Make the cuts – stop squeezing taxpayers and stop borrowing.
Government is now at the end of the road where all the cans that have been kicked down over the years are gathered and waiting to be dealt with.
There is no more room to increase borrowings, and the value-added tax (Vat) fiasco clearly demonstrated that raising taxes is not an option. Budget 3.0 is forcing government to make the difficult decisions that have been ignored for far too long.
Finance Minister Enoch Godongwana has this time promised formal consultation with the Financial and Fiscal Commission, “thorough consultations” with all the political parties in the government of national unity (GNU), and cabinet approval before presenting his third budget for 2025 on 21 May.
Leading up to the tabling of the budget, National Treasury must revise economic assumptions, generate updated fiscal projects, and recalculate revenue projections and tax implications.
The 0.5% increase in the Vat rate is now off the table, scrapping the projected additional income of R13.5 billion but gaining R2 billion by not expanding the list of zero-rated products.
The country needs targeted cuts, and taxpayers need bang for their buck.
In Budget 2.0, the government wanted to raise R19.5 billion in additional income tax from individuals through no inflationary adjustment to medical tax credits and no adjustment to tax brackets and rebates. “One wonders whether political parties have placed this on the negotiating table,” asks Charles de Wet, tax executive at ENSafrica.
ALSO READ: Treasury might have to revisit spending priorities now that VAT is off the table — IMF
Tough times
Webber Wentzel tax consultant Des Kruger says it is going to be a tough time. He warns that government may still reach a deadlock because of the difference in priorities among the GNU partners.
“All the minister can do now is to reallocate the income that he expects to collect without the Vat increase. He must look at cuts to balance the books.”
During the public participation process leading up to Budget 1.0 and Budget 2.0 several issues of concern were raised and remain unaddressed given the outcome of the 12 March budget proposals.
The issues include National Treasury’s overoptimistic growth forecasts, which do not consider the “myriad of challenges” facing the country. This results in optimistic revenue estimates.
There have never been any proposals for meaningful expenditure cuts.
Dawie Roodt, chief economist at the Efficient Group, told BizNews that government cannot even perform “symbolic” spending cuts like cutting expenditure on the blue-light brigades.
De Wet says the calculations on budget allocations normally take months. “It is not something that you do quickly on the back of a cigarette box.”
ALSO READ: Godongwana consents to court order against VAT increase
Cuts, but not austerity
South Africa does not need an austerity budget where there are expenditure cuts across the board. The country needs enough doctors, nurses, teachers and police officials.
“We are in the difficult position of low economic growth and that creates the need for austerity, but it does not mean haircuts across the board,” says De Wet.
There are at least three expenditure reviews that have been gathering dust. It is time to blow the dust off them to see if there are recommendations that will have short-term beneficial effects.
De Wet says there are several possibilities, but many of the measures cannot be implemented overnight. One area that requires closer attention is the more than 20 Sector Education and Training Authorities (Setas).
All Setas have operational structures that cost money, and many are simply outsourcing the training because of a lack of capability.
The question remains how much money simply slips through the outsourcing cracks.
Another issue is the renegotiation of the Southern African Customs Union agreement, including measures that would allow member countries Botswana, Lesotho, Namibia, and eSwatini to adapt to fiscal impacts.
ALSO READ: Where will the minister find the money to make up for scrapping the VAT increase?
The ‘tax gap’
A lot of faith is placed in the South African Revenue Service (Sars) to close the “tax gap” that is estimated to be close to R800 billion. Godongwana has announced additional revenue allocations of R7 billion to Sars over the medium term.
Taxpayers are frustrated with Sars and its processes. It is all good to improve processes and introduce more artificial intelligence to become a modern and sharp revenue authority, but people want a warm body to interact with.
De Wet says in many instances improved systems have increased the administrative burden on taxpayers and discouraged foreign direct investments because of the difficulty of doing business in SA.
Roodt warns against more funds being allocated to Sars to increase revenue collections. He told BizNews that he is against any measures to give more money to the minister of finance. “The only way to force politicians to spend less money, is to give them less money,” he is reported to have said.
For many years, taxpayers have heard about Sars going after the “low hanging fruit”, says De Wet. There can be no more low-hanging fruit. Maybe it is time for Sars to look at new orchards to collect its fruit from.
Sars has identified key “under-resourced areas” – including illicit trade, syndicated tax crimes, and aggressive tax planning by large businesses and high-net-worth individuals.
De Wet hopes negotiations before 21 May between government and its coalition parties will be transparent to avoid any surprises. “Although one cannot expect complete agreement between the parties, one expects consensus on what is in the interest of the country.”
There is no more room for political posturing.
This article was republished from Moneyweb. Read the original here.
