Recession threatens revenue and credit rating, Nhlanhla Nene warns
Government will spare no effort to stabilise state-owned entities and create policy certainty in mining, the finance minister tells the Tax Indaba
Finance Minister Nhlanhla Nene has warned that tax revenue collection may be lower because of the recession — potentially putting SA’s last investment-grade rating at risk.
Speaking at the Tax Indaba in Sandton on Monday, Nene said: “The 2018 budget gave SA a credible path forward to keep an investment grade with one of the three credit rating agencies.
“However, there is now a downside risk to tax revenue because of the contraction in the first six months.”
The medium-term budget policy statement takes place in October.
Nene said growing the economy is “now critical” to expand the tax base. The ability of a government to borrow at reasonable interest rates is underpinned by tax collections, he said.
Tax collection has disappointed in recent years, against the background of a slow economy and the inefficiency of the tax administration, said Nene.
To make up for shortfalls, Treasury has increased personal income tax in recent years, and this year increased value-added tax (VAT).
Stabilising state-owned entities and creating policy certainty in the mining sector are key to “raising the quality of economic growth” and government will “spare no effort”, Nene said.
Data from Stats SA last week came as a shock to the market. SA’s economy contracted by 0.7% in the three months ended in June, following a dismal performance in the first quarter, which was revised to a 2.6% contraction from a previously reported 2.2% contraction.
Analysts warned that this would attract the attention of credit rating agencies once again — and may lead to the country losing its investment-grade rating from Moody’s.
Acting Sars commissioner Mark Kingon acknowledged that the revenue service had lapsed in recent years.
“The damage done to Sars’s reputation has had a far-reaching impact and will take time to fix,” he said.
The Sars inquiry currently under way is looking into the rot at the revenue service and mismanagement by suspended commissioner Tom Moyane.
It has already emerged that the VAT increase would not have been necessary were it not for the R50bn shortfall in revenue collection by the tax agency.
Read the full speech here.