More pressing for some was who was next in line to pay for the country’s deficit, as personal income tax had been stretched to the maximum. Treasury announced it would raise R28 billion from a newly introduced tax bracket affecting high-income earners. However, Kyle Mandy, partner and head of National Tax Technical at PwC, said the shift towards greater reliance on direct taxes would come at a cost to economic growth.
“Bear in mind that we have a further R15bn increase in taxes pencilled in for next year. Where is that money going to come from?” she asked.
“We are looking at a situation where our tax burden to GDP ratio is already at levels above where it was in 2008. Its a real concern as to how much more milk we can extract from this cow.”
Lumkile Mondi, a senior lecturer at Wits School of Economic and Business Sciences, expressed similar sentiments, saying households had nothing more to give, and with no growth strategy in place, he envisioned a country on a slippery slope.
“I don’t see any growth strategy within the ANC or within the budget. It's a focus on R1.3 trillion procurement potential within the government, which is supposed to go to black SMMEs.
“I’m very pessimistic, I see a country going forward that is going to have the very same problem whereby a state that is failing resorts to populism, and having done that, try and get more money from the electorate,” said Mondi.
But, individuals in higher tax brackets could also jump ship, Mandy cautioned.
“The risk is that sort of rate in tax hikes will scare skills away, no reason they can’t end up in the UK and US. We have to be careful about scaring skills away through high taxes of individuals.
Your ultra wealthy have the power to move anywhere in the world, they don’t have to stay in SA. We could end up collecting less taxes when we’ve had tax increases.”
Chief economist at Investments Solutions Lesiba Mothata viewed Gordhan’s plans in line with global trends which have recorded “circular stagnation” as growth continues to rise below potential across the world.
Raising taxes was only in accordance with an idea that took root at the World Economic Forum, he said, pointing to the fact that the world was generally more concerned with the rich becoming richer and inequality.
“I appreciate that the minister had to balance the books and do the mathematics, but they left the whole economic growth issue subject to the markets. " he said.
The answer was in growth-stimulating policies, said FNB macroeconomic analyst, Mamello Matikinca. Casting ahead to October, she wondered whether what had been presented by Gordhan would be enough to ease concerns by rating agencies.
“The big thing here is that there is no talk of structural transformation, no talk of policies that boost economic growth and I think this is where they might take a bit of a hit in terms of ratings agencies when they come later this year.
“The Budget bought government a little bit of time because fiscal consolidation is still very much on track, so perhaps there is not much of a deviation from the MTBS.
"The ratings agencies took the MTBS in a positive light, maybe they could take the budget in the same light. But in October they will look for more information on how we plan to boost economic activity.”
According to Mondi, there had been enough talk about radical economic transformation by President Jacob Zuma in his State of the Nation address.
Describing the president’s undertaking as a “revolution”, the senior lecturer said the language used by the finance minister had been more encouraging as he prioritised inclusivity.
“There is a difference in the language being spoken by the minister and the president. The reality is that in 23 years of black rule, in areas where the ruling party was in a very strong position, unified, it has failed to make a lasting impression in restructuring the economy.
“They have been weak, particularly in sending a strong message about policy sentiment. I am talking about the mining sector where we all know that at the height of the economic cycle we failed to exploit those opportunities."”