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#Budget2016: SA braces itself for possible tax hikes
SA is looking for extra billions, not millions and that means tax hikes & deep cuts in spending.
CAPE TOWN – With the country braced for tax hikes when Finance Minister Pravin Gordhan delivers his budget speech this afternoon, the question is what form they’ll take.
POLITICS SURROUNDING FINANCE MINISTER Gordhan was reappointed to the post last year at a time when President Jacob Zuma appeared to need him.
There’s union and political resistance to increasing Value Added Tax (VAT) above the current 14 percent, especially in an election year.
But Gordhan has to be careful any increases don’t further stifle the economy, setting the stage for what will be a difficult balancing act when he takes to the podium in Parliament this afternoon.
Gordhan is looking for extra billions, not millions and that means hiking taxes and deep cuts in spending.
Taxing the rich might seem to be the answer, but Investec’s Nazeera Moola says it won’t go far.
“A one percent increase in VAT rates will give you somewhere between R18 billion and R20 billion. A one percent increase in Personal Income Tax across the board will give you almost R10 billion, but a two percent increase in taxes for all income above R1 million will only give you R4.5 billion.”
Moola estimates that Gordhan needs to find anything between an extra R35 billion and R45 billion.
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Some economists say privatising parastatals could be a quick way for government to increase much needed cash flow.
Gordhan will focus on drastic cost cutting measures as well as ways to increase government's income, today.
Eskom, the South African Post Office and South African Airways (SAA) have all faced financial challenges over the past year.
Economist George Glynos says the capital that could be gained from privatising some of the enterprises could fill other gaps.
“It could either be utilised directly to pay down debt or could be utilised to fund future expansion in infrastructure.”
Glynos says the finance minister must take a bold stand and not spare the public from the hard truths.
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Any move against him would have a huge impact on the rand and stocks in general.
This means most of the boundaries around him are economic rather than political.
But the minister won’t want to pick fights unnecessarily and may want to tread carefully around some issues.
Yesterday, the president issues a statement supporting the budget, which means it would be very difficult for anyone in the ruling party to oppose Gordhan’s plans.
(Edited by Tamsin Wort)
POLITICS SURROUNDING FINANCE MINISTER
Gordhan was reappointed to the post last year at a time when President Jacob Zuma appeared to need him.This means he may well have a relatively free hand today.