Increasing individual tax rates any further was unsustainable, several tax professionals argued in Parliament Wednesday.
They were commenting on the announcement in the 2017-18 budget tabled by Finance Minister Pravin Gordhan last week that a new tax bracket for those earning more than R1.5m would be created at a rate of 45% and that there would be limited relief for fiscal drag.
South African Institute of Tax Professionals head of tax policy Erika de Villiers said the limit of tax increases was being reached and a "tipping point" was approaching.
Her comments were made in a presentation on the budget during public hearings held by Parliament’s finance committees
Deeper cuts in government spending were needed to match the tax increases, De Villiers said. "Government and the private sector should share the pain. Further spending on new programmes such as national health insurance should be delayed until affordable."
PricewaterhouseCoopers tax policy leader Kyle Mandy also argued that the constant increase in the tax burden was "unsustainable in the long term". SA’s tax burden was high by international standards and was over-reliant on individual taxpayers.
SA’s deficit problem was not a revenue problem but an expenditure problem, he said. Expenditure growth since 2007 had outstripped the growth in tax revenue.
"Since 2007-08 consolidated expenditure has ballooned from 27.2% of gross domestic product (GDP) to 33.4% of GDP in 2015-16. By 2015-16 consolidated tax revenues net of Southern African Customs Union payments had recovered to 2007-08 levels and are forecast to continue to grow to reach 27.5% of GDP in 2019-20. As a result the level of taxation is now at record levels."
Mandy said more needed to be done to improve the effectiveness and efficiency of government spending and to further lower the expenditure ceiling.
South African Institute of Chartered Accountants tax experts Tracy Brophy and Pieter Faber also noted that SA had become a high-tax country, "though the benefits from state spending remain limited".
They questioned the sustainability of continued personal income tax increases, especially in the light of the government’s "insatiable need to spend outside of its means", as reflected in the ever growing debt burden.
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