Minister Enoch Godongwana says the decision to increase Value Added Tax (VAT) “was not made lightly” as proposal also includes no inflationary adjustments for personal income tax brackets.&nbsp;



South Africa’s Finance Minister Enoch Godongwana delivered the country’s 2025 Budget Speech on Wednesday, March 12, following the initial postponement of the speech in February.



According to reports at the time, there was a dispute amongst the members of the Government of National Unity (GNU) over a proposed two percentage point VAT increase, which would have put further pressure on consumers.



In the newly-tabled budget, government has proposed to increase the VAT rate by half a percentage point in 2025/26; and by another half a percentage point the following year.



Government has also proposed no inflationary adjustments to personal income tax brackets, rebates and medical tax credits.&nbsp;



According to the minister, these measures are expected to raise R28 billion ($1.5 billion) in additional revenue in the 2025/2026 financial year and R14.5 billion ($791.5 million) in 2026/2027.



“This decision was not made lightly. No Minister of Finance is ever happy to increase taxes. We are aware of the fact that a lower overall burden of tax can help to increase investment and job creation and also unlock household spending power,” Godongwana said in his speech.



“We have, however, had to balance this knowledge against the very real, and pressing, service delivery needs that are vital to our developmental goals and which cannot be further postponed.”



He goes on to explain that government weighed up the policy trade-offs, and touches on increases to corporate and personal income tax, as well as taking on additional debt but states that these measures were not feasible.



“VAT is a tax that affects everyone. By opting for a marginal increase to VAT, its distributional effect and impact were cautiously considered. The increase is also the most effective way to avoid further spending cuts and to enable us extend the social wage.”



Other notable points in the speech include the proposed expansion of the list of VAT zero-rated food items, no increase in the fuel levy for another year and the provision of social grant increases that are above inflation.



Speaking on the 2025 Budget, Lullu Krugel, PwC South Africa’s Chief Economist, said, in a statement, that, “Expanding the list of VAT zero-rated products has long been called for by private business and civil society as a way of supporting the financial situation of low-income households”.



“Today’s announcement to expand the basket of goods to include more meat and other products that are widely consumed in the lower expenditure deciles is welcomed with open arms in light of the impending VAT increases. It is now incumbent upon the producers and retail sector to ensure that these adjustments are passed onto the consumer.”



With an overall impression, Althea Soobyah, National Head of Tax, Forvis Mazars in South Africa, said, “One of the biggest issues with the budget every year is that South Africa is not investing in growth-enhancing initiatives with a significant proportion of the budget going to paying off debt and social grants”.&nbsp;



“South Africa urgently needs to look at other ways to increase revenue other than relying on the tax base.  At some point it will reach a saturation point. Growth enhancing structural reforms which support small and medium sized businesses will help to address unemployment and grow the tax base. One of the ways to increase the tax base is to grow the employment rate,” she adds in the statement.

South Africa’s Fractious Coalition Faces Second Budget Reckoning

VAT Up By 0.5 Percentage Point As South Africa’s Finance Minister Tables 2025 Budget

Coronavirus has affected everyone in the UK, but not everyone has been affected in the same way.



This is starkly apparent when it comes to money. Eight million people are on furlough, receiving 80% of their normal pay from the government’s job retention scheme, while thousands more have been made redundant.



Many self-employed individuals and business owners are likewise under extreme financial pressure because of the lockdown.



But for others, the coronavirus has been a very different experience. Millions have been able to work from home on full pay but with significantly reduced outgoings – no commuting, no expensive coffees or sandwich shop lunches, no dry cleaning bills.



With shopping and entertainment options severely curtailed, general spending has dropping dramatically. According to pollsters YouGov, 1 in 6 people have been able to add to their savings, while 1 in 10 have managed to pay of their debts.



<figure class="wp-block-image size-large"><img loading="lazy" decoding="async" width="960" height="480" src="https://www.forbesafrica.com/wp-content/uploads/2020/05/960x0-1.jpg" alt="" class="wp-image-45517" srcset="https://cms.forbesafrica.com/wp-content/uploads/2020/05/960x0-1.jpg 960w, https://cms.forbesafrica.com/wp-content/uploads/2020/05/960x0-1-300x150.jpg 300w, https://cms.forbesafrica.com/wp-content/uploads/2020/05/960x0-1-600x300.jpg 600w, https://cms.forbesafrica.com/wp-content/uploads/2020/05/960x0-1-768x384.jpg 768w" sizes="auto, (max-width: 960px) 100vw, 960px" /><figcaption>44% of respondents feel less secure about their financial situation   YOUGOV</figcaption></figure>



Perhaps not surprisingly, white collar professionals have been better able to improve their finances. Those in manual occupations are more likely to have continued going into work rather than working from home and enjoying the associated cost savings.



