Durban - Economists have painted a bleak
picture for 2020 and have warned
South Africans to tighten their belts and to brace themselves for an increase in taxes.
While people have started the
new year by expressing their hopes and aspirations for the new decade, a
number of economists believe that 2020 is going to be another tough financial year, as the economy continues to underperform.
Speaking to The Mercury yesterday, three top economists Dawie Roodt, Azar Jammine and Mike Schüssler were almost certain that South Africans could expect an increase in taxes.
While they were still uncertain whether Finance Minister Tito Mboweni would announce another increase in VAT, the economists agreed that fuel levies, sin taxes and possibly personal income tax would be increased.
Roodt, the chief economist at the Efficient Group, predicted that another “painful” year was in store for the country, adding that he was disappointed in President Cyril Ramaphosa who “seems to be a follower and not a leader”.
“He seems to be waiting for everyone else to tell him what to do. For us to
see a positive change in our economy, there needs to be stronger political
leadership.
“The state needs to become more efficient with its spending and decision-making,” he said.
Roodt said an increase in VAT would result in an uproar from trade unions and ordinary citizens, while an increase in personal income tax would see the wealthy acting out by emigrating.
“And it will be unwise to increase company tax, because that will be unproductive in attracting investment to the country.”
Roodt said the silver lining could come from the South African Reserve Bank if it could cut interest rates.
Jammine, the chief economist for Econometrix, said he believed the government would be forced to hike taxes because of the rise in the country’s budget deficit.
However, he said lately evidence
had suggested that the already increased tax rates were proving to be more
counter-productive.
“There’s a danger in raising taxes, as the country ends up with less than anticipated.
“Theoretically, increasing VAT would be the most effective, but the unemployed and poorer folk will feel penalised,” Jammine said.
He estimated that a further 1% increase in VAT would bring in about R25billion, “but that decision would be unpopular and there would be a tremendous reaction from the unions”.
“This year is absolutely going to be another difficult year, especially for smaller businesses that are getting into deeper trouble as the economy languishes,” Jammine said.
Schüssler, chief economist at Economists.co.za, said the government desperately needed to look at cutting down on its expenditure.
“We’re in for a tough time, but the biggest problem is government’s overspending,” he said.
Neil Roets, chief executive of debt counselling company Debt Rescue,
also predicted a tougher year for consumers, saying that “nothing has changed economically”.
He said that many consumers were also starting off the year on the back foot after having overspent during the end-of-year holidays.
He said that many went through the festive season without a budget and were then left scrambling in January.
“The trick is to always have a separate budget for December. December is unlike other months.
“But for those who didn’t work with a budget and have found themselves in a tight space, it’s never too late to draw up a budget for this month and work with what you have,” Roets said.
He suggested consumers make
provisions for further price increases through the year and include an emergency fund.
“If you’re over-indebted, don’t hesitate to call a debt councillor.
“They have been extremely successful in helping people pay off their debt without losing their assets,” Roets said.
The other factor that South Africa will have to grapple with is the possibility of Moody’s downgrading the country’s economy to junk status.
S&P Global and Fitch moved South Africa’s debt to sub-investment level in 2017, when the country was embroiled in corruption scandals.
Last November Moody’s revised the outlook on the country’s investment-grade credit rating to “negative”.
At that time, Moody’s said the
outlook revision on its “Baa3”rating - the lowest rung of investment grade - was motivated by a deterioration
in the economic growth outlook and rising debt.
The UK’s Financial Times, in its
predictions for this year, said it forecast that South Africa’s economy would
be downgraded to junk status by Moody’s.
The Financial Times said Mboweni would have a tough time to convince the ratings agency that the economic situation could be turned around.