The budget delivered by Finance Minister Tito Mboweni on Wednesday walked a fine line between the battle for tax revenue and the need to minimise any negative effect tax hikes could have on economic growth.
So, although the budget did not include any direct increases in major tax categories, it outlined measures to raise an additional R15-billion in 2019-2020. The bulk of this, R13.8-billion, will come from no adjustments for inflation to personal income tax brackets and medical aid tax credits.
Increases in indirect taxes such as adjustments to the fuel levy and increases on excise taxes on alcohol and tobacco products will raise R1.2-billion. Taxes on items such as cigarettes and various types of alcoholic drinks will increase between 7.4% and 9%.
Slow economic growth and the South Africa Revenue Service’s administrative problems have dramatically affected the state’s revenue collection and its ability to get a handle on its finances.
The revenue shortfall increased by R15.4-billion from the R27.4-billion forecast in the October medium-term budget policy statement. Consistent revenue shortages and new expenditure commitments, such as fee-free higher education, have led to significant tax increases in recent years, according to the Budget Review.
Stanlib chief economist Kevin Lings said in a note the effect that poor economic growth has had on tax revenues showed up starkly in the numbers.
“Without higher economic growth, the country will struggle to generate the revenue it needs to make structural changes,” he said.
Because of the need to increase fiscal consolidation, the treasury warned that further tax policy changes would be made as needed. These could include more intensive environmental levies, including the possibility of a tax on single-use plastics.
The treasury said it would publish a draft environmental fiscal reform policy paper this year to outline ways to “reform existing environmental taxes to broaden their coverage and strengthen price signals”.
The paper would also consider the role new taxes could play in addressing air pollution and climate change, promoting efficient water use, reducing waste and encouraging improvements in waste management.
The proposed tax on single-use plastics would include containers, straws, caps, beverage cups and lids to curb their use and encourage recycling.
The state will be introducing a carbon tax on June 1, which would give “effect to the polluter-pays principle, price greenhouse gas emissions and aims to ensure that businesses and households take these costs into account in their production, consumption and investment decisions”, according to the Budget Review.
The tax will be jointly administered by Sars and the department of environmental affairs and will be reviewed in three years.
As part of the process, trade exposure regulations, to provide for higher allowances based on the trade intensity of an industry, will be published before the end of this month.