Fin24

“Golden goose” exhausted

2012-02-19 10:17

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.”

Comments
  • Rob - 2012-02-19 11:17

    I hope Tutu is reading this. We have more than paid back any dues you say are required. It is time the bruders (the new rich and politicians) start exercising that ubuntu they always talk so much about and dig into their deep pockets. Solution for Gordhan's problem - make sure the taxi industry pays the taxes it should! Relieved to know I can't be one of those 9000 - R50bn!!

      Francois - 2012-02-21 14:10

      In 10 months' time we will have a free generation in matric. They could have had the best education if Mbeki did not see education as only a coloring book project. Thus these children should not get any grants beyond their 18th birthday. Prahvin, how much do you budget to buy votes from the poor for the next election?

  • Paul - 2012-02-19 11:39

    Pravin, you know why people emigrate and foreign direct investment is bypassing SA for other emerging markets! Those are realities whatever anyone may suggest to the contrary. You are an intelligent man so why is it that you keep on over taxing those who stay in SA with PAYE and company tax, as well as the ridiculous rates your comrades apply at municipal levels? You pat yourself on the back every year regarding tax collection, but that is not the issue. Widening of the tax net is and until you effectively do that, people with means will continue to emigrate and take their investments elsewhere! Your tax collection strategy is horribly skewed, and me thinks largely by political ideology and rhetoric! Some free advice because you won't be there forever in any case, you already have means, and you should be showing your logic, intellect and awareness of reality, not just toeing of the political line, get your strategists out of their offices and out into the streets, fiedls, taxi ranks, brothels, bars, police stations, anywhere, to understand who it is who is really making money and not declaring it to you! There is no business at your desk!

  • justin.pretorius - 2012-02-20 16:32

    Golden Goose exhausted? More like died a long time ago

      Adrian - 2012-02-22 02:31

      Neither did it die of natural causes.

  • Trevor - 2012-02-22 06:59

    I just left SA to work globally, I don't see much of my family but I get paid in Euros thus, if I bring back the money into SA I get paid very very well...problem is, I do this and the ANC cronies hit me with 45% income plus 14% vat on anything I buy and I know we ALL have to pay these taxes so I ask you, why should I BOTHER bringing back money into SA?? I can make it that I'm not a tax resident anymore...so what is the incentive to bring my earnings back to SA when all I get is tax this tax that...tax the "rich"... an independant contractor carrying all the risks,what do you offer ANC...tell me...nothing

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