It is a day of celebration for consumers after the Finance Ministry announced the scrapping of the 0.5% value-added tax (VAT), but this move is expected to leave a R78-billion gap in government revenue.
Economist Mandla Maleka warned that the shortfall could lead to serious economic consequences if not managed properly.
“It will increase the fiscal deficit, and this could lift borrowing costs to lenders. And thus increase our budget interest payment share as a percentage of the total budget,” said Maleka.
Tax the rich as last resort
“The last resort is to consider taxing the rich. This I am mentioning based on current higher levels of corporate savings compared to both government and households.”
Maleka clarified that “the rich” in this context refers to individuals with high income levels. He also suggested that any undeclared income, including that hidden through trusts, should be taxed.
To protect vulnerable groups while reprioritising government spending, Maleka told Sunday World that funds should be redirected from departments that failed to spend their allocated budgets.
Support SOEs
He also recommended reducing financial support to state-owned enterprises (SOEs). And he argued that SOEs should operate independently and be self-sufficient. Their boards must be free from political interference.
Responding to possible realistic budget cuts, Maleka said the country’s budget is already overstretched. And all essential priorities need more capital than trimming.
However, he emphasised that corruption must be tackled more aggressively. He called for action against ghost workers. Maleka also urged for pending cases involving suspended senior government officials to be concluded.
He also proposed cutting security detail for ministers and their deputies. And he suggested a one-year suspension of pension contributions as a temporary measure.
Tackle corruption
“Priority should be given to ensuring growing the economy. This is the only sustainable solution that’ll grow the proverbial cake and increase our tax collection. Inevitably, taxes have to be hiked in the future as the number of government dependents grows every year.
“Richer individuals have to be taxed relative to working poor. And at some stage, company taxes would have to be taxed,” said Maleka.
If all else fails, he added, the country may have to rely on what the South African Revenue Service (SARS) said regarding the unlocking of R500-billion in uncollected taxes.
He said SARS appears to be aware of those under-declaring their income and where to find them.
