South Africa’s growing budget deficit may result in further tax increases to help cover the shortfall, says chief economist of the Efficient Group Dawie Roodt.
Roodt said that Moody’s may also decide to downgrade South Africa’s sovereign credit rating to sub-investment grade because of the country’s poor economic figures.
“Because of abysmally low growth figures in this country coupled to record high unemployment numbers, the fiscus is in deep trouble. Debts owed by state-owned enterprises amount to around half a trillion rand,” he said.
“With the rand remaining under pressure and SARS’ inability to collect sufficient taxes to cover the government’s growing fiscal deficit, there is a very real possibility that the minister may decide to (announce tax increases) in his upcoming mid-term budget.
Roodt said this is most likely to take the form of an increase in personal income tax and possibly even a hike in VAT – depending on how serious the finance minister believes the current crisis is.
“One of my biggest fears at the moment is that Eskom is technically bankrupt because its income from electricity sales is not covering its operating costs – especially from its vastly bloated workforce. All attempts to reduce its workers has been met with stern opposition from unions,” he said.
While South Africa is facing a possible bleak start to November, there is some good news in that the petrol price will likely see a slight decrease, said Roodt.
This is thanks to a drop in the price of crude oil and a somewhat stronger rand, he said.
According to the latest mid-month data from the Central Energy Fund (CEF), petrol prices are expected to decrease for both 95 grade and 93 grade petrol.
Petrol 95 is expected to decrease by 7 cents per litre, while petrol 93 is currently showing a decrease of 17 cents per litre.
Diesel will likely also see a drop, with 0.05% diesel set to decrease by 13 cents and 0.005% diesel set to decrease by 11 cents.