The Minister of Finance, Pravin Gordhan, presented a reasonably well balanced, but increasingly complex and somewhat uninspiring National Budget yesterday. He tried to achieve a tough balancing act of stimulating investment and employment, but at the same time providing increased social security and some tax relief. Unfortunately, all of these objectives are ultimately constrained by a lack of growth in the tax base.
Some of the highlights included:
- Economic growth of 3.4% forecast for 2011, increasing to 4.4% by 2013.
- Consumer price inflation expected to rise to 5.5% by 2013.
- The current account deficit projected to rise from 3.2% in 2010 to 5% in 2013.
- Budget deficit of 5.3% projected in 2010/11, 4.8% in 2012/13 and 3.8% in 2013/14. Fiscal policy remains broadly counter-cyclical.
- Tax revenue exceeded budget in 2010/11 by R24 billion, mainly as a result of a R17.3 billion over-collection in VAT and R5.9 billion more customs duties. Corporate tax revenue was below budget. The tax revenue overrun was reduced by an amount of R2.9 billion which was transferred to the Southern African Customs Union (SACU), while Provinces needed a further R6.7 billion that had not been included in the initial budget.
- Modest personal income tax relief of R8.1 billion, which is higher than the R6.5 billion granted last year.
- A third rebate for individuals 75 years and older.
- A reduction in property transfer duties.
- General fuel levy increase of 10c a litre, and 8c a litre more for the Road Accident Fund.
- Increases of 4.5% -10.3% in taxes on alcohol and tobacco products.
- Taxation of gambling winnings.
- Very modest adjustment to the tax incentives to save.
- A substantial increase in transfers to the SACU, but not back to peak levels.
- An improvement in health provision, with the Minister highlighting that the proposed National Health Insurance (NHI) will require a significant increase in taxes; possibly a rise in the VAT rate, a payroll tax, or additional direct taxes.
- The number of individuals receiving a social grant every month has increased to almost 15 million, and is projected to keep rising.
- Government’s wage bill now comprises 33% of the National Budget and had risen by an average of 17.3% each year for the past 3 year. Government is projecting a rise of only 8% in 2011/2012.
- Investment incentives for manufacturing, with a special focus on job creation.
- R9 billion Jobs Fund to co-finance employment initiatives.
- Youth employment subsidy of R5 billion to create net 178 000 jobs over three years.
- Relatively unchanged public sector borrowing requirement.
- Moderate use of offshore funding.
- No exchange control relaxation.
- National government gross loan debt projected to rise to over 40% of GDP by 2013/2014. This is still manageable, but likely to trend higher.
Overall, there was an increased emphasis on job creation, but ultimately these measures remain fairly modest in the context of the broader economy. The introduction of a wage subsidy was, however, a key policy highlight since it effectively tries to mitigate against the current excessive labour market regulation. The increase in social grant payments is clearly a major concern, and serves to emphasise the need to create employment and expand the tax base. The tax changes were relatively minor, although the rise in the fuel levy and excise duties will exacerbate the current concerns over inflation. Government’s debt levels remain very manageable, but there is clear evidence of an upward trend developing. The Minister has tried to satisfy numerous competing demands and while he achieved a reasonable balance, there is a risk that the budget ultimately lacks a clear and unambiguous focus.
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