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Taxes will also be the dominant theme in South Africa in the coming week as the country prepares for the delivery of the Medium Term Budget Policy Statement (MTBPS), says financial services company Peregrine Treasury Solutions.
The group cited the alarming rise in public debt, the ongoing financial burden of state-owned companies, and an ever-decreasing tax base that could make MTBPS “less popular.”
“Tough decisions are needed and the rating agencies will certainly be vigilant. The dire state of South Africa’s fiscal situation, coupled with weak economic growth, means that the budgetary task is enormous, even before considering the cost of the economic recovery plan, ”he said.
Peregrine said that South Africa is on the economic ledge and analysts, rating agencies and investors are on the lookout for:
- Decisive action on the separation and transformation of Eskom, as well as clear guidance on the action plan for other state-owned companies in conflict;
- The steps the government will take to reduce its debt burden;
- Political certainty on issues such as land redistribution;
- Measures to address the huge public sector wage bill;
- Taxes.
While MTBPS doesn’t normally go into the tax details, this time it may very well be more tax-focused, Peregrine said.
Some of the new fiscal measures expected by analysts and economists include:
- A temporary three-year tax on high net worth individuals and businesses;
- Permanent estate and inheritance taxes in addition to current estate taxes;
- Possible digital taxes.
“With so much focus on tax increases, especially on the wealthy, concerns are now emerging about which tax threshold could see the wealthy leave the country entirely, or erode the prospect of businesses and the wealthy still investing and spending more economic turmoil, ”said Peregrine.
Peregrine said that Finance Minister Tito Mboweni is facing a tightrope due to rising debt.
“The threat of a sovereign debt crisis looms, as analysts expect South Africa to face a debt crisis starting in 2024.
“The time for idealistic policies and poor implementation of structural reforms is over. The minister has the unenviable task of making difficult and potentially unpopular decisions now if we want to maintain control of our own economic future. “
Proposal document
Tax revenue collection has been below expectations for some time, compounded by the fact that the country is in a deep recession. Debt levels continue to rise, as does the unemployment rate, while state-owned companies remain tied to constant bailouts.
Currently, approximately three million South Africans account for 97% of the country’s personal income tax collected in 2019.
A 100-page document, seen by Bloomberg, warns that South Africa will not be able to meet the debt targets of its finance ministry and it may be undesirable for it to try to do so when the economy is being hit by the consequences of the coronavirus. .
The president’s Economic Advisory Council, which prepared the document, said the spending cuts could slow growth and have other adverse consequences.
Instead, the council proposes a series of tax increases and changes are considered, including:
- Fuel and estate tax increases;
- A three-year ‘solidarity tax’ that would raise taxes for those who earn the most;
- Introducing a basic income subsidy that could cost R243 billion a year and would require tax increases;
- Pension funds and other private investors that support infrastructure projects if there is a clear portfolio for the next 10 to 20 years.
Finance Minister Tito Mboweni has said he plans to halt the rise in debt levels to 87% of gross domestic product in fiscal 2023-24, falling to 74% in 2028-29, Bloomberg reported.
Without an intervention, the proportion could rise to 141% over the next decade, he said.
Read: Disposable income has been cut in half in South Africa
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