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Cape Town – If Treasury decided to simply hike VAT in a callous manner, it could damage the economy and its ability to grow, Deputy Minister of Finance Mcebisi Jonas said on Wednesday.
He said a lot of people had suggested Treasury hike VAT in its 2016 budget to close the budget deficit. However, he warned: “When you introduce tax… it’s politically sensitive, but more importantly if it’s done in a callous manner it can damage your economy and damage growth.”
On Wednesday, Treasury said it would cut the expenditure ceiling by R25bn over the next three years to bring the budget deficit down to 2.4% of gross domestic product by 2018/19, and to stabilise debt as percentage of GDP around 45% of GDP. It kept VAT at 25.6%.
WATCH: Deputy minister of Finance Mcebisi Jonas speaks about tax, SOEs, Sars ... and former finance minister Nhlanhla Nene
One proponent of a VAT hike is Old Mutual Investment Group senior economist Johann Els. He told Fin24 that in order to spread the tax burden more widely across all consumers Treasury’s revenue increase options might also include a VAT hike of 1% and/or a big fuel levy increase.
FULL STORY: VAT hike could be answer to SA woes - expert
“The most positive message the minister could send would be a VAT hike, although the probability of this is less than 50% given that we’re currently in an election cycle. However, Gordhan’s newfound position of power after his reappointment as minister of finance late last year could mean that he has the means to persuade government on this," Els said.
"A VAT hike would almost certainly stabilise the rand and satisfy the ratings agencies enough to avoid the looming threat of a downgrade of SA to junk status – at least in the short term."
Jonas: We are not privatising
Jonas emphasised that South Africa was not privatising its state owned entities.
“We would want to maintain state control and state ownership,” he said. “However, we cannot run them in the old way. In a constrained fiscal environment, it’s better to look for new sources of financing.
“The idea of co-investment in some, the idea of equity partners in some, and also getting rid of those that don’t have a development value, and integrating those that are duplicating themselves.
“The idea to merge all the airline interests and creating a bigger, more consolidated airline business makes sense. Also, finding strategic partnerships makes sense. That conversation will continue and we will see what decision comes out of it.”
Gordhan announced a proposal on Wednesday that would see South African Airways and SA Express merge and then seek a minority equity partner.
The proposal comes amid a programme led by Deputy President Cyril Ramaphosa to reform the country’s state owned entities.
