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Mboweni likely to hike VAT, say economists

The consequences of such a decision would harm the economy on the one hand while granting the governemtn some much-needed relief on the other.

Finance Minister Tito Mboweni at a media briefing after delivering the Medium-Term Budget Policy Statement in Parliament on 30 October 2019. Picture: @TreasuryRSA/Twitter

JOHANNESBURG - With no wiggle room in light of low economic growth and inability to raise revenue, economists said there was a high likelihood that Finance Minister Tito Mboweni will announce a VAT hike today.

South Africans were enraged two years ago when government increased value-added tax but the dire state of the country could once again force its hand.

Tito Mboweni has one critical assignment today, and that is to identify the revenue sources to finance the ever-increasing government expenditure.

In the lead up to the Budget Speech, a number of economists have pointed to a VAT hike as an avenue that Mboweni can explore.

However, the consequences of such a decision would harm the economy on the one hand while granting the government some much-needed relief on the other.

Economist Duma Qubule explained: "You must remember that you've got state consumption spending, so it's counter-productive as well. It affects the lower-income group as well in terms of what they can spend, so if consumption spending is weak and you put a VAT increase on top of that, it doesn't raise more revenue."

Business has already warned that a further VAT hike would undermine consumer confidence and weaken the economy.

However, if this item does not make it onto the budget for these very reasons, the question remains - where will Mboweni get the money?

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