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'Too little done for savings'

Johannesburg - No decisive moves were made to encourage savings and improve SA's savings rate in Wednesday's 2009 budget review. But Investment Solutions' chief economist Chris Hart believes savings should be the focus to reduce the surprising 3.8% budget deficit and the ever-increasing current-account deficit.

"I think far too little was done for the savings; I really don't think we're doing nearly enough," said Hart. "Our savings are far too low. We've become far too complacent about this and it's become a structural issue."

South Africa's current-account deficit is set to dip to 6.3% of gross domestic product in 2009 from the 8.1% estimate for 2008. It then lifts to 6.9% in 2010 - a level Finance Minister Trevor Manuel hopes to maintain into 2012.

"The current-account deficit reflects a major structural imbalance focused on our savings," said Hart.

"The budget raised a few tax thresholds but it was tinkering," he said. "It was not dealing with the savings level as a matter of urgency and there were certainly a few decisive things he could have done."

The annual exemption threshold on interest earned for people younger than 65 years was raised to R21 000 from R19 000. For the over-65s, the threshold increased from R27 500 to R30 000.

For interest and dividends from foreign investments, the exemption level has been raised from R3 200 to R3 500.

With the increase of R161bn in social spending, government intends to improve the quality of education, health, crime fighting, public employment programmes and infrastructure investment.

"This was a poverty alleviation budget rather than a poverty reduction budget, with the bulk of the raised expenditure going to social spending," said Hart. "I'm concerned we're not doing enough for the supply side of the economy to actually reduce the need for grants and the like."

With the current savings rate, the budget deficit may be a concern. "We're effectively moving into a twin deficit problem, with a deficit on the current account and a deficit on the budget.

"It does raise the risks going forward but I think on the whole it is not a major problem having a budget deficit of that size, given the economic situation we face externally," said Hart.

To listen to the podcast, visit Fin24.com Podcasts.

- Fin24.com

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