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SA’s economy needs tax hikes to survive – economist

Friday, 19 February 2016   (0 Comments)
Posted by: Author: Hanna Ziady
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Author: Hanna Ziady (Moneyweb)

[Watch] Four forces that could stabilise the rand.  Please click here to watch video.

Rian le Roux, chief economist at Old Mutual Investment Group, believes there are four forces that could stabilise the rand, including a sharp turnaround in the current account deficit and growth enhancing reforms in South Africa.

"The world economy is pretty weak and markets are concerned that central banks have used up their reserves and there’s nothing they can do to stop the world from slumping into a recession,” he told media on Thursday.

Since global growth prospects are unlikely to materially improve anytime soon, "we have to do things ourselves”, Le Roux said.

He listed fiscal consolidation, no more policy blunders, a hard line on corruption, fixing SOEs and a compact between government, business and labour as steps to be taken to deal with South Africa’s crisis.

Le Roux said he hopes the Finance Minister will "hit us hard with taxes” in the upcoming budget in order to maintain the 3.3% budget deficit targeted in last year’s medium term expenditure framework (MTEF).

"To improve on it [the budget deficit], he [Pravin Gordhan] will need to raise taxes and cut expenditure,” Le Roux said.

Ratings agencies consistently cite South Africa’s twin budget and current account deficits as reasons for weakness in the economy. They will be watching Gordhan’s Budget Speech with keen interest next week for indications on whether the government will maintain fiscal prudence, while adopting policies to boost economic growth.

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