Will cost of strikes be added to taxpayers’ burden?

The strikers want more, but government says it doesn’t have the R6.5 billion that would be needed to pay public servants if they accepted the latest offer. It says it has to cut costs but, ultimately, the taxpayer could bear the brunt of the burden says Dylan Buttrick, tax specialist at global audit, tax and advisory firm Mazars.

“National Treasury is struggling to balance the state books, the budget deficit runs into billions of rands and there is a growing gap between spending and revenue collections, which places increasing pressure on the Treasury to provide government with the necessary funds to deliver on its ever-increasing list of commitments and demands,” says Buttrick.

Historically, Treasury has managed to expand the tax net with more individuals and companies, as is evident from the previously substantial budget surpluses running into tens of billions of Rands. Arguably, the huge surpluses were a result of robust economic activity fuelled by the post-apartheid euphoria and direct foreign investment.

“But things have changed in recent years, triggered by international financial disasters, such as the international banking crisis, stagnation of industry, property and stock market collapses have resulted in a world-wide recession. Treasury’s woes also had a national colour with large committed state spending, an unavoidable recession, rising unemployment, worrying levels of corruption and mismanagement, aggressive labour unions and a critical media”.

Inevitably, Treasury was forced to become more “creative” with revenue collections. Admittedly, a blanket increase of 2% across all taxpayers’ marginal rates would have been a simpler remedy to make up any shortfalls. Instead, collections are or will be increased by alternative “pockets” of tax which include:

• the increased fuel levies as well as sin taxes;
• the new carbon emission vehicle tax (a specific tax to be charged on new passenger cars);
• certain benefits, such as key man policies will in some instances be taxed as a fringe benefit;
• employer paid contributions for group employee life cover is currently being reconsidered and may lead to a tax benefit in the hands of employers. Therefore the incentive for employers to provide such cover will be diminished, as will the benefit to employees;
• company car fringe benefit rules will be further tightened, essentially heralding the end for car benefits; and
• winnings in the hand of gamblers are exempt from personal income tax, but this practice is now being reviewed;
• new toll fees on major highways such as the Johannesburg/Pretoria route;
• the newly introduced electricity levy as coupled with large electricity increases;

These so-called “pockets of tax” are not a new phenomenon. But with a limited tax net, the finite number of taxpayers are increasingly subjected to the burden of providing funding to a government that continuously fails to effectively match funding to service delivery and improved infrastructure.

Taxpayers have been consistently forced to come to the aid of Governmental parastatals. It is reported that a total of R241 billion in financial aid in the 2005/06 to 2008/09 financial years has been spent on “bailing out” state owned enterprises such as SAA, Eskom, Denel, SABC and the LandBank, as a result of mismanagement and corruption.

Adding injury to insult is the fact that these costs are financed in part through additional taxes, penalties and interest. Often if a taxpayer is not properly assisted even a bona fide mistake relating to tax can be costly as a result of SARS’ penal powers.

“As if this was not enough to bear, taxpayers in the form of VAT vendors must also pay constant, diligent attention to ensure compliance, as indirect taxes are being increasingly used to increase collection through penalties and interest,” says Buttrick.

For some the burden does not end there as many believe that with no comparable public alternative they have no choice but to pay for private health care, education, transport and security. Expenditure that should be borne by your “tax rands”.

“Tax is an integral part of any society and in most developed nations the benefits of tax expenditure is tangible. That is not to suggest that government expenditure has in all instances been mismanaged, however, what must be asked is how much of the tax burden are taxpayers willing to dutifully sustain?”