{"id":723406,"date":"2023-10-06T12:04:42","date_gmt":"2023-10-06T10:04:42","guid":{"rendered":"https:\/\/businesstech.co.za\/news\/?p=723406"},"modified":"2023-12-06T15:58:39","modified_gmt":"2023-12-06T13:58:39","slug":"tax-the-rich-and-drop-medical-aid-credits-to-avoid-chaotic-budget-cuts-in-south-africa-think-tank","status":"publish","type":"post","link":"https:\/\/businesstech.co.za\/news\/finance\/723406\/tax-the-rich-and-drop-medical-aid-credits-to-avoid-chaotic-budget-cuts-in-south-africa-think-tank\/","title":{"rendered":"Tax the rich and drop medical aid credits to avoid ‘chaotic’ budget cuts in South Africa: think tank"},"content":{"rendered":"\n

Economic think tank, the Institute for Economic Justice (IEJ), says the government should increase taxes, borrow more money, and consider implementing a wealth tax instead of cutting government spending. <\/em><\/p>\n\n\n\n

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“Chaotic budget cuts\u201d are not the answer to the shortfall between tax collections and government spending, the Institute for Economic Justice has warned.<\/p>\n\n\n\n

In guidelines<\/a> issued to national and provincial departments on 31 August, the National Treasury pointed to an \u201cexceptionally large\u201d drop in tax revenue of R22 billion for the first five months of the year. <\/p>\n\n\n\n

The Treasury said borrowing conditions for the government were tough, and the public sector wage increase hadn\u2019t been fully budgeted for. As a result, the Treasury instructed government departments to make some cost cuts for the rest of the year.<\/p>\n\n\n\n

But in a report issued ahead of the Minister of Finance\u2019s budget policy statement on 1 November, the IEJ said the shortfall isn\u2019t “extraordinarily large”, and there are ways to fix it without \u201cchaotic budget cuts\u201d, which could hit the wider economy hard.<\/p>\n\n\n\n

The fiscal crisis \u201cis being exaggerated for political purposes\u201d, said IEJ economists Gilad Isaacs, Zimbali Mncube, Liso Mdutyasna, and Kamal Rambuth.<\/p>\n\n\n\n

They estimate the revenue shortfall for the financial year at about R67 billion, in line with the Treasury\u2019s figures. <\/p>\n\n\n\n

“Mostly, the slower tax collections are the result of a slump in mining, which has contributed a bigger and bigger chunk of corporate taxes in the last few years. Taxes paid by firms in other sectors and income tax paid by individuals have been in line with expectations,” they said. <\/p>\n\n\n\n

The revenue shortfall is not abnormally high, they added, pointing out that shortfalls of R61 billion, R58 billion, and R70 billion were recorded in 2017, 2018, and 2019.<\/p>\n\n\n\n

On the spending side, much of the overspending is the result of the R37.5 billion hike to the public sector wage bill – which the Treasury should have budgeted for. <\/p>\n\n\n\n

\u201cIf this overspend is a \u2018crisis\u2019, then it is one entirely of the National Treasury\u2019s own making,\u201d the economists said. <\/p>\n\n\n\n

The current budget mismatch \u201ccan be solved relatively easily,\u201d they said, proposing a series of options to raise revenue:<\/p>\n\n\n\n

To fix the immediate shortfall, they propose that the government:<\/strong><\/p>\n\n\n\n