Finance Minister Nhlanha Nene presents his first budget on 25 February. This is likely to be the most important budget for many years. As indicated in his Medium Term Budget Statement in October last year, the fiscus is faced with a shortfall in revenue of about R44bn over the next few years to 2017-18. We have been forewarned to expect tax increases but which precisely and to what extent.
Nene can seek the additional revenue he requires by increasing VAT or by raising the fuel levy but whether those would be politically acceptable, because everyone pays, is another matter. An increase in VAT which would normally be the easiest and surest way of increasing revenue to the is unlikely to be considered. Any small increase to the fuel levy may go towards road maintenance and road infrastructure and could possibly replace or at least subsidise the cost of the much maligned E Tolls.
It has been suggested that an opportunity to increase the fuel levy during this period of lower petrol prices is an opportunity too good to be missed. What happens when the oil price goes up again and with it the petrol price is, however, a concern.
More likely is an increase in the marginal tax rate from, say, 40% – 45% on higher incomes. Perhaps estate duty and donations tax might also be increased from 20% – 25%. An increase in CGT too might be considered as well as the usual so-called “sin taxes”. However, will these alone be sufficient to meet Nene’s shortfall?
On the subject of tax, it seems that “inequality” is the current hot topic and one discussed at Davos recently. Not only in South Africa, where our Gini co-efficient is one of the highest in the world, but also elsewhere including the US where President Obama seeks to tax companies on their offshore income. Many, it seems, appear to have taken economist Thomas Picketty’s message about growing inequality in his book “Capital In The Twenty First Century” very seriously.
Against this backdrop we still await the final report of the Davis Commission which is enquiring into SA’s tax system which will hopefully reach some constructive, practical and beneficial conclusions.