South African Finance Minister Trevor Manuel on Wednesday tabled a conservative Budget, eschewing corporate and individual income tax rate cuts, even though the revenue over-run in the 2005/06 fiscal year is projected at R41-billion.
Compared with last year’s Budget, when the fiscal deficit to gross domestic product ratio was forecast to remain near 3% over the medium term, Manuel this year reduced that to the 1,5% level after an expected deficit of only 0,5% in 2005/6.
What Manuel did do was provide R19,1-billion in tax relief in the form of adjusting individual income tax brackets (R13,5-billion), as well as reducing the tax rate on retirement funds to 9% from 18% (R2,4-billion) and adjusting rates on transfer duties (R4,5-billion).
If he had kept the fiscal deficit ratio at 3%, then he could have granted a further R25-billion in tax relief.
Economists surveyed by I-Net Bridge expected Manuel to cut personal taxes by about R20-billion, with a range from R18-billion to R30-billion.
Last year, Manuel unveiled reductions in personal income tax totalling R6,8-billion for the 2005/06 fiscal year after R4-billion worth of personal income tax cuts were granted in 2004.
Since 1996 South Africans have benefited from more than R66-billion in personal income tax relief, primarily alleviating the tax on low-income earners.
The conservative stance is also evident in the revenue projections, where the Treasury forecast a 13,2% rise in revenue in 2006/07 before tax proposals compared with an 18,2% rise in 2005/6 and 16.2% in 2004/5.
The easing in revenue growth is despite a rise in nominal GDP growth to 9,9% in 2006/7 from 9,8% in 2005/6. – I-Net Bridge