If we have to pay more, the state must spend less

25 February 2015 - 02:26 By The Times Editorial
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Today's Budget speech has been awaited with much trepidation by South Africa's already overburdened middle-income earners.

Finance Minister Nhlanhla Nene made it clear in October that he needed to raise an additional R44-billion over the next three years, and at least R12-billion this year, to balance the books.

It was common cause from day one that VAT would not be increased: that would punish the poor and would be a nonstarter politically for the ruling party, which faces a bruising battle in next year's local government elections.

The spluttering economy and the growing scepticism of investors about South Africa as a business destination make an increase in the already high corporate tax rate most unlikely.

As we battle to secure investment to kick-start growth and create jobs, raising the dividends tax too much would be risky.

Nene might choose to increase capital gains tax, death duties and sin taxes, but that would not make up the yawning revenue shortfall.

He is likely to use the unexpected boon of the sharp drop in the oil price to raise the fuel levy, but middle- to upper-income earners are probably nevertheless going to have to pay more personal income tax.

This will be a tough ask for over-indebted households already contending with increases in the costs of electricity and education, and of administered prices.

But Nene has to increase government revenue to stave off further downgradings of the country's sovereign credit rating.

His other imperative is to rein in runaway government spending, which is what got us into this mess. The public-sector unions, which are demanding 15% wage increases this year, must fall into line.

Ultimately, though, only business-friendly economic policies and the much-delayed upgrading of critical state infrastructure will make possible the large-scale private-sector investment we so desperately need.

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