Tax revenue seen down R70bn

Total South African tax revenue in 2009/10 is projected to be R70,3-billion (-10.7%) below the forecast presented in February at R589-billion.

Treasury said in its medium-term budget on Tuesday that revenue should then pick up to R651-billion in 2010/11 in line with better economic growth, and then on to R732,9-billion in 2011/12 and R816,7-billion in 2012/13.

“Most of this decline is the result of lower VAT and company income tax receipts in line with reduced business activity and lower household spending,” said Treasury.

“As economic growth picks up, tax revenue will begin to recover automatically,” it added.

Tax revenue is expected to reach 26,2% of GDP by 2012/13, driven by a recovery in household consumption and corporate profits, and supported by measures to broaden the tax base.

“To ensure fairness and equity in the tax system, the South African Revenue Service is increasing penalties for those who do not pay their fair share of taxes. Sustaining the compliance culture built up over the past decade is necessary for government to meet its developmental objectives, and to ensure that the population as a whole believes that the tax system is fair. The present penalty regime is too lax and has been revised, requiring higher penalties on people with higher taxable earnings,” said Treasury.

It notes that downward revisions to South African Customs Union partners as a result of lower imports should help improve revenue projections.

Continuing the trend that began in 2003, expenditure rises strongly, reaching 35% of GDP in 2009/10.

“This rise in government spending during a period of economic contraction stimulates demand and partially offsets the effects of declining growth in other sectors of the economy,” says Treasury.

As the economy recovers, growth in government expenditure is expected to moderate to more sustainable levels, with consolidated government expenditure stabilising at 34,1% GDP over the medium term.

This allows for additional spending of R78-billion at the main budget level—R17 billion in 2010/11, R24-billion in 2011/12 and R37-billion in 2012/13. Savings and reprioritisation of existing allocations of R14,5-billion at national level, and R12,6-billion at provincial level, increase the amount available to fund new priorities.

After growing at about 9% a year in real terms over the past three years, real growth in consolidated government non-interest expenditure is expected to average about 1% over the next three years.—I-Net Bridge

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