Tax hikes or austerity? State's fiscal dilemma as revenue looks set to fall
The government faces a significant fiscal dilemma as it goes into the medium-term budget in October, risking further damage to economic growth if it implements more tax hikes or cuts spending in an effort to plug the revenue gap.
Treasury officials outlined the dilemma at Monday’s tax indaba and confirmed that revenue collections were likely to fall short of February’s budget targets.
The head of the Treasury’s fiscal policy unit, Ian Stuart, said history suggested that, with the economy coming out of recession, tax revenue was likely to take a big hit, and anyone doing a bit of analysis of the monthly government revenue figures could see that "we are struggling" to make targets.
"We don’t want to be cutting spending or the size of the public sector in the middle of a recession – but if we go more expansionary, we know how it would be viewed by the market," Stuart said.
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