Both tax relief and relaxation of exchange controls can be expected when Minister of Finance Trevor Manuel unveils his 2006/07 Budget next Wednesday.
At a briefing in Sandton, Efficient Group chief economist Dawie Roodt said the numbers from November’s Medium-Term Budget Policy Statement showed that the minister would need R437-billion for the coming fiscal year.
However, if he were to do nothing to current tax rates, collections would be close to R470-billion, leaving Manuel with more than R30-billion to play with.
“The overrun will be about R10-billion on companies and R20-billion on individuals. Looking at this, one can intuitively say that tax breaks can be expected on individuals and companies and a couple of smaller changes,” said Roodt.
He cautioned, however, that a full R30-billion in tax breaks is unlikely because Manuel tends to be conservative on the revenue side.
On the individual tax side, one scenario would be for the minister to increase the tax brackets and reduce the tax rate across all brackets, except the lowest, by 1%. Under this scenario, the rebate would be increased by R900 to help lower-income earners.
Roodt noted that a typical family earning R32Â 000 a year receives R18 in goods and services for every one rand paid to the state. However, a family earning R1-million a year only receives five cents in goods and services for every rand in tax paid.
“This indicates the very strong redistributionary effect of the fiscus,” he said. “It also shows us that you can have a surplus on your fiscal account and still have an expansionary fiscus.”
When it comes to other tax changes, Roodt said the retirement industry is currently paying 18% on its interest and rent income.
Reducing that to 15% would only cost the fiscus R1-billion. Reducing it to 10% would cost R2,3-billion.
“I think that is a very likely possibility and a reduction would be very good for saving in the South African economy,” he said.
According to Roodt, there is also room for Manuel to reduce secondary tax on companies (STC) from the current 12,5% to 10% or even 5%.
“If I were minister of finance, STC is the first tax I would scrap. The minister is in a wonderful position to do this, but he has said he’s not going to as long as the ANC [African National Congress] is in charge.”
Roodt said Manuel could easily cut company tax from 28% to 27%. At a cost of R10-billion, Manuel could cut company tax to 25%.
Relaxations of exchange controls are also likely.
“It is even possible that forex controls on individuals can be abolished. The outflows — if that should happen — are not much.”
Roodt also expects exchange controls on the retirement and unit-trust industries to be loosened.
“If he does this, I think we can say that in South Africa we don’t have forex controls any more because for prudential reasons we have to have some controls on pension funds, for example.”
On the current fiscal year, which ends on March 31, Roodt said that he is expecting an overrun in revenue of about R43-billion, although Manuel’s figures are likely to be more conservative than this.
This would result in a fiscal deficit of about 0,2% — the lowest since 1981.
“It is even possible that overrun can be, say, R45-billion, in which case we would have a fiscal surplus for the first time ever.” — I-Net Bridge