Gordhan's budget meets economists' expectations

Thursday, February 18, 2010

Johannesburg - Finance Minister Pravin Gordhan's maiden budget speech, has been received with much applaud by economists who said they were optimistic that South Africa's economic state will turn the tide.

Chief Economist at Efficient Financial Holdings, Dawie Roodt, said the budget was "pretty much in line with our expectations."

"The budget was quite conservative and in the current economic environment and in choppy waters, you don't want to change much," said Roodt.

While he applauded the minister for emphasising the importance of creating more jobs for the youth, he said the emphasis should not only be on job creation, but entrepreneurship. He added that if there are sustainable jobs, the economy will grow.

"While it sounded like a conservative budget, we need to improve the spending on education and social development. We spend more money on education than any other country in the world, but the outcomes are the worst than the rest of the world. It's not a matter of money, but the way the education system is managed. We need to get our act together," he said.

He added that while there are many challenges facing the country, Gordhan's budget speech was fairly optimistic.

"In the current environment, it was quite positive. He couldn't have said or done much more. While there are many constraints, all we can do is try our best for now."

Gordhan mapped out his plans for creating jobs for the youth, improving the quality of basic education and enhancing the health of South Africans.

He said cabinet had agreed on a set of outcomes that will shape government's policies and programmes for the years ahead.

"President Zuma has rightly challenged us to re-examine our plans, and to set a more deliberate, more focused course. The public service has begun an organisational restructuring that is driven by the imperative of service delivery.

"A new engagement between government, the business sector and organised labour is being forged, through which we will mobilise our creativity, our determination, our sheer grit - to build a durable, developmental, just and prosperous nation," he said.

Eugene du Plessis, Tax director of PKF chartered accountants and business advisers, said Gordhan made it clear that government was not planning drastic spending cuts.

"This means that the economy can continue to grow, and that government can meet its social objectives," said du Plessis.

Although du Plessis welcomed Gordhan's announcement that a new regime would be established for companies wanting to set up headquarters in South Africa as they expand into the rest of Africa, he warned that individual taxpayers were not so lucky.

"Although on the face of it some income tax relief has been provided to them [taxpayers], in practice this relief has not kept pace with inflation.

"So that tax savings achieved through raised tax brackets will be lower than in previous years. This applies across the board, to lower and higher income individuals," he said.

He added that salaried individuals, in particular, are going to be hit hard by a number of measures, which will have the effect of raising the amount of tax they eventually pay.

"For example, the monetary caps on medical aid payments contributed by employers are being increased by 7%, yet this is well below the true increase in medical costs," said du Plessis.

Gordhan added that individuals and companies that are not yet tax compliant will have a window, starting later this year, to declare and pay taxes they owe without paying additional penalties.

"There have been amnesties before," said du Plessis. "But if people have not taken advantage of them, now is the time to come clean, because the minister also announced that enhanced measures are being planned to catch tax defaulters - especially amongst high net-worth individuals - and I believe there will be a real focus on clamping down on tax evaders in the near future," he warned.

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