Is overtaxing the answer for S.Africa's Gordhan? - CNBC Africa

Is overtaxing the answer for S.Africa's Gordhan?

Southern Africa

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Tax is expected to feature in South Africa's medium term budget speech on Wednesday.

“It’s not really a solution to start taxing the country to death because weak business and consumer confidence environment – you’re going to have even less in the way of economic growth and even less in the way of revenue. It has to be approached very carefully,” Nedbank’s chief economist Dennis Dykes told CNBC Africa on Monday.

“You want to cut back on unnecessary expenditure and try and actually boost expenditure in areas that are going to have maximum impact and unfortunately, post the crisis, we did it the wrong way around. We actually spent a lot of money on government salaries and we spent relatively little on infrastructure, and we have to present a saner plan going forward.” 

South Africa’s finance minister, Pravin Gordhan, will be presenting the country’s medium term budget this week, which is also taking place against a backdrop of marked global economic uncertainty.


Many analysts have predicted that there will be no fireworks from Gordhan, but are expectant of a reduction in South Africa’s GDP growth forecast for the year.

“At the time of the budget, which is basically in March, he was talking about growth of 2.7 per cent – growth for this year is only likely to be about two per cent – so a big shortfall,” Dykes indicated.

“It’s not only this year that’s a problem. Next year he was looking at about three and a half per cent, now it’s probably going to be under three per cent so each year we’re losing half a per cent of GDP, which is massive when it comes to your tax estimates.”

Dykes added that South Africa’s numbers don’t look bad in the general context but that they don’t compare very well to their emerging market peers.

“It [the budget speech] comes off the back of some very large budget deficits so people had been hoping that he’d announce a much quicker reduction in the deficit, so that we’d have a much lower top to our national debt over the next couple of years. Now, that is going to be pushed out,” he explained.

“Foreigners, over the last few years, have funded a large portion of the budget deficit in the bond market – they hold around 40 per cent of our bonds in total but a lot of that’s come since 2008. To continue attracting those flows you actually have to have attractive numbers and you have to avoid a rating’s downgrade.”