A bold cut in the corporate tax rate and the secondary tax on companies is necessary to unleash South Africa’s growth potential, but Minister of Finance Trevor Manuel has not taken these steps, says the official opposition Democratic Alliance.
But the scrapping of the regional service council (RSC) levies has been recognised by the official opposition as lowering the corporate tax burden.
In a statement, the DA’s Ian Davidson said in reaction to the Budget that a deficit of only 0,5% of GDP demonstrates clearly the need for greater boldness.
The right-of-centre party said it nevertheless welcomes ”the broad set of tax breaks” announced in Wednesday’s Budget — including the R12,1-billion relief on personal income tax by raising thresholds and the increase in old-age pensions and child-support grants.
The DA also welcomed the reduction in retirement-fund tax — from 18% to 9%. This will positively affect retirement funding and increase the country’s worryingly low savings rate, said Davidson.
It also welcomed the withdrawal of the RSC levies — an inefficient R7-billion tax that did harm to job creation, it said.
Davidson also said the range of fiscal measures aimed at stimulating small business — including an increase in the threshold at which a business qualifies as a small business from R6-million to R14-million and capital gains tax relief — is welcome.
Davidson said he also supports the production of bio-fuels. Manuel suggested setting a proposed rebate of 40% on the general fuel levy for bio-diesel fuels.
He said the reduction of the budget deficit to 1,5%, ”while prudent for a developed economy, is inappropriate for a developing and growing economy. A deficit of 3% would have been sustainable and would have provided flexibility with regard to increased employment incentives and other categories of spending.”
Turning to privatisation, Davidson said: ”Once again we are disappointed by the slow progress of privatisation, which we believe would significantly reduce government’s public-sector borrowing requirement. Instead, we see more money thrown at Denel, the loss-making, scandal-prone, state-owned arms manufacturer.”
Manuel said a R2-billion investment has been made in Denel in the past year.
Social grants
The opposition United Democratic Movement said the specific tax relief aimed at pensioners, home owners, small business and low-income earners is welcome. However, it added that the rise in social grants was inadequate to tackle poverty.
UDM MP Jackson Bici said: ”Overall, the National Budget can be described as relatively good, mostly on the back of a growing economy and another year of better-than-expected revenue collection by the South African Revenue Service.
”A number of problematic areas remain, however. The failure to spend all allocated funds bedevils the best of delivery intentions. Especially at provincial and local level, shortages of skills and capacity, as well as mismanagement, nullify increasing budgets and shares of revenue.
”This is at the heart of many incidents of community protests. The real growth of social grants cannot be said to adequately address the real cost of living and therefore poverty will not be significantly reduced by this Budget.
”It was also disappointing that the minister did not use the opportunity of the Budget speech to mention the importance of rural development — which affects the majority of the poor. In the same vein, the minister neglected to mention and emphasise the HIV/Aids pandemic, which constitutes one of the single biggest threats to the future success of this country and that has the potential to undo all the positive economic developments of the past 10 years.”
Bici said: ”This is indicative of a lack of political will on crucial challenges facing the country.”
Good news
The Freedom Front Plus said the Budget can be described as a good news-budget with many concessions to individuals.
”Apart from the fact that the minister had a lot of revenue to hand out, the elections which will be taking place in two weeks’ time definitely had a lot to do with this. The FF+ finds it to be a pity that the minister did not use the abundant finances to give concessions with regard to company tax.
”In the long term, the government cannot create jobs and wealth. Good years such as this should be used to make it possible for companies to expand and create new job opportunities.
The FF+ said it welcomes the concessions regarding personal tax as well as the transfer-duty limit, which was increased from R190 000 to R500 000. It will help first-time buyers ”a great deal”.
”Retired persons will also be gaining from the reduction in the limit on retirement funds from 18% to 9%. The FF+ has been asking for this for the past three years. The party, however, believes that the minister had sufficient funds to cancel tax on retirement funds in totality. With the 9% reduction, the state will only be losing R2,4-billion.
”The increase in the limits on estate duty from R1,5-million to R2,5-million has been a necessity for a long time. Due to the increase in the price of property, a middle-income family ran the risk of the value of their house having increased to such a point where they would have had to sell their house to pay the estate duty, would a breadwinner suddenly pass away. This has hopefully now been avoided,” said the FF+.
”The minister set out the expansion of infrastructure and skills development as two priorities for development during the next year. The FF+ agrees with this. The third aspect which is necessary for real growth and development, and something which he did not touch upon, is the extent of crime. Clear announcements with regards to the increase of police salaries or the expansion of the police force were lacking.
”The agricultural sector is currently experiencing great economic difficulty. The FF+ misses the specific reference in the Budget to this. We become accustomed the annual increase of the so-called sin taxes, which includes tobacco and alcoholic beverages. According to our calculations the government is receiving more revenue from a bottle of wine than farmers, as the producers, receive.
”The continuous increase of these taxes is starting to cause permanent damage to this industry, especially for example in the Northern Cape. If traditional beer is left alone, the wine industry should also be given a chance one year.”
ANC welcomes Budget
The African National Congress welcomed this year’s Budget, calling it a firm indication that economic growth and social development are gaining momentum.
”The ANC welcomes the substantial investment in economic and social infrastructure, in education and skills development, in poverty alleviation, and in social development,” Smuts Ngonyama, party spokesperson, said in a media statement.
”It confirms the correctness of the policies pursued by the ANC-led government in the 11 years since the advent of democracy.
”The Budget is a clear reminder that much more needs to be done to tackle unemployment and poverty,” Ngonyama said.
He said the Budget is a signal that all South Africans need to work together to ensure that economic growth is accelerated in a sustainable manner.
— I-Net Bridge, Mail & Guardian Online reporter, Sapa