Davis questions economic sense behind impending VAT hike
Having chaired the tax committee that made recommendations to Treasury on tax policy between 2013 and 2019, Judge Dennis Davis thinks a tax hike in a stagnant economy is unnecessary.
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CAPE TOWN - Retired judge and chair of the tax review committee, Dennis Davis, has questioned the economic sense behind an impending value-added tax (VAT) hike.
He believes that in a budget of more than R2 trillion, the shortfall can be found by cutting expenditure instead.
In an address to the Cape Town Press Club on Tuesday, Davis said the staggering spend on the public sector wage bill was also something government needed to reconsider.
Having chaired the tax committee that made recommendations to Treasury on tax policy between 2013 and 2019, Judge Dennis Davis thinks a tax hike in a stagnant economy is unnecessary.
When compared to the size of the country’s budget, Davis believes the money Treasury hopes to raise from a 0.5 percentage point increase from May is relatively small.
"Did we really need to go to the wall on R13.5bn? It really bemuses me because of the small sort of money involved here relative to the broad question of the budget."
With the public sector wage climbing its way to R800 billion annually, Davis said government had been kowtowing to the unions to approve above-inflation wage increases, to pay salaries that were higher when compared to similar economies.
"Is the problem facing us, bluntly put, a political rather than an economic one? And I think the public service wage bill is the most frightening of all."
Davis said that while zero-rated food items would help soften the blow for the poorest households, there’s no way of preventing higher-income earners from also benefitting.