The Parliamentary Budget Office (PBO) has proposed new areas to collect tax, including an excess profits tax, windfall taxes, removing some tax incentives, and progressive measures to tax wealth.
These proposals formed part of the PBO’s Medium Term Budget Policy Statement (MTBPS) presentation on 7 November.
The Parliamentary Budget Office was established to support the finance and appropriations committees in the houses of parliament.
Through its presentation, it provided an analysis of the 2023 MTBPS and examined, analysed, and commented on the adjusted fiscal framework.
The PBO was critical of Finance Minister Enoch Godongwana’s MTBPS, saying his proposals do little to respond to the priorities set out in the 2023 State of the Nation address.
“Pursuing a budget surplus in the current economic, societal, and public finance environment will likely hurt the real economy,” the office said.
It added that the cost of reducing expenditure on the economy’s performance is too high because the government is unlikely to achieve many key national development outcomes.
However, with growing pressure on the state’s finances because of a widening fiscal deficit, something needs to be done.
These rising annual budget deficits have reached an extent where the government will borrow an average of R553 billion annually over the medium term.
The gross debt will rise from R4.8 trillion in the current financial year to R5.2 trillion in the next financial year. By 2025/26, it will exceed R6 trillion.
“We expect gross government debt to stabilise at 77% of GDP by 2025/26. This is higher than the level we forecasted in February,” the minister said.
The cost, or interest, on this debt for next year alone amounts to R385.9 billion. This is more than R1 billion per day.
Unless this situation is addressed, the country faces a fiscal cliff where the economy will come under severe pressure.
Most economists said the government needs to reign in spending as the tax base is so stretched that further taxes will be detrimental.
However, the Parliamentary Budget Office argued that South Africa has room to generate more tax revenue from its “relatively broad tax base”.
“Tax remains an important tool for the redistribution of income and wealth, more so when there is extreme structural inequality,” it said.
It proposed numerous potential new tax revenue streams, including:
- Excess profits taxes on companies that used the inflation upsurge and interest rate hikes to boost profits to compensate for their Covid-19 losses.
- A progressive tax on wealth.
- Windfall taxes for sectors that benefitted from the commodities boom.
- Removing tax incentives following a review to establish which incentives are no longer effective.
The Financial and Fiscal Commission said wealth taxes can be expanded by intensifying the taxation of donations and estate duties.
It also suggested that the carbon tax should be increased, and the property tax base should be widened.
This article was first published by Daily Investor and is reproduced with permission.