#MTBS2017 - Brace yourself for tax increase

Picture: Denis Farrell / AP

Picture: Denis Farrell / AP

Published Oct 25, 2017

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JOHANNESBURG -

All eyes are on Finance Minister, Malusi Gigaba as he prepares to deliver his first Medium-Term Budget Statement later today. Economists have billed this year's budget statement as a huge test for government

The minister is under pressure to mitigate a budget shortfall of R40 billion to R60 billion, this coupled with the credibility gap the minister has to fill in order to ease investor fears and public confidence.

The current budget deficit can realistically only be balanced through the raising of additional revenues or cuts in government expenditure. However, it is likely that taxes will be raised in order to manage the fiscal deficit. Politically, the minister will find it difficult to implement any major cuts in government expenditure, leaving tax increases as the last viable option.

Also read: SA mid-term budget to be “business as usual” – unions

Economists have cast doubt on the minister's 14-point plan to drive growth, saying it is not enough and falls heavily short of an effective growth plan; most of the deliverables promised are only due next year.

Nazmeera Moola, economist and strategist at Investec Asset Management said, "Revenues are running well behind expectations and expenditures have not been curtailed from the Feburary budget at all, in fact we've seen a bit of extra expenditure come in the form of the transfer to SAA so I think the Finance Minister is in a difficult position." 

Have you seen: GALLERY: Gigaba's budget challenges charted

"I think what we're facing is the revenue shortfall but it's also the pressure that the state owned enterprises are exerting on the ficus - the biggest bear in the room is Eskom, having utilised R250 billion of guarantee and there's a real threat that if governance is not restored at Eskom, that it's just going to come crashing down on the fiscal balance sheet, she said."  

Economists stress that a overhaul in the management of state-owned enterprises, in order to ease the pressure on the ficus, is needed if they are to meet their developmental objectives, whilst being on commercially viable ground.

- BUSINESS REPORT ONLINE

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