Pretoria – Finance Minister, Pravin Gordhan, has mapped out his plans for infrastructure development, job creation, skills upgrading, health, education, housing and welfare grants and while the plans mapped out in his budget speech have received much applaud from business, youth formations and civil society, economists remain fairly cautious.
The 2011 Budget totals R979.3 billion – an increase of 9.1 percent over last year’s budget.
The lion’s share will go to social services, which is to be allocated R577.3 billion (an increase of 11.8%) and is broken down as such – R189.5 billion to be spent on education, R121.9 billion on housing, R112.6 billion on health and R146.9 billion on social protection.
R150 billion will go towards the country’s jobs creation package, which many have labeled unrealistic. The R9 billion jobs fund, mentioned by President Jacob Zuma in the state of the nation address two weeks ago, would co-finance innovative public and private-sector employment projects over the next three years.
Tax incentives have been renewed for manufacturing investment of R20 billion, with a focus on investments that have job-creation potential and small enterprise development initiatives would be strengthened, including a focus on employment creation activities by the National Youth Development Agency.
Initiatives are also under way to promote rural employment, and provide stepped up support for agricultural producers and funding is allocated for renewable energy, environmental protection and “green” economy initiatives.
Chief Economist at Efficient Financial Holdings, Dawie Roodt, says for South Africa to create jobs, it needs economic growth.
“The Minister’s only expectation for economic growth is that the South Africa’s economy will grow between four and five percent over the next couple of years and that is not good enough to make a significant dent in terms of creating employment.
“What we need to do, is target economic growth because only through economic growth can we create sustainable jobs,” explains Roodt.
PFK chartered accountants and business advisers Tax Director, Eugene du Plessis, says although there has been a lot of talk about job creation, it was not clear, from a tax perspective, how this would be achieved.
He says that previous efforts to encourage skills development and job creation had not paid off, adding that he would have liked to have seen new thinking on the subject, more concrete steps outlined and faster implementation being planned for.
“For example, the R5 million youth employment subsidy will not take effect for nearly a year since it still has to go through a lengthy legislative process. Even then, it’s not certain that the subsidy will make much difference. The targeted employment growth of around two percent is unlikely to make a meaningful impact on the current unemployment crisis,” explains du Plessis.
Gordhan also announced various tax incentives for businesses particularly small and micro enterprises.
Roodt says that while a lot of emphasis has been placed on trying to create an environment that is conducive for small business, a lot more can still be done. He says that there are many issues that make it difficult to help small business, a lot of red tape and a lot of labour legislation that makes it difficult to run and to start a new business.
“Small business is responsible for about close to eight percent of all jobs in the economy and I think that the emphasis must be on small businesses. What we need to do is not only lower the tax burdens on small business but also see if we can do something about the red tape and also the hassles involved in starting or trying to start a small business,” he says.
Today, government announced that it plans to cut the red tape and make it easier to do business in South Africa by setting up a national one-stop shop to assist with investment approvals, reforming BEE codes and simplifying forms and procedures faced by small businesses.
The campaign to minimise red tape for small businesses includes the roll out of an initiative to assist certain municipalities to cut regulations that effect small enterprises, following the conclusion last year of a pilot focusing on several municipalities.
Reducing the red tape for business owners and entrepreneurs faced involved tackling four areas, namely:
– Speeding up the time it took for businesses to process documents at government agencies.
– Reducing the number forms of business owners have to fill out.
– Creating a more co-ordinated system so that business owners wouldn’t have to be sent from pillar to post.
– Setting up one-stop shops so that businesses wouldn’t have to go to various places to get the same thing.
For du Plessis, the most positive element in the whole budget speech was the very favourable upward adjustment to transfer duty thresholds on house purchases.
“I believe this could go a long way towards encouraging home ownership in South Africa, especially amongst first-time home owners.”
On the issue of education, healthcare and social security, Roodt says the emphasis in the budget has always been on social expenditure, the most important being education.
“Unfortunately if you compare South Africa’s education outcomes to many countries in the world, we really don’t compare that well,” he says. “What we need to do is not spend more money on things like education for example, but we need to spend money much better.”
Explains du Plessis: “Every year people will say that there needs to be more money spent on infrastructure, education and healthcare. I think if you can create people that look after themselves; it will be a lot easier to balance your budget.”
At present close to 15 million South Africans receive social grants with the budget amounting to R147 billion in 2011/12, rising to R172 billion in 2013/14.
Roodt says the only way that the government can address the social issues affecting the country, is by growing the economy.
“… Only through economic growth can we do something about unemployment and poverty in South Africa. A successful social security system is with fewer people, not more people and we’ve increased the number of people that are dependent on state grants to 15 million, that’s about a third of the population.”
On the issue of the National Health Insurance, Gordhan said the phasing in of the National Health Insurance (NHI) will require substantial reforms to address imbalances across the public and private sectors. “The financial and organisational implications of these reforms are being jointly addressed by the Department of Health and the Treasury.”
Over R8 billion from the Health Department’s budget of R113 billion towards boosting hospital facilities that will lay the foundation for the phasing in of the NHI.
Du Plessis says he expected to hear further details about the health scheme would work.
“We’ve been given little clarity on how it will work,” he says. “What has been hinted at is taxes to be levied either on payrolls, through a higher VAT rate or even a surcharge on individual’s taxable income, which means that people in the payroll net, who pay most of the country’s taxes, will be funding this health scheme.”
“The NHI will be implemented as of next year, but I went through his numbers and I did not see a significant increase in the health expenditure. So what we are probably going to see is a significantly watered down version of the original NHI because that is what the numbers tell me,” explains Roodt.
Overall, Roodt says he found the minister’s speech balanced. “He presented a pretty neutral although a slightly more left-wing budget. He balanced the political and financial realities in SA quite well.
“The reality is that there are certain social, political and economic and financial realities in South Africa and the minister of finance has to find a balance and I think he found that balance.”
Says du Plessis: “Pravin Gordhan expressed many fine sentiments in his speech, but, a lot more substance needs to be forthcoming if those ideas are to result in substantial gains for the economy.” – BuaNews
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