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Cannot delay tax rise pain, says Treasury

| Economic factors

The tax increases in the pipeline in the next two years would undoubtedly be painful and would hurt growth but the alternative was far worse, Treasury director-general Lungisa Fuzile said in Parliament.

Tax increases of R28bn in 2017 and of R15bn in 2018 will be necessary for the Treasury to pursue its fiscal consolidation objectives.

Fuzile said in a briefing on the medium-term budget policy statement to Parliament’s two finance committees that raising personal income tax would lower the disposable income of households, while an increase in value-added tax (VAT) would mean prices would rise and people would be able to afford less.

"However, the central point that we make is that notwithstanding those likely risks of the impact on growth, there can be a much more painful risk if we were to fail to act to achieve fiscal consolidation because a lot of what would arise out of that would have much more negative consequences," Fuzile said.

He emphasised in an interview that it was important to maintain the progressive nature of the tax system as far as possible. This would be one of the criteria used in assessing the tax increase options.

VAT is regarded as a regressive tax as it hits the poor.

Other criteria to be applied, Fuzile said, were the amount to be collected, the size of the targeted tax base, tax buoyancy and the effect the proposed tax would have on growth.

Finance Minister Pravin Gordhan said that the Treasury would have to take this calculated risk in raising taxes. He said he was not worried about a tax revolt by overburdened taxpayers as the budget process was very transparent.

"The additional taxes will have to be explained to the people who will have to pay them.

"We have a progressive system. It does not hurt the lower middle classes and the poor, and that is something we need to sustain into the future."

He stressed that there was no final decision on the nuclear new build programme. "What we are quite clear on is that there are very distinct phases in these matters." Everyone must understand the steps to be taken, the rules of the game, the legislative framework and the affordability of the proposal.

The Treasury will divulge the tax increases when Gordhan tables the 2017/18 budget.

There is a sense, though, that individual taxpayers are already overburdened, that SA cannot afford to increase the corporate tax rate if it wants to attract investment and that a hike in VAT will be politically unpopular.

Cosatu has already warned that it would fight to the utmost against any proposal to increase the VAT rate.

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