inance Minister Pravin Gordhan delivers the country’s budget speech in February. Picture: TREVOR SAMSON
Finance Minister Pravin Gordhan delivers his budget speech in Parliament on Wednesday. Picture: TREVOR SAMSON

ON THE eve of the finance minister’s budget speech, Business Day noticed that the Treasury works with a norm of keeping the tax revenue at about 25% to gross domestic product (Individual taxpayers ‘cannot bear more financial strain’, February 27). This norm first surfaced in the 1996 Gear document. It was reaffirmed in last year’s budget speech.

Tax revenue and total revenue is not the same. Total revenue includes all the incomes of the state, not only taxes.

It was therefore a mistake to say in the article that "tax revenue as a percentage of gross domestic product has remained above the accepted norm of 25% and was 27.7% in 2011, estimated to be 27.4% for this tax year and increased to 27.8% in the new tax year."

The correct figures are 24.7%, 25.0% and finally 25.2% projected last year for this coming fiscal year 2013-14 (Budget 2012, page 48).

The Treasury has been cutting income taxes every year for 12 years.

The upper half of the minority who pay personal taxes have got higher incomes, but at any given income level, the tax rate has become lower.

At the Alternative Information and Development Centre, we are still waiting for all experts who complain about the soon to be unbearable taxes to say something clever about this indisputable fact.

There are only about 2,100 individuals registered by SARS for an income above R5m. Together they paid over R7bn in tax in 2011. If tens of thousands of super-rich tax dodgers would start to pay income tax, this would mean tens of billions of rand in tax revenue.

The effect on the budget would be staggering, provided the Treasury does not respond with more tax cuts to abide by its policy rule. The increase in the number of people paying personal income tax would, however, hardly be noticeable.

The narrow tax base is the effect of a very unequal primary income distribution. The reflexive argument about "the narrow tax base" is not relevant for this debate.

Dick Forslund

Economist at Alternative Information and Development Centre