Dotting the i’s and crossing the t’s on 2009 budget

- Matthew Lester - Net Assets

In October last year, finance minister Trevor Manuel told us all that we were still in reasonable shape to weather the global credit crunch storm.

Tax collections for 2008/09 were about on target, with an anticipated overrun in individuals’ tax collections making up for what would be lost as the economy cooled off.

Government expenditure would overshoot a bit, as it does every year.

Manuel predicted that the net result for 2008/09 would be a small national deficit. But South Africa was strong enough to take it, he said. Worse things have happened at sea!

But that was based on six months of tax collections to September 30 and markets as at October 21 2008. Now we have to throw in a few other curve balls:

1. Joe Consumer did cut back on his Christmas spend. But by how much? And what will the effect be on VAT and customs and excise collections? Christmas 2007 was imported luxuries and excess all the way, whereas Christmas 2008 was a bring and braai.

2. Commodity prices plunged post- September 2008, except for dear old gold. What will this do to the big corporate tax payments due at the end of March 2009?

3. This year, the national budget has been brought forward to February 11. That’s a full six weeks before the fiscal financial year end. So, regardless of what Manuel tells us on budget day, we may all be April fools this year.

But what about 2009/10? For the last few years, state expenditure has been increasing by about 11% a year.

So, with higher inflation, let’s say that state expenditure must increase by 15% to keep momentum going. That increases the target from R642-billion for 2008/09 to a staggering R738-billion for 2009/10. And Manuel must find another R96-billion from the taxpayer.

Even after a moderate tax cut to individuals to keep fiscal drag at bay, individual tax collections will increase by about R25-billion — if employment levels stay constant, that is.

And I reckon he will struggle to get another R15-billion from companies and R20-billion from VAT, unless there are tax increases. And I am not predicting that in an election year.

Manuel will probably add 25c a litre to fuel as prices are so low — that’s another R5-billion. And he will definitely hit smokers and drinkers with a record increase in sin tax, collecting another R5-billion. So, at best, he can find about R70-billion of the R96-billion.

In real terms, a national deficit of R35-billion to R50-billion is sustainable. But if the political game plan is accelerated delivery by increasing state expenditure, then I just don’t know.

Lester is professor of taxation studies at Rhodes University, Grahamstown