SOUTH Africans breathed a sigh of relief yesterday as Finance Minister Pravin Gordhan delivered a generous budget speech packed with tax incentives, some of which could boost the Eastern Cape’s economy.
Despite fears earlier this week that he might hike taxes to fund a tightly squeezed public purse, Gordhan hit the right notes with both taxpayers and businesses, offering various tax breaks – a welcome relief for households already snowed under with debt.
Slating rife graft which dented state efficiency, Gordhan said the government battled with the corrupt procurement of contracts which “yield rich pickings for those who exploit the system”.
“Let me be frank. This is a difficult task with too many points of resistance. There are also too many people who have a stake in keeping the system the way it is.
“Our solutions, hitherto, have not matched the size and complexity of the challenge. As much as I want, I cannot simply wave a magic wand to make these problems disappear.
“This is going to take a special effort from all of us, including the men and women on my left,” he said, pointing to the opposition party benches.
In a speech geared towards economic growth and long-term development, Gordhan dished up more than R200-billion – the lion’s share of the trillion-rand budget – for education in 2013-14.
“So we wish [Basic Education] Minister Angie Motshegka success in monitoring the attendance of teachers in schools,” Gordhan said.
Minister Aaron Motsoaledi’s Health Department walked away with R133-billion. Gordhan also announced: ý A new employment tax incentive to encourage the public sector and private companies to hire firsttime job seekers, mostly likely to be between the ages of 19 and 29;
- R7-billion tax relief which will see consumers taxed less on medical aid contributions from next month;
- Low-income earners whose employers subsidise their rent or home loans will also get some tax relief;
- Tax incentives for special economic zones which, when finalised, will see the province’s industrial development zones – Coega Development Corporation (CDC) and the East London IDZ – gain capacity as key points of growth.
However, from April the overall fuel levy will increase by 23c/litre, including 8c/litre for the Road Accident Fund levy, a move which will put more pressure on business and consumers.
A carbon tax would be introduced in 2015 to coincide with the phasing out of the electricity levy, Gordhan said.
Consumers can also expect to pay an additional 2 cents levy per plastic bag, bringing the figure to 6c, as well as an environmental levy on incandescent light bulbs – from R3 to R4.
Nelson Mandela Bay Business Chamber chief executive Kevin Hustler welcomed Gordhan’s focus on increasing South Africa’s competitiveness.
He also praised the minister’s focus on education, especially on maths, science and technology education.
“We would, however, like to see diminished spend on human resources in the departments of health and education,” Hustler said.
He said the minister’s commitment to infrastructure spend would go a long way towards job creation, assisting in particular the civil engineering and construction industries.
“We would like to see the breakdown of the infrastructure spend for the Eastern Cape.”
Coega spokesman Ayanda Vilakazi welcomed this move which would benefit business, industry and South Africa as a whole.
“As the CDC, we are pleased to note that the government is embarking on a path to have government support mechanisms in place that will assist in the quest to enhance investor uptake.”
Rhodes University head of economics Professor Hugo Nel welcomed Gordhan’s emphasis on supporting economic growth through capital spend and tax relief.
“The tax relief of R7-billion will put consumers in a position to spend more, which in turn has a positive effect on business and subsequently leads to economic growth,” Nel said.
He did, however, criticise the 23c increase in the fuel levy.
“On the one hand the minister clearly tries to boost economic growth, but on the other hand this will have a negative effect on growth.”
Bobby Stevenson, DA leader in the provincial legislature, said: “The reduction in small business tax is welcome … and we are happy that he didn’t increase income tax because that would have been hugely detrimental for economic growth and job creation.”
However, he maintained that the government did not have the right policies in place to be able to grow the economy.
COPE national spokesman Nkosifikile Gqomo said the country relied heavily on social grants, which meant the GDP was dependent on a small number of taxpayers, making it unsustainable.
“Funding from sources outside the country will always be important in effecting economic improvement. In this regard, foreign direct investment becomes important for developing countries, not only to acquire additional funding but also to achieve growth and thereby alleviate poverty,” Gqomo said.