• Market Watch

Tax shortfall of R22 billion is a major blow to social spending

• 2 Weeks Ago - 2024-11-05 00:00:00

More than 8 400 teachers and 2 500 doctors’ annual salaries, approximately 12 000 basic housing units, and a staggering 675 027 social relief grants of R350 each – this is what the country is losing in social spending due to lower-than-expected tax revenues in the current fiscal year, as announced in the recent medium-term budget policy statement, says Christie Viljoen, an economist at PwC.
About a third of the lower-than-expected tax collection is due to load shedding, which has been suspended for 200 days, and South Africans using much less fuel for generators.
Enoch Godongwana, the minister of finance, said last Wednesday that the tax collection for the year will now be R22 billion less than the target of R1.863 trillion expected in February.

Viljoen explains that according to the budget’s spending plan, about R12 billion of the R22 billion would have gone to social spending. The lower income thus means many gaps are not being filled.

Dawie Roodt, chief economist of the Efficient Group, says at this stage, this is the deficit the Treasury expects, but the South African Revenue Service (Sars) is aggressive in its tax collection, and this could make things look better for the state coffers.
Withdrawals from employees’ savings under the new Two-Pot Retirement System have already brought in about R7 billion for the state coffers because people are taxed on this money at their marginal tax rate.

Roodt says if one considers that a large school in South Africa has an average of 1 000 pupils and you make every child in that school a millionaire, it is R1 billion.
Twenty large schools’ children can thus each be made a millionaire with the R22 billion.
He says R22 billion is a lot of money, but little in the bigger picture of state spending.
Sars said after Wednesday’s announcement that the 1.333 billion litres less fuel used this past year compared to the previous year, and its impact on the net fuel levy that ends up in the state coffers, will contribute more than R7 billion to the expected deficit.

South Africans have bought much less fuel thanks to load shedding, which has now been suspended for more than 200 days, and generators have been shut down.
Many large users are now also using renewable energy sources, said Edward Kieswetter, the Sars commissioner.
It now appears that salary adjustments are lower than expected in February. The nominal wage bill has increased by 5.5% on a year-on-year basis, while an increase of 8.4% was expected in the February budget.
Along with lower-than-expected job creation and more layoffs, this has taken R12 billion from the expected tax revenue, says Sars.
Kieswetter says Sars’s hard work to ensure taxpayers fulfil their full tax obligations has secured revenue of R110 billion. To meet the 2024-25 tax collection, Sars will be relentless in ensuring voluntary compliance.
Very important is to ensure intermediaries who, by law, must collect tax on behalf of Sars, do indeed pay it over.
Johan Gouws, the head of wealth advisory services at PPS, believes the loss of income is a major issue given the government’s debt levels, which are still rising.
“Although Sars is doing a good job, Kieswetter and his team’s efficiency can only go so far in terms of more tax collection. On the other hand, we cannot continue to cut expenses because no country can save itself rich. The lower income will have an impact on much-needed investment and providing social protection to our country’s people.”

The answer is still to get economic growth going as quickly as possible, and for that, South Africa must market itself as an investment destination to foreigners and create an environment where investors are willing to take risks.
According to Gouws, it will help a lot if South Africa is removed from the international Financial Action Task Force’s grey list in 2025, corruption is tackled, and the private sector is allowed to play a bigger role in the economy.
South Africa’s presidency of the G20 next year also offers a golden opportunity to show what the country can do and offer, says Gouws.
-CITY PRESS