In formulating the 2011 National Budget the Minister of Finance had to balance the imperatives of addressing inflationary pressures through predominantly tax relief against the need to spend on national priorities including social reform, growth and deficit reduction.
To counter the effect of inflation the Minister announced R 8.1 billion of personal tax relief, with the bulk accruing to low earners. The projected impact of inflationary increases as well as increased indirect taxes will unfortunately negate the intended effect of the relief provided.
In offering the tax relief the minister has opted for staggered deficit reduction over a three year period, with the intent of reducing the deficit from the current 5.3% in 2011 to 3.8% in 2014.
In a bid to promote a savings culture the Minister has proposed a multi-faceted approach which includes a review of the regulatory framework for financial services and incentives for first time home-buyers and saving for higher education. Additionally the tax treatment of retirement fund contributions is being revisited which will require employees to review their current financial plans.
President Zuma in his State of the Nation address indicated government’s intent regarding economic growth, job creation and social reform. The Finance Minister’s budget allocations are aligned with this intent insofar as the allowances for education, infrastructure spending and job creation. This is expected to be a feature of budgets to come.
While consumers’ hopes for substantial immediate relief may not have been answered, the budget’s focus on growth and sustainability should yield positive results in the long term.
Get the latest issue of FAnews