Worryingly, YouGov found that 36% of Britons have dipped into their savings to meet their bills during the pandemic, with 44% feeling less financially secure as a result of the crisis.



Additionally, 16% have reported that their debts have gone up, while over a third (35%) have reported that their incomes have decreased.



Government intervention



The financial situation for many people would undoubtedly have been worse had it not been for swift intervention by the government on an unprecedented scale.



The job retention scheme, originally due to run until the end of July, has been extended until the end of October – although from August employers will be expected to contribute towards the cost.



Businesses are also able to access a range of loans underwritten in full or in part by the government, including the&nbsp;<a href="https://www.forbes.com/sites/advisoruk/2020/05/04/how-to-contact-your-bank-for-bounce-back-loan-details/#11cce61b1f87">Bounce Back Loans Scheme</a>&nbsp;and the&nbsp;<a href="https://www.forbes.com/sites/advisoruk/2020/05/19/government-increases-loans-limit-refunds-sick-pay-as-jobs-data-triggers-gloomy-forecasts/#734d76484e4e">Coronavirus Large Business Interruption Loan Scheme</a>, where the maximum loan size was increased from £50 million to £200 million earlier this week.



Additional funding has also been made available to large corporations by the Bank of England.



Other government measures include the&nbsp;<a href="https://www.forbes.com/sites/advisoruk/2020/05/13/income-support-scheme-for-uk-self-employed-goes-live/#25de46e032b1">Self Employment Income Support Scheme</a>. However, at present, this only provides payments to cover the months of March, April and May, and there has been no suggestion that it will be extended in the same way as the job retention scheme.



Mortgage payments holiday



The government is planning to extend its&nbsp;<a href="https://www.forbes.com/sites/advisoruk/2020/05/22/fca-proposes-to-extend-access-to-mortgage-payment-holidays/#299ed5084c47">mortgage payments holiday initiative,</a>&nbsp;whereby banks and building societies are instructed to allow borrowers to miss repayments on the understanding they will make up the accrued capital and interest debt over the rest of their loan.



The scheme was originally due to run until 20 June 2020, but under propoals expected to be rubber-stamped this week, those who have already taken payment holidays will be able to apply for an extension of up to three months, while those who have not yet applied will be able to do so until 31 October 2020.



UK Finance, which represents lenders, says 1.82 million mortgages were subject to a payments holiday as of 20 May – roughly 1 in 6 of all mortgages.



The three-month payment holiday for credit cards and other credit-based products is under active review – we may hear more on that from the Financial Conduct Authority in the coming days.



Impact on motoring



One area of the economy that has seen a huge contraction is motoring, from car sales to fuel consumption.



The number of new car registrations collapsed in April, the first full month of the lockdown, falling 97.3% year on year, from 161,064 in 2019 to 4,321 in 2020.



The restrictions imposed by the lockdown inevitably led to most people driving less or not at all, which had a knock-on effect on sales of petrol. The reduction in supermarket pump prices to below £1 a litre earlier in May was a clear indicator that supply was well ahead of demand.



Research from Lloyds Bank suggests fuel spending in April was down 58%, while day-to-day commuting expenditure was 86% lower.



Online car retailer CarWow reckons more than two fifths of Britons have spent less than £10 on petrol during the last month, with a third purchasing no petrol at all.



Vix Leyton at CarWow, said: “After more than two months in lockdown, the idea of a regular petrol station top-up no doubt seems like a distant memory to the millions of British motorists who’ve not needed fuel &#8211; or perhaps even driven &#8211;&nbsp;for weeks.”



With some of the lockdown restrictions beginning to easy, Leyton suggests now might be a time to fill up: “For those wanting to take advantage of low pump prices, now is arguably the time to do so &#8211; providing you can do so safely &#8211;&nbsp;before lockdown measures are eased even further and long queues begin forming.”



