National Treasury faces hard choices in this year’s MTBPS
Deloitte Medium-Term Budget Policy Statement (MTBPS) Commentary 2018
This year’s Medium-Term Budget Policy Statement (MTBPS) will come under close scrutiny as South Africa looks for decisive leadership in the current economic climate. Tough choices must be made, and the MTBPS will need to carefully balance priorities, from stimulating economic growth to restoring investor confidence and confronting the myriad of structural challenges including unemployment and inequality that SA faces.
More pressingly, markets will be watching for details of the stimulus plan President Ramaphosa announced last month.
“Observers will want clarity on which departments and projects will be prioritised in order to execute the initiatives in the stimulus and recovery package. From the revenue and expenditure projections published by National Treasury, it may be possible to ascertain whether SARS is on track to meet its revenue target of R1.345 trillion for the current fiscal year. The MTBPS is likely to emphasise government’s policy position and implementation rather than announcing any short term tax stimulus” said Delia Ndlovu, Managing Director: Africa Tax & Legal for Deloitte Africa.
National Treasury has previously reiterated that details about possible tax changes will generally be dealt with during the February budget. However it is worth noting that options for further tax extraction are constrained given that rates for the two biggest sources of revenue – individual income tax and value-added tax, or VAT – have already been substantially increased.
One of the options available is to improve tax collection efficiency. Already, important steps have been taken to improve SARS’ efficiency, with the announcement in August that the Large Business Unit would be reformatted and the Illicit Economy Team would be re-established. Efforts to combat base erosion and profit shifting should also be stepped up.
The government can attract investment and stimulate economic development and growth by providing policy clarity and continuity. Improving policy implementation will also go a long way to restoring investor confidence.