So, as it”s six months to the national budget speech 2012/3, what”s in store?
The budget for 2011/12 was based on a growth-rate forecast of 3.3% – and we are achieving above 4%. So although some form of slowdown is almost inevitable, the budgeted national deficit of around R140-billion should still be achievable. That will leave South Africa with an overall budget deficit of less than 40% of GDP. Not shabby if you look at Europe, where the norm is greater than 100% of GDP.
In the 2009 recession, collection of corporate tax plunged, together with gold, platinum and other commodity prices, coming up R27-billion short of budget in 2010. This time round, there is the charge to gold, which has caused record prices of more than $1800. Coupled with a weakening rand, that should help corporate tax collections.
During the 2009 recession, South Africa lost more than a million online casinos jobs, mainly low-income. However, these losses had little effect on personal tax, because wage increases outstripped inflation. Personal income tax collections, being 35% of total tax collections, held the national budget together.
The “big three” taxes that account for more than 80% of total tax collections are the above-mentioned corporate and personal income tax, and VAT. The first two seem comfortable – bar a complete meltdown, that is. But what about VAT?
In 2008 consumer confidence crashed. And with it went VAT – R22-billion below budget by 2010. Hopefully, with a falling oil price and the lowest interest rates in decades, consumers will keep their chins up. But only Christmas 2011 will tell.
The Western world is having to come to grips with the reality that social security systems are far too expensive for their tax bases. And they cannot continue to spend their way better by slamming everything onto their national deficits.
The sick irony is that South Africa would be in the same boat today – except that apartheid ignored the social security of 90% of the population.
Despite the huge pressures to play catch-up, our national treasury has stuck to its game plan: “Don”t grant social security benefits you cannot afford, because you cannot take them back later.”
So expect the same again from the Minister of Finance, Pravin Gordhan, in February. We might hear more at the medium-term budget framework speech on October 26 2011.
Originally published in the Sunday Times.