Finance Minister Chris Liebenberg has walked a tax tightrope in compiling next week’s Budget.
Reg Rumney reports
Expect no boon from the March 15 Budget if you are in the higher income tax bracket. However, on the positive side, expect no rise in value added tax.
Given the political opposition to this tax as being regressive, it would be a brave move for the government to turn to this handy, and arguably underused, source of revenue.
Sanlam’s economists foresee lower personal tax for people in lower and middle income groups and an increased marginal rate hitting those in high income brackets.
On the other hand, any lower income tax will be offset by probable increases in taxes on liquor and tobacco — so- called sin taxes — and probably a higher fuel levy.
Liebenberg’s hands are tied when it comes to cutting taxes in that:
* He is committed to supporting Reserve Bank governor Chris Stals’ monetary discipline, and so can’t countenance inflationary tax cuts.
* High government debt, commitments to keep on civil servants from the old regime, as well as a need to practise affirmative action, mean he cannot slash spending.
While certain features of this year’s Budget seem likely, there is more uncertainty about tax changes than there has been for years.
The reason is that the parliamentary Standing Committee on Finance last month unexpectedly sent key proposals of the Katz tax committee back for reconsideration.
This immediately presented Finance Minister Chris Liebenberg with a R2-billion to R2,5-billion quandary. Liebenberg’s immediate reaction was that the committee had exceeded its mandate, and he was not obliged to obey.
It had seemed that the introduction in the Budget of the Katz Commission of Inquiry’s main recommendation, that the sexes, and married and single people finally be treated equally in terms of tax, would be a formality.
Previously the government has accepted the principle but deferred the practice because the unequal treatment has brought in a tidy sum for the fiscus. But the new constitution specifically forbids gender discrimination.
The finance committee rejected the unified tax tables because it would mean taxpayers earning between
R10 000 and R20 000 would pay more tax. The committee rejected the recommendation that the tax-deductibility of pension fund contributions should be capped — a move strongly opposed as “ad hoc” by the life assurance industry. This means Liebenberg can equalise taxes for men and women — but not easily make up the revenue lost, estimated at R2-billion to R2,5-billion.
An option mentioned by Liebenberg would be for the equalisation to be phased in. Yet the Commissioner for Inland Revenue has already introduced a single tax as an interim measure for three months from March 1. So the tax table that previously applied to married people with no children is for the moment universal, to avoid unconstitutionality.
Frankel Pollak Vinderine chief economist Mike Brown reckons that the government cannot avoid equalising tax treatment this year.
There are a number of options, big and small for increasing tax revenue. Only one of them is selling off unwanted state assets.
On the company front, STC’s effectiveness has been called into question, and has been presented as a discouragement to foreign investors.
Nedcor’s Dennis Dykes expects secondary tax on companies to be reduced, and the corporate tax rate may rise to take account of that. Sanlam foresees no change in the corporate tax rate, but some change in STC.
What Liebenberg could and should consider is the long- promised abolition of marketable securities tax, often cited as one reason for the well-known illiquidity of the Johannesburg Stock Exchange.