South African economists and interest groups have reacted to Minister of Finance Trevor Manuel’s 10th Budget speech delivered on Wednesday.
Kevin Lings, economist at Stanlib, said: ”Clearly the Budget favours the consumer side rather than the company side — there were no adjustments to company tax and to STC [secondary tax on companies]. Certainly we had expected a further reduction in company tax. So there is no stimulus there for companies.
”In terms of tax relief for individuals, it was exactly as we thought. There was really good tax relief for individuals and that should encourage further consumer spending. The relief was across the board, but mainly for the lower- to middle-income earners — as expected.
The adjustments to the levels for things such as capital gains, donations and the likes are welcome given that property prices have moved up.
”It can be called a consumer-friendly budget. There are two clear supports here for the bond market — the reduction in retirement-fund tax and the funding requirement is modest,” said Lings. ”As far as equities are concerned, it is positive from a consumer perspective and initially it will be treated favourably.
”As far as exchange controls are concerned, we had anticipated that, but I don’t think it will necessarily mean significant change for most individuals.”
Cees Bruggemans, FNB economist, commented: ”The budget was a cautious one. The increase in the individual annual offshore limit from R750 000 to R2-million won’t have much impact and the move was part of an orderly relaxation of foreign-exchange controls.”
Said Nyiko Mageza, economist at Absa: ”The insurance industry as a custodian of pension funds will love the Budget. Financial stocks will love the Budget because it marginally encourages savings and will probably increase flows, so it’s positive for the financial sector.”
Mike Schussler, economist at T-Sec, said: ”I think it’s a good Budget, but not a great Budget, because I believe Manuel had a lot more room to cut individual and company taxes even further.
”On the spending side, he certainly increased spending quite dramatically, but the fact is that to grow jobs permanently, we need tax relief as such.
”The R13,5-billion tax relief for individuals is a bit of a PR exercise, because the lowering of vehicle allowances and medical-aid allowances will negate part of that and the actual effect is less than R10-billion.
”I think it’s a good Budget for the bond market and an unfortunate one for Sasol.”
‘Wonderful’ Aids news
The additional Budget expenditure on anti-retrovirals is ”wonderful, wonderful news”, Gail Johnson, founder of Johannesburg’s Nkosi’s Haven home for HIV-affected children, said.
”But let’s roll out now,” added Johnson, after Manuel announced that an additional R400-million has been allocated for anti-retrovirals for the coming year.
The grant, which stands at R1,15-billion in the current financial year, will rise to R1,57-billion in 2006/07. Johnson also welcomed the increases in the child support, foster care and old-age grants.
”Who could live on R190 a month?” said Johnson of the new child-support grant, but added: ”If you’re 100% destitute, it’s better than nothing.”
Tobacco
The Cancer Association of South Africa (Cansa) welcomed the increased taxes on tobacco products announced by Manuel.
”With more than 25 000 South Africans dying each year due to tobacco-related illnesses, Cansa welcomes measures, such as taxes, that will discourage people from smoking,” said Elize Joubert, acting Cansa CEO.
”We are looking forward to the announcement of stricter laws further curbing tobacco advertising and smoking in public,” Joubert added.
British American Tobacco South Africa (Batsa) said it has noted that Wednesday’s proposed increases in excise taxes on tobacco products are in line with previous government policy, but is concerned that the continuing increases are sparking further growth in the illicit trade of tobacco products.
Manuel unveiled increases of between 4,7% and 10,2% in tobacco excise duties — all in accordance with the policy of maintaining a total tax burden (value-added tax plus excise tax) of 52% on all categories of tobacco products. The increases are expected to raise R645-million in additional revenue.
The Treasury also announced a review on the total tax burden on cigars as a percentage of the retail selling price, given that cigars are significantly more expensive than other tobacco products. The method of calculating the total tax burden on cigarette tobacco will also be reviewed.
