'Don't expect big tax cuts'

Johannesburg - Consumers anticipating significant tax relief in next week's budget announcement are likely to be sorely disappointed.

Stanlib economist Kevin Lings expects tax relief to be modest at best, noting that Finance Minister Trevor Manuel would "probably relieve taxes for individuals in terms of what's called bracket creep or fiscal drag - really just the inflationary effect that comes through".

He said consumers will "see a change in the threshold levels".

"I don't think we're going to see an increase in taxes - the minister is always trying to avoid that, but it's very unlikely that we'll see significant tax reductions."

The slowdown in the local economy, reduced export demand and increased job losses have had a negative effect on government revenue collection.

Reduced consumer spending has resulted in a reduction in revenue derived from expenditure activities such as value-added tax (VAT) collections, transfer and customs duties and a reduction in fuel levy income.

The market is expecting the finance minister to announce a bigger-than-expected budget deficit on Wednesday, with a larger deficit to be forecast for the year ahead.

"The local economy is expected to remain under enormous pressure this year, making it impossible for the government to anticipate a significant increase in revenue" said Lings.

"The finance ministry will, accordingly, want to hold on to as much revenue as it possibly can", which eliminates any sizeable personal or corporate tax cuts.

"From my perspective, the focus of the budget will be on the expenditure side, rather than on the tax relief side. The minister will argue that there are various programmes in place to support industry and fixed-investment spending."

This, in turn, will benefit the economy and consumers alike.

To listen to the interview with Lings and with experts and decision-makers, visit Fin24.com Podcasts.

- Fin24.com