Bike use &#8211; and thefts &#8211; on the up



Another effect of the lockdown has been an rise in the number of people cycling for their permitted daily exercise, but a consequence of this has been an increase in the number of bicycles being stolen.



David Fowkes of insurer Admiral said: “Several cycle retailers have reported that they’ve sold out of many models. We’ve seen a 46% increase in the number of bicycle theft claims over the last seven weeks compared with the same period in 2019. That’s incredible when you consider that overall theft claims have fallen during the lockdown as people have stayed at home, deterring burglars.”



Admiral won plaudits in April when it became the first UK insurer to give&nbsp;<a href="https://www.forbes.com/sites/advisoruk/2020/04/21/uk-car-insurer-admiral-announces-customers-refunds-and-support-for-key-workers/#d4367ac6af35">a cash rebate (£25)</a>&nbsp;to all its car insurance policyholders. Only LV has made a similar pro-active gesture, leading the Financial Conduct Authority to impose a&nbsp;<a href="https://www.forbes.com/sites/advisoruk/2020/05/14/fca-unveils-measures-to-help-insurance-policyholders-hit-by-covid-19/#76d28bd731e3">package of measures</a>&nbsp;that require insurance companies to provide support to customers in financial distress as a result of the pandemic.



Energy bills



With more people working from home and staying at home in line with government stipulations, there has been an increase in domestic energy consumption, with comparison site Compare the Market suggesting annual bills could rise by £400.



However, global demand for energy has reduced sharply, with factories and offices mothballed and travel services limited.



Stephen Murray, energy spokesperson at MoneySuperMarket, says cheaper domestic energy deals are available as a result:&nbsp;“A cocktail of factors have come together to make this is a great time to switch supplier.&nbsp;



“There’s been a major drop in the wholesale element of domestic energy prices of nearly 40%- something partly explained by oversupply in the market due to declining business energy usage as a result of the coronavirus crisis.”



As economies gradually emerge from lockdown and energy demand increases, there is likely to be an impact on prices in the opposite direction.



Tips to keep your finances in shape



Here’s a to-do list for anyone wanting to save money and get their finances in the best possible shape:



<ul class="wp-block-list"><li>Compare energy prices:&nbsp;use a comparison site to see if you can save money by switching. If you’ve never switched or haven’t switched for two or three years, there are likely to be cheap fixed rate deals available</li><li>Talk to your insurer about saving money:&nbsp;the regulator has told car and home insurance companies to help customer whose finances have been harmed by coronavirus, but it’s up to you to contact them to discuss the options, such as reducing the estimated annual mileage on your car insurance and getting a premium refund</li><li>Don’t automatically renew insurance:&nbsp;whenever a car or home insurance policy comes up for renewal, run a quote on a comparison site to see if there’s a better deal out there</li><li>Get the best broadband deal:&nbsp;check you’re on the best deal, especially if you’re working from home or using streaming services more than usual. You need the best combination of speed, capacity, reliability and price. See if your existing service provider can improve its offer</li><li>Talk to your lender:&nbsp;if you have debt, such as a mortgage, personal loan, credit card balance or car finance, and you are struggling to meet your repayments, talk to your lender to see what options are open to you. Don’t be tempted simply to stop making payments as this will have a long-term effect on your financial record.</li></ul>



If you are in financial distress as a result of the pandemic, or it has made your situation worse, contact a debt charity such as <a rel="noreferrer noopener" href="https://www.nationaldebtline.org/" target="_blank">National Debtline</a> or <a rel="noreferrer noopener" href="https://www.stepchange.org/" target="_blank">Stepchange</a> for advice and support.



&#8211;<a href="https://www.forbes.com/sites/kevinpratt/">Kevin Pratt</a>, Forbes Staff, <a href="https://www.forbes.com/sites/advisoruk/">Advisor UK</a>



Contributor Group, <a href="https://www.forbes.com/personal-finance">Personal Finance</a>

Piggy bank, laptop, purse with money, coffee cup on wooden table top.

