Manuel’s budget brings relief

Finance Minister Trevor Manuel’s 2008/09 national budget tabled in Parliament on Wednesday brings tax relief, reduced corporate taxes, financial support for Eskom’s programme to build power stations, a new electricity levy, more social spending and a boost for job creation.

The estimate of main budget revenue before tax proposals for 2008/09 is R636-billion, he told the National Assembly. This takes into account projected economic growth of 4% this year, inflation of 7% and the buoyant trend in wages and salaries, as well as continued growth in imports.

The tax proposals provide for net relief of R10,5-billion, bringing the projected main budget revenue to R625-billion — 12,1% more than last year’s revised estimate.

Adjustments to personal income-tax schedules will provide direct relief of R7,2-billion, fully compensating for the effects of inflation, Manuel said.

About one-third of the benefit goes to those earning below R150 000 a year, and 28% to those in the R150 000 to R250 000 bracket. People earning less than R46 000 a year pay no tax, and the tax threshold for people over 65 increases to R74 000 a year.

Manuel said the higher growth of the past few years, the broader tax base and improved corporate compliance have created scope for a further reduction in the corporate tax rate from 29% to 28%. This will lower the cost of capital for new investment.

Other tax measures focus on the supply side of the economy, including extending the learnership allowances for the full duration of apprenticeships.

The administrative burden on small business will be reduced through a presumptive turnover tax as an alternative to income tax and value-added tax (VAT) for businesses with a turnover of less than R1-million a year.

The threshold for farmers and businesses who submit VAT returns every six and four months respectively will be raised from R1,2-million to R1,5-million. The VAT registration threshold has also been raised from an annual turnover of R300 000 to R1-million.

Taxes on petrol and diesel will rise by 11 cents a litre from April 2.

Energy

Manuel also announced a new levy of two cents a kWh (kilowatt hour) on electricity generated from non-renewable sources. Households and businesses who reduce their consumption by 10% or more will not be affected by the levy.

Manuel proposed that up to R60-billion be provided to support Eskom’s investment programme, on terms structured to help meet cash-flow needs. He emphasised that this is not a grant.

The return on an investment in power generation is very long-term, and the repayment of debt has to be similarly deferred.

“The amount of R60-billion will be required over the next five years, and we anticipate that about R20-billion will be drawn over the MTEF [medium-term expenditure framework] period ahead. This is provided for in the contingency reserve,” Manuel said.

A further R2-billion will be set aside over the next three years to support programmes intended to encourage more efficient electricity use, generation from renewable sources, installation of electricity-saving devices and co-generation projects. Allocations will be made for the year and included in the adjustments appropriation.

Employment

Manuel also announced tax incentives to encourage venture-capital equity investment in small and medium-sized businesses, and R5-billion in tax subsidies over the next three years in support of industrial investment and job creation.

The high rate of unemployment remains the greatest economic challenge, and options for a wage subsidy to contribute to job creation are being examined.

Expanded public works programmes (EPWP) demonstrating the ability to create jobs will get R1-billion more over the next three years.

“Options for a wage subsidy to contribute to employment creation are being examined,” said Manuel. “Tax measures introduced in this budget broaden the internship allowance to include longer-term apprenticeships, targeted at technical skills. Support for small business is also focused on encouraging job creation.”

According to the 2008 Budget Review, the Labour Department’s budget allocation for the coming 2008/09 financial year will increase to R9,2-billion — a R400-million increase over the current allocation of R8,8-billion.

Manuel said part of the money will be used to fund a number of projects aimed at protecting vulnerable workers in rural areas against unfair labour practices. The department will also channel some of the funds towards skills development programmes.

Social security

Alongside job creation, the government’s poverty-reduction strategy also prioritises the social security net and extending the social wage, including services such as water, electricity, sanitation, education, healthcare and public transport.

Social grant increases this year will match or exceed inflation, with old-age pensions rising by R70 a month to R940 in April. The old-age pension qualifying age for men would be reduced from 65 to 63 this year, to 61 in 2009 and to 60 by 2010.

The child-support grant will be extended to include children up to their 15th birthday, effective from January 2009. It will also increase by R10 in April and again in October for a total of R220.

Though Manuel made no mention of future extensions of the child-support grant, Social Development Minister Zola Skweyiya said last week that it would eventually be extended to the age of 18. This would be phased in over the next two to three years, Skweyiya said.

Manuel said that Skweyiya had also indicated the need to review eligibility criteria for the grant, in line with practice in many countries, aimed at reinforcing the responsibilities of caregivers. “These might include regular school attendance, for example, or immunisation of children in keeping with health requirements.”

These increases match or exceeded inflation, and take into account the disproportionate impact of price increases on the poor, Manuel said.

“Together with measures to extend the social security net, the additional social assistance cost amounts to R12-billion over the next three years. The total number of grant beneficiaries is 12,4-million, and

expenditure on social assistance will be R75,3-billion next year.”

Crime

Crime fighting will be strengthened by additional allocations of R10-billion over three years, including expansion of police numbers to reach 200 000 in 2010/11.

Also on the cards are more prosecutors, judges and magistrates, further investment in forensic science laboratories, 40 new police stations and accommodation for 18 000 prisoners.

“An electronic case-flow management system has now been implemented in 266 courts, document scanning and digital recording systems have been introduced, and the Justice Department’s financial systems have been modernised,” said Manuel.

The Safety and Security Department’s budget will increase to R49,3-billion by 2010/11, from R40-billion in 2008/09 and R36-billion in 2007/08.

The government intends reducing contact crimes by 7% to 10% a year, including crimes against women and children.

