Budget - “Golden goose” exhausted
20 February 2012
Posted by: SAIT Technical
"Golden goose” exhausted
Mari Beukes - News 24
South Africans’ tax burden ranks is amongst 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 national 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 that he has less tax revenue at his disposal.Tendani Mantshimuli, consumer economist at Liberty Retail SA, says that for these reasons Gordhan has very little scope for tax relief.Mantshimuli says 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 says.Mantshimuli points 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.Nedbank’s economic unit says, however, that Gordhan may have more room to manoeuvre than Treasury anticipated in October.
The unit says tax revenue for the 2011/12 fiscal year exceeded expectation and this can probably hold the budget deficit to only 4.5% of GDP.Investment Solutions economist Chris Hart says 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 says the large amounts of money that governments have spent in recent years in an effort to relieve poverty has ultimately hampered its ability to reduce the scourge.Hart says 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 says governments 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, says more needs to be done to reduce the fiscus’s dependence on a small pool of loyal taxpayers.He says that while one might speculate that the marginal tax rate will 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 says that according to estimates from the South African Revenue Service there are around 9 000 individuals who owe the state around R50bn in tax.
He also says 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.”