Finance Minister Tito Mboweni will deliver his 2020 Budget Speech on 26 February, and most economists expect him to announce big tax increases.
Efficient Group chief economist Dawie Roodt said South Africa is in deep financial trouble, which means the government will either have to cut spending or increase taxes.
With the government’s unwilling to cut the public sector payroll or state spending, the only other option is to increase taxes.
Momentum Investments economist Sanisha Packirisamy added the country’s poor economic growth over the past 5 years is putting pressure on the fiscus.
This weak growth is caused by chronic policy uncertainty, stretched government finances, infrastructure constraints, and low business confidence.
Considering the dire situation the country finds itself in, Sygnia CEO Magda Wierzycka said the 2020 budget is not going to be pretty, with tax increases expected on all fronts.
“If we don’t cut spending and reduce debt levels quickly, today’s drop in equities, which destroyed everyone’s savings, will look like a ripple before a tide,” she said.
Some of the expected tax increases include a 1% VAT hike, higher sin taxes, larger fuel levies, and reallocating taxpayers’ medical scheme tax credits.
Wierzycka went even further, suggesting that a 2% VAT hike, a 4% once-off on all retirement fund savings, and a 5% once-off tax on income could be implemented.
Taxpayers are tired of government incompetence
Minister Mboweni invited South Africans to share their views about economic conditions and other issues they would like government to highlight in the budget speech on 26 February 2020.
Many tax-paying South Africans openly shared their views as requested, but they may not have been what the minister wanted to hear.
People highlighted that the government is to blame for the financial problems the country is in and that they are tired of paying for the government’s incompetence.
Unless the government addresses corruption, mismanagement, and out-of-control spending, there will never be enough tax money to fill the hole in the budget.
Here are some of the proposals from ordinary taxpayers on what Minister Mboweni must do to solve the country’s financial problems.
1. Cut public sector wage bill
The government will spend R675 billion – 35% of its budget – on public servant salaries in the next financial year. This bloated workforce is unsustainable, and taxpayers want to see a leaner and more efficient public workforce.
2. Close or sell unprofitable SOEs
State-owned enterprises (SOEs) have been a tremendous drain on the economy with the government spending billions to bail out these companies each year.
There is a clear message from taxpayers – close down or privatise loss-making SOEs like SAA, Denel, and the SABC.
3. Privatise Eskom and open up the grid
Eskom is the biggest threat to the South African economy, but the government continues to protect the failed power utility to the expense of taxpayers and the economy.
People want to see big staff cuts, opening up the grid to competitors and selling off non-performing assets.
4. Stop expropriation of land without compensation immediately
Economists and business experts, including US Secretary of State Mike Pompeo, agree that the government’s plan to expropriate land without compensation will destroy South Africa’s economy.
Even just talking about it scares investors. Property rights are core to any good economy and messing with it is always disastrous, as shown in Zimbabwe and Venezuela.
5. Stop the National Health Insurance
The government’s grand plan to the use a National Health Insurance (NHI) to provide all South Africans with essential healthcare sounds great, but there is no money for it and will fail.
Instead of wasting time and money on this system, rather focus on improving state hospitals and clinics.
6. Get spectrum into the hands of operators
Operators have waited for over a decade to get additional spectrum which will allow them to offer improved services and cut data prices.
This is easy to achieve, and spectrum should be auctioned as a matter of urgency.
7. Simplify the tax system and lower taxes
South Africa has some of the highest taxes and most complicated tax laws in the world. To make it easier for taxpayers and attract foreign businesses to the country, a simple tax system with lower taxes are encouraged.
8. Business-friendly labour laws
Aggressive unions and restrictive labour laws are making it difficult for businesses to operate. To make the country more attractive to investors, business-friendly labour laws are needed.
9. Deal decisively with corruption
South Africa has been gutted by corruption and state-capture. However, none of the high-profile individuals implicated in these crimes have been jailed.
Taxpayers want to see justice for their tax money being stolen.
10. Remove red tape around businesses
Make it easy for entrepreneurs to open and operate businesses by removing red tape. Small businesses should have relaxed labour laws to make it easier for them to hire staff.
The government is also encouraged to remove exchange controls to help South African businesses to compete internationally.