In the face of credit rating agencies threatening to downgrade South Africa’s debt ratings, it is incredibly important for the government to commit to a prudent and disciplined Budget in 2012.
This is one of the most critical priorities for a Budget that seeks to be sustainable, says AJ Jansen van Nieuwenhuizen, Head of Tax at Grant Thornton Johannesburg.
“While we are all too familiar with the golden goose being squeezed for all he is worth, we must also not lose sight of the future. To have any hope for the prosperity of future generations of goslings, current planning must be done in a responsible and sustainable manner,” says Jansen van Nieuwenhuizen.
The ‘golden goose’ refers to the small minority of taxpayers who contribute the majority of personal tax income to sustain the rest of the country.
In his 2011 Budget Speech, Finance Minister Pravin Gordhan alerted the country of the importance of ensuring that spending today is conducted responsibly so that our children do not need to pay for our current lack of discipline. Jansen van Nieuwenhuizen believes it is now the time to see the fruits of these words.
More discipline from Government
“Taxpayers need to hear and see a strong commitment to fiscal discipline at all levels within government, from municipalities to national government. As taxpayers, we can no longer tolerate an ongoing increase in the tax burden whilst the spending side of the economy is a fiasco of fraud, corruption and financial mismanagement.
“As a country we should not be tolerating situations like Limpopo and the Gauteng Toll project – the cost of this is ultimately borne by taxpayers whilst those responsible move on with no real repercussions,” says Jansen van Nieuwenhuizen.
This topic is especially important in light of two prominent credit ratings agencies, Moody’s and Fitch, recently having downgraded their outlook for some of the government’s debt, citing worries about fiscal discipline and the inability of government to address persistent structural problems. They have furthermore warned that the actual debt rating could be downgraded if there are no commitments to more spending discipline. If the latter happens, it will be difficult for the country to borrow money at competitive rates.
Decrease the dependence on the few faithful geese
Jansen van Nieuwenhuizen believes more can be done to lower the fiscus’ dependency on the few faithful taxpayers and he does not support an increase in their already heavy burden.
“Although there has been speculation about anincrease in marginal tax rates, South Africa’s golden goose cannot afford this. Efforts to bring tax evaders into the tax net should rather be stepped up,” he adds. “It is estimated by SARS that about 9,000 high net worth individuals owe the fiscus about R50 billion in unpaid taxes.”
In the same vein, he urges the government to do more to target the informal sector. “Measures to bring theinformal sectorinto the tax system would be welcomed. While many of these individuals may be earning below the tax threshold, certain informal participants are very wealthy people.”
While many may think it an easy way to increase revenue tenfold, Jansen van Nieuwenhuizen does not believe the VAT rate should be tampered with. “We wouldnotsupport an increase in theVAT rate– this will impact on all South Africans, especially those that cannot afford it. Tax revenue generation should rather focus on select dishonest and delinquent groups for more money.”
One way to remove a lot of stress from the fiscus is by seriously addressing the payment of social grants – a call that has been made by numerous people over several years. “We do not question the needs of the poor, but South Africa cannot sustain further significant increases in thegrant system. No matter how you dissect it, when the number of grant beneficiaries outweighs the number of individual taxpayers, you have an unhealthy situation which cannot be sustained.”
More clarity for businesses
South Africa’s economy gets a lot of fuel from its healthy businesses and while businesses are more than happy to contribute their fair share, this does not mean they should be squeezed even further, especially given the troublesome global economic waters.
“There is widespread concern about the South African Local Government Association’s (SALGA) proposed introduction ofa new business taxthat is intended to be a replacement of the RSC Levy system that was abolished, and which will provide further funding for municipalities,” he says.
The best thing for businesses in this environment is more certainty. “As the Minister of Finance will ultimately need to support these proposals from SALGA, business needs to know what his position is. Business cannot operate in an uncertain fiscal environment, especially when they have no control over elements of their cost structure.
“A business tax will either reduce margins or be passed on to the consumer – in the current economic cycle, neither can afford this. The focus should rather shift to the poor fiscal management of municipalities rather than seeking ways to further fund a culture of misappropriation and corruption.”
To this end, Jansen van Nieuwenhuizen suggests other ways of thinking about taxation regarding companies. “We would welcome steps towards the introduction of a ‘group taxation’ regime, whereby companies within the same group set off their various tax positions and pay tax on the net result.”
National Health Insurance
This initiative has been mentioned for the first time a few years ago, but still there is not yet a lot of concrete information necessary for planning to take place on all sides. Jansen van Nieuwenhuizen believes this is another critical element of this year’s Budget Speech.
“Further clarity needs to be provided on thefunding of the proposed NHIscheme, what this is likely to cost taxpayers and over what period. Whilst the beneficiaries of an NHI scheme – certain players in the health industry and the people that will use the NHI benefits – know that their fortunes will improve, the most critical stakeholder, the taxpayer, is still in the dark.”
Overall, this budget is going to be another that requires Minister Gordhan to strike that fine balance between responsible spending, reduction of the deficit and breeding a fertile ground for growth. “South Africa is not unique in this challenge, especially given the state that a number of governments around the world find themselves in currently. However, we have been able to do it in the past and can certainly find an appropriate balance again.
“The search for growth is the key factor this time around if we are to ensure a prosperous and burgeoning future for the golden goose and its goslings,” he concludes.