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QUESTION 1: [as] South Africa is currently in a difficult fiscal position with the 2019 Medium Term Budget Policy Statement mentioning that: South Africa's public

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QUESTION 1: [as] South Africa is currently in a difficult fiscal position with the 2019 Medium Term Budget Policy Statement mentioning that: "South Africa's public finances deteriorated over the past decade. a trend that acceierated in recent years as low growth ted to iarge revenue shortfalls. For 10 years. we have run large budget deficits. While this provided some support to the economy. it has put us deeply in debt. to the point where interest payments have begun crowding out sociai and economic spending programmes. This cannot be sustained\". Against this background it is important to analyse trends in the various revenue streams of the state. In this question you will have to estimate the value added tax {VAT} collections for South Africa. You are provided with the following data: t|.I|'a.rial:1'|e names and description: VAT : 1value added tax revenue. nominal (R millions} HCE : Final consumption expenditure by households. nominal (R millions) HYD : Disposable income of households. nominal (R millions} M3 : Money supply, nominal (H millions} LAB : Nominal labor costs in the non-agricultural sectors (Index. 2010 = 100} INF : Ination (percentage. quarter on previous quarter at annual rate) CPI : Consumer price index (Index. 2015 = 100) The data for the above variables is available in sheet "ECSd-BES MayJun 2020 Question 1" of the MS EXCEL tile "ECSatEE-B MayJun 2020 dataxls". It is quarterly values, for the period 1900Q1 to 2018Q4. Before you start answering the questions. make sure that you generate the necessary real values of the data and log all applicable variables. (a) Calculate and provide a graph of the real value added tax for the period 1900 to 2018. Discuss the trends you observe in VAT collection. before and after 2008. (4) {b} Draw a graph which indicates both nominal and real value added tax for the period 1090 to 2018. Consider the different trends of the two series. do you agree with the statement that: "VAT collections continue to grow strongly despite a weakening economic environment"? Explain your answer. {4} {c} Differentiate between the inflation and consumer price index variables. How would you calculate ination if you were only provided the CPI index? {2)

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