Many positive proposals in Gordhan's budget, but also concerns

Thursday, February 28, 2013

Johannesburg - The 2013 National Budget was presented at a time when the country was facing numerous challenges and although there were many positive proposals in the budget there were some concerns, a panel of financial experts have said.

A group of high-ranking financial experts addressed the media this morning, following Minister of Finance Pravin Gordhan's Budget Speech on Wednesday.

Eugene du Plessis, Tax Director at PKF chartered accountants, said on Thursday that Gordhan had surprised South Africans with some good tax proposals, but also some “bad ones” in his Budget.

Du Plessis welcomed proposals such as increases in the income tax brackets, providing relief of about R7 billion to individuals, the retirement savings deductions, the tax free bursaries, the new set of tax-preferred savings and investment accounts, as well as the medical tax credits.

“The bad part is the proposal that provident fund lump sum withdrawals will be subject to limits so you won’t be able to take one lump sum from your provident fund anymore; you’ll be subjected to the one-third standard limitation,” said du Plessis.

On the business side, it was encouraging that the minister chose to make South Africa a more attractive investment destination; leaving the corporate tax rates unchanged and also announcing measures aimed at stimulating investment in South Africa. There were also benefits for small businesses, he agreed.

A good proposal that will affect business is the introduction of special economic zones with certain tax benefits. “This is very favourable, I think. There will also be an employment incentive for employing low income earners you will receive a tax break for doing so.”

However, he was concerned at the legislative changes around trusts, saying there were already many restrictions around trusts, which it seemed government did not think were robust enough. “There are legitimate uses of trusts, they are not just used for tax avoidance.”

Russell Lamberti, Chief Strategist at ETM Analytics, said a target for the year ahead was for revenue to grow by 11% which meant that South Africans were in for “some real tax squeeze”.

He said there was an overarching drive for more money. “Government is running thin on funds. Corporate tax has not increased in the last three or four years. So we have got … all these ambitious expansion plans but the revenue is not quite there to meet it.”

While it was admirable that there were plans to spend a lot of money on infrastructure, he was concerned at the complexities involved in managing and implementing the plans.

Lamberti said while the official tax rates hadn’t increased this year and everyone took that as good news, there actually had been significant implicit tax hikes.

“The tax bracket has been increased by 3.5 percent in nominal terms, which means that there are a lot more people that are going to gravitate over into the next tax bracket by getting inflation-linked increases of around 6-7 percent. This is a real tax hike,” said Lamberti.

He said government was not doing enough to stimulate small business and that it was only giving it “marginal concessions”. “The small business proposals are moving in the right direction, but I don’t think it is enough.”

Lamberti said South Africa continued to live beyond its means. “I think we are going to exceed the projected deficit this year. The reason is because I think growth is going to come under a lot of pressure this year. From a business cycle perspective I think we are moving into a slow phase. When you unpack government’s deficit projections its quite optimistic. I think that it is quite possible to fall short of that.”

He said government was looking at doing a wholesale evaluation of the tax regime; the implications of which was that there were going to be a number of years of implicit rising taxes.

There would also be more borrowing in the future. “Government will have to continue huge amounts of money for the massive infrastructure investment drive, among other things.”

He said while there was mention of restructuring state-owned enterprises, he thought this would be tentative and slow. –