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Why a tax hike is good for South Africa

Why a tax hike is good for South Africa

A looming ratings downgrade, the falling rand and rising inflation means that the National Treasury will have to hike taxes even more significantly this year than in the previous few years.

And much of this burden will land on consumers’ shoulders, warned Old Mutual Investment Group senior economist, Johann Els, ahead of Wednesday’s 2016 Budget address.

To prevent a downgrade to SA’s debt, the government would need to make some difficult decisions that will reduce the budget deficit faster than the targets set in the mini budget in October 2015, said Els.

“Most of the deficit reduction will likely come from tax hikes since reducing government’s expenditure ceiling significantly seems challenging right now,” he explained.

The easy wins for Treasury will come from consumer tax increases, where high income earners will likely be targeted. The top marginal tax rate could be lifted further from 41% to 42% or 43%, earning government between R2bn and R4bn per annum extra.

Other possible changes could include raising the effective rate for capital gains tax – an increase from 13.3% to 20% will net R3 billion – or an increase in dividend tax – an increase in the rate from 15% to 20% could net an extra R7 billion.

Els added that in order to spread the tax burden more widely across all consumers Treasury’s revenue increase options might also include a VAT hike of 1% and/or a big fuel levy increase.

“The most positive message the minister could send would be a VAT hike, although the probability of this is less than 50% given that we’re currently in an election cycle. However, Gordhan’s newfound position of power after his reappointment as minister of finance late last year could mean that he has the means to persuade government on this,” he said.

“A VAT hike would almost certainly stabilise the rand and satisfy the ratings agencies enough to avoid the looming threat of a downgrade of SA to junk status – at least in the short term.”

Els said that the ministry’s other tax options include an increase in property tax, inheritance tax and the much-talked about wealth tax, which all remain uncertain for the moment.

“While painful for the consumer, across-the-board tax hikes or tighter fiscal policy would take some of the pressure off the SA Reserve Bank increasing interest rates further,” he explained.

According to Els, significant tax hikes will certainly hurt the economy and keep downward pressure on growth this year. He expects growth at around 1% in 2016, but added that a recession could be averted if there are no further negative impacts from the rest of the world, local strikes or a further slump in agricultural production.

Although consumers are in for a bumpy year, he believes that SA isn’t facing a deep consumer spending recession and the biggest threat to consumers will be food inflation.

“In fact, the situation consumers are facing this year is not as bad as what we saw in 2008 and 2009,” he explained.

“Interest rates and inflation rises over 2016 and 2017 will be more subdued than in 2008 and 2009 and job losses will likely be a lot lower than the 860 000 local jobs lost during the 2008/2009 global  and local recession.”

Fin24

More on tax in SA

Expect a personal income tax hike in SA: report

SA tax hike is coming: report

“Supertax” for the wealthy on the cards: expert

 


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  • SpiritOfNehanda

    Unashamedly preparing us for a tax hike to fund the mismanagement..

    • Thepaxster

      Agreed, tax the people to death, so the top few in government can continue to live comfortably and waste more tax payer money. So sad. But we all know what happened in the robin hood tale.

  • Progressive Pariah

    VAT and dividends tax would most likely gain the quickest increase when it comes to gaining more funding.

  • Andrew Newman

    If they are serious they will raise VAT by 1%. That will make other tax increases more tolerable.
    If they don’t increase VAT I think a lot of people may consider SA government not to be serious enough.

    • Dreigorian

      Raise vat by 5%-10% and decrease income tax by the same amount please…let those happy cancer voters feel the burn of their decisions.

      • Jaco Rautenbach

        I saw the previous article on the 1% VAT hike and had to laugh. I’ve heard a 4 % VAT increase has already been decided on early last year, but if you think there will be a corresponding decrease in income tax you must be smoking some serious weed … 🙂

        • Dreigorian

          I know it will not happen, just saying, I’m so tired of working my @ss off everyday just to pay taxes and not getting anything for it, I don’t mind paying taxes, I do mind how it’s being spent.

