Finance Minister Tito Mboweni will deliver the 2020 National Budget on 26 February, and both Absa and Efficient Group chief economist Dawie Roodt predict significant tax increases this year.

Speaking to ENCA, Roodt said the state’s debt has reached such high levels that it is now in deep financial trouble.

He said the rate at which the government is borrowing money is increasing much faster than the rate at which the economy is growing.

According to Roodt, South Africa has reached a point where it is extremely difficult to turn the situation around.

To improve the country’s financial situation, the government will either have to cut spending or increase taxes.

With the government’s unwillingness to cut the public sector payroll or state spending, the only other option is to increase taxes.

Roodt said this means that tax hikes are not a possibility, but a certainty. The only question is which taxes will be increased.

Predicted tax increases

While Absa and Roodt agree that South Africans should brace themselves for tax increases this year, they differ on which taxes will be increased.

Roodt said he is sure things like the fuel levy and sin taxes – a tax on items such as alcohol and tobacco – will be increased, but this is a small part of total tax revenue.

He explained that there are only two main taxes which will make a real difference – personal income tax and value-added tax (VAT).

Roodt predicted that, in addition to various indirect taxes, there will be an increase in personal income tax rather than VAT.

Absa, in comparison, predicted that the government will increase the VAT rate by one percentage point to 16%.

The bank agreed with Roodt that the government is likely to lift indirect taxes in an effort to earn more revenue.

This year’s budget will be harsh – Mike Schussler

Economist Mike Schussler said the government is currently spending R25 billion more than its tax revenue every month.

The situation deteriorated rapidly over the past two years, declining from a R15-billion deficit to a R25-billion deficit, as shown in the graph below.

“This year’s budget is going to be harsh,” said Schussler. “Other years were tough, but this year will be ‘eina’.”