Gordhan's 'balanced' budget leaves some disappointed
Analysts are positive about Finance Minister Pravin Gordhan's fifth budget. There is concern however that the good news can easily turn sour.
Finance Minister Pravin Gordhan's fifth budget was generally well received, with analysts commending him on his success in balancing the need to show growth while reducing government spending.
Some, like the Manufacturing Circle – an organisation that represents the manufacturing sector, while positive, were disappointed that no cost cutting measures were announced to assist the manufacturing sector, such as driving down high administrative costs. They found an increase in the fuel levy also regrettable.
The question for many was whether government had the ability to effectively implement the budget policy.
Investec economist Annabel Bishop on the whole saw it as "a surprisingly good news budget showing a narrowing in the projected deficit and real expenditure growth – likely to prompt positive comments from the rating agencies".
While Business Unity South Africa called it balanced and realistic providing much needed "certainty and stability" sending out a message that "fiscal prudence remains and overriding consideration in the handling of South Africa's public finances".
Banking service HSBC said headline fiscal numbers "surprised slightly on the positive side with the 2013/2014 deficit cut to 4% of GDP [gross domestic product], from 4,2%, narrowing to 2.8% of GDP in 2016/2017".
It warned, however, that the budget was based on optimistic growth predictions, leaving little room for a economic downturn.
Pam Golding chief executive Andrew Golding welcomed Gordhan's "emphasis on controlling state expenditure while still placing a priority on encouraging growth, job creation and infrastructure expenditure".
He commended both the R6.5-billion set aside over three years to support small and medium enterprises, as well as new spatial plans for cities that involve upgrading of informal settlements and public transport.
"From a property market perspective, it is disappointing to note that there was no property specific tax relief or schemes introduced to help [increase] home ownership generally, but in particular first time home ownership," said Golding.
Business Unity South Africa (Busa) welcomed government's emphasis in the budget on support to small and medium business, "to whom the NDP [National Development Plan] looks to create the bulk of jobs in the future", Busa policy advisor Raymond Parsons said. "Additionally, the recommendation to ease the compliance burden on small business, made by the Davis Tax Committee, will be a positive contribution to entrepreneurial development."
Busa said it supported the delay to the implementation of the carbon tax by a year to allow for further consultation between business and government.
HSBC said the 2014/15 budget "once again shows improvements in key areas, including lower budget deficits over the medium term". It said the improvement decrease in government deficit "reflects Treasury's successful implementation of its main budget non-interest expenditure ceiling, strong revenue growth and underspending by government departments".
It was concerned that the macroeconomic outlook does not "sufficiently incorporate downside growth risks or risks to key revenue streams, with corporate tax expected to grow by 12.4% in 2014/2015 and VAT revenues expected to expand by 11.6%".
Misleading tax relief
Solidarity senior researcher Piet le Roux said Gordhan's announcement of tax relief of R9.25-billion was misleading, as it could actually amount to an increase in income tax for many should an inflation rate increase push them into a new tax bracket. "Only a taxpayer receiving an increase of less than 5.4% this year – therefore those becoming poorer in real terms – will cede a small part of taxable income to personal income tax."
Christo Paxton, speaking for PwC, also raised concerns about what this tax relief means in real terms. "When comparing an individual's tax liability who earns about R200 000 a year, the individual will have an additional R106 extra in their pockets every month. This barely covers the ever-rising cost of fuel and consumerables."
He said someone earning R700 000 a year would have an extra R370 in their pocket. "This is not quite enough to compensate us for the effects of inflation," he said.
Investec's Annabel Bishop remained upbeat on the budget saying continued cuts in government spending are likely to see surplus in current savings by 2016/17. She said: "This should further cheer the rating agencies, which should have little to take issue with in this budget and much to congratulate South Africa for in turning the fiscal ship around."
She said South Afria's projected debt as percentage of the GDP remains relatively low globally.