Highlights from the budget

Finance Minister, Pravin Gordhan’s budget said that the South African economy will grow by 2.3% in 2010, an improvement on the 1.5% forecast he made in the Medium Term Budget Policy Statement last year. Economic growth is expected to reach 3.6% by 2012.

The new ‘growth path” will actively focus on reducing joblessness amongst young people in the country. Gordhan said ’employers are reluctant to employ matriculants with no work experience.” To counter this a subsidy to lower the cost of hiring young people has been proposed. The plan is hoped to reduce unemployment of 500 000 school leavers by 2013, and improvements are expected to be immediate.

Despite raking in R69-billion less in tax revenue than was budgeted, Gordhan said that government ‘will not raise the overall tax burden this year”. He however cautioned that if the gap between tax revenues and government expenditure continued to widen, then he may have to raise taxes in future.

Gordhan promised income tax relief of R6.5-billion this year which will roughly compensate for inflation, although most of the breaks will be directed towards low-income households.

Fuel
Instead of a carbon-emission tax on new vehicles, a flat rate emissions tax will be imposed on all cars, effective from September 1 this year. ‘The more fuel efficient your car is, the less tax you will pay,” said Gordhan. The fuel tax will also increase by 25.5c per litre, including a 7c increase to fund a new fuel pipeline between Durban and Johannesburg, and an 8c increase which will go towards the road accident fund.

Sin
Talking on sin-taxes, Minister Gordhan said, ‘While excise duties on tobacco and alcoholic products will be increased in accordance with the present policy stance, we wish to signal a stronger stance in our efforts to combat the abuse of alcohol. The tax burden benchmarks for alcoholic beverages will be reviewed during the course of the year”. Gordhan said gambling is also subject to various forms of taxation at both a provincial and national level. ‘I propose to review the current treatment of winnings in the hands of gamblers as exempt from personal income tax,” he said. ‘Measures will be considered to limit opportunities for money laundering, unlicensed online gambling and other abuses.”

SARS will initiate a Voluntary Disclosure Program in November this year, affording those who evade their tax responsibilities ‘an opportunity to come clean.” A 12-month grace period will be given for disclosures of any undeclared tax liabilities with no penalties and reduced interest. Thereafter the 200% penalty will be applied for tax evasion.

Education
Gordhan confirmed that education will be government’s top priority in terms of funds allocated, an allocation of R165-billion, or 17% of the total budget. R2.7-billion has been allocated to meet the demands of school workbooks in all 11 official languages, and the proposed Grade Three, Six, and Nine testing system. Responsibility for the R12-billion allocated towards FET college education has been shifted from the provincial governments back to national government.

Health
The minister announced that the projected spending for health care in 2010 is R105-billion. He added that the public-private hospital partnership, beginning with the Chris Hani Baragwanath Hospital in Soweto, will aim to improve the conditions in the country’s hospitals.

Welfare
R89-billion has been allocated to social grants for the following year. Old age and disability grants will increase by R70 leaving the amount at R1 800 per person. The child support grant has only increased by R10 leaving the grant at R250 per person. But the grant has been extended up to the child’s 18th birthday. Gordhan noted this fee to be “slightly below the inflation rate” but said there are an additional two million children in “the net” this year and adjustments must be made moderately.

Government costs
The public sector wage bill has doubled in the last five years, putting immense pressure on the budget, Gordhan revealed. Government will moderate salary increases going forward so as not to compromise spending on government priority areas (namely, health, education, safety, jobs and rural development).

Fraud and corruption in the tender procurement system is a serious drain on resources. Government plans to strengthen supply chain management includes an inter-ministerial committee on corruption chaired by Minister in the Presidency Collins Chabane which will review the entire tender procurement chain. 1200 public servants are currently under investigation for tender fraud and tax fraud relating to tender fraud. — Reporting by: Lionel Faull, Vuyiswa Vena, Tarryn Harbour and Lisa Steyn.

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Mandy Rossouw
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