Tax hike poses risk: don’t do it

If this year’s State of the National (Sona) address was more of an election manifesto rather than an X-ray of our nation that would provide a black-and-white picture of the policies needed to address our nation’s many challenges, then our finance minister has just received the proverbial “hospital pass”.

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What makes his challenge even more difficult is the current financial state of the country. Credit rating agencies Moody’s and Standard and Poor’s have slowly downgraded South Africa over the years.

Higher fiscal expenditure, dwindling tax revenue and spiralling government debt have led to a deficit of 6% of GDP – the highest in two years (December 2023).

Unemployment, crime and interest rates remain stratospheric, while a functioning logistics system, secure water supply and uninterrupted power are starting to feel as likely as Trevor Noah returning to live in SA.

Now, couple this dismal fiscal position with the proposed National Health Insurance Bill and the promise of a continued social grant (which together, will cost the country billions if not trillions) and you need to ask yourself, where will Finance Minister Enoch Godongwana find the money?

This year, there’s no commodity windfall to save our hides. This means that the finance minister will be forced to either cut social, state and infrastructural expenditure; increase taxes; or both.

How likely is a tax rate hike in either personal income tax, value-added tax (VAT) or corporate income tax (CIT)?

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I believe we’re unlikely to see a hike in VAT or CIT in an election year, and the fact that CIT was recently reduced to stimulate business growth means that we probably won’t see it increased again soon. But an additional R15 billion in taxes needs to be found.

Taxpayers are already under pressure and are reluctant to shoulder any further burden, and this has played a role in the increased emigration of the wealthy, who are significant contributors to tax revenue. Increasing the burden on taxpayers is not the answer.

Having said this, government knows that taxpayers can ill afford an increase to their personal income tax. So what can be done? I believe the minister should consider boosting tax collection efficiency, adopting innovative financing models and shift from “spending” to “generating”.

If their focus shifts towards incentivised employment and wellness opportunities, this would result in a stable economy with a happier and employed population.

• Eckmann is a wealth manager at Consult by Momentum