The South African Communist Party says it is pleased that Minister of Finance Trevor Manuel resisted “a very powerful campaign” in the past few weeks for a reduction of company tax.
Generally welcoming the Budget presented on Wednesday, the SACP’s general secretary, Blade Nzimande, said in a statement: “It is not that this is a Budget that is unfriendly to private corporates, but it seeks to channel the benefits of sustained growth over the past decade into sustainable investments, and not simply into tax relief for the richest.
“We would have liked to see a marginal raise in companies tax, in line with the president’s call that since business has benefited from the first decade of freedom, they need to plough back into the developmental priorities of our country.”
It is a Budget that generally resists the temptation of sending short-term “positive” signals to the markets, and it concentrates more substantially on the systemic issues that are required to ensure sustained and shared growth, he said.
The party said it is a Budget that places the emphasis on infrastructural investment and training.
Nzimande said the Budget also underlines the importance of social grants. “In his speech, Minister Manuel indicated that the R70-billion spent on social grants in the past financial year provides around half of all income to the 20% poorest households in our country.
“On the one hand, this is a sobering reality. However, it is also clear that, apart from buoyant international primary commodity prices, domestic demand has been the other key driver of our current 5% growth. While growth cannot be sustained simply on demand factors, we should not underestimate domestic demand as an important contributor to growth, and this includes demand stimulated by social grant transfers to the poorest households. Social grants can be (and, we believe have been) a stimulator of growth, and not a subtraction from it.”
The party called on the government to pass the necessary legislation as required by Section 77 (2) of the Constitution to allow Parliament to amend money Bills.
“Such legislation would enable the Budget process to be more transparent than it is now and for public representatives to have a say on the Budget.”
Revenue overruns
Meanwhile, the large revenue overruns in South Africa warranted a reduction in the maximum marginal rate for individual taxpayers as well as a cut in corporate taxes, says the African Christian Democratic Party.
Responding to the Budget, ACDP MP Steve Swart said his party believes that corporate tax rates could have been reduced from 29% to 28% and the secondary tax on companies could have been cut from 12,5% to 10%. “If one wants to achieve a sustainable 6% growth rate, one should not overtax companies. A reduction would also have encouraged foreign investment,” he said.
Swart said: “We do however welcome the elimination of the regional service council levies as well as other tax relief for small business such as the small-business income-tax exemption threshold (increased from R35Â 000 to R40Â 000).
“The ACDP encourages small businesses that have been non-compliant with the tax system to make use of amnesty proposals to regularise their tax status,” he said.
He said his party welcomes the increases in social grants, particularly the increase in old-age pension, disability and care dependency grants. “Although these increases are modest, they will assist society’s most vulnerable in the short term.
“The reduction in the rate of retirement tax on pensions from 18% to 9% will, we trust, encourage South Africans to make provision for their retirement. Additionally, we trust that it will encourage a culture of national savings, which at present is at alarmingly low levels.”
Property
The Budget is good for the South African property market, commercial bank Absa’s senior economist Jacques du Toit said on Thursday.
The good news is due to the significant cut in transfer duty on property for the fifth consecutive year, while the capital gains tax exemption on a primary residence was lifted from R1-million to R1,5-million.
The South African residential property market performed strongly during the period 2000 to 2005 with nominal house prices increasing by an average of about 20% a year over this period.
According to the Absa house-price index, property prices have risen by 132% since October 2001, when the capital gains tax was introduced, and January 2006. The capital gains tax exemption on the primary residence should therefore be R2,3-million to keep pace with house-price inflation.
Against this background, average house-price growth may well be above Absa’s current forecast of 12% this year compared with 22,1% last year, 32,2% in 2004 and 21,4% in 2003.
The substantial lowering of transfer duty on property is an effort by the government to make home ownership more affordable, especially for the lower-income groups, taking into account the strong increase in property prices in recent years and a bigger focus on housing delivery at the bottom end of the market.
This, in conjunction with the government’s housing subsidy for low-income, first-time homebuyers, will support the lower-end of the housing market.
Budget good ‘on balance’
Despite the odd shortcoming, the 2006 Budget is on balance good and entrenches South Africa’s good fiscal record, Brait economist Colen Garrow said on Thursday.
He said that in many ways the Budget for 2006/07 is conservative, but conservative is good in the sense that it not only enforces the three-year road map on which the government intends taking the economy, but also promotes stability, an element both domestic and foreign investors seek in their business plans for more tangible involvement in the economy.
Tax relief is widespread, particularly for lower-income earners. It could, however, be argued that tax cuts for companies could have been tabled, especially since the government is seeking to engage private enterprise in its public private partnership and urban development zone initiatives.
“It is through these vehicles that general government, public corporations and private enterprise need to take joint and several ownership of the massive and ambitious infrastructural roll-out government has planned for the following three years.
“From this perspective, it is somewhat disappointing that corporate tax remains unchanged at 29% and that STC [secondary tax on companies] also remains unchanged at 12,5%,” Garrow added.
Probably the most enterprising part of the Budget, he said, is the incentive for homeowners, especially for low-income earners faced with real price movements of property that has pushed affordability beyond their reach.
“Transfer duty now kicks in at R500Â 000. Also welcome is the movement in the threshold on primary residences, from R1-million to R1,5-million, for purposes of capital gains tax.
“Another positive is the stimulus to retirement savings, which sees the tax trimmed from 18% to 9%.
“On the issue of exchange controls, a gradual and phased abolition of these restrictions is welcome. Government policy since 1995 has been consistent and responsible. However, with foreign and domestic confidence towards South Africa at multi-year highs, a bolder and more aggressive initiative was possibly required.
“For instance, the ceiling on private foreign-currency accounts was moved from R750Â 000 to R2Â 000Â 000. Yet, South Africans who fell foul of the tax and exchange-control regulations by taking assets offshore illegally, and who subsequently disclosed these assets and paid penalty levies, can potentially hold assets which exceed the R2Â 000Â 000 ceiling. This is inequitable for those South Africans who abided by the relevant regulations.
“Despite the odd shortcoming, this Budget is on balance good. It entrenches South Africa’s good fiscal record,” Garrow added. — I-Net Bridge