SA warns of possible tax hikes

| Friday April 16, 2010 00:00

'At that stage (February's budget) we didn't see any need to increase taxes, but if the economic and revenue position does not improve, we will have to look at that question again,' he told parliament's finance committee.

An economic downturn last year hit government revenue, worsening the budget deficit, although a bigger-than-expected tax take in the 2009/10 financial year put the shortfall at 6.8 percent of GDP, less than the forecast 7.3 percent. South Africa kept spending up despite last year's recession to help the economy recover but has vowed to gradually cut the deficit and reduce debt.Lesetja Kganyago, the director-general of the National Treasury, said the budget deficit was expected to remain relatively large for the next three years due to a still weak global economy that may also curb local growth.

'The potential for a slow global economic recovery implies a sizeable budget deficit over the MTEF (three-year medium-term budget),' he told lawmakers, warning job creation was also seen 'sluggish'.

South Africa's economy shed almost 900,000 jobs last year, pushing the official jobless rate up to nearly 25 percent, but analysts see the recovery and the hosting of the soccer World Cup as helping to create jobs. Africa's biggest economy contracted 1.8 percent in 2009 and is seen growing by more than 2 percent this year, still way off the average 5 percent of the five years until 2008.

Kganyago said strong wage pressures and high oil prices were risks to the economic outlook, adding unused productive capacity may moderate investment growth this year.

South Africa's Reserve Bank unexpectedly cut its repo rate by 50 basis points to 6.5 percent last month to help speed up the recovery.

Inflation has slowed faster than the central bank had expected, but large fuel and power price increases are clouding the price outlook.-(Reuters)