          • Jaco Rautenbach

            totally agree, I’ve often wondered how many taxes we are paying, but gave up on trying to count…VAT, income, Fuel levy, RAF, TV, Booze, ciggies, ETolls, Vehicle licensing, Property taxes, Municipal levies etc etc. Probably 100 +…you can even add car guard tax 🙂

          • Johan Lewis Last

            Probably something like for every R100, you can remove R30, the rest is taxes and vats and levies and what not

          • Johan Lewis Last

            We don’t mind paying taxes…as long as EVERYONE is paying taxes. If every single person, that should pay tax, pay their taxes and IF we can get rid of the mindless stupid thieving corrupt incompetent people in government, we won’t be needing to increase taxes or VAT

          • Honda

            I agree what guarantee do we have that the politically connected pay any tax. After all SARS only investigated Malema’s tax affairs after he anger the ANC. Before that he was good to go despite it being obvious that he was getting more money in than his salary could provide

          • Grant

            If only, we knew how they where being spent …

  • Nextlevel

    Sure let’s Fuk over the working class some more

  • straight8

    So the working class suffers for the government’s corruption and incompetence. Why should we feel the pain, what have we done wrong, expect try and put food on the table every month?

  • Lardus-For the Chimichangas!

    No negative effects from local strikes? Never gonna happen…we are in for a tough year indeed.

  • bengine

    Increase the Interest Rate
    Decrease the value of the Rand
    Increase inflation
    Increase taxes

    Doesn’t take a rocket scientist to see where this is going – the only question is – is it deliberate and if so what is the agenda and whose agenda is it?

    • Silver King

      China needs more land, They will buy South Africa for cheap. This is the new way to take over the world. You buy it :-).

      • bengine

        A friend of mine was flat sitting in JHB – tenants were Chinese students. In conversations with them they said we don’t know how fortunate we are – there is just so much space here – so yup you probably have hit close to the mark.

  • Dave

    Raise income taxes for all goverment officials and state employees…You stuffed it up, you fix it!

    • Cynic Scepticism

      Recycling tax money doesn’t work the same as recycling plastic. The government officials are paid salaries using tax money they take from us. Taxing a government employee doesn’t increase the total amount collected, it reduces the amount spent on the public wage bill. Good option, but ultimately not fair.

  • Cynic Scepticism

    Gordhan has probably the worst job in SA right now. Put just a toe out of line, and all of us are screwed. Toe the party line, and you screw the economy. Increase any tax, you screw the consumers and tax payers. Do nothing, you screw yourself. Somebody’s gonna get screwed.

  • Wyzak

    Firstly, there aren’t any easy wins for anybody when it comes to tax hikes… any suggestion to the contrary is disingenuous

    The growth has already been downgraded to sub 1%, any increase in income tax will put further growth on that already abysmal growth and could drive us to recession.

    Remember any rise in income tax will result in lower disposal expenditure which results in less new vehicle sales and less retail sales which is bad for the economy.

  • Chroom

    What a lot of BS, why must the worker get penalized for working, why must the homeowner get penalized for having a home? Raise the VAT to 16% and everybody pay for the mess the useless government created. Not only the worker, but everybody must pay the price, ridiculous in any case.

  • Faizel Hassen

    I honestly believe that Els should come visit us in the KZN and then he will release the nonsense he is saying. 100s of businesses have already closed their doors. Many big shops in the malls have downsized to more than 50%. Food prices have already skyrocketed. You still feel that we should be taxed further!!

  • v_3

    Johan Els’ logic is hard to fathom.
    “… reducing government’s expenditure ceiling significantly seems challenging right now … The most positive message the minister could send would be a [taxation] hike … ”
    Huh?

