/ 20 February 2008

Business welcomes ‘pragmatic’ budget

Finance Minister Trevor Manuel’s national budget charts a pragmatic course that offers hope for better times ahead, the South African Chamber of Commerce and Industry (Sacci) said on Wednesday.

“The budget does not deviate to any extent from the Medium-Term Budget Policy [Statement] announced last year and shows a determination to adhere to a steady economic path,” Sacci president Alwyn Louw said.

Sacci welcomed the lowering of the corporate tax rate from 29% to 28%, as well as further reforms to the secondary tax on companies and its expiry in 2009.

It was also pleased by the fiscus’s intention to support the financing of the Eskom capital investment programme, measures to assist and encourage employer-assisted housing and education schemes, and the tax incentive for venture capital investments in non-mining companies.

Sacci welcomed further relaxation on exchange controls, the intention to strengthen customs enforcement and the easing of compliance measures designed to assist small and micro-business activities.

In his speech, Manuel said an electricity levy will be introduced this year. “In support of the required demand-side response to power-supply shortages, a new levy will be introduced this year on the sale of electricity generated from non-renewable sources, at a rate of two cents a kilowatt hour,” he said.

Louw said: “There will be a noticeable impact on business and society in general of the proposed tax measures on energy that take the form of a two-cent levy per kWh and an 11-cents-per-litre increase in the fuel levy.”

These measures will give impetus to any energy-saving programmes advanced.

“Business will continue to engage in the debates surrounding a contributory social security system and the overhauling of the retirement-fund industry,” he added.


Manuel’s announcement that the consolidated national budget spending for 2008/09 was estimated at R631,5-billion — a budget surplus of just less than 1% and the contingency reserve of R6-billion — was welcomed by Citadel chief investment officer Jan van Niekerk.

“The confident budget may be a bit optimistic about the economic growth expectations he outlined, considering the real constraints facing the local economy,” Van Niekerk said.

He noted that the relaxation of exchange controls, allowing institutional investors to invest more offshore, was a confident move in the context of global market turmoil.

“This will offer South African investors increased alternatives to include in investment portfolios,” he said.

The budget has a definite business-friendly undertone, with significant measures introduced to ease the administrative burden on small businesses and a further cut in corporate tax rates, Van Niekerk added.

Cees Bruggemans, chief economist at First National Bank, said the budget gives notice of continuing strong revenue growth, strong spending growth, and the maintenance of a budget surplus as buffer against global risks.

He said the budget speech made no mention of the increases in precious metal prices in recent weeks and months which, if these price levels were to hold or even go higher, could mean substantial tax-revenue overruns and a much bigger fiscal.

“Manuel prefers to defend the sensibleness of a disciplined macro policy stance, by way of running a budget surplus and for monetary policy to apply inflation targeting,” Bruggemans said.

Total revenue in 2008/09 is projected to rise by 12%. “This enormously strong revenue position allows the government to continue with strong spending growth,” Bruggemans said.

“In essence, the budget reflects our strong economic performance and the tax collections this makes possible, without unduly discounting any external windfalls coming our way.

“The modern business of government being redistribution, in order to strengthen society for the long haul, this was where the ultimate emphasis remained,” he said. — Sapa

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