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Little scope for tax relief in budget, analysts say

21 February 2014   (0 Comments)
Posted by: Author: Ntsakisi Maswanganyi
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Author: Ntsakisi Maswanganyi (BDlive)

Taxpayers should not expect tax relief from next week’s national budget as the government is under pressure to collect more revenue to cover its spending and growing demand for service delivery around the country, Old Mutual Investment Group chief economist Rian le Roux said on Thursday.

Mr le Roux spoke in an interview on the sidelines of the group’s investment insights conference.

His comments come two days after Finance Minister Pravin Gordhan told a Federation of Unions of South Africa conference that the state needed to collect more revenue as it had lost R60bn during the recession.

Mr Gordhan’s comments were considered an indication that tax relief would be muted, if any, in his budget. He will deliver his budget speech in Parliament next week and outline government spending plans for the next three to five years.

The state could even be tempted to raise taxes to collect additional revenue to finance social and infrastructure spending.

Spending has surpassed revenue collection in recent years — particularly after the recession — leading to successive budget deficits.

If the government fails to bring down deficits, more sovereign ratings downgrades could follow.

Mr le Roux said the government should not be tempted to hike taxes excessively despite struggling to collect revenue due to poor growth and unemployment.

"You do not really want to see tax increases in this budget, because — simply — the economy cannot take it, but having said that, you should not expect a lot of tax giveaways," Mr le Roux said.

"The last number of years, the government has cut taxes quite a bit and I think that is not going to happen (now)," he said.

The latest available South African Revenue Service data showed that a total of R45.3bn in tax relief was granted to individuals between 2008-09 and 2012-13.

Nomura International emerging markets economist Peter Attard Montalto said "any major announcements or tax changes" were unlikely as this was an election year.

South Africans head for the polls on May 7. 

Mr le Roux said there would not be "a lot of scope" for the government to increase spending because revenue collection was constrained.

"The key focus of the budget will be no more fiscal slippage."

Mr Gordhan announced tighter spending measures for public office bearers, including ministers, during his medium-term budget policy statement last October in efforts to rein in wasteful expenditure.

But Sanlam group economist Jac Laubscher said even stricter measures should be implemented.

"To demonstrate its commitment to sound finance … a freeze on filling all vacancies, existing and future, should be implemented. A similar freeze on all promotions should be announced," he said in a research note on Thursday.

He said infrastructure projects should be completed because of the high levels of imported capital goods content, and their role in removing important logistics bottlenecks that were holding back exports.

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