2009 budget receives varied reactions

Thursday, February 12, 2009

Pretoria - Economists and business have welcomed Finance Minister Trevor Manuel's 2009 Budget, saying he was able to balance the needs of the poor with some relief for taxpayers.

The minister tabling his Budget Speech in Parliament on Wednesday, announced government's spending on social security would receive a R13.2 billion boost while tax adjustments to personal income tax schedules will provide middle and lower income earners with R13.6 billion in tax relief.

While the overall budget provides a cushion for South Africa through a difficult growth phase, Minister Manuel admitted that it had been difficult compiling this year's budget.

"It's a difficult budget. By October last year our forecast for growth this year was 3 percent, now we down to 1.2 percent."

Econometrix Treasury Management (ETM) economist George Glynos told BuaNews that there were no significant surprises, however, he liked that there was a focus on service delivery and government efficiency as a priority to make meaningful progress.

"It was also good to see the focus on education, as this will be core to building for future growth," he said.

There was a surprise regarding the larger than expected deficit, however.

Dennis Dykes, an economist and Nedbank, said that while the deficit had been much bigger than anticipated, it was not completely out of line. He described the revenue estimates as realistic, adding that the expenditure rises very strongly.

Regarding the big injection into the economy to support low-income earners and unemployment, Mr Dykes said: "This is the right thing to do for this fiscal year, but we need to watch that in future fiscal years it doesn't become too big.

"The cut in personal taxes was the right thing. A bit disappointing that there was nothing on company taxes, however," Mr Dykes said.

The Children's Institute at the University of Cape Town, however, felt that by not extending the Child Support Grant the minister had failed poor children.

"The extension to children up to their 15th birthday was announced by him last year in February 2008 and implemented on 1 January 2009 and is therefore not news," said the institutes Child Rights Programme Manager Paula Proudlock.

She explained that there were around 2.4 million poor children aged 15 to 18 years whose care givers depend on the grant to help them feed, clothe, house and educate their children.

The 2010 FIFA World Cup Local Organising Committee (LOC) said it was happy about the provisions for the stadium development grant and a world cup host city operating grant.

The stadium development grant provides funding for the design and construction of the ten World Cup stadiums.

"Last year our budget shortfall for stadiums was R3.2 billion of which R1.4 billion was contained in the mid-term budget review in October. We therefore welcome the announcement that a further R1.9 billion will be allocated for the construction of the ten stadiums," said LOC Chief Executive Officer Dr Danny Jordaan.

The budget also made provision for a new grant, the world cup host city operating grant, aimed at assisting cities with the hosting of the 2009 FIFA Confederations Cup and the 2010 FIFA World Cup. The grant has been allocated R508 million in 2009/10 and R210 million in 2010/11.

"Because of foreign exchange fluctuations and the global economic downturn, these grants will significantly strengthen our preparations.

"The Finance Minister's announcements mean that we will be able to deliver on all our obligations and host the best FIFA World Cup ever," added Mr Jordaan.

Business Unity South Africa also welcomed the budget for combining flexibility and prudence in a manner which is positive for business and consumer confidence as well as the emphasis laid on aspects such as continued infrastructural spending, investment in education and improved health facilities.

"BUSA welcomes in particular the increase in the VAT threshold, as SMMEs play an essential role in creating job opportunities," the organisation said in a statement.

The South African Chamber of Mines also welcomed the contribution made by the mining industry not only in the economy, but also in the industry's creativity and commitment to improve conditions for mining communities.

Institute for Democracy in South Africa (Idasa) said in a statement that the 2009 budget accurately recognises the unique challenges of the current economic situation and boldly responds to them.

The budget was welcomed by the institute, especially its emphasis on the crucial dimension of institutional performance in ensuring that allocations are in fact translated into improved outcomes.

"The comment emphasised that a key challenge in South African budgeting is less the allocation of resources among the three spheres of government and more the efficient utilization of the allocated resources," said the institution.

Regarding the 88 cents increase per pack of 20 increase in cigarette excise tax, the National Council Against Smoking said this was too low and not in the interests of public health.

"A higher tax increase would have better served public health and the Treasury. Tobacco excise taxes not only increase government revenues but are also a "health tax" which promotes health by reducing tobacco use."

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