Taxpayers wait on Gordhan’s Mini-Budget Statement
24 October 2011
Posted by: SAIT Technical
Taxpayers wait on Gordhan’s statement
Ethel Hazelhurst (Published: 2011/10/24)
Taxpayers could learn tomorrow if they are facing higher taxes in the next fiscal year. And motorists will hear on Friday that they will be paying more for petrol next month – the fourth consecutive monthly increase.
However, borrowers can take comfort from the fact that they are unlikely to see a rise in interest rates when the Reserve Bank monetary policy committee wraps up its meeting on the 10th of next month. Finance Minister Pravin Gordhan will present his medium-term budget policy statement tomorrow, setting out the government’s financial plans for the next three years.
The minister has to attempt to reduce the budget deficit – the gap between revenue and spending – to below 3 percent of gross domestic product (GDP). In February, Gordhan estimated the deficit would be 5.3 percent of GDP in the 2011/12 fiscal year and would fall to 3.8 percent by 2013/14.
South Africa, along with most other countries, allowed its deficit to go above 3 percent to counter the impact of the 2008/09 recession. The deficit rose to 6.6 percent in 2009/10, subsiding to 6.2 percent last year. If the deficit does not keep falling, government debt will rise to unacceptable levels and, with it, the costs of interest on the debt.
At the same time, the government has committed to a National Health Insurance scheme and will have to find a way to fund it – probably by turning to taxpayers.
While no changes will be made to taxes in the current year, Gordhan may hint at what is in store in the next Budget – to be presented in February.
The increase could come in the form of higher income tax – particularly in the top marginal rate, which is now 40 percent.
An increase in VAT, now 14 percent, is possible but unlikely because it would be politically controversial. VAT hits poor people the hardest because it absorbs a greater share of a small income than it does of a larger income. Income tax, on the other hand, is progressive – the more you earn the higher the tax rate.
There could also be increases in company, payroll or property taxes, excise and customs duties and the general fuel levy.
And capital gains tax could be increased.
There is more certainty about the petrol bill. Fuel prices are adjusted each month to keep them in line with prices of a basket of international oil products. By Friday, the average daily underrecovery was running at more than 23c a litre. Fortunately there is no prospect of a rise in interest rates this year.
The central bank’s repo rate is expected to stay at 5.5 percent for most of next year – based on an expectation that inflation will only briefly breach the bank’s 3 percent to 6 percent target range at the end of the year.
However, the strength of the rand is critical to the inflation outlook. The currency has traded at more than R8 to the dollar for most of the past month, compared with a rate below that for the previous two years. If the rand weakens further, inflation projections will have to be revised and a rate rise could come sooner.