Loading...
See More

“Golden goose” exhausted

Feb 19 2012 10:17 Mari Beukes

Related Articles

'Beware of eroding SA's tax-paying norm'

Prasa revamp to create 65 000 jobs

Greece rushes to meet lender demands

Obama’s budget to target rich

EU bids to turn a page in debt crisis

Budget countdown

 
Johannesburg – South Africans’ tax burden is among the heaviest globally. But it's unlikely that Finance Minister Pravin Gordhan will soon offer real tax relief.

When the minister tables this year’s national budget on Wednesday, credit rating agencies and international investors will be eager to hear how he plans to tailor expenditure to contain the growing budget deficit.

In October last year, when the medium-term expenditure framework was announced, Treasury expected the budget deficit for the 2011/12 fiscal year to be around 5.5% of the gross domestic product (GDP).

Gordhan this year therefore has the difficult task of trying to stimulate economic growth without overly increasing expenditure and consequently the national  debt. At the same time, weak economic growth means he has less tax revenue at his disposal.

Tendani Mantshimuli, consumer economist at Liberty Retail SA, said that for these reasons Gordhan has very little scope for tax relief.

Mantshimuli said it's also unclear where the money for the big infrastructural spend announced by President Jacob Zuma in his state of the nation address will come from.

Transnet can raise funding in the open market, but other infrastructural projects will have to be financed by tax revenue or loans, he said.

Mantshimuli pointed out that the Reserve Bank recently reduced its forecast for economic growth in 2012 to just under 3%.

Since tax revenue will be constrained by poor economic performance, other government spending on infrastructure will be affected.

However, Nedbank’s economic unit said Gordhan may have more room to manoeuvre than Treasury anticipated in October. The unit said tax revenue for the 2011/12 fiscal year exceeded expectations and this can probably hold the budget deficit to only 4.5% of GDP.

Investment Solutions economist Chris Hart said the problem with South Africa's fiscal policy is still that government expenditure is growing more rapidly than the economy. Fiscal policy will have to distinguish between poverty relief and a decrease in poverty.

“Poverty relief transfers resources from the production and investment side of the economy to consumers. A decrease in poverty does the opposite.”

Hart said the large amounts of money government has spent in recent years in an effort to relieve poverty has ultimately hampered its ability to reduce the scourge.

Hart said the only way to create jobs on a large scale in South Africa is by fostering small enterprises. Small businesses generally receive capital from households, but South Africa's households lack savings, primarily because fiscal and monetary policy makes it almost impossible for households to save.

He said the government should therefore realise that the country's tax base is almost exhausted.

AJ Jansen van Nieuwenhuizen, who heads Grant Thornton’s tax division  in Johannesburg, said more needs to be done to reduce the fiscus’ dependence on a small pool of loyal taxpayers.

He said that while one might speculate that the marginal tax rate would be increased, South Africa's “golden goose” cannot afford such a measure. Rather, more should be done to bring tax dodgers into the revenue net.

Jansen van Nieuwenhuizen said that according to estimates from the South African Revenue Service, about 9 000 individuals owe the state around R50bn in tax. He also said that further increases in social spending would be unsustainable.

“We don’t question the needs of the poor, but South Africa cannot handle significant increases in social grants. No matter how one analyses it – the beneficiaries far outnumber the individual taxpayers.”
pravin gordhan  |  taxpayers  |  budget 2012

 

Lastest Articles

Here is how to check your credit score and manage it Read More...
Top tips to save money over the festive period Read More...
These are the top 5 most fuel efficient cars in SA Read More...
What to consider when switching medical aid schemes Read More...
 
 

Read Fin24’s Comments Policy

24.com publishes all comments posted on articles provided that they adhere to our Comments Policy. Should you wish to report a comment for editorial review, please do so by clicking the 'Report Comment' button to the right of each comment.

Comment on this story
6 comments
Add your comment
Comment 0 characters remaining
 

Company Snapshot

We're talking about:

Small Business

Retailers of any shape and size can now unlock the power of mobile transacting.
 

Money Clinic

Money Clinic
Do you have a question about your finances? We'll get an expert opinion.
Click here...
Loading...