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Growth 'not just a job for the Treasury'
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5 March 2015

CAPE TOWN — Achieving a higher rate of economic growth will have to be an effort by the whole of government and could not be left to Treasury alone, South African Institute of Tax Professionals president Keith Engel said yesterday.

While Treasury tried to push towards higher rates of economic growth other government departments imposed more regulations and more rules that hindered growth, he told members of Parliament’s two finance committees during a public hearing on the budget and tax proposals presented by Finance Minister Nhlanhla Nene last week.

“A growth formula has to be a government wide formula,” Prof Engel stressed. This holistic approach was also needed in the fostering of small business which could not be undertaken by Treasury alone.

In the same vein Prof Engel said that too many regulations imposed on foreign investors in a bid to combat base erosion created uncertainty and a compliance burden that could discourage investment. Sometimes the compliance cost was more of an issue than the taxes themselves. He said SA did not have the same problems with regard to base erosion as European countries had and so could not simply adopt their solutions.

Prof Engel said the budget had the elements of a “green budget” bent on dealing with the environment but cautioned on the need for a trade off between environmental taxes and the negative effect they could have on economic growth.

While small in themselves an accumulation of environmental taxes could add up to a significant sum, especially as they were charges before profit. “Those hit firms a lot harder and affect their competitiveness a lot greater.”

PricewaterhouseCoopers head of tax technical Kyle Mandy pointed to the significant risks facing Treasury’s revenue and expenditure estimates as well as the budget deficit forecast for the next year.

“The revenue estimates in terms of the gross domestic product (GDP) multipliers that have been applied are seemingly a little bit optimistic,” Mr Mandy said, even if the economic growth of 2% which Treasury forecast materialised. “Tax revenue growth is projected to be 10.4% on the back of a nominal estimated growth in GDP of 8%. Even with the structural increases (in tax) that have been put through we are concerned that those estimates are a little bit optimistic.”

The elephant in the room with regard to expenditure was the public sector wage bill.

“If we see increases that are significantly above inflation we are going to see the budget deficit in trouble.”

Mr Mandy welcomed the fiscal drag relief given to low income earners to compensate for the effects of inflation on tax brackets.

He expressed concern, however, about the rise in the tax burden on taxpayers, expressed in the ratio of tax revenue to GDP. This is just below 26% if provincial, local and social security taxes are excluded.



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