”We are concerned about the growth in illicit trade of tobacco products that has directly resulted from year on year increases in excise,” said Batsa’s Andre van Pletsen, regional excise manager. ”This has made increasing numbers of low priced non-compliant brands available to cash-strapped South African smokers, thereby defeating the purposes of the government’s health agenda relating to tobacco products.”
According to Batsa’s estimates, the level of illicit trade has risen to between 15% and 18% of all cigarettes smoked, with a higher concentration in Gauteng. This translates into substantial loss of revenue for government.
With the latest increase in excise, Batsa expects to contribute more than R7-billion annually in excise duty and VAT to the government.
Retirement tax
The cut in retirement-fund tax announced by Manuel has been welcomed as great news by Channel Life CEO René Otto.
”This is great news for the entry-level market. The additional 9% can now be reinvested to ensure much-needed additional funds during retirement.
”It is encouraging to see government’s foresight benefiting our people, especially where a little extra money makes a big difference.”
The Treasury proposes halving the tax on retirement funds to 9% from 18%, making it easier for individuals to save.
Defence
The 2006/07 defence budget has been well received, with one observer calling it realistic and another calling it positive. Asked for comment, African Armed Forces editor Peter McIntosh said the budget is realistic.
”It is coming into line with international norms regarding personnel, equipment and operational costs,” he said.
Institute for Security Studies defence analyst Len le Roux said the budget is an improvement on the Medium-Term Expenditure Framework.
He added that the emphasis in the landward budget, meaning the South African Army, is particularly welcome as that service is bearing the brunt of South Africa’s peacekeeping effort but has been left out of the strategic defence package that saw the navy get new ships and submarines and the air force new planes and helicopters.
Le Roux also called on the Department of Defence to speed up the rewriting of the Defence White Paper.
”The budget still does not address the fundamental problem of the misalignment of the defence funding and defence policy. We know the South African National Defence Force [SANDF] is underfunded in terms of current policy. South Africa has now been waiting two years for the promised redrafting of the White Paper. This needs to be finalised so that we can measure the budget against the new policy, not old, as is now the case.”
According to documentation released by Manuel as part of his annual Budget on Wednesday, the special defence account, used to buy weapons and equipment for the SANDF, will continue to consume more than a third of the country’s defence budget, although it is set to decline over the next three years.
The account averages 35,6% of the Department of Defence’s total spending, which increases from R24-billion in 2006/07 to R26-billion in 2008/09.
Housing
First National Bank (FNB) has applauded the announcement made by Manuel that houses costing less than R500 000 will no longer attract transfer duty.
Ed Grondel, CEO of FNB Home Loans, said: ”This move will help to further encourage home ownership in South Africa. This positively affects prospective first-time homeowners, where a saving of R25 000 would be enjoyed on a home of R500 000.
”With the steady increase in property prices over the past 24 months, this is a welcome relief to individuals wanting to enter the market.”
Asgisa
Business Unity South Africa (Busa) has welcomed the broad ”good news” message of the 2006/07 Budget and the extent to which it reinforces the thrust of the Accelerated Shared Growth Initiative for South Africa (Asgisa).
The business chamber said the key decisions maintain predictability and certainty in fiscal policy. This remains essential to sound overall economic performance, said Busa, which is also committed to Asgisa.
”In view of the major importance of investment, especially private investment, as an engine of growth, Busa welcomes the elimination of regional services levies and the greater assistance to small business,” it said.
”However, it regrets that the corporate tax rates have not been reduced. Busa believes that this is the ‘step change’ needed to reach the desired level of total investment required to support a future 6% growth rate, with its associated benefits for job creation and poverty alleviation.”
Busa urged for the maximum use of public-private sector partnerships to help address the state capacity and delivery challenges that exist and boost efficiency.
”Finally, Busa also welcomes the further liberalisation of exchange control as another significant step in normalising South Africa’s foreign-exchange market. Together with the other positive aspects of the Budget, it all adds up to demonstrable evidence of the extent to which the South African economy in recent years has become bigger, stronger and better.” — I-Net Bridge, Sapa