Sustainable fiscal policy needed to rejuvenate SA economy

Tuesday, August 27, 2019

To rejuvenate South Africa’s flailing economy, Deputy Finance Minister David Masondo says the country needs a fiscal position that is sustainable and serves citizens equally.

Masondo made the remarks while addressing delegates on the role that tax policy can play in rejuvenating government and the economy at the 2019 Tax Indaba on Monday.

In the last decade, the tax system has been blighted by lapses in governance.

This, the Deputy Minister said, has undoubtedly led to a deterioration in tax morale and in the trust in government.

This period of instability has coincided with increasingly large tax revenue shortfalls.

“From a shortfall of R7 billion in the tax year that ended in 2015, the under-collections have consistently increased to the latest shortfall of R57 billion. And this has happened over a period where tax rates have been increasing, with higher personal income tax rates across the income distribution, a new top rate of 45% on incomes over R1.5 million, higher capital gains tax and dividends tax rates, increases in fuel levies and even an increase in the rate of value-added tax,” Masondo said.

Despite all these measures, weak economic growth and lower than anticipated revenue have led to persistent budget deficits, which are also increasing.

Masondo said the ever-increasing reliance on debt leads to debt-service costs that start to crowd out social expenditure.

“We need to ensure that our fiscal position is sustainable so that we can serve our citizens and enable them to enjoy the rights promised to them under the Constitution. Significant tax policy adjustments have been made in recent years to get the country back on a sustainable path, and this should be our collective responsibility,” he said.

To achieve this, Masondo said the country needs to determine whether its tax policy design is suitable for the future, based on the key principles of good tax policy design.

“In one of the most unequal societies in the world, is our tax system equitable, and are taxpayers treated fairly? Is it efficient so that taxpayers do not distort their decisions? Is it transparent, and does it offer taxpayers certainty? Is it simple enough to understand, comply with and administer? Most importantly, given that revenue raising is the primary objective of the tax system, is our tax system responsive and resilient to the economic environment?

“We need to ensure that tax policy meets the goals of revenue raising and redistribution without unduly dampening economic growth,” he said.

The Deputy Minister said it is not easy to achieve these conflicting objectives, especially in a dynamic and global economic environment.

“This means that tax policy and tax legislation is organic and evolves – requiring constant maintenance. However, we should be careful not to let constant maintenance interfere with the big picture. We need to consider whether our tax system and the instruments that form part of it are suitable for what the future holds,” he said.

Secondly, the Deputy Minister said, the country needs to ensure that it has strong, capable and technologically proficient revenue authority.

“SARS has suffered immensely from governance failures in recent years to the detriment of staff morale, taxpayer morale and tax revenue collections. We stand wholeheartedly behind Commissioner Kieswetter and his staff in rebuilding this important institution to the high standards it became renowned for internationally,” he said.

Thirdly, the country needs to spend more effectively and derive visible value for the revenue that is raised.

 “The developmental impact of our spending legitimises our taxes. With improvements in these core functions, taxpayer morale will improve naturally,” Masondo said. –