Finances And Coronavirus: Threats And Opportunities In Lockdown Era

The <a href="http://www.treasury.gov.za/documents/national%20budget/2018/speech/speech.pdf" target="_blank" rel="noopener">2018 Budget</a>, presented by Finance Minister Malusi Gigaba in Parliament, lays out the painful consequences of the country’s public finances for South Africans.
The National Treasury’s proposal of an increase in Value Added Tax (VAT) – a tax applied to most items consumers buy – from 14% to 15% is the most dramatic of these consequences. Because it’s a tax paid by all citizens, putting it up by 1 percentage point raises concerns about the negative effects on the poorest households.
The Budget also proposes that tax brackets for the highest-earning 1 million taxpayers will not be adjusted for inflation, which effectively increases income taxes for these taxpayers.
Another sign of the distress the country’s finances are in came in the form of proposed cuts to government infrastructure spending, especially at local and provincial government level. The need for expenditure cuts is exacerbated by the fact that the budget supports former president Jacob Zuma’s commitment to provide <a href="https://www.news24.com/SouthAfrica/News/zuma-announces-free-higher-education-for-poor-and-working-class-students-20171216" target="_blank" rel="noopener">free higher education</a> for a greater number of students. The minister said that the policy would be phased-in, with the Budget indicating that the cost rises from R12bn to R24bn over the next three years. But there are reasons to believe the cost <a href="https://theconversation.com/free-higher-education-in-south-africa-cutting-through-the-lies-and-statistics-90474" target="_blank" rel="noopener">could be higher</a>.
Whether measures announced by Gigaba will stave off a downgrade of South Africa’s local currency debt by the one remaining rating agency remains to be seen. While the ascension of Cyril Ramaphosa to <a href="http://ewn.co.za/2018/02/15/watch-live-ramaphosa-to-be-sworn-in-as-sa-president" target="_blank" rel="noopener">the presidency</a> has provided hope that pressure on public finances will be reduced by the state being better managed, it will take years to significantly improve the current situation.
<a href="http://www.forbesafrica.com/politics/2018/02/15/zumas-time-mean-south-africa/" target="_blank" rel="noopener">READ MORE: Zuma&#8217;s time is up &#8211; but does it mean for South Africa</a>
<h2>A substantial shift</h2>
In October last year Gigaba painted a grim picture of South Africa’s public finances in the 2017 <a href="http://www.treasury.gov.za/documents/MTBPS/2017/mtbps/FullMTBPS.pdf" target="_blank" rel="noopener">Medium Term Budget Policy Statement</a>. With an expected R50bn shortfall in tax revenue he indicated that national debt would increase rapidly – contrary to repeated earlier promises to “stabilise” debt levels.
The 2018 Budget reflects a substantial shift from this position. The new plan is to return to a strategy of “debt consolidation”: reducing the speed at which national debt increases relative to the size of the economy, so that within a few years it begins to decline.
Debt will still increase to levels higher than promised in numerous previous budgets, but significantly slower than suggested in October. Reducing the rate at which the government borrows requires raising more money from taxes and decreasing planned government expenditure. But this is even more difficult to do because of Zuma’s announcement of “free higher education” – which happened after the medium term budget statement.
Essentially, expanded free higher education means a combination of more taxes, more spending and more borrowing.
<a href="http://www.forbesafrica.com/politics/2018/02/01/people-want-action/" target="_blank" rel="noopener">READ MORE: &#8216;The People want Action</a><a href="http://www.forbesafrica.com/politics/2018/02/01/people-want-action/" target="_blank" rel="noopener">&#8216;</a>
<h2>Some notable proposals</h2>
It is important to remember that, <a href="https://www.parliament.gov.za/storage/app/media/PBO/act-9-2009-money-bill-amendment-procedure.pdf" target="_blank" rel="noopener">by law</a>, the budget is actually a set of proposals – even though the National Treasury and Minister of Finance almost always get their way. The <a href="https://theconversation.com/explainer-the-nitty-gritty-of-south-africas-annual-budget-72901" target="_blank" rel="noopener">proposals are only fully legally binding once they have been approved by Parliament</a>. If citizens are not happy with certain proposals there are still opportunities in Parliament to challenge them.
Some of the proposals that deserve attention are:
