Counting the cost of a 1% tax hike

South Africans will soon hear how much more it will cost them to live in SA in 2016.

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Finance minister Pravin Gordhan is set to deliver the 2016 budget speech in Parliament on 24 February, and financial commentators have suggested that he will demand 1% more from tax-paying South Africans. And, at a time like this, 1% just may be the straw to break the camel’s back.

The 1% increase in personal income tax should raise an additional R10 billion in tax revenue, which will provide a fair measure of relief for the SA Revenue Services. But at what point do we start querying from where relief will come for us weary, cash-strapped taxpayers? With the drought eroding supplies of staple foods, consumers have been warned to prepare for significant food price increases.

In January, consumer price inflation breached the upper limit of the Reserve Bank’s target range by accelerating to 6,2% year-on-year. Eskom wants a 16,6% rate hike, interest rates have increased and there is wide speculation that Gordhan will endeavour to close more fiscal gaps by pushing fuel prices up significantly.

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Considering our precarious financial position, would it not be more prudent to cut government spending by R10 billion?
In its media advisory to journalists who will attend the budget speech, Parliament’s communications team warned that “due to cost containment measures, there might be a scaling down on the refreshments provided. Food will still be provided, but you might want to come prepared with additional snacks”.

Now, although I don’t mind bringing along my own lunchbox, here are some “cost containment” suggestions that might add up to greater savings than culling the lunch fund:

The Institute of Internal Auditors reported last year that South Africa lost R700 billion to corruption between 1994 and 2015; this is R35 billion per year. Cutting corruption by roughly one third would render the additional R10 billion from taxpayers unnecessary.

Besides the money that is stolen outright through corruption, South Africa is losing billions of rands through the fruitless and wasteful expenditure of municipalities. In the 2014/2015 financial year, the City of Tswane incurred wasteful expenditure of R4 billion and the City of Johannesburg R1,24 billion.

The Nelson Mandela Bay Municipality had R2,6 billion worth of expenditure unaccounted for. Some R1,3 billion of this was found to have been mismanaged and a further R146 million has been written-off as fruitless and wasteful expenditure.
Instead of contemplating how much more taxpayers can afford to pay, Gordhan should find ways of eradicating the unconscionable wastage.

Denene Erasmus is the acting editor of Farmer’s Weekly.