Expectations are high that the stabilisation of government debt will receive renewed focus in the February budget, given the recent downgrading of SA’s sovereign credit ratings by three major credit agencies, Deloitte strategy and innovation head Kay Walsh said on Wednesday.
Debt sustainability has taken a back seat in recent years while the government has run large budget deficits in a bid to bolster SA’s economic recovery, Ms Walsh said.
Finance Minister Pravin Gordhan will present the annual budget on February 27 amid social and political tension in the country, continued strike actions in key economic sectors and subdued growth. These factors are expected to affect the South African Revenue Service’s ability to collect the R821.4bn in tax targeted in October’s medium-term budget policy statement.
Ms Walsh said at a preview of the 2013 budget by Deloitte in Johannesburg government debt as a percentage of gross domestic product (GDP) rose to 35,7% last year. Although it was not nearly as big as the "staggering" debt-to-GDP of 119% in Portugal, 91% in the UK and 90% in France, it was a matter of concern.
"The big swing in SA’s debt metrics has been one of the reasons why rating agencies are concerned about our credit ratings. The Treasury is quite aware of this. A lot of their plans in the last medium-term budget policy statement have been directed at keeping the government’s expenditure in check."
Several statements around the mining industry and a supertax on profits had been made before and during the African National Congress’s Mangaung conference. Deloitte associate director Alex Gwala was of the view that mining companies were preparing for additional taxes on profits. Many were restructuring their business models and others were putting expansions on hold.
He warned that an additional tax on mining companies, given the current economic climate, would affect the development of new mines and the expansion of existing ones.
Deloitte tax head Nazrien Kader said SA’s tax collection statistics were very similar to global collection trends. The largest contribution to tax revenue comes from individuals, followed by value-added tax and corporate income tax. In the UK, the corporate rate had been increased to 30% and the marginal rate for individuals was 45%. "If you are comparing us with our trading partners, there is scope for increases. We deliberately brought the rate down to 28% for companies to encourage foreign direct investment."
Deloitte director Billy Joubert said raising the corporate tax rate would not necessarily address collection issues. "Companies can have assessed losses which individuals cannot have. In an economic downturn there are many companies sitting in an assessed loss situation.
"An increase in the corporate tax rate may help later on, but if there is a short-term cash need, an increase in the corporate tax rate is not the best way to bring in revenue."