Minister of Finance Pravin Gordhan(“PG”) keeps a great poker face even if, right now, he is playing a very dicey hand. He must be extremely concerned about the economy and, in particular, how much has changed for the worse since February 2011.
SA tax collections for 2011/12, state expenditure and the budgeted deficit are based on a forecast economic growth rate of 3.4%. Yes, these numbers are sensitive to SARS’ performance and the inevitable expenditure overruns by perhaps a few billion out of a budgeted tax collection of R741-billion and budgeted deficit of R140-billion. But never a train smash.
But if the growth rates are not achieved the impact could be R100 billion. And PG stared down the barrel of that gun in the 2009/10 MTBF.
Back in February, some said that 3.4% growth for 2011/12 was a soft target and that if the target had been closer to 4.5%, there could be more room for more delivery, tenderpreneurship and even a tax cut for individuals. And when growth rates for the six months to March 2011 clocked in at plus 4%, they were right. But the growth rate for the quarter ended June 2011 was 1.2%, and not much better is expected for the rest of the fiscal year. So, right now, we will be doing very well if we manage 3.4%.
Of course, the DA youth scoff that they could do 8% or more. “Like Ghana, Argentina and Turkey,” they say. But few will seriously believe their exuberant youth could do better than PG.
Even if we say: “What happens in Europe and the US stays there,” we have to accept that the oil price has risen by R200 a barrel since February, unemployment is back at 26%, the rand is vulnerable and interest-rate strategy by the Reserve Bank is having as much effect as throwing a muffin at a black hole.
Then PG has to factor in other issues. Who is going to pay for the NHI? Could we see VAT increasing after 20 years at 14%. Can we really afford to implement dividend tax from April 1 2011? Should we be looking at a super-super tax at 42% from 2012? Are there any last-minute refinements to the latest tax bills?
We’ll get some idea of what is on the tax horizon from the MTBF speech in parliament on Wednesday at 2pm. Join me on www.criticalthought.co.za for an almost live wrap-up from 3pm.
Originally published in the Sunday Times Tax Talk column.