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If this year’s state of the nation (Sona) address was more of an election manifesto 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".
What makes his challenge even more difficult is the current financial state of the country.
Credit rating agencies Moody’s and Standard & Poor’s have slowly downgraded South Africa over the years, with an uninspiring outlook of ‘stable to negative’.
Now, couple this dismal fiscal position with the proposed NHI 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?
How likely is a tax rate hike in either personal income tax (PIT), value-added tax (VAT) or corporate income tax (CIT)? 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.
READ: SA likely to feel the budget squeeze
According to fiscal 2021/2022 figures, government derives the bulk (35.5%) of its tax revenue through PIT, followed by VAT at 25%, and CIT at 20.7%. That same year, the number of individuals registered for income tax was 24,8M, or 62% of the “working-age” population (40 million people). And these 24,8M individuals are supporting a total population of around 60M people, meaning that 41% of the population is supporting the country.
This has severe implications for us as a country: not only does a diminishing taxpayer base mean less revenue to fund important social and physical infrastructure, but it also means an exodus of critical skills needed to stimulate the economy.
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Increasing the burden on taxpayers is not the answer.
Having said this, government knows that taxpayers are under pressure, and can ill afford an increase to their personal income tax, as the Finance Minister acknowledged in the last MTBPS.
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So what can be done? I believe there are a few things the minister should consider:
Boost tax collection efficiency: Instead of increasing personal income tax, focus on boosting revenue collection efficiency. Employ the new technologies at your disposal. Enable VAT returns on e-filing; make it easy for businesses to file their returns. Consider voluntary disclosures for previous tax errors without penalty. Look at improving the systems already in place, to bump up revenue collection.
Innovative financing models: Planning, installing and financing infrastructure by pricing it at marginal costs or even on a loss-making basis with returns covered through the taxation system is one option. Another is partnering with the private sector to offer tax incentives to individuals and companies, opening a wide net on the current taxpayer base to provide funding for critical areas such as energy and water security. The president mentioned at Sona that the country had doubled its rooftop solar capacity in the past year, largely thanks to the solar tax incentive. Take the learnings from this success, and roll out tax incentives more widely.
Shift from ‘spending’ to ‘generating’: Government needs to pivot its focus from ‘spending’ to ‘generating’ revenue. How? By shaping policies that are geared towards economic expansion by focusing on job creation and proactive healthcare models such as incentivised wellness programmes. I firmly believe that if their focus shifts towards incentivised employment and wellness opportunities, this would result in a more stable economy with a happier, healthier and employed population.
*Eckmann is a wealth manager at Consult by Momentum.
