Tax hikes will be damaging – IRR 

24 February 2021

A prime issue in today’s budget will be the question of taxes, specifically whether the South African government will demand that taxpayers – individual or corporate – give up a larger share of their incomes.

The Institute of Race Relations flags this as a major concern for the country, and a significant risk for its future.

In 2019/20, before the pandemic hit, South Africa’s revenue-to-GDP ratio stood at some 29.5%. This was the highest since the transition to democracy. While this ratio fell somewhat in the past year – as many businesses went to the wall – it looks set to climb again in future.

South Africa is in a fiscal crisis, with an unprecedented deficit over the past year. Projections for the coming years have this coming down, but still to levels seen in times of extreme stress – such as the World Wars and the early 1990s.

The temptation on the part of the government and the ruling party to hit taxpayers will be strong indeed. Beyond maintaining government functions, there are powerful political and ideological drivers at work. These include keeping patronage networks funded, ensuring that the mismanaged herd of state-owned enterprises are kept on life support, and preparing the way for such ambitious consumption projects (and the associated opportunities for insiders) as the National Health Insurance.

South Africa’s tax base is narrow, and shrinking from both impoverishment and emigration.

South Africa needs economic growth, investment and the productive policy reform that will produce it. Attempting to compel taxpayers to plug the hole that misgovernance and bad policy produced would not only be grossly unfair but economically disastrous.

Issued by Hermann Pretorius, IRR Head of Strategic Initiatives, 24 February 2021