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No more room for govt to raise taxes – economists

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Raising taxes will not necessarily result in increased tax revenue, Members of Parliament have heard.

The Standing Committee on Finance held public hearings on the National Budget on Wednesday.

Among those who made presentations were Prof Jannie Rossouw of the Fiscal Cliff Study Group, who said there was no scope to raise taxes further because the ratio of buoyancy is less than 1.

The tax buoyancy ratio measures the pace of tax revenue growth against economic growth. The ratio is 1 when income growth matches economic growth. In 2017/18, SA's tax rate buoyancy ratio was 0.96 and in 2018/19 it was 0.98.

PwC did not welcome the R15bn worth of tax increases either. Like the Fiscal Cliff Study Group, PwC believes tax increases have become self-defeating and have not translated into additional revenue in recent years.

Credibility of forecasts

Rossouw also questioned the credibility of the Treasury's forecasts for economic growth – which have been overstated in recent years. This has implications for the revenue forecasts and forecasts for debt-to-GDP ratios.

"Treasury's forecasts are bad and weather forecasters look good," Rossouw said. He called for Treasury to be more conservative in its economic growth forecasts to recover public confidence.

Kyle Mandy, National Head of Tax at PwC, further questioned the credibility of Treasury's forecasts, particularly revenue projections. He suggested that failure to meet projections would not be viewed favourably by rating agencies.

Mandy said that Treasury's tax boom projections had not been achieved in the past three years. "We are concerned that we will not see revenue revenue to the extent Treasury forecasts revenue."

Mandy said that it appeared that the Treasury had placed a lot of faith in the South African Revenue Service's ability to collect the required revenue. "We think there are significant risks to forecasts," Mandy added.

Ian Stuart, acting deputy general director of Treasury's Budget Office, said Treasury had made sure forecasts were reflective of credible bodies.

Treasury will formally respond to matters raised in public hearings in Parliament on Friday.

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