Nice try but no cigar for this Budget
Category News
The VAT increases proposed in the Budget presented this week could be seen in a good light, because they would result in the additional tax required to fill the current revenue shortfall being collected from all consumers and not just the registered taxpayers who are already carrying too big a burden.
So says Berry Everitt, CEO of the Chas Everitt International property group, who notes that this certainly appears to have been the thinking behind the decision made by Finance Minister Enoch Godongwana to raise VAT rather than doing away with the Social Relief of Distress (SRD) grant or increasing corporate and personal income taxes.
"Indeed, he acknowledged that South Africa's corporate and personal income tax collections as a percentage of GDP are already higher than those of most developing countries and that increasing these at this stage would most likely have a negative effect on investment, economic growth and job creation.
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"The proposed VAT increase of 0,5 percentage points would, on the other hand, be an additional tax distributed across a far greater number of people, resulting in it having a much lesser effect on each individual."
In addition, Everitt says, the Budget makes provision for the potential impact on lower-income households to be further lowered by expanding the basket of VAT-exempt products, providing above-inflation social grant increases, not increasing the fuel levy and assisting PRASA to lower the cost of transport for millions of rail commuters.
"And on top of that, the Budget allocates an additional R7,5bn to SARS over the next two years to help it broaden the tax base and spread the overall tax burden more equitably by identifying individuals and companies that are not paying their fair share of taxes and forcing them to become compliant."
However, he says, it is disturbing that while providing for a comprehensive review of government budgets and spending to be undertaken in the Office of the President, the Budget makes no mention at all of the urgent need to reduce the size of SA's bloated and notoriously ineffective public service and the accompanying wage bill.
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"In fact, it provides for taxpayers to fork out an additional R23,4bn to cover that wage bill over the next three years - a sum that equals more than half of the additional R42,5bn in revenue the proposed VAT increases are supposed to generate.
"Meanwhile, the renewal of the SRD grant for another year will cost taxpayers a further R35bn, and the really ugly news is that after all is said and done, the budget deficit is not expected to be eliminated over the next three years. Predictions are that it will only drop from 5% of GDP to 3,5% of GDP.
"At the same time, while the country's debt as a percentage of GDP is expected to decline from 76,1% to 75,1%, the real costs of servicing that debt will rise massively from around R390bn a year to R480bn a year. We are thus not surprised that the DA is refusing to support the Budget in its current form and calling for a rethink that prioritises investor confidence, real economic growth and urgently needed job creation."
Issued by Chas Everitt International
For more information
Call Berry Everitt on
+27 82 441 3601
Or visit www.chaseveritt.co.za
Author: Chas Everitt