Thursday, September 24, 2020

Tax cuts will balloon government deficit

With a budget deficit anticipated in the coming financial year, the idea of tax cuts to stimulate economic growth has been ruled out because government heavily relies on taxes.

Normally, when an economy goes into a recession, government cut corporate and personal taxes to keep people employed and increase consumer spending although there is risk of fuelling inflation on the flipside.

However, for economic commentators, like Dr Keith Jefferis, the option of tax cuts on the upcoming budget speech will worsen government deficit.

“It is not a good idea because this is government revenue,” said Jefferis who is also the Chairman of Bifm’s Investment Committee.

“If we decrease tax by P1 billion, it is like increasing government spending. For non mining sector, it is something that could be considered. It is a good opportunity to look at that,” he told Sunday Standard.

He said that Debswana is the only company paying taxes in the mining sector and the global economic recession means that the company that is co-owned by De Beers and government, on 50/50 basis, will not be paying tax for now.

With a decline in government revenues mostly from diamonds, it will be a tall order when Finance Minister Baledzi Gaolathe delivers his annual budget speech tomorrow (Monday).

Most company owners are suggesting tax cuts so that they save some money and keep workers coming to work.

“If budget goes into deficit, it is difficult to reduce taxes. In terms of non mining sector survival, it is possible. Companies have to curtail costs and tax is one area,” he added.

The annual report for Botswana Unified Revenue Services (BURS) for 2007 has shown that a total of P15.8 billion in taxes was collected in financial year 2006/07.

The report showed that the income tax was leading the pack at P6. 9 billion, Customs Union stood at P6.6 billion and followed by Value Added Tax (VAT) at P2.1 billion.

Jefferis said he hoped, come Monday, government might announce a cut in spending and wastage is stopped.

“Government should curtail waste. It is going to be a tough period for the next two years,” he said, adding that most of the government projects are implemented with little impact.

Bifm was supported by Investec Asset Management Botswana’s Fund Manager, Bakang Seretse, who said ‘definitely tax cuts are out of the question’.

Seretse said government is going to rationalise expenditure and do away with any discretionary spending.

“We also foresee certain projects being postponed,” Seretse said, adding that other available tools that government could use to stimulate the economy would be lowering interest rates and borrowing from the capital markets to fill in the void of reduced revenues in light of poor diamond sales.

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