Broad backing for Budget

Cape Town - Finance Minister Pravin Gordhan's 2013/14 Budget tabled in Parliament on Wednesday appears to have found broad favour among political parties and business.

Democratic Alliance spokesperson Tim Harris said Gordhan had "opened the door to several DA policies".

"First and foremost, the idea that the youth wage subsidy is back. In a watered down form, it's about R500m for that youth wage subsidy.

"The previous incarnation was R1.6bn; nevertheless it is there and I hope he has the political capital to implement it.

"If he actually does what he said today... it will make a big impact on creating jobs for young people. However, three years ago he announced the same thing and Cosatu's [Congress of SA Trade Union] opposition prevented it from being implemented."

Harris also welcomed the idea that special economic zones would receive "boosted" tax incentives.

African Christian Democratic Party spokesperson Steve Swart broadly welcomed the "conservative budget".

Gordhan had not been swayed from the "government's prudent, counter-cyclical fiscal policy" - despite negative factors such as the labour unrest in mining and agriculture.

However, Swart did warn that the budget deficit and spiralling debt service costs should be contained.

Freedom Front Plus leader Pieter Mulder said implementation of the budget would be the litmus test to judge its success.

"Let's be thankful there is a plan... the test will be the implementation."

Mulder was pleased with Gordhan's announcement that the Chief Procurement Office was being set up as a means to combat corruption.

ANC secretary-general Gwede Mantashe believed the budget fitted well with the party's development programmes.

"I'm quite happy in the sense that we are beginning to see numbers now allocated to a programme that has evolved over a period of time."

It was pleasing that the government was not spending on consumption, but investment for the future, he said.

Business Unity SA (Busa), expected the business sector to respond positively.

"We share the goals of the minister. We want to see an economy better, bigger and stronger," said Busa special policy adviser Raymond Parsons.

"We believe the National Development Plan (NDP) is the instrument that we need to do that. It also helps to create a climate of more predictability and certainty in the policy environment."

He said it remained important the NDP be implemented on a sustainable fiscal basis, with Busa echoing Gordhan's warning that to achieve this required higher growth and employment.

Gordhan also announced, among others, unexpected personal income tax relief of R7bn, along with concessions to small businesses.

Economic growth was projected at 2.7% in 2013, 3.5% in 2014, and 3.8% in 2015.

The budget provided for consolidated spending of R1.15 trillion, and revenue of R985.7bn, for an expected deficit of 5.2%, dropping to 3.1% in 2015/16.

The current account deficit was expected to average 6.2% over the next three years.

Gordhan said a review of the tax policy framework - and its role in supporting the objectives of inclusive growth, employment development, and fiscal sustainability - would start this year.

From March next year, an employer’s contribution to retirement funds on behalf of an employee would be treated as a taxable fringe benefit in the hands of the employee.

Individuals would, from that date, be allowed to deduct up to 27.5% of the higher of taxable income or employment income for contributions to pension, provident, and retirement annuity funds, with a maximum annual deduction of R350 000.

Contributions above the cap would be carried forward to future tax years.

Gordhan said the 2013 Budget took the NDP as its point of departure.

"The strategic plans of government and the medium-term expenditure plans will be aligned to realise our objectives."

The government had taken measures to control growth in spending, and spending plans had been reduced by R10.4bn through re-prioritisation, savings, and a draw-down on the contingency reserve.

He said the government remained committed to the large-scale infrastructure investment programme.

The path of spending and the recovery in revenue would stabilise debt at just higher than 40% of GDP.

"In this budget we continue to invest in education, health, housing, public transport, and social development components of the social wage, which add up to about 60% of public expenditure," he said.

Some of the foundations of faster growth were in place. Strong capital investment by the public sector, the addition of electricity-generating capacity, relatively stable inflation, and low interest rates would support improved growth rates over the medium term.

"But this is not enough. Much more is needed. In particular, a significant increase in private sector investment and competitiveness is needed in the wider economy.

"Agriculture, manufacturing, tourism, communications - every sector has to play its part in expanding trade, investment and job creation."

National development should be coupled with fiscal sustainability, to ensure that progress made would not be interrupted or reversed.

"The government relies on resources derived from the wider economy, and the best way to generate resources is to grow the economy faster and increase the tax base."

Gordhan also had a word of warning against tax avoidance and non-compliance.

"We also owe it to our taxpayers to ensure they are not carrying the burden of those who benefit from our country’s infrastructure and resources without paying their fair share of the costs."

The SA Revenue Service (Sars) was currently engaging with companies which had their base of operations in South Africa, but appeared to have shifted a large proportion of their profits to low tax jurisdictions, where only a few people were employed.

"This is unacceptable. Sars is also pursuing schemes identified under the revised general anti-avoidance rules, following several years’ painstaking work tracing transactions through multiple jurisdictions and entities."

Sars was also targeting other areas of non-compliance, including recipients of government spending who were not up to date with their taxes, he said.

* Visit our Budget Centre for full coverage of the 2013 Budget Speech, including a sin tax and personal tax calculator.