SOUTH African Finance Minister Trevor Manuel is likely to announce further tax cuts, increased government spending and new employment subsidies to get the economy on a strong growth path when he presents the budget midweek, predict economists.
The Bureau for Economic Research said the country’s deficit has been brought under control to the point where Manuel could afford to bring down taxes and increase infrastructure. Manuel last October projected the economy to grow by 2.6% for the financial year 2000/1.
BER’s Ben Smit said: “There is good stability but still growth has not been forthcoming. Investment is clearly not going to come from itself, they will have to look at infrastructure, privatisation and increased government spending. Government is stepping in more.”
Smit added that he expected government to proceed cautiously both on the tax and spending sides because it will not want to compromise the fiscal credibility it has earned, nor its commitment to a 3% increase in real terms in spending in coming years.
Econometrix economist Tony Twine said he expected the minister to lower the top marginal rate for personal tax, adjust the tax ladder to offset fiscal drag and raise the entry level to the top marginal rate. But he thinks Manuel will be less incisive on business taxes.
He also expects Manuel to give substance to President Thabo Mbeki’s recent promises of offering rebates to firms for employing more people – but, Twine said, he thought by itself this gesture “would not be sufficiently large to make a difference to most companies.”
An open question is whether Manuel will announce timetables for implementing capital gains tax in the near future, but Twine said he thought government would do well to hold back.
“It is inappropriate for an economy that is looking for capital inflows”, he said.
Economists said foreign investors will be looking to see whether Manuel announces an increase on the R10bn the government has said it is expected to make from restructuring state assets in 2002.
But Warren Krafchik, an economist with the Institute for Democracy in South Africa, said the best signal Manuel could give would be a promise to spend the spoils of privatisation on social infrastructure.
“Giving tax breaks to the middle classes and private sector is not going to push up investment, it has been done and they have not responded very strongly.
The faster growing economy Mbeki has this month repeatedly called for could be achieved if government led the way in investing in its own economy by “being more pro-active in spending. It would be good if they can privatise entities and get a good price but see it go to the poor.” – AFP