Taxes are likely to increase by a total of R40-billion over the next four years to combat a growing governmental funding gap, as a result of decreasing tax revenue and increasing debt.
Speaking during the review of the medium-term adjusted budget by the National Treasury on Wednesday [October 28], Minister Tito Mboweni explained that the increases are necessary to assist in consolidating the country’s finances.
“Although the economy has begun to recover from the hard lockdown, tax revenue in the current year is projected to be R8.7 billion lower than the June estimate,” said National Treasury. “Gross debt is projected to reach 81.8% of GDP in the current year, up from 65.6% projected in February 2020.”
To assist with fiscal consolidation, government has projected tax increases of R5-billion in 2021/22, followed by an increase of R10-billion in 2022/2023, R10-billion in 2023/24 and R15-billion in 2024/25. In total, this equals a R40-billion tax increase over the next four years. Treasury did not elaborate on which taxes are likely to increase.
National Treasury has tabled a five-year fiscal consolidation pathway that promotes economic growth while bringing debt under control. This forms part of the Economic Reconstruction and Recovery Plan, which they hope will accelerate growth to 3% or more, compared to the projected 3.3% in 2021, 1.7 % in 2022 and 1.5% in 2023. This will secure fiscal sustainability and build the economy better than before.
Mboweni says that government is currently borrowing at a rate of R2.1 billion per day. Urgent spending cuts are also necessary to help pay off debt.
Government plans to save R300-billion over the next three years through a number of spending cuts. Methods listed include reducing the public sector wage bill, cutting unnecessary spending by departments and reducing bailouts to state-owned entities.
“Our revised fiscal framework puts us on a course to stabilise the ratio of debt- to-GDP at around 95 per cent within the next five years. The stock of gross debt will rise from roughly R4 trillion this year to R5.5 trillion in 2023/24,” said Mboweni.
Picture: Twitter / Tito Mboweni