Taxpayers will feel the squeeze

Taxpayers have reason to be concerned after Finance Minister Nhlanhla Nene said in his medium-term budget review that there will be tax reforms and changes made to tax policy in a bid to boost South Africa’s flagging economy.

Nene said changes to tax policy and administration, which will be announced in his budget vote in Parliament in February next year, are expected to generate an additional R27-billion in revenue over the following two years.

This “will enable government to remain broadly in line with the deficit path announced in the 2014 budget, stabilising public debt, despite weaker economic growth”.

The Southern African Customs Union partners are also likely to feel the pinch in line with South Africa’s new measures. Nene warned that revisions to customs duties would see lower payments to the customs union during the medium-term budgetary framework (MTBF) period.

A source close to the treasury said that, although more money would be raised by the policy changes and administrative reforms concerning tax, the government would also have to look at existing tax sources, including individual tax, companies tax, value added tax, dividend withholding tax, specific excise duties, the fuel levy, custom duties tax and others, including the sin taxes.


But taxpayers will have to wait until February to find out how this will be structured.

“It is unusual for the MTBF to contain this much information on tax; it does not usually,” the official said.

Local government income review
Nene made it clear, however, that grants and assistance to poorer communities will continue to keep pace with inflation, despite cutbacks in expenditure elsewhere, such as on government salaries and spending in particular.

“Government proposes a structural increase in revenue over the medium term. Policy and administrative reforms will raise at least R12-billion in 2015-2016, R15-billion in 2016-2017 and R17-billion in 2017-2018.”

The only hint Nene provided for taxpayers was to say: “The proposals will enhance the progressive character of the fiscal system and improve tax efficiency and realise a structural improvement in revenue … The short- and long-term implications for economic growth and job creation will be a key consideration.”

He did indicate that some tax reform would take place at local government level to meet the costs of services such as water supply, sanitation, refuse removal, clinics, education, postal delivery and policing. “Taxes have to be paid and municipal bills collected,” he said.

The challenges facing municipalities in issuing and collecting sufficient taxes had been a matter of concern for some time. By “acting now to re-establish a sustainable foundation for the public finances, government can rebuild a fiscal space in the years ahead,” he said. “From a more stable base, the expansion of social budgets and public investment can proceed in line with long-term economic growth.”

Short-term negative effects
In the MTBF statement, Nene acknowledged that the proposed measures could have a “damping effect on economic growth in the short term, but they are essential to sustain investment and revive growth over the longer term”.

The tax revenue for 2013-2014 was R900-billion, a 10.6% increase on collections in 2012-2013 and R1-billion higher than the 2014 budget target.

The finance minister said some of the reasons for this revenue growth were temporary, driven by high customs duties associated with the depreciating rand exchange rate.

Nene said downward revisions to nominal gross domestic product have seen gross tax revenue revised downwards by R10-billion in 2014-2015, R19.1-billion in 2015-2016 and R31.8-billion in 2016-2017 compared with the projects tabled in the 2014 budget.

“However, after taking into account reviews anticipated from tax policy and administration to be implemented in 2015-2016, the shortfalls are reduced to R7-billion for 2015-2016 and R16.8-billion for 2016-2017.”

Revenue from corporate income tax, customs duties, VAT and the fuel levy for the first half of the current financial year has been less than projected and, consequently, has been revised downwards.

Non-tax revenue is expected to bring in R3.9-billion more than an estimated in the 2014 budget but mineral royalties were down R400-million to R6.8-billion.

No cuts on social spending
What is bound to please voters is the government’s announcement that expenditure on social services such as education, health, skills development and social protection will continue, which will account for about 42% of allocated spending over the MTBF. Education and health are government priorities.

Resources available in the budget increased from R378.2-billion in 2004-2005 to R1.136-trillion in 2014-2015.

“Budgets for health, education and social grants will keep pace with inflation over the medium term,” Nene said. “Allocations to employment programmes, technical training and skills development, as well as housing and social infrastructure, will continue to grow in real terms.”

He gave an undertaking that the government would focus on improving the electricity supply, which would help in funding infrastructure projects.

The government will spend R855-billion on basic education and skills development over the next few years.

Nene, clearly taking heed of criticism about education and skills, said those responsible for monitoring educational outcomes are “establishing platforms to address long-standing challenges”.

Over the 2015 MTBF period, allocations to basic education will exceed R640-billion, accounting for nearly 15% of all spending.

He said greater attention will also be paid to teacher training and human resource management to improve teaching and learning. Post-school education and training will also be expanded.

Employment initiatives yield results
The rate of spending growth over the medium term for basic education is projected to be at an average of 6.3% a year.

Initial reports suggest that the controversial employment tax incentive aimed at encouraging youth employment, which was implemented at the beginning of the year after much debate, has been taken up by about 23 500 employers and has seen the employment of about 209 000 workers.

The jobs fund, which approved 93 projects, has been allocated R5-billion in grant funding and a further R6.1-billion from project partners, resulting in the employment of 167 847 people, of which 56?356 are new placements.

R18-billion in manufacturing incentives has been paid out in a bid to encourage export competitiveness and job creation.

Subscribe to the M&G

These are unprecedented times, and the role of media to tell and record the story of South Africa as it develops is more important than ever.

The Mail & Guardian is a proud news publisher with roots stretching back 35 years, and we’ve survived right from day one thanks to the support of readers who value fiercely independent journalism that is beholden to no-one. To help us continue for another 35 future years with the same proud values, please consider taking out a subscription.

Related stories

Zuma at the state capture inquiry: How he got here

How Nene’s removal triggered the state capture avalanche, culminating in Zuma’s Monday appearance.

LIVESTREAM: Zuma in the hot seat at the Zondo Commission

Former president Jacob Zuma’s appearance will give him the opportunity to give evidence before the commission

Zondo commission: Treasury witnesses to reveal cost of state capture

Treasury economist Catherine MacLeod will take the stand on Tuesday

Nuclear deal would have dealt a blow to SA economy —Fuzile

The drive for nuclear energy has been cited by ratings agencies as a major reason for credit downgrades

Zondo commission: Ex treasury DG back to spill the beans

​Former treasury director general Lungisa Fuzile will make his second appearance before the Zondo commission of inquiry into state capture

Is Tito preparing an IMF financial parachute, now a $171bn foreign debt cliff looms?

The reason for the International Monetary Fund’s Christine Lagarde's visit to South Africa is unknown
Advertising

The PPE scandal that the Treasury hasn’t touched

Many government officials have been talking tough about dealing with rampant corruption in PPE procurement but the majority won't even release names of who has benefited from the R10-billion spend

ANC still at odds over how to tackle leaders facing...

The ANC’s top six has been mandated to work closely with its integrity committee to tackle claims of corruption against senior party members
Advertising

press releases

Loading latest Press Releases…

The best local and international journalism

handpicked and in your inbox every weekday