Gordhan needs to find R43 billion for his budget in the next two years – here are 3 ways it’s going to effect you
In October 2016, Finance Minister Pravin Gordhan highlighted that an additional R43 billion would need to be raised over the next two years in order to meet with budget demands.
Speaking at a media round table on Tuesday (31 January), public sector director at Deloitte, Nazeer Essop said that he believes there are only three ways that the minister can meet this target.
This is by:
- Reducing expenses;
- Increasing taxation; and
- Looking for more innovative and creative ways to generate additional cash flows.
This is how each of these avenues will affect every day South Africans.
Reducing Expenses
“We have already seen progress in provincial cost reduction with the Gauteng Provincial Government dramatically reducing fruitless and wasteful expenditure by 93%, bringing in significant cash savings of R386 million,” said Essop.
“Gauteng has also piloted open tender procurement to reduce irregularities in procurement. This subsequently brings down the cost of goods and services. In 2016 alone, 72 projects across the province with a collective value of R10 billion went through the process.”
The idea is to translate Gauteng’s success to South Africa’s other provinces so that the reduced expenditure can be reflected in the national budget.
How it will effect you:
If provincial and local government can cooperate to the same or similar level as that of Gauteng around the country, it will not only benefit taxpayers’ pockets, it should also provide a much clearer idea of where taxpayers’ funds are actually being used.
Innovation
“South Africa can’t keep throwing money at problem areas and hoping they will see growth,” noted Essop.
Instead the country needs to make a transition from known revenue sources – such as the wage bill, mining and manufacturing – towards sectors such as tourism and agriculture.
Essop used the UAE as a prime model for South Africa to follow, considering both countries depend on commodities and a need to diversify revenue streams. He noted that the UAE’s dependency on oil industries has declined from close to 80% in the 80s to around 30% of GDP in 2014.
In 2016, the nation launched its UAE Strategy for the future where all government departments will appoint “directors of future planning”. This will institutionalise future planning and innovation, making it a mandatory element of all operations and informing government policy making accordingly.”
How it will effect you:
While tourism and agriculture are still on the cards, the prerogative seems to be on Small, Medium and Micro-sized Enterprise (SMME) growth, township economies and entrepreneurship in South Africa.
In Gauteng alone, the vision is for township enterprises to benefit from 30% of annual provincial procurement spend. As a result, numerous incentives and initiatives have already been put in place to drive the growth of these small businesses.
Taxes
This is the most obvious (and arguably simplest) way to recuperate the outstanding R48 billion.
They will most likely take the form of a wealth and corporate surcharge tax; wealth taxes; an increase in sin taxes; fuel levies; as well as continued fiscal drag, among other standard tax increases, according to Deloitte.
A VAT increase is also reportedly on the cards after its recommendation by a 2016 Davis Commission report.
How it will effect you:
It should go without saying this will have the biggest if not the most immediate effect on South African taxpayers’ pockets.
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