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Tax pain favoured by market amid GDP risks

Monday, 23 February 2015   (0 Comments)
Posted by: Author: Rene Vollgraaff
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Author: Rene Vollgraaff (Bloomberg)

Finance Minister Nhlanhla Nene is looking for taxes he can raise as he seeks to offset weak government revenue.

South African Finance Minister Nhlanhla Nene is looking for taxes he can raise as he seeks to offset weak government revenue and burnish his credibility with investors.

In his first annual budget on Feb. 25, Nene will probably widen his fiscal deficit targets for the next two years, according to the median estimate of eight economists surveyed by Bloomberg. By fulfilling an October pledge to curb spending, he may alleviate some of the risk expressed by ratings companies and traders, who have sent prices of credit default swaps 26 basis points higher than the average over the past five years.

His challenge will be to find new sources of revenue that won’t unduly impair the economy, which is struggling to gain momentum after the worst year for growth since the 2009 recession. Nene, 56, may announce increased levies including fuel surcharges, aiming to preserve the nation’s investment- grade status and boost the allure of the country’s assets.

"It will be a pretty fine balancing act,” Asher Lipson, head of fixed-income strategy at Standard Bank Group Ltd., said by phone from Johannesburg on Feb. 20. "They’ve got to find taxes that will not be too punitive to the economy. But ultimately tax increases as opposed to debt issuance would be far more positive for the bond market.”

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