debt mountain.
Mboweni warned in October when he presented the medium-term budget policy statement that South Africa is borrowing at a rate of R2.1-billion a day. Old Mutual wealth investment strategist Izak Odendaal said the government still spends more that it earns and the spending is skewed towards salaries instead of investing for the long term.
“Either tax revenues need to rise or spending needs to fall. Tweaks to tax rates can lift tax revenues somewhat, but the economy is probably close to being taxed to the maximum,” said Odendaal.
“The last VAT increase yielded much less than anticipated. While the Davies committee on tax affairs feels strongly that a rejuvenated SARS [SA Revenue Service] can crack down on tax avoidance and generate a jump in tax revenue, only faster economic growth can materially raise tax revenues on a sustained basis.”
The liquor industry, which has been battered by numerous bans since the outbreak of the coronavirus, has asked Mboweni not to increase taxes on alcohol, saying this would help the sector to stage a faster recovery.
Have you read: SABC retrenchment revolt now targets Mboweni’s Budget speech
The industry is said to have lost R36.3-billion in revenue due the bans, said a report by FTI Consulting.
Follow @SundayWorldZA on Twitter and @sundayworldza on Instagram, or like our Facebook Page, Sunday World, by clicking here for the latest breaking news in South Africa. To Subscribe to Sunday World, click here.
Sunday World
