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MPs balk at idea of cutting spending  Comments

Economist says tax is too high
November 4, 2009

By Donwald Pressly


MPS have no choice but to either cut government spending or increase taxes. This brutal assessment was made by Sanlam chief economist Jac Laubscher at Parliament's finance cluster committees yesterday.

He warned, however, that as debt to gross domestic product (GDP) ratios headed uncomfortably towards the 40 percent mark, including contingent liabilities, and if they continued on their present trajectory to reach 50 percent, there was little room to increase taxes.

Laubscher was emphatic yesterday at the standing committees on finance and appropriation and the finance select committee that South Africa did not really enjoy the option of raising taxes. The emphasis should fall on cutting spending, something which sat uncomfortably with MPs.

The medium-term budget policy statement estimated gross tax revenue this year would be R589 billion, R70.3bn less than projected in February.

Estimates of other sources of government revenue were also lower, so estimates of total budget revenue fell from R740.4bn to R657.5bn. At the same time consolidated expenditure has been revised upwards by R7.1bn to R841.4bn.

Lower revenue combined with higher expenditure boosted the shortfall on the consolidated budget by R90bn. This pushed the estimate of a budget deficit from just less than R94bn to nearly R184bn.

Laubscher said the tax to GDP burden had also risen considerably above the benchmark - set by the same government at 25 percent - to 32 percent.

Noting the average for middle income countries - such as South Africa - was 18.2 percent of GDP, he said: "The tax burden is too high to accommodate further increases."

Higher tax burdens led to higher government expenditure which, he argued, was "generally not good for (economic) growth" because growth tended to come from the private sector. "The more you increase the government stake of available resources, you end up with lower growth."


To drive home the point, he said: "Smaller governments are generally better for economic growth performance."

He noted that expenditure to GDP in South Africa was 30.1 percent versus an 18.6 percent average for middle income countries, saying this had to be aggressively reduced.

While he did not spell it out, he suggested a clipping of state welfare spending, with social protection equalling 14 percent of consolidated expenditure.

Greater efficiency and effectiveness in public expenditure was non-negotiable, he said, with "compensation for employees" now constituting 57 percent of payments.

The problem with higher debt levels, he explained, was there was a higher interest bill to pay. This translated to less government spending power.

Noting that Finance Minister Pravin Gordhan had forecast a 1.5 percent growth rate next year - which he himself declared "conservative" - there was probably some room for manoeuvre as "the consensus view" of growth was in the region of 2.5 percent.

Nevertheless, the Gordhan prediction highlighted that the global financial prospects were uncertain and could indicate "that we still have a bumpy road ahead of us".

He was, nevertheless, reasonably optimistic on growth prospects, which meant that government revenue and fiscal figures would improve.



Additional reporting by Ethel Hazelhurst
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Showing page 1 of 1 comment pages, 8 total comments
13 Weeks ago Anonymous wrote :
Govt Officials earn a high enough salary to fund their own vehicle leases What is the amount of spend on vehicles as a total ? What is the amount of spend on travel as a total ? - in a world of Conference Calling & Video conferencing facilities
13 Weeks ago Anonymous wrote :
Have to agree on the not said social welfare spending. How do we pay grants to the "poor" from an overtaxed middle class in a country where nearly every person has a cellphone and we have the most expensive communication sector. What happened to the investigation into the retail sector, the motor industry, the banking sector; the price fixing; medical aids; etc. I disagree that it is only government spending. In a country where nearly everything is more expensive and the amount of able bodied taxpayers are getting smaller and smaller because they are losing their jobs, are heading for a major disaster. How does a non skilled youth league president having no government job drive a Merc?
13 Weeks ago Keliswa wrote :
Why would Government cut spending when they can just keep taking from those who have some money? Million rand BMW's, expense accounts, lavish parties, high priced hotel stays, housing subsidies, petrol allowances, chauffeurs, bodyguards, etc etc etc won't end - from rags to riches and living it up to the hilt, SA style.
13 Weeks ago Nkalakatha wrote :
" Uncomfortably with MP's " ??? There is a lot of money that can be saved and used for better things, like upgrading of infrastrutures and through that the very needed JOB creation !!!! NOT fancy cars and expensive parties !!!!
13 Weeks ago Citizen wrote :
Perhaps MP's should first cut their spending on all those luxuries that they are enjoying. Sensible cars anyone?
13 Weeks ago Tilo wrote :
A great idea to cut costs. Too many money wasted. The taxpayer already paying 63 cent out of R1.00 to taxes.
13 Weeks ago HunterJoe wrote :
Of course the government fat cats don't wanna cut spending! Why would they give up their cushy salary packages... But at least Jac Laubscher gives a convincing argument not to increase taxes, although somehow I think they may just increase the upper bracket levels or the Company tax rate. Just a thought...
13 Weeks ago Anonymous wrote :
MP's should not say that taxes should be increased, because they are earning a lot, they want to drive epensive cars, stay in luxurious houses, just because of our taxe? thay rather cut their salaries.
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