How to spend R716.3 billion
Trevor Manuel presented the country’s long awaited 2008/2009 budget to Parliament yesterday, earning praise from most sectors for National Treasury’s continued disciplined fiscal stance. That said, early indications are that some of Manuel’s revenue forecasts are a touch ambitious. He expects GDP growth of 4.0%, 4.2% and 4.6% in the next three years despite the huge pressures placed on the domestic economy by Eskom.
Another estimate which caught our attention was that consumer price inflation would average 7.1% in 2008; but quickly fall to 4.9% in the 2009 year. This is highly unlikely in an environment where fuel and food prices are out of control. If you have been watching the news recently you will know that food prices are a problem worldwide, with grain and wheat prices soaring. Petrol was expected to go 40c a litre higher in March – and Manuel seems to forget his budget has added even more fuel to the inflation fire.
Small changes to income tax
Manuel surprised by announcing R7.7bn in tax breaks to individual taxpayers. Although this number appears high – it is probably in line with what is required to compensate taxpayers for higher levels of general price inflation.
Companies had a much better time of it… In this regard we must observe that a day makes all the difference. 24 hours ago we joined most analysts in saying a 1% drop in corporate tax was unlikely. The announcement that corporate tax would reduce from 29% to 28% is probably the biggest surprise in Manuel’s twelfth budget speech. Other good news is that small businesses will benefit from a simpler tax regime going forward.
We also welcome the decision to make available R5bn rand in tax subsidies (albeit over three years) to labour-intensive industries and industrial policy.
Sin taxes uncovered
As expected you will pay more for alcohol and tobacco. A pack of 20 cigarettes will cost 66c more, a 750ml bottle of wine goes up 12c and a can of beer 5c. If you prefer hard liquor you will pay R2.17 more for each 750ml bottle of spirits. These increases were in line with expectations and are a regular feature of Manuel’s budgets.
What worries us is the rather insensitive hike in the fuel levy. The 11c increase comes at a time when South African motorists are already paying record prices for fuel. With oil back near $100 per barrel and the rand weakening we will be faced with repeated hikes in coming months without this additional burden. We were also amazed to see a new 2 cents per kilowatt hour levy on electricity in the wake of Eskom’s 14.4% hike. It seems absurd that government caps Eskom’s electricity price, only to levy an additional tax on consumers when Eskom cannot meet its infrastructure requirements. The entire power situation in this country is a joke!
You have to spend to keep the masses happy
The budget includes increases to a range of public service spending. An additional R32bn has been allocated to the provincial budgets for school education, health care, welfare services and roads. Free basic services get a boost at municipality level by way of an increase of R6.5bn…
And social grants benefit by a massive R12.5bn! This includes the much talked about extension of the child support grant, which will now be paid to parents of children up to their 15th birthday (previously 14) from 2009… Other significant changes include the lowering of the age at which men qualify for the government old age grant. Manuel confirmed that in future men will receive this grant at the same age as women, namely 60-years. The change will be phased in over three years. Health got a boost from R9bn in conditional grants for school building, HIV and Aids, hospital revitalisation and school nutrition.
Infrastructure was not too badly neglected. Manuel allocated an additional R8.2bn for public transport, roads and railway infrastructure. Of course the number is way short of what is really required to fix the country’s ailing road infrastructure. Recent reports in the Sunday papers suggest that R300bn is needed for the task. The Soccer World Cup received an additional R2bn for infrastructure too.
One of the big disappointments is that crime fighting efforts have possibly not received the kind of allocation that shows government is serious about eradicating its affects in the next year or tow. Police received R2.7bn for information technology network infrastructure, forensic laboratories and additional personnel, while correctional services got R2 billion for correctional facilities.
Editor’s thoughts:
Balancing the country’s budget is a difficult task – and it’s seldom possible to keep all parties happy. We would love to hear your thoughts on the various announcements in Manuel’s latest attempt. Send your comments to [email protected], or add them at the end of this article.
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