Finance Minister Tito Mboweni has published his Supplementary Budget Review in the wake of the COVID-19 pandemic and subsequent lockdown in South Africa.
While Mboweni did not announce any immediate tax increases, the full supplementary budget review document confirmed that tax increases would be forthcoming over the next few years.
“Following five years of large tax increases, the 2020 budget did not propose new tax measures,” the document stated.
“Given the extent of fiscal consolidation now required, however, both expenditure reductions and tax increases are necessary to stabilise debt.”
The budget review stated that the active scenario assumes the following tax increases over the next few years:
- 2021/2022 – R5 billion
- 2022/2023 – R10 billion
- 2023/2024 – R10 billion
- 2024/2025 – R15 billion
In the current year, tax revenue as a proportion of GDP has fallen sharply and after 2020/2021, it is expected to follow a similar trajectory to tax revenue as a proportion of GDP after the global financial crisis.
“Additional tax measures, alongside economic recovery, will increase the tax-to-GDP ratio,” the document said.
Largest economic contraction in 90 years
“COVID‐19 has turned the global economy upside down. In the February Budget, we expected that the global economy would expand by 3.3% in 2020,” Mboweni said during his supplementary budget speech.
“The South African economy is now expected to contract by 7.2% in 2020. This is the largest contraction in nearly 90 years.”
Mboweni said that public finances are dangerously overstretched, and the country cannot remain passive if it wishes to prevent economic stagnation.
“A sovereign debt crisis is when a country can no longer pay back the interest or principal on its borrowings,” he said.
“We are still some way from that. But if we do not act now, we will shortly get there.”
He also noted that South Africa’s debt is its biggest weakness, and it is growing thanks to the global economic downturn.
“This indebtedness condemns us to ever-higher interest rates. If we reduce debt, we will reduce interest rates for everyone and we will unleash investment and growth,” he said.