renjith krishnan

South Africa is not going down the same path as Greece, which had a bloated civil service and an unsustainable social welfare net, nor is the rand about to emulate the tumultuous path of the Zimbabwean dollar.

However, Investec chief economist Annabel Bishop said yesterday, the spiralling cost of state personnel, and the expectation that 17 million people would soon be receiving government grants, were matters of concern.

If new tax hikes were announced in next week’s Budget, Bishop believed that the state should consider regionally differentiated fuel levies so that Gauteng drivers paid for the new highway systems rather than motorists from other areas of the country.

She also believed that rather than raising corporate and individual taxes, the National Treasury should consider raising indirect taxes like VAT.

She believed that the poor could be protected from the impact of indirect taxation by zero rating foodstuffs while raising the cost of luxury items.

There were strong hints that there would be new taxes for the mining industry, although this might not be part of the 2013/14 Budget.

Noting that President Jacob Zuma had announced that Finance Minister Pravin Gordhan would be commissioning a study of South Africa’s current tax policies “to make sure that we have an appropriate revenue base to support public spending”, Bishop said: “This implies higher future taxes for higher-income earners, potentially from as early as 2014, in line with the government’s redistributive income policy for South Africa.”

Bishop warned that as the government absorbed more of the economy’s output through higher taxation “economic growth will not rise if government is not as productive as the private sector… and economic growth would then likely slow instead”.

Crowding out investment in the private sector then occurred “by taking more of the private sector’s profits… when these profits could have been reinvested… to create more jobs”.

Addressing the Cape Town and Johannesburg press clubs ahead of Gordhan’s Budget speech on Wednesday, Bishop said: “We are not going down the path of Greece. Greece had unsustainable social welfare and a bloated civil service.”

While there were worrying signs regarding the cost of the public service, the focus had to be on what these public servants delivered and “getting more productive persons in positions”.

Pressed on when it would become unsustainable to dole out social welfare grants, which include child support grants, she said the test for unsustainability was when “you can’t finance it” and the state had to borrow money to pay for the social service.

At present, there were 15 million people on welfare grants and just over 6.1 million income tax taxpayers.

Gordhan was likely to stick to the target of reaching the international benchmark figure for budget deficits of 3 percent to gross domestic product by 2015/16. It is expected to be at 4.8 percent in 2012/13. Debt levels were also expected to be within reasonable limits.

Pressed on whether the economy was not being dampened by racially imposed requirements of broad-based black empowerment, Bishop noted that during the last 18 years of National Party rule, growth had averaged about 1.6 percent. Growth under ANC rule had been 3.3 percent on average over 18 years. “The ANC has delivered income growth… compared to the National Party government.”