    I submit that SA’s drift to failed statehood is the real cause for our coming junkhood. Specifically a toxic mix of:
    • Out of touch ideologies being applied
    • A massive, growing dependent population, rendered unemployable or unproductive through 20 years of ZANC/SADTU “verwoerdian” education
    • Government pandering to clientism (vested interests, especially the unions and the nouveau nomenklatura)
    • A business-hostile government, disconnected from market realities
    • Massive loss of business confidence (extending to the business class) and Productive Sector malaise
    • Corruptheid and regulation bloat undermining the economy
    • The frustrations and rage of the precariat and the abandoned lumpens and “wretched of the earth”.

    In short, SA suffers from a socio-economic “lifestyle” ailment and bleating that giving up one’s cherished “entitlements”. bling and vote-buying (reform is “challenging”) is like being diagnosed with heart disease or cancer and whining that taking more exercise and giving up smoking and certain foodstuffs is hard – “adapt or die”. Einstein’s aphorism about doing the same thing and expecting different results comes to mind.

    Rather than imposing scorpions where rods are being used – and aggravating an already bad situation, we have to change direction.

    Clearly the biggest factor behind SA’s ratings downgrade is risk: as the country produces less and those on the poverty line are hit hardest this risk will increase. Further, slowing down the “velocity of circulation” or transferring even more wealth from the private to the government sector will not fix anything (apart from pleasing Looting and Chancer Houses). Put differently, one can learn from the different approaches post the 2008 global crash: Europe imposed more austerity, slowing recovery, causing or not preventing the “PIGS” crises (and Brexit) while the USA relied on private sector stimulus and emerged far faster.

    SA needs to expand the economy to include all (or most of) its citizens – even the most rabidly anti-Keynesian must realise the moral, economic and political necessity for this. While an economist from a bloatocratic institution may not conceed it, the best way is by fighting monopolies, oligopolies and corruption while promoting the SME sector and fixing education.

    • iandoug

      I think I need to cancel my Old Mutual policy, if this is the way they think … I also had trouble understanding the logic in the proposals. People need to realise that the gold mines are running dry, and with it, the “money for nothing” … so unless we outcompete China, things will just get worse. Letting in hordes of foreigners who will compete directly with locals for jobs doesn’t help.

  • Robert Dixon

    I find it hard to believe that ANYONE would recommend a tax increase!

    The corruption, waste and stupidity of the guvvamunt are the causes of SA’s problems – these require appropriate action, definitely not tax increases.

  • Q Anthonie Burger

    Only way I will be happy with a tax hike is if government drastically reduces spending too.

  • Erlo Muhl

    Pravin Gordhan seems to be honest, please leave “Company Tax” as it is, so that jobs are not lost in private enterprise companies. “Private Income tax” for the very rich should be pushed up with a super tax bracket on the money they withdraw, over and above what is needed for decent normal living. This will help to strengthen Private Companies as more money will be kept for production and growth of the companies. More of the Governments enterprises that are poorly managed at the moment should be “Privatized” without a quota on color and creed. BEE has had its chance for 21Years + and should now be abandoned and we will be surprised how fast our country will thrive. If Taxes on Companies and Middle-class individuals is increased we will be heading for more disaster.

  • Rob Charlton

    This is a good opportunity to rejig VAT into something more meaningful that the current “add-on” approach which taxes “added value” when often there is no “value” added. He could apply different rates to different items. But it would be the fairest way of spreading the burden.

  • Grant

    Tax hikes to pay for corruption, maladministration and incompetence sounds just like what government are made for.

  • bookworm

    Increase the controls and monitoring of govt. & municipal spending, cut them down to economy class travel, and reduce the size of the cavalcade that has to go overseas etc. Reduce take-out bills for events, and reduce banqueting requirements. Stop people paying R700K to speak at New Age breakfasts instead of simply calling a press conference to say what you have to say. Makes me think that it can’t have been worth the Press’ time and energy to attend a press conference if what that person had to say was not of any meaningful value! A VAT increase is going to hit poorer folk yet again, and most of us have already tightened our belts to the point that they are already around our necks, not our waists!

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