Economist warns of tax hikes for South Africans in 2020

Economist Dawie Roodt says that the state of government’s finances means that further tax increases can be expected in 2020.

Roodt noted in an interview with eNCA that the state’s debt is at record levels, meaning “there will be tax hikes”.

“The question is which one of the taxes will be increased? I am pretty sure that things like the fuel levy will be increased, and sin taxes.”

The economist said that the two taxes that can make a difference to the country’s finances are personal income tax, and value-added tax (VAT) and that February’s Budget will reveal all.

“I think personally personal income tax will be increased,” Roodt said.

Roodt said that a positive indicator going into the new year, is the strength of the rand, trading at around R14.00 against the dollar on Thursday (2 January).

A stronger rand, he said, is an indication that foreigners are interested in investing in South Africa, especially in financial markets.

He added that a stronger rand could also lead to interest rate cuts, which would benefit under pressure consumers.

Roodt’s comments align with Treasury’s revenue concerns which it outlined in its medium-term budget policy statement released at the end of October.

“Significant tax increases over the past several years leave only moderate scope to boost tax revenue at this time,” the Treasury said.

However, despite this limited scope, Treasury said that additional tax measures are under consideration to raise an extra R10 billion in fiscal 2021 – but did not provide any further details.

“Given the fiscal position we find ourselves in, all tax options need to be on the table,” said Chris Axelson, chief director for economic tax analysis in the Treasury.”

Recession fears

With the economy shrinking, unemployment at an all-time high and yet another downgrade almost certainly waiting for us in January from ratings agency Moody’s, Roodt warned of the likelihood of a recession.

“I am fearful that we are heading towards a full-blown recession and in fact may already be in one in the fourth quarter.

“Given the devastation wrought by load shedding and the government’s rapidly growing debt burden, I cannot help but to think that things are going to get a lot worse before they get better,” Roodt said.

He said that with the fiscal deficit at an all-time high, it will make it increasingly difficult for the government to borrow money abroad to keep the economy going.

Neil Roets, chief executive officer of debt counselling company, Debt Rescue, said they were gearing up for one of the busiest periods in January, February and March in the history of the company.

“We see more new clients seeking help with the repayment of their outstanding debt in January and February than during any other months of the year because of additional debts that had been stacked up during the holiday season.

“Parents suddenly realise that they have to pay school fees that had not been budgeted for and with credit cards maxed out on luxuries in November and December many have no choice other than to seek relief by going under debt review to prevent debt collectors from seizing their property.”

“With gross consumer debt at around R1.8-trillion and the government’s gross loan debt at R2.2 trillion in 2016/17 financial year, it is clear that South Africans are in for a very rough ride,” Roets said.

He said almost half of all consumers were three months or more behind in their payments. The major culprits are credit and store cards followed closely by unsecured debt.


Read: Plan to raise South Africa’s taxes will backfire: analysis

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Economist warns of tax hikes for South Africans in 2020