Masondo: Raising taxes has not paid off in closing spending and revenue gap
Deputy Finance Minister David Masondo said economic growth had continued to slow down despite the strategy to raise taxes. He also said more needed to be done to consolidate government spending.
JOHANNESBURG - Deputy Finance Minister David Masondo has reiterated that increasing taxes and VAT has not worked to close the gap between spending and revenue as intended.
Speaking at the government spending reviews conference earlier, he explained that despite these strategies, economic growth haD continued to fall.
Masondo explained that they were now worried that raising taxes may contribute to the economic growth slowdown which was the reason behind the tax relief offered in this year's Budget.
“As you increase the tax rates, you will get some revenue, but as you go on increasing tax rates, you will reach a tipping point which undermines the tax revenue in that economic agents will find it irrational to invest or engage in economic activity.”
He added that because they were not able to increase tax revenue, even the most modest increases in spending which was budgeted led to larger deficits and more borrowing.
This means the country's debt service costs are the fastest growing line item in the Budget and have been for some time, which is why Cabinet decided in 2019 that more needs to be done to consolidate spending.