1. The impact of VAT increase: Of all the major taxes available, VAT is the least “progressive”. It is paid to a much greater extent by the poor and vulnerable than personal income tax or corporate tax. It is arguably for this reason, in the context of South Africa’s <a href="https://theconversation.com/south-africa-needs-to-fix-its-dangerously-wide-wealth-gap-66355" target="_blank" rel="noopener">high rates</a> of income and wealth inequality, that VAT has <a href="https://www.pwc.co.za/en/assets/pdf/vat21-september-2012.pdf" target="_blank" rel="noopener">not been increased</a> since 1994.
The increase has been defended on the grounds that other options (personal and corporate income tax) are increasingly strained and VAT is the least harmful to economic growth. The claim about economic growth is debatable: it depends on assumptions about how the economy works. And although the budget claims that social grants have been increased to try and offset the negative impact, the overall effect remains unclear. It seems likely that most poor households will experience additional hardship.
2. Free higher education: The budget repeatedly states that the costs of Zuma’s free higher education announcement “remain uncertain”. This is strange and probably reflects the fact that Zuma violated normal budget protocol by almost unilaterally announcing the policy change without adequate consultation or analysis of the likely costs. Nevertheless, it is surprising that the budget does not provide more detail.
The budget indicates additional government expenditure of R12.4 billion in 2018/19, increasing rapidly to R20.3 billion in 2019/20 and R24.3 billion in 2020/21 as the policy is rolled out beyond just first year students. But these numbers look optimistic. Treasury does not explain what it has assumed about the number of students needing support and how much support will be provided.
3. Expenditure cuts: The budget proposes R85 billion in cuts to planned government spending over the next three years. It’s hard to tell what the implications of spending cuts really are just from looking at the numbers and explanation in the budget. Nevertheless, a couple of things are clear.
Firstly the cuts affect infrastructure spending in particular: about R40 billion is cut. In some ways this is understandable. But it’s also dangerous because these decisions seem, for now, less harmful than they really are. That’s because South Africa’s economic and social infrastructure is already a matter of concern and the additional negative consequences of underspending will only be noticed years down the line.
Secondly the cuts are targeted at provincial and local government: R28 billion will be cut in grants given to local and provincial governments for various infrastructure programmes. This is also concerning given the importance of service delivery at these levels.
<a href="http://www.forbesafrica.com/politics/2017/12/19/anc-new-leader-south-africa-remains-political-precipice/" target="_blank" rel="noopener">READ MORE: The ANC has a new leader but South Africa remains on a political precipice</a>
<h2>The gaps</h2>
The National Treasury needs to provide more information on why the decision was taken to increase VAT, and what the implications are likely to be. This is important because the move raises concerns about the effects on poorer and more vulnerable South Africans.
A detailed explanation of the likely costs of the proposed policy to expand free higher education also needs to be provided. The absence of this information raises concerns about whether Treasury has allocated enough money for this policy and, if not, whether universities may be left to deal with the consequences of insufficient funding for students who have been promised free higher education.
Finally, the attitude of the National Treasury in recent budgets has been that provinces and municipalities simply need to become more efficient and must fulfil their obligations with fewer resources. But what if that’s not possible? The Treasury can’t wash its hands of the negative consequences of cuts to critical areas of service delivery.
In conclusion, the Budget represents progress since last year when Zuma and his cabinet effectively sat on their hands and refused to take any difficult decisions. At least proposals have now been made to stabilise the national debt. Whether they represent the best solutions to our public finance challenges is a matter for public debate. &#8211; Written by <a href="https://theconversation.com/profiles/sean-mfundza-muller-298216" target="_blank" rel="noopener">Seán Mfundza Muller</a>, Senior Lecturer in Economics and Research Associate at the Public and Environmental Economics Research Centre (PEERC), <a href="http://theconversation.com/institutions/university-of-johannesburg-1275" target="_blank" rel="noopener">University of Johannesburg</a>
This article was originally published on <a href="http://theconversation.com" target="_blank" rel="noopener">The Conversation</a>.
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South Africa’s budget: first steps towards a recovery, but at what cost?

