JOHANNESBURG – Finance Minister Pravin Gordhan is expected to deliver his most difficult Budget speech today, with economic commentators predicting a tax hike and austerity measures in government.
President Jacob Zuma has already announced that the government would be trimming unnecessary travel and entertainment in order to save costs.
Now Gordhan’s main objective will be avoiding a sovereign downgrade by ratings agencies, which will be watching his speech with keen interest.
Gordhan made a comeback to the ministry after serving as Co-operative Governance and Traditional Affairs Minister for a year.
His reprisal of the Finance Ministry seat came on the tail-end of a chaotic four days in which Nhlanhla Nene was summarily replaced by parliamentary backbencher Des van Rooyen – who was then removed from the key post after the markets became volatile, leading to the rand plummeting.
In October last year, Nene had already warned of tough times ahead, but nobody could have predicted that the rand would reach R16 to the dollar.
Economists predict Gordhan will have to not only revise GDP growth predictions, but also hike some taxes.
PricewaterhouseCoopers analysts estimate that growth predictions, revised down from 2 percent in last year’s Budget to 1,7 percent in the medium-term Budget (MTBPS), will be even lower – with the IMF predicting just 0,7 percent growth this year.
PwC says lower growth will lead to lower than expected tax revenues.
“Given the expected shortfall in revenue collections for the next fiscal year, it is inevitable that government will have no option but to increase taxes, reduce the expenditure ceiling – or both – in order to maintain the path for reduction in the fiscal deficit set out in the MTBPS,” the company predicts.
“As was done in the 2015 Budget, it is possible that the tax rate will be increased by 1 percent in each of the bands, with the exception of the lowest, taking the maximum marginal rate of tax to 42 percent. This change would increase tax revenues by approximately R10-billion,” PwC says.
Wits academic in the school of economic and business sciences, Lumkile Mondi agrees a tax hike is on the cards.
Mondi says growth is likely to hover between the 0,5 percent and 1 percent mark, meaning the government will need to find revenue and save.
“This is a time for austerity requiring a different approach to our problems,” he said.
“VAT is going to be increased to mobilise more funding.”
He added that the personal income tax threshold could be changed.
“The president said during his State of the Nation address and in the subsequent debate that this is going to be a tough year. We are going to have to work together and see how to get out of this,” he said.
Mondi said government would need to change its tone to convince businesses to continue to invest in the country.
“The rhetoric has to change. When there is growth, there is more that can be done to bring equality,” he said.
Mondi added that government needed to take business into its confidence about future plans.
Gordhan’s speech is expected to start at 2pm.