A call for government to spend our money carefully
In less than two days the minister of finance, Pravin Gordhan, will present the 2012 National Budget. His speech, in broad brush strokes, will outline how government intends balancing its income and expenditure over the short-term. In his 2011 speech Gord
The 2012 National Budget will be delivered at a difficult economic juncture. South Africa’s GDP growth outlook is poor due to the ongoing financial turmoil in the Euro-zone. This means the minister has limited scope to squeeze business for more tax revenues. The bigger problem is that South Africa’s individual (personal) income taxpayers are on the verge of a taxpayer revolt. (You can whip this journalist for stirring up sentiment if you like – but allow me a moment to explain). Taxpayers are under tremendous pressure due to the redistributive nature of the system, with approximately 3.5 million individual taxpayers chipping into a pot that funds as many as 16 million welfare grant recipients. Few of us object to the “wealthy subsidise the poor” principle… But we cannot tolerate the consistent plundering by the state of our tax revenues! How can you ask citizens to “do their part” and contribute more when as much as R30 billion (20% of total annual state procurement) is lost to fraud and tender irregularities each year. As taxpayers we need to make it clear that our ongoing support is conditional on government taking tougher steps to spend our money effectively.
Corruption is not a national budget issue
What should we expect from the finance minister given this gloomy introduction? The National Budget is not a platform to tackle corruption… So the best we can hope for when the minister steps to the podium at 2pm, 22 February 2012, is an acknowledgement that corruption (and mal-administration) is impacting on government’s ability to achieve its vision. Many in the private sector are already voicing these concerns. “Taxpayers need to hear and see a strong commitment to fiscal discipline at all levels within government, from municipalities to national government,” observed Jansen van Nieuwenhuizen, Head of Tax at Grant Thornton Johannesburg. “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.”
Van Nieuwenhuizen is among the many who want the minister to clear up the looming taxation nightmare called National Health Insurance (NHI). “Further clarity needs to be provided on the funding of the proposed NHI scheme, what this is likely to cost taxpayers and over what period. The beneficiaries of the NHI scheme, certain players in the health industry, and the people that will use the NHI benefits know that their fortunes will improve, but the most critical stakeholder, the taxpayer, is still in the dark,” he said. Individual taxpayers have a right to know what their contribution to the system will be… Government has thus far kept taxpayers in the dark by allocating amounts for feasibility studies and the first stages of implementation from the general budget. And FAnews fears they will push the system to a point of no return before dropping the bomb that each citizen has to chip in 12% (estimate) of their gross salary to fund it.
Time to fix the spending machine
Chris Hart, economist at Investment Solutions, says there are a number of excesses government can (and must) address. These include the expanding government involvement in the economy, the ongoing fiscal policy of shifting resources from the investment and production side of the economy to the consumption side, the complexity of the regulatory onion and the cost of complying with it, the lack of savings and capital deficiency, and burgeoning waste and maladministration!
These problems can only be addressed through radical shifts in policy. “The first policy shift required is to recognise the difference between poverty alleviation and poverty reduction,” writes Hart. “Poverty alleviation (the main Budget objective of the past 15 years) shifts resources from the production and investment side of the economy to the consumption side. Poverty reduction does the opposite!” Hart’s second policy change is for government to realise that the tax base is nearing the point of exhaustion... He also said it was unacceptable for government departments to expand their resource base beyond the tax allocation of the budget process. NHI (already discussed) and the South African National Roads Agency (SANRAL) Gauteng toll plan are additional taxes administered outside the budget!
The next fundamental policy shift required is for government to start investing something back into its tax base. If the “user pays” principle applies to road users then the revenues collected from Johannesburg ratepayers should apply to fixing the city – and not be aggressively redistributed to other districts. Hart observed that infrastructure delivery and maintenance could be improved if government facilitated the entry of private-sector participants in spaces where so-called parastatal monopolies failed to deliver.
Keep it simple stupid
Van Nieuwenhuizen said that the budget would have to strike a fine balance between responsible spending, reduction of the deficit and creating an environment 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 today,” he concluded.
Hart’s final wish is for a simplification of the tax regime to collect revenue more efficiently and to encourage savings. “The minister can help by scrapping taxes that hinder or deplete households’ ability to accumulate capital, such as on interest earned, capital gains and transfer duties on property transactions,” he said. Another request to the minister was to narrow the taxation rate between individuals (taxed at up to 40%) and corporations (taxed at 28%). The idea is to create an environment where savings and investing is the way to “avoid” tax, while consumption attracts tax charges.
Editor’s thoughts: Local consumers are struggling due to increases in administered costs and continuing pressure in the job market. As a result the amount of free cash households have to spend on insurance (both long and short-term) and investment products is continually dwindling. Would you welcome a budget announcement to create a friendlier tax environment for savers? Add your comment below, or send it to [email protected]
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