It had been a long hot Friday afternoon. As I drove home, towards the shacks of Zandspruit in Johannesburg, I could see black smoke. The voice on the radio warned of a service delivery protest as I drove into it. Women and men chanted and blocked the road. Words flew; then rocks, then bricks. A rock smashed into the face of one of the police officers, blood poured.
This is one of the many faces of discontent across Africa. Poor and rich alike feel short-changed in these tough economic times. The poor fight with rocks; the middle class with their bank accounts. People no longer want to pay. Their hard-earned cash, they complain, is wasted by politicians.
A tax revolt is rising. It may be in its infancy, but in South Africa, the threat is being taken seriously enough for Judge Dennis Davis to issue a warning.
In many ways, Davis is Mr Tax. He is head of the Davis Tax Committee, appointed by the Finance Minister to examine how revenue generated by the South African Revenue Service (SARS) can be used to improve the economy. He was a Technical Advisor to the Constitutional Assembly where the negotiations for South Africa’s interim and final constitutions were formulated and concluded.
“It’s a question of where government spends the money. People want to see results with their taxes. If they are not satisfied, they may choose to just stop paying. The greater the level of corruption, the less we will have tax integrity and the greater the possibility of a tax revolt,” says Davis.
Expenditure is through the roof in South Africa. According to Auditor-General Kimi Makwetu in his report for the 2014/2015 financial year, irregular expenditure amounted to R5.68 billion ($355 million). The report says 45% of this was spent by the Education, Health and Public Works departments. Irregular expenditure more than doubled from the previous year in Mpumalanga, a province in eastern South Africa, bordering Swaziland and Mozambique.
“Of the R936 million ($58.5 million) in fruitless and wasteful expenditure incurred in the year under review, R32 million ($2 million) was incurred to prevent further fruitless and irregular expenditure or losses. This normally relates to the cost of cancelling irregular contracts or contracts of non-performers,” says Makwetu in the report.
Due to overspending the budget, unauthorised expenditure amounted to R1.64 billion ($100 million). This is money emptied from the already lean pockets of people in a country where 12 million live in extreme poverty and top earners pay up to 41% in tax. On top of that, over the past decade, residents have been burdened with increases in property, electricity, toll and vehicle licencing fees; yet, potholes and power cuts persist. This is laced with accusations of corruption, an issue which has drawn the ire of veteran champion of the people Wayne Duvenage. He made his name standing up against Gauteng’s infamous e-toll tariffs. He is chairman of the Organisation Undoing Tax Abuse (OUTA), which says its aim is to challenge unfit taxation or the squandering of money.
“The public have become justifiably angry over the squandering and waste of their taxes. [A tax revolt is likely] but is however not a situation I would want or wish for our country and we should do everything possible to prevent such a situation from developing. This is why the Minister of Finance is calling for a positive and participative approach to resolving our problems. The issue, however, is that while a corrupt leadership remains prevalent and connected to the head of state, and other key positions within government and its state owned entities, very little can be done to mobilize a positive approach to addressing the key issues of corruption, cronyism and service delivery. This is what is driving the negative sentiment,” he says.
It appears many other people have also had enough. A survey by  NGO, AfriForum, says  none of the respondents say they are getting their tax money’s worth; 24% say they only pay tax because they are compelled to and 42% question why they should pay tax at all. AfriForum runs a viral #whatarewepayingfor campaign to hold government responsible for the misappropriation of money.
Monique Taute, National Campaign Coordinator at AfriForum, says the government promised to improve education, yet the national pass rate for Grade 12 students declined from 75.8% in 2014 to 70.7% in 2015. It promised to improve security, public order and safety, yet the crime rate increased by 0.09% from 2014 to 2015. It promised to decrease unemployment, yet the International Labour Organisation (ILO) announced in January 2015 that South Africa has the 8th highest unemployment rate in the world. The unemployment rate stood at 25.5% in the third quarter of 2015, an increase of 1.2% from 2014.
“It is clear that the government failed in all three objectives. Taxpayers should have the right to know what they are paying for. From what we see, in the consolidated general report on national and provincial audit outcomes as well as from 2015 statistics, it is clear that government once again failed to fulfil its responsibilities in the 2015/2016 fiscal year. Government is abusing taxpayers’ money. Even though taxes are increased, government does not fulfil its primary responsibilities,” says Taute.
CEO of the SA Institute of Tax Professionals, Keith Engel says people are at a breaking point.
“It is more about expenditure than anything else. People are saying, ‘yes we are paying tax but what are we getting for it?’” he says.
According to Engel, if entrepreneurs reach breaking point, they could play hide and seek with the revenue services.
“[You] won’t do that with the attorneys or accountants, because you will [lie] to your accountants and give them a different set of books to work from. So people can keep two sets of books. In small businesses, the employer might make a deal with you were he says ‘I am going to give you R300,000 but I will give you another R200,000 that we will not tell the revenue services about,” he says.
Alex Poole* (not his real name) who runs a tax revolt Facebook page, followed by 21,000 people, says: “Most people can sense that they’re being [robbed]… I believe all forms of mandatory income taxation are theft. The things its being spent on is so obviously not in the best interest of the country’s needs, people feel more and more ripped off. It now feels like the theft that it is. And the people are rightfully angry about it.”
Engel, however, commended Minister of Finance Pravin Gordhan for his 2016 budget.
“The budget was more about expenditure than it was tax. You can see very clearly they didn’t want to break the backs of the taxpayer. He spoke about cutting wages and a lot of government expense which made people a bit at ease,” he says.
SARS doesn’t think a tax revolt is likely. It says its compliance model is designed to foster voluntary compliance and says there is high tax integrity in the country.
“SARS has found the vast majority of taxpayers are fully tax compliant. This is testament to the patriotic and compliant culture of South Africans. In the very odd cases of intentional non-compliance, SARS recoups the taxes, as per the provisions of tax and customs legislation,” says an employee at SARS who asked to remain anonymous.
If Gordhan’s budget cuts don’t show in the numbers, South Africans may think the best form of defence is no tax.

