Mixed reaction to 2013 Budget

Wednesday, February 27, 2013

Cape Town – There was mixed reaction by Members of Parliament and the business sector to proposals outlined by Finance Minister  Pravin Gordhan in the Budget Speech on Wednesday - with a large focus on easing pressure on South African tax payers while cushioning the poor through increasing social grants.

Analyst Iraj Abedian from Pan African Investments described Gordhan’s speech as “a tough balancing act” by the minister.

“For us, the part that was encouraging was the beginning to talk about the National Development Plan being the guide for budgeting; asking fellow ministers to take budgeting seriously.

“However, there are some elements of the National Development Plan I was hoping the minister would dwell on. Most importantly, the call by the NDP to professionalize the public service and the minister came up with nothing in that regard,” he said.

Earlier, Gordhan presented a budget speech that included tax relief for hard pressed consumers, an expanded social wage for the poor and massive spending in education and health.

He also announced that poor municipalities will get better budgets following a decision to review the formula for the local government equitable share. The new formula will result in significant changes in allocations with municipalities that have higher poverty rates and less ability to raise their own revenue set to get more funding.

Business Unity South Africa’s special advisor Raymond Parson said he also felt that Gordhan responded well to the commitments of the NDP which he said will be used as a road map for the country’s future development.

Parsons said the budget charted a continued course of sound economic management with an emphasis on the role of the NDP.

“It’s crucial that the minister has indicated that we are going to support the NDP with sound public finance management with the cooperation of the private sector. These are difficult times but he has put up a message on which we can build and where we can have partnerships.”

Public Enterprise Minister Malusi Gigaba said the speech emphasised the priorities of the current administration.

“The speech covered most of the priorities which among them, is job creation particularly in the infrastructure roll out. The public sector spending and investment has been one of the key drivers of the recovery and growth of our economy and through it we hope to ensure inclusive growth.”

Gigaba said he was confident that state owned enterprises “will rise to the occasion” as the country embarked on the new infrastructure build programme.

“Transnet has demonstrated a leading role as we have seen through their announcements and we therefore see a role of SOE’s as crucial moving forward and I’m confident that all state owned entities will rise to the occasion and deliver what South Africans expect,” Gigaba said.  

The National Youth Development Agency CEO Steven Ngobeni welcomed the youth employment tax incentive but said the agency felt more could be done to address youth unemployment.

MPs also welcomed incentives mooted by Gordhan for businesses that set up in Special Economic Zones (SEZs).  

The incentives will allow firms based in SEZs to be subject to a 15% corporate tax rate, almost half that of South Africa’s current corporate tax rate of 28%.

They will also allow employers based in SEZs to make tax deductions if they employ workers earning less than R60 000 a year.

An accelerated depreciation for buildings in SEZs, based on the existing tax regime for urban development zones, has also been mooted.

Democratic Alliance finance spokesperson Tim Harris welcomed Gordhan’s mooted tax incentives for SEZs.

“I like the fact that (corporate) income tax is slashed to about half and the fact that the wage subsidy applies in a general form across special economic zones…” he said.

However, he said it remained to be seen whether the SEZ proposals will be implemented, particularly if labour opposed them.

He said Gordhan’s proposed employment tax incentive for young, first-time workers was effectively “a watered down version of the youth wage subsidy” he first proposed in 2011.

“It’s just that the amount that he has put behind it is drastically lower – it’s R500 million and previously if it was R5 billion over three years, it would be about R1.6 billion a year,” he said.

South African Communist Party First Deputy General Secretary and Deputy Minister of Public Works, Jeremy Cronin, said the party still has to study the details of the SEZ incentives, but added that he was generally in favour of the approach taken by Gordhan.

“(The position) is not about cheap labour for instance, which is what the opposition parties want us to take on special economic zones, but it is offering incentives to encourage businesses to set up there,” he said.

He also welcomed Gordhan’s emphasis that any approach to youth employment incentives would involve consultations and would also involve a multi-pronged approach using different methods, rather than just a wage subsidy to address youth unemployment.

But Inkatha Freedom Party MP Mario Oriani-Ambrosini, however, questioned the constitutionality of tax incentives in SEZs.

“I think there is a major issue of constitutionality and somebody needs to explain to me how it can survive scrutiny of the equality clause. The fact that some guys in one area pay 15% tax and another guy for doing exactly the same thing in a different area pays [almost] 30% of tax,” he said.

He said one doesn’t find tax incentives in SEZs in countries which observe constitutional rights, adding that similar incentives were questioned in Spain and were found to be unconstitutional. – SAnews.gov.za