No more room for govt to raise taxes - economists

2019-02-27 17:53 - Lameez Omarjee
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Raising taxes won't necessarily result in increased tax revenues, members of Parliament have heard.

The Standing Committee on Finance held public hearings on the National Budget on Wednesday.

Among those who made presentations were Prof Jannie Rossouw of the Fiscal Cliff Study Group, who said there was no scope to raise taxes further because the tax buoyancy ratio is less than 1.

The tax buoyancy ratio measures the pace of tax revenue growth against economic growth. The ratio is 1 when revenue growth matches economic growth. In 2017/18, SA's tax buoyancy ratio was 0.96 and in 2018/19 it was 0.98.

PwC did not welcome the R15bn worth of tax increases either. Like the Fiscal Cliff Study Group, PwC believes tax increases have become self-defeating and have not translated into additional revenues in recent years.

Credibility of forecasts

Rossouw additionally questioned the credibility of Treasury's forecasts for economic growth – which have been overstated in the past few years. This has implications for the revenue projections and forecasts for debt-to-GDP ratios.

"Treasury's forecasts are bad and make weather forecasters look good," Rossouw said. He called for Treasury to be more conservative in its economic growth forecasts to regain public confidence.

Kyle Mandy, national head of tax at PwC, further questioned the credibility of Treasury's forecasts, particularly revenue projections. He suggested failure to meet projections would not be viewed favourably by rating agencies.

Mandy said that Treasury's tax buoyancy projections had not been achieved in the past three years. "We are concerned that we will not see revenues recover to the extent Treasury forecasts revenue."

Mandy said it appeared that Treasury had placed a lot of faith in the South African Revenue Service's capacity to collect the required revenue. "We think there are significant risk to forecasts," Mandy added.

Ian Stuart, acting deputy director general of Treasury's Budget Office, said Treasury had made sure forecasts were reflective of credible bodies.

Treasury will formally respond to matters raised in public hearings in Parliament on Friday.