Nothing For Nothing

<h3>What is a budget deficit?</h3>
A budget deficit occurs when a government’s expenditures become more than the revenue it has collected. It is common for governments to run a deficit and to use debt (bonds) to finance them. The interest from the debt needs to be paid out each year. If debt is too high, creditors’ concerns about a country’s ability to repay its debt rise and will hence demand higher interest rates. It becomes harder for governments to raise funds as their debt levels rise too far.
Faced with this problem, a country can either default or restructure its debt.
<h3>Defaulting</h3>
Argentina defaulted in 2001 on $81 billion worth in bonds and opted to devalue its currency to be able to pay its debt.
In 2012, Greece experienced the largest restructuring in history. After years of living beyond its means, high budget deficits and the poor economic climate made it difficult for the country to make payments on its bonds and led to downgrades and high interest rates on new debt. It eventually became too expensive for the country to roll over its debt, leading to the Greece debt crisis. The country is moving towards recovery.
<h3>Another route</h3>
Much closer to home, in April 2009, Liberia bought back $1.2 billion in commercial paper from its private foreign creditors. The debt, twice the country’s GDP and a quarter of the foreign debt, was bought back at an almost 97% discount of the face value. This was achieved after two years of negotiations and with the help of the World Bank, Germany, the United States (US), Britain and Norway.
In 2007, Liberia’s debt totaled $4.9 billion, 700% of GDP. That year the World Bank and African Development Banks reduced the country’s debt by $400 million and $250 million respectively. The previous default was in the mid-1980s.
Last year the world saw the US government’s shutdown. The financial year ended and a new budget had to be agreed upon by the House and Senate; without this, non-essential services were put on hold. The second issue was that the government had run a large budget deficit and its repayments were due. The Democrats wanted to increase tax while the Republicans called for a reduction in spending. A deal was struck and disaster averted.
In the first couple of months of the new financial year, the government’s deficit was reduced by 22%. Federal revenue climbed by 10% in the same period.
<h3>South Africa’s deficit</h3>
Rising debt costs and below target tax receipts are not helping ease South Africa’s debt. The 2013/14 budget deficit is forecast at 4.6% of GDP. Public sector borrowing increased to 7.4% of GDP in 2012/13. The country’s finance minister, Pravin Gordhan, has already vowed to maintain spending limits curbing wage growth. For the 2012/2013 tax season the South African Revenue Services collected R814 billion ($75 billion). Lower economic growth rates in recent years have made it hard to continue using tax revenue to reduce the budget deficit, and there has been an increased reliance on foreign investors to help finance budget deficit.
The South African government adopted a counter-cyclical fiscal policy to shield the country from the recent recession, which worked. On the flip side, the country moved from a surplus of 1.7% of GDP to a deficit.
It is clear, that unlike the general public, governments have a lot more options available to them when they fail to pay their bills. The lights won’t get shut off and the furniture repossessed.   FL

Tag: Budget

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