Finance Minister Trevor Manuel moved to spur economic growth on Wednesday, unveiling a Budget to put billions of rands back into taxpayer’s pockets, and spending to help uplift the poor.
Lower and middle-income earners are the big winners in a proposed personal tax relief package of R13,3-billion, while the tax on retirement funds will drop from 25 percent to 18 percent.
In a one-and-a-half hour speech to the National Assembly — his seventh Budget address — the minister said the 2003/04 Budget extended the growth strategy of the past two years, providing real cuts in tax and increased welfare spending.
“It embodies a set of policies aimed at pushing back the frontiers of poverty, whilst supporting growth and creating opportunities.”
Government spending is expected to rise by an average 4,5% over the next three years, with social grants rising by more than inflation. From April, the pension and disability grants rise R60, to R700 a month, and the child grant increases by 14%, to R160 a month. The child support payments will be gradually extended to children up to age 14, starting with those aged seven and eight.
An extra R38-billion over three years will be directed to provinces to pay for the higher grants, as well as medicines, road maintenance and infrastructure spending.
Another R3,3-billion will be added to the provincial equitable share and conditional grants to fight HIV and Aids.
However, civil society groups were disappointed, complaining Manuel was not doing enough to alleviate poverty. The Basic Income Grant Coalition, the Treatment Action Campaign and the Alliance for Children’s Entitlement to Social Security described the increase in grants as “a missed opportunity” and “total embarrassment”.
The Budget was well received by economists. Sanlam Investment Managers economist Jac Laubscher said he was happy with government’s proposals.
“It is quite clear government is doing all it can do to create a more friendly environment for growth… and therefore three percent (GDP growth) for this year is quite possible.”
The biggest surprise in the Budget was government’s plans on relaxing exchange controls. “It amounts to quite an expensive overhaul of controls… overall it must be welcomed, but government was much more bold than I would have imagined,” he said.
Manuel announced that long-term insurers could, from May 1, invest up to 15% of total assets offshore, and pension funds up to 20%.
Local companies could invest up to R1-billion — double the previous allowance — outside Africa, and dividends repatriated from foreign subsidiaries would be eligible for an exchange control credit, allowing them to be re-exported for foreign direct investment.
The minister also announced an amnesty for funds illegally moved offshore in the past, and plans to unblock frozen emigrant funds. Opposition political parties agreed the document was “balanced”, but expressed some concern.
The Democratic Alliance said while the Budget aimed to strike a responsible balance between sustained economic growth and social relief, there were still a number of areas that required urgent attention.
“The DA is alarmed that while professing social spending, the government is again spending on defence,” party representative Raenette Taljaard said.
Manuel’s tax proposals contain further relief for individuals and small companies, lower transfer duties, an incentive for investment in inner cities, and, as usual, higher duties on alcohol and tobacco. Fuel levies also rise. Direct company tax rates remain unchanged.
The primary rebate rises to R5400, meaning taxpayers under 65 years of age and earning less than R30 000 a year will not pay any tax.
The threshold for those older than 65 jumps to R47 222 a year. A person, under 65, earning R120 000 a year will now pay R4 640 less in tax each year. All brackets are adjusted and the top marginal rate of 40% will kick in at an annual salary of R255 000.
The interest and dividend income exemption is raised from R6 000 to R10 000 a year for persons under 65, and from R10 000 to R15 000 for those 65 or older.
Transfer duties are also adjusted to make it easier to buy a home. The threshold for the duty rises from R100 000 to R140 000. The stamp duty on insurance policies and fixed deposit receipts will be abolished from April 1, as will the excise duty on computer equipment. Manuel said the turnover limit for small businesses qualifying
for the lower company tax rate of 15% would rise from R3-million to R5-million.
As usual, “sin taxes” will rise. A packet of cigarettes will cost 37,7 cents more, beer goes up by 4,35 cents for a 340ml can, wine by 6,7 cents and spirits by R1,18 per 750ml bottle.
In an effort to rejuvenate inner cities, the state will sacrifice R1,3-billion over four years to persuade business to invest in urban renewal. Black economic empowerment also received special attention, with government setting aside R10-billion over the next five years to help fund new ventures and business expansion.
Manuel said the economy grew by three percent in 2002, and is expected to expand by 3,3% this year. The Reserve Bank’s inflation barometer — CPIX — should average
7,7% in 2003. – Sapa