Linda Ensor And Mariam Isa
21 February 2008
Cape Town — Finance Minister Trevor Manuel nailed his conservative fiscal colours to the mast yesterday in the face of global economic turbulence and strident populist political pressure for an expansionist budget.
Only on the basis of a prudent fiscal stance would SA be able to weather storms ahead, Manuel said in the National Assembly when tabling the 2008-09 budget, which made no concessions to left-wing pressures in the African National Congress (ANC) for more robust government spending to reduce poverty.
"A policy stance that accommodates higher inflation cannot be consistent with a government that is intent on reducing poverty," he insisted.
The controversial budget surplus was maintained (at 0,6%), and the inflation-targeting regime was left untouched.
However, at the same time Manuel was able to announce strong spending growth together with a range of tax and foreign exchange control reforms that will give business confidence and investment a major boost.
He also moved to allay fears about Eskom's financial future and international credit rating, announcing that government had committed itself to contribute R60bn over the next five years to its R343bn infrastructure expansion programme.
Manuel described the budget at a media briefing as "incredibly strong" and without fear of spending in areas that mattered, such as social security, health, education, infrastructure and criminal justice. He emphasised spending expectations had been surpassed, and there were no contradictions between the budget proposals and resolutions taken at the ANC national conference in Polokwane in December.
Manuel's announcement of a one percentage point cut in the corporate tax rate to 28% was a bold move costing about R5bn, and it is expected to provide a significant stimulus for investment. Business lobbied hard for this relief. In what the minister called the "biggest shift" to date, foreign exchange control for institutional investors was relaxed in favour of prudential regulation.
All of this was achieved without neglecting pressing social needs. Real noninterest government expenditure is expected to grow an average 6,1% over the next three years.
National departments will get R273,9bn this year, provinces R238,1bn and local government R41,9bn.
An additional R12,5bn has been allocated for social grants over the next three years, and the child support grant extended to 15-year-olds from January.
According to the budget review, additional resources of R115,6bn have been added to the 2007 budget base line.
Defying "doom and gloom" economic forecasts, the national treasury shaved a mere half a percentage point off previous growth projections for this year. It now expects an economic growth rate of 4% compared with 5% last year.
A CPIX inflation rate of 7,1% is forecast for this year, falling to 4,9% next year.
The strong spending plans were made possible by buoyant revenue collection.
The South African Revenue Service is expecting to collect R5bn more than the October medium-term expenditure forecast and R14,5bn more than the projection made last February .
This was due mainly to a year-on-year increase of personal income tax revenue of about 20%. Budget revenue of R625bn (R558bn) is expected in 2008-09.
Manuel could not extend as much largesse to individual taxpayers as in the past, but they will get R7,2bn in tax relief to compensate for fiscal drag.
Electricity consumers will pay more, with a 2c/kWh levy that is expected to raise about R2bn in 2008-09 and R4bn a year thereafter.
Budget Highlights
Treasury channels funds to address energy crisis
SA's energy crisis receives attention with treasury allocating R60bn over five years for Eskom's capex requirements. Measures to limit electricity consumption are also introduced, including a new levy of 2c/kWh.
Drop in corporate tax to bolster economic growth
THE corporate tax rate falls by one percentage point to 28% to boost economic growth. A further R5bn in tax subsidies is allocated for labour- intensive industries. Individual taxpayers get R7,2bn in tax relief.
Limit on banks' investment abroad raised to 40%
FOREIGN exchange control regulations are eased in favour of prudential regulation. The limit on how much banks may invest abroad is raised to 40% of liabilities from the 40% of regulatory capital imposed in 2005.
Social grants bolstered by R12,5bn cash injection
AN ADDITIONAL R12,5bn was allocated for social grants over the next three years, with the child support grant extended to 15-year-olds from January next year.
Police force, judiciary strengthened with R10bn
MORE than R10bn will be spent on strengthening the police force and judiciary over the next three years, with R640m allocated in 2010-11 for the deployment of the 31000 police officers for the Soccer World Cup.
The price of vice increases for SA's 'sinners'
SIN taxes increased to keep up with inflation. A packet of 20 cigarettes will now cost 66c more, while a 750ml bottle of wine will set you back 12c more. Beer goes up by 5c, and a 750ml bottle of liquor (spirits) will cost R2,17 more.
Provinces get R238bn for infrastructure challenges
PROVINCES will receive a whopping R238bn in 2008-09 to deal with infrastructural development challenges.
Presumptive turnover tax to help small businesses
THE burden of red tape on small businesses is lifted with the introduction of a presumptive turnover tax.
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