Zuma orders Gigaba to raise taxes

Reuters has reported that in response to the critical rating announcements of Friday night, President Jacob Zuma directed finance minister Malusi Gigaba on Monday to finalise proposals for expenditure cuts amounting to R25 billion and revenue boosting measures totalling R15 billion – including through taxes.  NW University Economics Professor Raymond Parsons welcomed the move:

The decision by President Zuma to instruct the Presidential Fiscal Committee to actively tackle four key areas of fiscal policy to shape the 2018 Budget in reaction to the recent decisions by the credit rating agencies is welcome, especially if combined with the fiscal slippage apparent in the recent Medium Term Budget Policy Statement.

Tax hikes have been expected for sometime. In fact Gigaba hinted that there would be tax hikes in the February main budget.

Also welcome is the promptness with which Finance Minister Malusi Gigaba is seeking to implement the decision, in view of the urgency of the economic and fiscal situation SA is facing.

Deteriorating public finances are now the Achilles’ Heel of SA’s present economic outlook.

To re-establish credibility in the fiscal process it is essential that the emphasis now be placed on how government spending can be reprioritized to secure a new balance between growth and fiscal sustainability.

Government spending simply has to be brought into much better line with what the economy can now afford.

If not, SA will drift in into an inevitably negative ‘tax-and-spend’ cycle.

First prize now is for SA to also avert being dislodged from key global market indices next year, in view of its implications for borrowing costs for both the public and private sectors.

This would ultimately be bad for both growth and employment. It is imperative that in 2018 the SA economy begins to break out of its ‘low growth trap’.

It would also be helpful to credibility and confidence in policy if, even at this late stage, Finance Minister Gigaba was to include the advice of selected key private sector and academic economists.

The issues at stake economically and fiscally are so important now that the most inclusive advice will assist in promoting credibility.

It is clear that to get the fiscal ‘mix’ right in the 2018 Budget in February will now be a major determinant of SA’s future investment status.

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