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Johannesburg - Government, pressured by falling revenues and exploding expenditure, would still be forced by politics to make a token gesture towards individuals with a tiny amount of relief for fiscal drag in next week's Budget, economists said.
Fiscal drag is the effect of inflation pushing incomes into higher tax brackets, thus eroding real disposable income.
Efficient Group economist Dawie Roodt predicted Finance Minister Pravin Gordhan would provide the paltry sum of R3bn for personal income tax relief in next week's Budget.
This compares with a much larger sum of R13.6bn provided for in the 2009/10 Budget. Roodt said the R3bn would be concentrated on relief "right at the bottom end" and that there would be "virtually no relief, if [any] at all" at the top end of the income spectrum.
He didn't think there was a chance that Gordhan would take the extreme step of taxing the rich more, partly because this would hurt the economy, even though it would be a politically popular move.
Nedbank economist Nicky Weimar agreed it would be politically impossible for Gordhan to completely avoid personal income tax relief, but this would be done in an environment of extreme constraint on the fiscus.
"There will be a compromise; taxpayers won't be fully compensated for the effects of inflation. We won't see anything dramatic, like changes to tax rates," she said.
Weimar said even if Gordhan assumed that revenue would perform better than projected in the medium-term Budget policy statement, he would still be in a tight spot, because "expenditure has exploded and he is sitting with a monster of a deficit that he has to cut".
This left him with little room to manoeuvre. The focus in this Budget, she said, would be on expenditure rather than revenue.
Weimar noted that government spending had skyrocketed by 19.7% in the first nine months of the present fiscal year.
"That's completely out of control and has to be cut. But those cuts must be made at a time when people are protesting the lack of service delivery. It's a difficult situation indeed, and leaves very little room for tax cuts for individuals."
- Fin24.com