While Finance Minister Trevor Manuel’s 2007/08 budget on Wednesday is again expected to reflect a large surplus — between 1% and 1,5% of GDP, by some estimates — capacity constraints might restrict its effective use.
However, most forecasters want the focus to be on jobs, growth and small-business incentives — in itself a job creation tool.
First National Bank’s head of solutions for new businesses, Mdu Bophela, said on Monday that Manuel has a golden opportunity to help promote small business.
”That South Africa needs to see small business fly is a given; salaried jobs in corporates and government are no longer the order of the day and the tremendous need for jobs can only be satisfied through developing new businesses. The climate must be right for entrepreneurship to thrive,” he said.
He called for a tax incentive to businesses with five employees in their first year of trading, with further tax breaks to firms increasing their employment figures by, for example, 25% during the next two to five years of operation.
Tax breaks could also be used to encourage small businesses to achieve certain performance targets, such as turnover of R1-million in the first year of operation, providing skills training to employees, achieving gender and equity numbers, or expanding businesses into rural areas, Bophela said.
Economic growth
Solidarity trade union economist Lullu Krugel also expects Manuel to focus strongly on economic growth and job creation. He should give serious thought to reducing company tax rates, and to measures to reduce costs for small businesses to stimulate entrepreneurial activity.
She hopes he will announce tax reductions for small businesses, particularly since such a step would give new businesses a better chance of success.
Sanlam group economist Jac Laubscher believes the budget is unlikely to be ”a shining example of creativity”.
”Not that the compilers of the budget are incapable of being creative, but the constraints within which they have to operate at the moment unfortunately preclude any budget heroics.”
Last October’s Medium-Term Budget Policy Statement (MTBPS) provided for total spending in 2007/08 to rise to R533,7-billion, an increase of 12,5% on the revised budget for 2006/07.
Spending on economic services and infrastructure was to increase by 14,2%, while the lowest increase was to be in protection services, at 8,9%. In view of the outcry over crime, the latter could be seen by many as evidence of distorted priorities, he said.
While it is possible that this amount might be increased slightly, in particular to allow for the cost of the proposed wage subsidy for low-wage employees, it is unlikely to deviate materially from the MTBPS.
”The fact of the matter is that government’s capital expenditure programme is being handicapped by capacity constraints not only in the public sector, but also in the relevant private-sector entities, although even higher capital expenditure than has already been provided for is quite justifiable,” Laubscher said.
Revenue
It is possible that the budgeted revenue for 2007/08 will be raised to between R550-billion and R560-billion, and the budget surplus from 0,5% of GDP to between 1% and 1,5%.
Fiscal policy is therefore set to be even more restrictive in the coming year than in the previous year, which would bring welcome relief to the burden carried by monetary policy in pursuing macroeconomic stability.
On taxation, Laubscher said the government is positively disposed to reducing taxes, but the imbalances in the economy probably preclude any big announcements in the upcoming budget.
Nedbank group economist Dennis Dykes expects Manuel to again show ”an embarrassment of riches”, having exceeded budgeted revenue.
This means he could present an even bigger surplus for the year ahead than that envisaged in October, reduce taxes, or increase spending.
Given country dissaving — as shown by the large current-account deficit and the related strength of domestic spending — he is unlikely to extend much in the way of personal tax relief.
However, some corporate tax relief would enhance South Africa’s ability to attract foreign direct investment and send a positive signal to the production side of the economy.
On the spending side, the focus will again be on infrastructure development and social welfare, but overall amounts should be roughly in line with the MTBPS’s expectations. — Sapa