• Wealth tax – possible
• Increased excise taxes – almost definitely
• Hiked fuel levy – yes
• Increased VAT and company tax – unlikely
• Increased electricity levy – likely
• Very little fiscal drag relief for individuals (tax cuts)
Johann Els, senior economist at OMIGSA doesn’t think there will be any big surprises contained in this year’s National Budget.
‘Thanks to all the taxpayers out there, excellent revenue flows last year have given government slightly more room to manoeuvre than would otherwise have been possible,’ says Els.
‘But,’ cautions Els, ‘in spite of the dutiful taxpayer, this year will be a much tighter budget and it all comes down to managing the deficit which has been higher over the past few years on the back of the global situation. We need tight spending control and increased taxes in order to stick to the current deficit target.’ He does point out, though, that South African deficits are much lower than those of many Eurozone countries and that our debt levels are still healthy and sustainable.
Nonetheless, the ratings agencies were definitely underwhelmed last year when Treasury increased its deficit targets twice – in the February budget and then again in the medium-term framework presented in October. ‘So,’ says Els, ‘now we are in a position where I don’t think we can afford to lift those targets again, and Treasury should not deviate from the current deficit target of 5.2% of GDP for the 2012/13 fiscal year. If there is further fiscal slippage and they lift the headline numbers to 5.5% or 5.7%, the markets won’t like it, nor will the ratings agencies. I think that would be a move in the wrong direction.’
The fiscal slippage of previous years, which saw the deficit target for the 2011/12 fiscal year revised from 3.9% in October 2010 to 5.5% in October 2011, was the result of a mixture of lower-than-expected income and higher-than-expected expenditure – especially due to aggressive strike action and the resultant increase in public sector wages. ‘But,’ he expands, ‘on the other hand, because of Treasury’s conservative estimates of revenue growth the eventual outcomes have often been below the targets. For example in 2010/2011 they budgeted for a deficit of -6.2% and it came out at -4.6%.
Els does not rule out a hike in the target, but thinks that Treasury is well aware of the risks involved in that course of action. And this is why they wanted to limit public sector wage increases to 5% in the medium-term framework last year; but, as there is always creep due to promotions and new recruitment, they budgeted for a total of 6.2%. ‘If,’ says Els, they can limit the wage bill increase to that, fantastic, but I think it will be difficult when the unions start wage negotiations.
‘If they do lift the deficit target, which might happen in the light of the President’s commitment to infrastructure development in this year’s State of the Nation address, but they stick fast on wage increases, and use the extra spending for capital projects, that is fine. It’s OK to borrow more for capital spending, but not for current spending, like wages.’
Last year government increased taxes by R4 985 million, but provided fiscal drag relief of R8 100 million, so they gave away on a net basis. This year the scenario is likely to be somewhat different and Els adds that Treasury will likely tighten fiscal policy, probably through the combination of this clampdown on the wage bill and reducing the fiscal drag relief on the revenue side.
In other words, for taxpayers like you and me – lower tax cuts. Last year they gave away R8.1bn in tax relief, this year they cannot afford to be so generous.
Add to this a reduction in revenue give-aways, some big increases in excise taxes, and maybe even the introduction of a wealth tax for the very top earners in the country, it will add to the State’s coffers. The latter would be a politically powerful move for the government, and they can justify why they are sticking to the deficit target. This is not the only country where a wealth tax is being mooted as popularity for this is on the increase in the USA, and the income bracket that is targeted will be so high that it should not have a major impact on consumer spending.
So, Els says, if they keep control of expenditure; reduce fiscal drag relief; and introduce big tax increases in some areas they can stick to their target of 5.2%.
Other issues that could be addressed are National Health Insurance, but probably more along the lines of detail than any big announcement, social security reform could be raised or perhaps something on exchange control.
“But, at the end of the day, I don’t think there will be many big surprises or shocks in the 2012 National Budget,” he concludes.
