We’ll be paying for years to come ‘to stabilise debt’

Although Finance Minister Tito Mboweni promised yesterday to slash government spending to help repair some of the financial havoc caused by Covid-19, those taxpayers who still have jobs will face the prospect of increasing taxes over the next five years, according to Treasury.

In its Supplementary Budget Review document, which underpins the finance minister’s speech on Wednesday, Treasury said: “Given the extent of fiscal consolidation now required, however, both expenditure reductions and tax increases are necessary to stabilise debt.”

It added: “The active scenario assumes tax increases of R5 billion in 2021-22, R10 billion in 2022-23, R10 billion in 2023- 24 and R15 billion in 2024-25. The 2020 [Medium Term Budget Policy Statement] will revisit these projections and the minister will announce tax policy proposals in the February 2021 budget.”

However, the Treasury said “as employment and salaries normalise” in the post-coronavirus recovery, “personal income taxes should be augmented by higher effective tax rates”.

The tax hikes have become inevitable because of the catastrophic plunge in tax revenues for 2020-21, which are predicted to be R304.1 billion lower than the 2020 budget estimate.

“Since the tabling of the 2020 budget, fallout from the pandemic has caused an unprecedented reduction of the in-year revenue projection,” said the Treasury document.

The expected shortfall “reflects the expectation that the tax base will temporarily shrink as businesses close and people lose their jobs”.

In that respect, the “effect of multiple Covid-19-related shocks on revenue collection is expected to exceed that of the global financial crisis of 2008-09.”

The revenue collection crisis affects “the largest tax bases”.

• “Personal income taxes are under significant pressure resulting from job losses, labour unavailability and employers’ inability to pay full salaries.” Salaries and wages “will remain volatile through the recovery period”.
• Corporate tax collections will be “negatively affected by service and production closures during the lockdown, uncertainty concerning the pace at which normal activity can resume, and weak business and consumer sentiment”. “Companies of all sizes will be affected,” Treasury said.
• Value-added tax (VAT) and customs revenue estimates “have been revised down in response to lower confidence, lockdown-related sales restrictions and a much weaker trade outlook”.

Treasury did not mention the loss of excise revenue from the ban on sales of cigarettes and tobacco – which has been in force since the start of the lockdown – nor the ban on the purchase of alcohol, which was partially lifted on 1 June.

The department said government is responding to the pandemic in a phased manner:

• Phase 1 is to preserve the economy through a set of immediate, targeted and temporary responses;
• Phase 2 is a plan to recover from the immediate effects of the crisis by supporting investment and employment; and
• Phase 3 is a pivot to position the economy for the faster growth needed to restore the country’s long-term prosperity.

These are all aimed at “avoiding the looming crisis in public finances”.

– brendans@citizen.co.za

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