Are tax payers getting value for their money?
Prof Danie Meyer and Dr Andre Mellet from the North-West University’s Vaal Triangle Campus (NWU) and experts in Local Economic Development (LED) and Monetary Economics respectively, is of the opinion that South African tax payers are not reaping any rewards from increased taxation.
New and additional Tax
During the National Budget Speech the Minister of Finance proposed tax changes to the value of R28,1 billion. The major sources of increased taxes are R16,5 billion in personal income tax and R6,8 billion in dividend withholding taxes. A new category of personal tax was implemented for tax payers earning more than R1,5 million at a marginal rate of 45 percent. The new category will bring in R4,4 billion of additional tax revenue. This new tax bracket will have a negative impact on high earners and could serve as a push factor resulting in high earning individuals leaving South Africa for more tax friendly countries.
Indirect taxes will also increase to the value of R5,1 billion and the biggest contributing category will be an increase in the general fuel levy resulting in an additional R3,2 billion. Disposable income of consumers will remain under pressure this financial year and consumer demand will therefore decrease with low economic growth. Consumers are close to a tax ceiling. The expenditure of consumers according to the latest available figures of SARB (South African Reserve Bank) is 60 percent of total expenditure in the economy and consumer expenditure is a major contributor to economic growth.
The fiscal policy announced during the Budget Speech is not counter-cyclical. If a country experiences low growth and high unemployment, fiscal policy must be applied to stimulate economic activity by means of a reduction in all taxes. President Donald Trump announced that his administration will reduce personal taxes substantially and that corporate taxes will also be reduced substantially to stimulate growth in the USA. Positive signs are already experienced on Wall Street and commodity prices around the globe. In South Africa however, taxes have been increased across the spectrum to reduce the budget deficit. The forecast for growth by the National Treasury reflects another year of low growth.
Higher taxes are contributing towards low economic growth in South Africa and the continuation of high unemployment. The question should be asked if tax payers are getting value for money in return for high tax payments. At the moment we have for example; escalating crime and corruption, public health facilities are in a poor condition with most people paying additional for private medical services, the education system is sub-standard with more and more private institutions coming to the fore and infrastructure development and maintenance regarding roads, electricity supply, water supply, and sewer provision have major backlogs.
|Prof Danie Meyer||Dr Andre Mellet|