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As Finance Minister Tito Mboweni puts the finishing touches on his Medium-Term Budget Policy Statement (MTBPS), the biggest problem it faces is the impact of Covid-19 on the economy, says the professional services firm. Deloitte.
In a note before Wednesday’s budget, Deloitte said that despite the possible introduction of taxes, the market expects a very pragmatic budget, one that takes a strong and definitive position on state funding to inject confidence into the economy.
“The MTBPS is expected to provide information on structural reforms aimed at growing the economy, as well as some details on the government’s plans to reduce the public sector wage bill, in particular accommodating (or not) the proposed wage increase for labor , ” He said.
Mboweni is also expected to outline plans to restrict spending allocated to state-owned companies that could force necessary reforms, Deloitte said.
“In addition, plans are expected in relation to providing support to the poorest in society to alleviate economic difficulties and with regard to some type of financial support to sectors heavily impacted by Covid-19, such as tourism and leisure.
Will Mboweni seek to raise taxes?
Deloitte said the government has so far been reluctant to raise tax rates as it is recognized that South Africa is already a highly taxed country, for both individuals and businesses, and there is a distinct risk that squeezing the tax base small and getting stronger we will prove to be counterproductive for the economy.
“It was somewhat surprising that all individual tax brackets, even the highest-earning ones, were adjusted at the time of the 2020 budget to compensate for inflation and avoid the slippage phenomenon that had put pressure on higher-earning individual taxpayers. the last few years, ”Deloitte said.
However, desperate times call for desperate measures and the possibility of additional taxes cannot be excluded, he said.
He pointed to reports on a proposed new wealth tax, to be called the solidarity tax.
“Details are still sketchy, and commentators are discussing various possibilities. No one can deny that all South Africans are affected by the pandemic in many ways. So conceptually a solidarity tax aimed at bridging the Covid-19 chasm could work, ”he said.
Deloitte said an example of such a tax was the one introduced in 1991 after German reunification to improve infrastructure in the former East Germany, where living standards and median incomes were lower than in the West.
“These new taxes could be more acceptable to jaded taxpayers if they are considered temporary and based on the philosophy of a social pact directed at a specific issue, in this case, mitigating the effects of Covid-19.
“The possibility of public acceptance of a solidarity tax, or any other form of new tax, will largely depend on whether taxpayers have reasonable assurance that the money raised will be spent responsibly,” he said.
What about the NHI?
Deloitte said that Covid-19 has also highlighted the need for universal health coverage and access to public health care.
However, due to the availability of limited funds from the fiscus, the government may have to reuse the funds to drive any form of new initiatives and have more purpose in strengthening the health system, he said.
“In his budget speech in February, the finance minister articulated a plan that focuses on providing care, especially to the vulnerable, in a more cost-effective way.
“In our opinion, the minister will use the available budget more effectively by trying to reduce money spent on unnecessary expenses. Irregular spending increased from R 5.5 billion in 2017/18 to R 7.37 billion in 2018/19. The government will have to make better use of the resources it has to support universal health coverage ”.
Additionally, the positive public-private partnerships formed to support the government’s response to the Covid-19 pandemic are expected to be a catalyst for new partnerships, Deloitte said.
“We do not see NHI implementation deadlines coming any closer, given the funding gap. Like most programs, the time required for our economic recovery will influence the level of funding that would be available for the implementation of a full NHI. “
Read: More Taxes Will Only Drive Money – And People – To Leave South Africa – Experts
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