The sugar tax, carbon tax, the NHI and a wealth tax are all expected to be clarified by finance minister Malusi Gigaba’s mid-term budget speech (MTBPS) next week.
This is according to a report released by Deloitte this week, which speculated that depending on the measures introduced by Finance minister Malusi Gigaba, ratings agencies could possibly downgrade the country further into junk status.
However, the biggest elephant in the room for South African taxpayers is likely to be the country’s revenue shortfall of anywhere between R50 and R60 billion rand – an issue expected to be addressed next week by the implementation of a number of cost-cutting measures and new taxes.
James Turp, fixed income portfolio manager at Absa Asset Management, says that the MTBPS has historically been seen as a useful scorecard for progress made on the February budget.
“It provides detail on government’s spending priorities, sets out fiscal objectives over the medium term (three years) and sketches government’s take on the South African economic context,” he said.
“Having recently emerged from a technical recession and with real economic growth projected at 0.6% for 2017 following from the mere 0.3% in 2016, the country is growing way below its potential and conspicuously in contrast to global growth trends.”
According to Turp, Absa will be closely observing these important fiscal metrics that indicate the health of the fiscus – as they are expected to have slipped significantly since February; at the worst rate since the 2009 global financial crisis.
“In a large part, 2009’s slippage was related to the global situation but 2017 is in contrast as negative global output gaps are generally closing. South Africa is an obvious exception to this trend,” said Turp.
In trying to explain why South Africa is missing out on the global recovery, the South African Reserve Bank, in its October 2017 Monetary Policy Review, attributed this to two main factors: lower commodity prices (largely outside government’s ability to influence) and subdued consumer confidence (a proxy for general confidence and a factor that is influenced by government policies and behaviour).
“Their analysis indicates that subdued confidence levels alone removed 115 basis points from GDP growth in 2016,” Turp said.
Gigaba should therefore use the opportunity to announce actions that to improve confidence, to address this low growth paralysis and positively influence investor, business and consumer behaviour, he said.
“The delicate act of raising revenue against this backdrop of a struggling domestic economy will be difficult. It is thought that an extra R25 billion of revenue could be required. Gigaba will have to think carefully about which taxes he decides to raise, as higher personal income tax rates or customs duties could undermine economic growth.”
“As a result, it is possible that the lens will turn to medical aid tax credits, VAT zero ratings, petrol and municipal rates,” he said.