Johannesburg - Most of the extra tax South Africa needs to raise in the next two years to plug a budget gap will probably be paid by the rich Gauteng region centred on Johannesburg, threatening support for the ruling party there in 2016 elections.
South Africa needs to raise $2.5 billion (R27 billion) in revenue in the next two years and Gauteng accounts for over a third of gross domestic product (GDP).
President Jacob Zuma's ruling African National Congress, which comfortably won an election in May, is under pressure to lift millions out of poverty and reduce unemployment of 25 percent.
But with Gauteng consumers already grumbling over rising prices and an unpopular road toll, extra taxes could further erode support in the nation's main business hub for the party that has governed South Africa since apartheid ended 20 years ago.
Presenting his first medium term budget to lawmakers on Wednesday, Finance Minister Nhlanhla Nene said his department was working on new tax proposals to boost revenue and cut a budget deficit seen at 4.1 percent of GDP for 2014/15.
“If we are to avoid reducing expenditure in real terms, about 15 billion rand a year in additional revenue will need to be raised,” Nene said.
Nene indicated he would only give details during the main budget next February, but analysts said the government would probably target South Africa's highest earners, mostly concentrated in Gauteng.
“It depends which form any tax increase takes,” said Simon Freemantle, a senior political economist at Standard Bank in Gauteng's commercial hub Johannesburg.
“But any sort of business or individual tax would proportionally hit this province harder than the rest of the country and that would obviously be a challenge for the ANC in Gauteng in 2016.”
The African National Congress won 55 percent of the vote in Gauteng during a May national election, down sharply from 65 percent in 2009.
Anger against the ruling party has simmered over “etolls” forced upon motorists in the province to recoup the costs of a multi-billion rand upgrade to Gauteng's highways.
TOLLS STRAIN ALLIANCE RELATIONS
The tolls have also strained relations between the ANC and its allies, powerful labour federation Cosatu and the communist party.
Even within the ruling party itself, divisions have emerged, with the ANC provincial leadership in Gauteng condemning the road toll as too expensive.
“The e-tolls show that there is growing tax protest that is becoming lively,” said Pietman Roos, a policy consultant at the South African Chamber of Commerce and Industry.
“There's different ways to increase revenue that's not always as obvious, like adjusting your tax brackets, or lowering rebates. That doesn't evoke the same type of popular protest.”
But some analysts say the Finance Minister has very little room to manoeuvre, and may see long-term benefit in sacrificing an ANC win in Gauteng to demonstrate stronger government finances by the next national vote in 2019.
“I suspect one of the reasons the minister was able to deliver quite a harsh budget this year is because it means come general elections in five years' time, a lot of the bad medicine will have been swallowed,” said Izak Odendaal, an investment analyst at Old Mutual Wealth.
“The overriding message here was you have to do something; whatever the consequences are for the 2016 local government election, there was really very little option but to cut spending and look at increasing revenue.” - Reuters