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Tax rises ‘possible’ amid risk to revenue

Friday, 05 July 2013   (0 Comments)
Posted by: Author: Linda Ensor
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Author: Linda Ensor (BusinessDay,

South Africa’s economy is in a "precarious situation", with economic growth and government revenue coming in below expectations and raising the possibility of tax hikes.

Deputy Finance Minister Nhlanhla Nene issued the warning on Thursday. "Things are not going how we anticipated. There is a negative impact on revenue collection," he told a South African Savings Institute function.

Mr Nene said the economic slowdown was hurting revenue collection and had intensified the risks to growth.

Finance Minister Pravin Gordhan hinted at tax hikes when he presented the budget in February and Mr Nene said such a step could not be ruled out in these "tough" times.

Mr Nene’s comments come in the wake of Treasury deputy director-general of economic policy Nomfundo Tshazibana’s forecast at the end of May that the economy would only grow 2% this year, far off the 2. 7% projection in the budget.

Growth in the first quarter was a sluggish 0.9%, the lowest since the 2009 recession, with the mining industry’s woes contributing to the poor performance. Consumer spending and manufacturing output have been lacklustre and exports have not provided the desired stimulus to the economy.

Questioned on whether the Treasury believed the first-quarter trends had continued into the second quarter, Mr Nene said it was "approaching the next quarter number with caution without necessarily being alarmist".

"We are being realistic," he said.

Mr Nene would not say whether the Treasury had accelerated the government’s cutback and savings programme due to the precarious economic situation but stressed the need for caution.

On the possibility of tax hikes, he said the Treasury had adopted a countercyclical fiscal stance "precisely because of the situation we are operating in".

"So we will allow our deficit to increase when the going is as it is, and when the economy recovers we are prepared to pull back.

"But there is never a time when you can say never. We have to be realistic and practical. Any sensible economy would do that," he said.



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