Growth Strategy Fears Shadow South Africa Budget

While South Africa Finance Minister Pravin Gordhan’s budget statement has been widely praised for striking a “fine balance”, economists have cast doubt on its long-term impact, criticizing its lack of growth strategy.

More pressing for some was who was next in line to pay for the country’s deficit, as personal income tax had been stretched to the maximum. Treasury announced it would raise R28 billion ($2.17 billion) from a newly introduced tax bracket affecting high-income earners.

However, Kyle Mandy, partner and head of National Tax Technical at PricewaterhouseCoopers, said the shift towards greater reliance on direct taxes would come at a cost to economic growth, IOL reported.

“Bear in mind that we have a further R15 billion increase in taxes penciled in for next year. Where is that money going to come from?” she asked.

“We are looking at a situation where our tax burden to GDP ratio is already at levels above where it was in 2008. It’s a real concern as to how much more milk we can extract from this cow.”

Lumkile Mondi, a senior lecturer at Wits School of Economic and Business Sciences, expressed similar sentiments, saying households had nothing more to give, and with no growth strategy in place, he envisioned a country on a slippery slope.

“I don’t see any growth strategy within the ANC or within the budget. I’m very pessimistic, I see a country going forward that is going to have the very same problem whereby a state that is failing resorts to populism, and having done that, try and get more money from the electorate,” said Mondi.

But, individuals in higher tax brackets could also jump ship, Mandy cautioned. “The risk is that sort of rate in tax hikes will scare skills away, no reason they can’t end up in the UK and US. We have to be careful about scaring skills away through high taxes of individuals.

“Your ultra wealthy have the power to move anywhere in the world, they don’t have to stay in South Africa. We could end up collecting less taxes when we’ve had tax increases.”

Chief economist at Investments Solutions Lesiba Mothata viewed Gordhan’s plans in line with global trends which have recorded “circular stagnation” as growth continues to rise below potential across the world.