FINANCE Minister Pravin Gordhan batted away questions about possible tax measures for next year, reminding journalists during a press conference yesterday that these could be announced only in the February Budget.
But it's clear there will be pain.
Along with revenue increases already announced in February of R18 billion for this financial year, and R15bn for each of the following two years, the minister indicated his intention to raise a further R13bn next year.
This brings the total hit to taxpayers to R28bn next year and R43bn over the next two years.
The need for this has been brought on by slower- than-anticipated growth, leaving a R23bn shortfall in revenue collection for this year – despite the increases in taxes announced in February – and R36bn and R52bn in the following two years.
This reflected a sharp drop in revenue growth in 2015/16 and downward revisions to GDP and tax bases, according to the Treasury.
“Relatively small revisions to nominal GDP obscure significant changes in its composition,” it said.
These changes will lead to significant reductions in major tax bases, including wages, household consumption and imports.
The additional tax measures will reduce the shortfall to R23bn next year and R38bn in 2018/19.
The government will also make changes to management of its foreign currency investments, to generate revenue that will reduce the budget balance by R36bn over the medium term.
In all of this, the Treasury emphasised the need to maintain a careful balance to avoid a low-growth trap in which either of two damaging scenarios could unfold: Either the government introduced consolidation measures that proved self-defeating as they further damaged growth prospects, or it failed to act and the country's sovereign credit rating was downgraded, leading to higher interest rates and capital outflows, which could precipitate a recession.
“In either scenario, a slowing economy makes it more difficult to stabilise the debt-to-GDP ratio,” the Treasury said.
While the Davis Tax Committee has yet to finalise its recommendations, it has previously suggested that VAT is the most efficient tax, which has the additional benefit of targeting consumption.
However, it is widely seen as hitting poor households hardest, as they spend the bulk of their income on basic goods.
Cosatu parliamentary co- ordinator Matthew Parks warned that any increase in VAT “will have a massive negative impact upon the poor and economic demand”.
Workers were already battling to make ends meet, he said.
“(The) government should rather increase taxes upon the wealthy, luxury goods and non-essential imports.”