/ 2 November 2023

Tax hikes will not be dramatic

Sa Rand
The local currency could be in for more volatility as political push-and-pull raises uncertainty. (Getty)

Tax increases that Finance Minister Enoch Godongwana intends to introduce in the 2024 budget will be “quite minor”, Edgar Sishi, the head of the treasury’s budget division, said on Thursday.

Sishi told parliament’s standing and select committees on finance and appropriations that the treasury did not intend replicating an attempt seven years ago to use personal income tax to close the fiscal gap, noting that it did not succeed even though the budget deficit was smaller at the time.

It is now forecast at 4.9% of GDP.

“The fiscal deficit at the time was much, much smaller than it is today and the debt was much, much smaller than it is today,” Sishi said in reply to questions from MPs.

“In other words, the gap between revenue and spending was not as big as it is today. It is also important to remember that in response to the emergence of those revenue shortfalls at the time, VAT was increased and personal income taxes were increased to try to close the gap.”

In the medium-term budget policy statement (MTBPS) on Wednesday, Godongwana confirmed that he would announce tax increases in February to raise an additional R15 billion in revenue. The minister and treasury officials would not be drawn on whether R15 billion was a definitive figure, or what form the increases would take.

Democratic Alliance finance spokesperson Dion George had accused the minister of creating uncertainty and said tax hikes would place a heavy burden on households and hinder economic growth.

“The DA will categorically oppose the implementation of any additional taxes or increment in tax rates, as it would only serve to further impede economic growth, discourage investment and savings, and put more pressure on South African households battling to put enough food on their tables in a worsening cost of living crisis.” 

But Sishi told committee members the intention was not to claw back the shortfall in the state’s coffers from private citizens.

“We don’t want to go back to the days of having to raise taxes on citizens in order to just cover all of the fiscal gap,” he said. 

“And indeed the attempt to do so in 2016 and 2017, as has been reflected both to the committee and in other forums in the past, did not actually succeed in closing the gap, so that is not fundamentally a policy we think is the right one.

“Hence the revenue proposal whose details will be presented in February are actually quite minor.” 

According to the MTBPS, revenue collection is expected to be R56.8 billion lower than forecast in the main budget in February.

Godongwana said the main reason for this was a sharp fall in corporate income tax, particularly from the mining sector, as the commodities boom waned.

“The result of the shortfall is a substantial worsening in the main budget deficit in the current fiscal year. We are now projecting a deficit of 4.9% of GDP compared to our previous estimate of 4%.”

Personal income tax collection was better than forecast though, the minister said.

According to the treasury, tax revenues are expected to increase to R2.1 trillion or 25.1% of GDP, by 2026-27.

“Revenue collection, however, is projected to fall short of 2023 budget estimates by R121.4 billion between 2024-25 and 2025-26, with tax buoyancies generally lower over the medium term.”