Finance Minister Chris Liebenberg denies a trade-off between labour and the pensions industry, reports Madeleine Wackernagel
This year’s Budget had not been expected to raise the roof, nor did it. But Chris Liebenberg, the Minister of Finance, was quietly confident it would be well received by the markets, big business and labour alike. He insisted it was most definitely not a standstill Budget, nor a “holding operation”; indeed, in many respects, it showed courage and innovation.
Business had other ideas. The South African Chamber of Business (Sacob) had pushed for a 1% hike in value-added tax (VAT) — that didn’t happen. But the expected levy on the retirement funds did, at 17%.
Sacob was unimpressed: “The decision to tax the income of pensions funds will be extremely onerous administratively and is, in Sacob’s opinion, badly flawed as it amounts to little more than a raid on the nation’s savings. This, combined with the decision not to increase the VAT rate at this time, sends out the wrong message in respect of the relative discouragement of consumption and the encouragement of savings and raises questions about the ability of the government to take tough, and possibly politically unpopular decisions.”
Liebenberg emphasised that no deals were done; there was no “trade-off” between labour and the pensions industry. Raising VAT made no sense when substantial unused funds were being rolled over, with the concomitant wasted opportunities for job creation. But the pensions bullet had to be bitten: South Africa’s contractual savings industry was the second best in the world, he said, because of low taxes. Its wealth had to be addressed and the Katz Commission proposals made perfect sense.
Furthermore, the regressive nature of VAT argued against an arbitrary increase. To the criticisms from the pension fund industry that the levy will hit the lower-income groups hardest, Liebenberg’s response was swift: over a longer-term period of 10 to 15 years, it is the highest income groups that pay more, while the lowest benefit.
Sacob wanted an investor-friendly Budget and in many respects that call was answered. The Secondary Tax on Companies was lowered — by more than the expected 10%, from 25% to 12,5% and the Marketable Securities Tax was cut in half to 0,5%.
And Liebenberg re-affirmed the government’s commitment to fiscal discipline: the Budget deficit target is 5,1% of gross domestic product (GDP), against an out-turn of 6% for 1995/96. The public debt total, therefore, is projected at 55,6% of GDP, compared to 56% last year, so the debt trap spectre is fading, slightly.
Consumers, as long as they don’t smoke, drink or drive, have reason to cheer. In line with the government’s pledge to iron out personal income tax inequities, tax bands have been further consolidated; the top rate of income tax now kicks in at R100 000 and the minimum tax threshold has been raised from R14 600 to R15 580.
Reaction in the markets was good; the long bond rate was strong at 14,9% after the speech, having been 15,4% in the morning, and the rand also took heart, rising against the dollar to R3,89.
But business and the markets alike had hoped for a more definite statement on relaxing exchange controls and privatisation. All Liebenberg said on the former was that the government was still on track for a gradual move at some stage but that the Budget was not the proper platform for such announcements; on the latter he said steady progress is being made.
His moves towards restructuring the public sector were well received, as were his pledges for more efficient tax collection. Indeed, he could hardly justify an increase in VAT when R10-billion slips through the tax net every year. To this end, the South African Revenue Service will be launched next month — although the position of chief executive remains empty.