The Correctional Services Department was building six new-generation prisons by 2010/11, five of them through public-private partnerships. They will accommodate 3 000 prisoners each. The department is also making efforts to improve its rehabilitation of prisoners, to reduce the numbers of repeat offenders.

R15-billion will be allocated to correctional services in 2010/11, from R10,7-billion in 2007/08.

Housing

About R2,2-billion will be spent on upgrading informal settlements, Manuel said. About 762 000 homes in these settlements will be upgraded over the next three years, the Budget Review says.

The Housing Department will receive a total of R10,5-billion in the coming 2008/09 financial year, increasing to R15,3-billion in 2010/11.

Alternative and cheaper building technologies will be used to complement the bricks and mortar used in low-income housing.

The Budget Review says a further 2,4-million homes are needed to overcome the housing shortage. A total of R35,8-billion has been allocated to housing needs over the medium term. Efforts are being made to ensure closer scrutiny of housing delivery, and to evaluate progress.

The housing subsidy programme will now allow households earning between R3 501 and R7 000 a month to qualify for subsidies on mortgages from private-sector banks.

Health

Additional funding over the next three years could double the number of people on treatment for Aids, according to the budget. The fight against multi- and extensively drug-resistant tuberculosis (TB) will also be given priority.

The Budget Review says spending on dedicated HIV/Aids programmes by health, education and social development departments will top R6,5-billion a year by 2010/11. Current spending is just more than R2,2-billion.

An extra R2,1-billion had been committed over the next three years to the provincial conditional grant for fighting Aids. This will be used to expand the comprehensive treatment programme already being offered at 316 sites.

“Additional funding should allow 500 000 more people access to treatment in addition to the 418 000 already on treatment, as well as increasing the numbers of people tested, and expanding a range of prevention programmes,” it said.

It said the TB funding will support extended hospitalisation and treatment.

The hospital revitalisation programme will receive an additional R2,1-billion over the next three years to help provinces equip and modernise hospitals. Spending on this programme will rise to R9,6-billion over the next three years. In addition, provinces are expected to step up their own hospital maintenance budgets. A total of 33 hospitals are currently under construction.

Manuel said he was pleased to report improved remuneration and training had contributed to an increase in health personnel of 39 600 over the past four years. A further 25 000 posts will be filled by 2010, he said.

Spending on health services, which now stands at R75,5-billion, will grow by over 10% a year over the next three years.

Transport

The price of petrol and diesel is to increase by 11 cents a litre from April 2, Manuel announced. This included an increase of six cents a litre in the general fuel levy, and an increase of five cents a litre in the Road Accident Fund levy, he told MPs.

The biodiesel fuel-tax concession is raised from 40% to 50%. Bioethanol will remain outside the fuel-tax net, but will still be subject to VAT at the standard rate.

Manuel said there is still more work to be done in developing the envisaged road-accident benefit scheme. This is “so that the burden on taxpayers of the present unlimited liability arrangement can be brought to an end”, he said.

The government’s biofuel industrial strategy — approved by the Cabinet in December last year — aims to see biofuel make up 2% (or 400-million litres a year) of the national liquid fuel supply over the next five years, he said.

Sins

Manuel once again failed to endear himself to smokers and drinkers, raising the prices of cigarettes and alcohol. Seeking to moderate “consumption habits”, he raised the price of a packet of 20 cigarettes by 66 cents, and that of a 750ml bottle of wine by 12 cents.

Bar flies might not flinch at the additional five cents they have to fork out for a 340ml can of beer, but dedicated drinkers will splutter at the extra R2,17 they now have to pay for a bottle of spirits.

Manuel noted the Treasury had once again failed to submit a recommendation on the duty on traditional beer. “I intend to seek advice from certain members of the House on the shades that may be influencing my officials on this matter,” he told MPs.

Education

Provinces are to spend more than R18-billion on school infrastructure and equipment over the next three years, Manuel said. He also announced the expansion of early childhood education and the school nutrition programme.

Education in the coming year will account for R121,1-billion, making it yet again the largest single category of spending in the budget.

Manuel said early childhood education will be expanded to about 600 000 more children, which will put basic pre-school education within reach of even the poorest of households. The school nutrition programme will grow by more than 30% next year, “so that we can feed more children, in more schools, more days of the year”.

According to the Budget Review, tabled along with his speech, the nutrition programme is to get an extra R1,8-billion. Currently the programme provided meals to six million learners in 18 000 schools.

Manuel said there will be additional allocations this year for higher education and the National Student Financial Aid Scheme, and further education and training (FET) colleges are being recapitalised.

Revenue from the skills development levy is projected to rise to more than R9-billion by 2010/11. The government is exploring ways in which these funds can be used to support FET colleges.

Provinces and government

Allocations to provinces will total R238-billion in 2008/09, increasing by R46-billion over the next three years. Most of this will go to improvements in education, health, welfare and housing.

The 2008/09 allocation represents a R32-billion increase over the current financial year’s allocation of R205-billion.

According to Budget documents tabled on Wednesday, KwaZulu-Natal will receive the lion’s share of the R238-billion budget — an amount of R49-billion.

A total of R17-billion was added to the budgets of the departments of housing, provincial and local government, water affairs, sport and recreation, and transport over the next three years, mainly for infrastructure.

Over the next three years, non-interest public spending is projected to grow by 6,1% in real terms.

Consolidated national budget spending for 2008/09 is estimated at R631,5-billion — a budget surplus of just less than 1%. A contingency reserve of R6-billion for 2008/09 has also been set aside. — Sapa