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Cape Town - An economist has highlighted areas small business owners should watch out for in Finance Minister Nhlanhla Nene's mini budget on Wednesday.
Consulting economist for Mercantile Bank Trudi Makhaya has identified five key focus areas in the medium-term budget policy statement (MTBPS) that will be relevant to entrepreneurs and their businesses. These are:
1. The Department of Small Business Development
This department supports the role of small businesses and cooperatives in economic growth and job creation and is tasked with promoting, developing and advocating the sector. The department also seeks to reduce the compliance burden on small businesses.
It has a budget of only R3.5bn over the next three years which in 2015 comes to R1.1bn, with R15.2m set aside for supporting cooperatives and R1bn for enterprise development and entrepreneurship. The budget awarded is a third less than the department had requested in its business plan.
“Given the small size of the Department of Small Business Development’s budget, it is unlikely that there will be significant adjustments in the medium-term budget,” said Makhaya.
“Look out for any unspent funds, which, if sizeable relative to the budget, might indicate that the department is struggling to gain a foothold in the entrepreneurial development space. Teething problems are to be expected from a fledgling department, however.”
2. Adjustments to the main budget
Mid-term adjustments to the budget are usually small. However, they provide an indication of what is getting done, what isn’t and some unanticipated developments. In the past, examples of adjustments have included the impact of depreciation on budgets sensitive to rand movements, such as tourism, or emergencies.
Unspent funds came to R1bn in last year’s mini budget. The largest line item here was the Employment Creation Facilitation Fund (Jobs Fund), which had failed to spend R561m by mid-year. The administration of the fund was moved from the Development Bank of Southern Africa to the National Treasury.
“The budget set aside an estimated R19bn at national level for funds to support entrepreneurs either through funding or technical support and training in 2015. The big budget allocations to entrepreneurs in 2015, other than the Small Business Development Department, are the Industrial Development Corporation (R8bn towards planned loans), the Department of Trade and Industry (R5.6bn), the National Treasury (R1.3bn) and the Land Bank (R1.2bn).
"Therefore, entrepreneurs should be aware of adjustments made to these departments and institutions. The budget might also see some funds being directed to drought relief in the agricultural sector,” said Makhaya.
3. Lowered economic growth forecasts
In February 2015 the National Treasury expected the economy to grow by 2% in 2015. “The International Monetary Fund (IMF) and the Reserve Bank have lowered their forecasts for economic growth and the National Treasury will most likely follow suit in the medium-term budget,” said Makhaya.
4. Tax recommendations
The government projects that the main budget deficit will improve from -3.9% this year to -2.6% in the next financial year and -2.5% in the 2017/18 fiscal year. The budget deficit needs to be kept under control if it government is to maintain macroeconomic stability, including the value of the rand and respectable sovereign credit ratings.
Makhaya pointed out that the Davis Tax Committee's recommendations on turnover tax for companies with a turnover below R1m were implemented in the February 2015 budget to ease the tax burden on small businesses.
"The committee, which was set up to review and modernise South Africa’s tax system, will also make recommendations on VAT and taxes on wealth, estates and mining, which are likely to be announced only in February 2016,” notes Makhaya.
5. An SME-friendly tender system
In the 2015 main budget, the National Treasury outlined measures to improve government’s procurement of goods and services. This is particularly crucial in the light of the extensive proposed infrastructure spend.
The government will roll out an online tender system that is meant to enhance public scrutiny of procurement and to create a level playing field for small businesses. There will also be a system to create reference prices for some commonly procured goods and services.
“Look out for any updates with regards to the work of the chief procurement officer, the procurement system and any further belt-tightening measures,” said Makhaya.
