TODAY is all about the Budget. Top of mind for most analysts will be whether the Finance Ministry, that does not have much fiscal room to work with, can craft a sustainable and believable Budget.
In short, the government is short of funding given the demands being placed on it at a time when growth in tax revenues is in short supply. The SA Revenue Service has started to reach the limits of efficiency in tax collection, while economic activity is being heavily constrained by the lack of electricity which has weighed very heavily on the mining and manufacturing sectors.
There has been much speculation on what the government can do to improve the balance between receipts and expenditure and ultimately the conversations always tend to revert to a discussion about where the tax burdens will be raised.
It is however a very sensitive topic given the state of the South African economy and its inability to employ or grow. Pushing too hard on tax collections threatens to further alienate a private sector which has become extremely disillusioned with the management of the economy and the obvious calls are for government to focus on efficiency of capital deployment rather than simply raising the tax burden on an already stretched tax-paying community.
The reality is however difficult to escape. Revenues need to be generated for Eskom and other parastatals that need support, the wage bill of government has swelled significantly in the past five years to levels many describe as unsustainable, government grants have continuously been expanded to raise the pressure of overheads on a fairly limited tax base which ultimately leaves the Finance Ministry with limited options.
Raising tax by stealth through not lifting upper limits on certain tax-free benefits is one way of doing this, not fully adjusting for bracket creep another.
Lifting taxes on alcohol and tobacco goes without saying while the removal of some tax relief related to the pretax benefits of employee benefits will be highlighted. Whether what is available to them can be extracted to help lower the budget deficit and appease credit rating agencies while not damaging the economy is up for debate, but it will be a tight rope that Nene (Finance Minister Nhlanhla Nene) will need to navigate. – Econometrix.
Business-friendly policy
In today’s Budget speech, the SA Chamber of Commerce and Industry (Sacci) will be seeking clarity on the following issues:
n Progress on funding of the various infrastructure investment programmes and the specific borrowing strategy to avoid crowding out of the private sector.
n The progress made on the “Back to Basics” programme of the Department of Co-operative Governance and Traditional Affairs aimed at improving efficiency and service delivery at municipal level.
n Progress made by the Davis Committee on Tax with specific reference to SMMEs.
n The progress on finding a suitable funding model for the National Health Insurance (NHI) scheme.
n Tangible and immediate measures to cut regulatory bottlenecks and red tape for business generally and SMEs in particular in order to reduce the cost of doing business in South Africa.
n Reassurance to foreign and domestic investors on economic stability specifically relating to concerns on nationalisation.
n Plans to reduce the fiscal deficit.
Sacci hopes that the Budget statement will reflect a business-friendly fiscal policy that reduces the many hindrances to achieving economic growth and job creation by the private sector. – Vusi Khumalo, the president of Sacci.
Less room to manoeuvre
Today’s Budget promises to be one of the most fascinating Budget presentations of recent years. During his medium-term budget policy statement, Nene came across as a no-nonsense finance minister who will not be afraid to take unpopular decisions.
The state of the economy and government finances leaves the minister with limited room for financial manoeuvre, yet he also needs to take some decisive action on various service delivery challenges.
I’ll be looking out for the following – what he says or doesn’t say about these topics, will be enlightening.
National Health Insurance: The ANC-led government has kicked this political hot potato around for a number of years, and we still have little clarity about how it will work or when it will come into existence. Depending on how the government decides to fund the scheme, all employees may need to make mandatory contributions to the scheme, which means there will be a new item to manage in the payroll in future years.
This is a complex area that affects employees, businesses, medical insurers and medical providers – so it will take years to thrash out the finer details. Still, I’m hoping that we will get some guidance about the form the scheme will eventually take.
Retirement reform: Last year, the government delayed the implementation of an excellent set of changes to the tax treatment of pension and provident funds that were meant to come into effect on March 1. I’m hoping to hear more about why these reforms have been postponed and get more clarity about when they’ll be implemented.
These reforms are supposed to harmonise the tax treatment of pension and provident funds, in turn encouraging South Africans to save for retirement. Yet they were postponed, apparently because of trade union opposition.
As far as anyone can tell, trade unions want these reforms to be looked at alongside social security reforms such as a proposal to introduce a national retirement fund. The minister’s comments could give guidance as to whether such a proposal has broad support in government.
National minimum wage: There’s enormous momentum growing behind the idea of a national minimum wage in the ANC, with full support from its alliance partners. Nene could provide some insight as to whether firms will need to factor a minimum wage into their payroll budgets in years to come. – Rob Cooper, tax expert, director of legislation, Sage VIP Payroll & HR.