SA faces higher taxes

Cape Town - Rising government debt of up to 50% of gross domestic product (GDP) and uncontrollable state expenditure are threatening both to increase the already heavy tax burden, and aggravate dissaving.

Because of this trend, among others, Sanlam chief economist Jac Laubscher believes South Africa is facing fiscal disaster.

On Tuesday, at a joint sitting of the parliamentary finance and budget committees, Laubscher said that these trends would probably characterise the economy beyond 2012/13 - in the medium term.

Laubscher says the level of debt to GDP, which is running at 41% (guarantees included), will continue rising after the medium term and could reach 50% (guarantees included).

Pressure to raise taxes will increase, but South Africa's average compound tax-to-GDP level is already 32%, compared with other medium-income countries' 18.2%.

"We have to try to avoid tax increases by focusing on state expenditure."

He says South Africa has an expenditure level of 30.1% in relation to GDP. Other medium-income countries average around 18%.

According to Laubscher, a tax rate of 25%, for instance, would need to be levied on the R300 000 income group to add 1% to GDP.

Government has spent 17.6% more in 2009/10 than in 2008/09.

Government's loan account, for which a repayment of R12bn had to be included in last week's medium-term expenditure framework, is concerning.

The public service will either have to accept increases below the inflation rate for years to come, or the creation of additional posts - such as for the police - will not be possible.

- Sake24.com

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