Pretoria – Finance Minister Pravin Gordhan’s 2011 budget has been well received, given the little room there was for flexibility.
“There was little room for maneuver, considering that the economy is still recovering from the recession,” Professor Johan Marx chair of the Finance, Risk Management and Banking Department at UNISA said on Wednesday.
Minister Gordhan announced a tax relief of R8.1 billion (compared to last year’s R13 billion) when he tabled the budget before Parliament.
“There was lower tax collection from business and as a result, the minister moved tax around because of inflation,” said Marx.
Standard Bank senior economist Dr Johan Botha described Gordhan’s speech as a balancing act that requires long term sustainability, while at the same time meeting the demands on the spending side.
“We have seen that revenue will come in lower than initially expected in 2011/12, with the result that the deficit is projected to be 0.7 percent higher than expected in October (in the mini budget). There are questions on whether we should have not reduced it more than that,” said Botha.
Gordhan announced that a budget deficit of 5.3 percent is projected this year.
Botha said the 0.7 percent rise may impact markets, while Marx said he expects the markets to remain “fairly stable”.
Botha expressed concern at the doubling of the wage bill since 2005. “Projections, however, indicate a far slower growth in the wage bill.”
The National Association of Automobile Manufacturers (NAAMSA) President, David Powels, said the budget represented an appropriate response to the challenges faced by South Africa.
“NAAMSA welcomed the emphasis on creating an environment conducive to higher levels of investment as a means of boosting South Africa’s economic performance and employment creation capability,” he said.
An amount of R120 million was allocated to the National Tooling Initiative, which will serve to increase the automotive industry’s local content, improve its competitiveness and assist in automotive employment creation.
On the issue of tax relief to the tune of R8.1 billion, Powels welcomed this, saying it would have a positive effect on consumer demand and sentiment.
Minister Gordhan announced an ad valorem tax on new motor vehicles with a purchase price of above R900 000, which NAAMSA said came as a surprise and would affect about 1.5 percent of new cars sold.
“Whilst the increase in the tax would affect a relatively small segment of the domestic market, it did reinforce industry concerns about the rising tax burden on buyers and users of new motor vehicles in South Africa as a result of ad valorem excise duties, increases in fuel levies, the recent introduction of CO2 emissions tax on new cars and double cabs light commercial vehicles and the impending introduction of toll fees for motorists using Gauteng freeways,” said Powels.
The South African Chamber of Commerce and Industry (SACCI) President, Chose Choeu, welcomed incentives that were outlined to support business and job creation, including the youth employment subsidy.
The budget made provision for R10 billion for job creation, small enterprise development and youth employment.
However, the chamber said it would have liked to see greater sensitivity regarding the cost of doing business through increases in levies, such of those of fuel and other administered prices, as well as improvement in the business registration process.
“SACCI regards the budget as comprehensive in coverage, but is concerned at the increase in the public sector wage bill and at the rising cost of debt. Implementation of the strategies and projects envisaged will be a challenge,” said Choeu.
Manager of the Budget Unit of Idasa’s Political Information and Monitoring Service, Len Verwey, said: “The budget is consistent with the 2010 MTBPS and confirms we are out of the worst of the recession, but the real work must now begin to create jobs and improve service delivery.”
Business Unity South Africa (BUSA) said it was encouraged by the business friendly components of the budget.
“We share sentiments implied in his speech that our rates of investment and exports must be promoted in order to support an environment in which such higher job-rich growth is possible,” BUSA spokesperson, Masego Lehihi, said.
The emphasis on infrastructural spending was also welcomed by BUSA, adding that if it is to be maximized in the economy, it will be essential to expand the use of public-private sector partnerships. – BuaNews
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