wall
Madeleine Wackernagel
Opinion is swinging away from an increase in value-added tax (VAT) in next week’s Budget, as the cost in terms of inflation and labour relations is deemed too high.
Instead, Finance Minister Chris Liebenberg is expected to go ahead with the Katz commission proposals to tax the retirement funds, despite strong opposition from industry and analysts. “It amounts to little more than a raid on the nation’s savings to fund recurrent expenditure,” is how the South African Chamber of Business (Sacob) described such a move.
Overall, the Budget is not expected to hold any surprises; Liebenberg has little room to manoeuvre. With the market holding out for a budget deficit target of 5,5% or less, against an out-turn of 6% for 1995/96, there is little scope for a spending spree. But, says Peter Hilsenrath, economist at Syfrets, the markets would be more forgiving of an over-run if spending were biased away from consumption towards investment. Impatience is growing over the Reconstruction and Development Programme and its apparent inability to deliver.
In the same vein, there are expectations that Liebenberg might put some flesh on the bones of Deputy President Thabo Mbeki’s targets for job creation and economic growth as outlined in his speech to the Inter- Governmental Forum last week. Government must be seen to be doing more to make its money work; it cannot continue to postpone setting out a long-term strategy, says a leading analyst.
Pre-Budget nervousness, exacerbated by turbulence in the currency markets, is reflected in a decline in the February business confidence index compiled by Sacob. In spite of sound economic fundamentals, manufacturers are less optimistic about sales, employment and investment in new capacity, says Sacob. Business is relying on the Budget to provide an ‘investor- friendly’ environment, meaning lower taxes.
A drop to 15% from the current 25% level in the secondary tax on companies is virtually a given, but its effect will be marginal as most companies circumvent the full levy anyway. Another option is to scrap the marketable securities tax, which has long been blamed for the lack of liquidity on the Johannesburg Stock Exchange.
Personal taxpayers can expect little relief though, beyond a possible lifting of the threshold for the top rate of income tax. The transitional levy is unlikely to be repeated, if only because the government would lose a great deal of credibility. But a tax on assets has been mentioned, and while not as regressive as VAT, it would hit savings hard.
But tweaking the tax rates will have little overall effect without a long- term strategy. Raising more revenue makes no sense and little difference if the money already in the kitty is not spent wisely. And this is what business, the unions and the public are looking for — delivery, says the analyst. Instead of penalising the labour force further — South Africa has one of the highest rates of income tax in the world — the government must improve revenue collection and reprioritise spending.