Do annual government budgets really matter? A great fuss invariably accompanies them and they attract a degree of examination which seems quite disproportionate for what they usually turn out to be.
In fact, the annual budget is really little more than a household accounting of how much money will be needed to pay for the everyday requirements (and the social eccentricities) of the party in power, with the shortfall taken up by borrowing.
Budgets are important in one critical sense – they underline the extent to which ordinary taxpayers are required to pay for the government’s chosen policies over the next year. At the end of the day, there’s really no substitute for a close examination of the places and policies on which the money lifted from your wallet will be spent.
And the budget is frequently used as a platform from which the same ruling political party can remind its electorate of its dedication to the principal planks of its election manifesto. This is why, certainly in an election year, what the minister of finance hands to the government’s supporters is often of more than passing importance.
In a sense therefore, and because the African National Congress has largely avoided the temptation to parade a vote-grabbing line just a few months before a general election, it has displayed a maturity and confidence appropriately associated with a grouping which wears the mantle of power with ease. This is a party which knows very well that, for the time being at least, its hold on power is pretty well unassailable.
And by and large, this was a good budget. There was something in it for most interest groups. An overriding theme – prompted by the decision to reduce company tax to 30% from 35% – is the minister’s desire to make South Africa a genuine destination for long-term (as opposed to speculative) investment. This underlines the government’s anxiety to maintain and enhance the country’s international credibility – genuinely critical as we all know how vital it is for job creation and consequent economic growth that foreign investment in fixed capital projects must be encouraged.
Let it also be said though that the secondary tax on companies (STC) needs to be scrapped as it confuses foreign investors and it isn’t covered by double taxation agreements with other countries.
However, even with the retention of the STC it still pays these days to funnel wealth creation and expansion through companies rather than in an individual capacity (because tax on individuals is so much higher).
For those of you with money to invest, the impact of this reduction in the maximum rate of company tax probably means that earnings in the banking and industrial sectors will increase appreciably. It is unlikely to do much, though, for the fortunes of insurance and mining companies.
And there are a few features which deserve particular attention. The first is whether this budget, coming as it does on the eve of a sea change in the management of the Reserve Bank, may not signal the possibility of a U- turn in hardline monetary policy. The counter to this is that Minister of Finance Trevor Manuel’s inflation expectation of between 5% and 6% is actually very low – it will take a powerful dose of discipline to keep it at those levels.
A second is that I was genuinely taken aback by the size of the massive loss of R13,4- billion sustained by the Reserve Bank on its forward cover operations in foreign exchange. My own expectation, given the comparative stability of the rand, was for a much smaller loss than has been shown (and which, by the way, is not reflected in the budget).
But, considering this is an election year, the way the government has avoided the temptation to make things look better for ordinary people has to be a matter of congratulation, though let’s face it, giving presents to 40-million people is a tall order.
The real priority over the next few years will be to reduce the high marginal rate of tax applied against individuals. If you’re a really high earner the budgets of the past few years will have had no appreciable effect on your disposable income. If you are in the poor category, you will have seen some benefit.
But if, however, you are in the so-called middle class, well, bad luck – this is where the real erosion has taken place. The only way out is to present your case forcefully to elected politicians.
The high taxes on so-called sins aside (the attack on motorists seems excessive), this was, for a change, a welcome budget. I happen to be obsessed, however, by the need for growth and this offering appears disappointingly to be a model instead for stability – which can so easily become stagnation. And that is where the danger may lie.