Cape Town | Tuesday
FINANCE Minister Trevor Manuel will have significant room for both tax cuts and higher spending in Wednesday’s Budget, says Old Mutual Asset Managers.
Speaking during the company’s annual pre-Budget presentation on Tuesday, economist Rian le Roux said the minister could have as much as R14,5-billion ”to work with”.
Of this, R11-billion could be directed to personal income tax relief and R2,5-billion for a possible reduction in the taxation of retirement funds.
A further R1-billion could go towards lowering the import tariff on maize to help counter the sharp rise in prices in recent months.
”The bottom-line is there is a lot of room to manoeuvre in this Budget,” he said.
Le Roux said the turnaround in government finances from five years ago was nothing short of a fiscal miracle.
From being on the verge of a debt trap, South Africa was now in the enviable and praised position of being able to up spending and put money back in the pocket of taxpayers.
”In short, we’ve moved from a vicious circle to a virtuous circle.”
He said there had been a massive boom in revenue collection in 2001/02 with the actual amount possibly as high as R248-billion compared to the budgeted R233,4-billion.
Expenditure could be about R3-billion over budget at R261,1-billion, resulting in a budget deficit of only 1,3% and scope buy back about R13-billion in domestic debt.
The strong fiscal position could allow Manuel to use the Budget to support economic growth, which had remained disappointing over the past few years.
Social grants should increase, and infrastructure spending could rise sharply.
Le Roux said he expected a renewed commitment from the government to privatisation and some comment on the SA Reserve Bank’s chances of reaching its inflation targets.
He did not, however, foresee any changes to the target of between three and five percent for after the end of this year.
There should also be no change to VAT, despite speculation in the market that the rate of 14% could be lowered this year.
A drop in VAT was expensive a one percentage point drop cost the fiscus R4-billion and bucked the global trend away from direct to indirect taxes.
In addition, there was no guarantee that retailers would translate lower VAT into lower prices, Le Roux said.
Old Mutual Business Environment Manager Abri Meiring said the personal income tax relief package of R11-billion seemed probable.
He expected a reduction in the top marginal rate from 42 to 40% and the level at which it kicked-in increased to R250 000 from R215 000.
The secondary tax on companies (STC) the tax paid on dividends declared could fall from 12,5% to ten percent.
”There is a very definite possibility of a reduction in STC.”
Meiring said there was an urgent need for a review of the taxation of retirement funds, which sent the wrong signal to those looking to save for old age.
As an immediate measure, the rate for the industry should be cut from the current 25% to 18%.
”The question is, can we wait for a thorough review before we address a serious flaw in the system?” he asked.
Meiring said he expected further tax relief for donations to non-profit organisations and a reduction in the fuel levy.
As usual, ”sin taxes” on alcohol and tobacco would rise, he said. – Sapa