Gordhan’s call to action

2012-02-23 00:00

FINANCE Minister Pravin Gordhan yesterday called for an “extraordinary national effort” from all South Africans, one where citizens were prepared to work together for the long haul.

He acknowledged that his third budget in the Jacob Zuma administration had been crafted at “a challenging but hopeful time”.

The budget comes amid uncertainty in the global economy on the back of the Eurozone sovereign debt crisis.

He said: “We have to say to our people that that economic uncertainty will be with us for some time, yet we have a programme of economic change that can steadily roll back unemployment, poverty and inequality”.

Gordhan said the country had demonstrated excellent resilience during the post-2008 crisis.

“We now need to introduce a new dynamism among all South Africans.

“It requires an extraordinary national effort from all roleplayers, committed not just to identifying the barriers to progress, not just to proposing solutions, but also working together, over the long haul,” he told MPs.

Gordhan said Zuma had challenged Team Finance to help “write a new story about South Africa, the story of how, working together, we drove back unemployment and reduced economic inequality and poverty”.

This new South Africa story was about “building modern infrastructure, a vibrant economy, a decent quality of life for all, reduced poverty and decent employment opportunities.

“It is a story that must be written by all of us. Not just by government. Not just by business. Not just by unions. But all of us. South Africans from all corners of this country.”

Expanding on his vision of an active citizenry, Gordhan noted that every one of the last hundred years had seen South Africa overcome obstacles that seemed insurmountable.

“In harnessing all the resources at our disposal we have to do more with less. We have to work smarter and harder,” he said.

Gordhan was under pressure to ensure that spending did not overshoot revenue collection by a significant margin.

Major priority areas like infrastructure and social spending received significant funding.

A total of R615,7 billion out of the R1,1 trillion budget will be spent on social services.

Social spending makes up 58% of government spending — up from 49% a decade ago.

Gordhan also announced personal income tax relief amounting to R9,5 billion, as well as R6,2 billion for job creation and R9,5 billion for the Economic Competitiveness and Support Package.

The majority of the infrastructure spending over the next three years will go to energy, transport and logistics projects.

Although the budget passed the R1 trillion mark for the first time, Gordhan projected a budget deficit of 4,8% of gross domestic product (GDP) in the current financial year.

Economists were expecting a projected deficit of more than five percent.

This was a critical area of concern for investors given the debt woes of several European countries.

The move will go a long way toward boosting confidence among credit ratings agencies and investors.

“South Africa’s finances are in good health,” a confident Gordhan said.

While the rand and the market did not react significantly to the speech, bonds rose amid initial optimism at the narrower forecast. Those gains were later reversed as analysts showed some scepticism over the country’s ability to narrow the gap between spending and borrowing.

Gordhan cut his economic growth forecast to 2,7% this year. However, he expects the economy to recover, attaining growth rates of 3,6% and 4,2% in 2013 and 2014 respectively.

While the budget was welcomed by major organised business structures, they expressed concern over issues relating to certain tax proposals.

The CEO of the Durban Chamber of Commerce & Industry (DCCI), Andrew Layman, told The Witness that Gordhan showed discipline and good financial management skills.

Business Unity South Africa (Busa) described the budget as credible, broadly balanced and confidence building.

“It rightly emphasised the need for a collaborative effort from all South Africans to work together to realise a rapidly growing, vibrant and inclusive job-rich economy against the backdrop of a weak global economic outlook,” Busa said.

Busa welcomed tax relief for small business and micro-enterprises. Qualifying micro-businesses will be able to pay turnover tax, VAT and employees’ tax twice a year instead of 18 times a year. This significantly reduces the red tape burden on small businesses.

Layman described the minister’s announcements on relief measures for small businesses as a step in the right direction.

“It is very encouraging and it is certainly good news. However, it only accommodates the very small businesses and not a small business with a relatively high turnover,” he said.

Layman stressed that the proposals on Special Economic Zones (SEZs) were positive as these zones have succeeded in other countries.

However, analysts were concerned about the impact of certain tax proposals on households and businesses.

KwaZulu-Natal-based economist Kwanele Gumbi told The Witness that taxpayers would barely “break even” once the higher fuel levies, which amount to 28 cents a litre, come into effect in April 2012.

“The levies are very high, particularly in the context of high unemployment and the fact that companies are fighting for survival.

“Government departments are getting more funding, but households and businesses have been hit by these additional taxes,” Gumbi said.

Layman and Des Kruger, director of tax at law firm Webber Wentzel, described the increase in the dividends tax rate as unfortunate.

“This has come as quite a shock given that all previous announcements and the law indicate a 10% rate.

The proposed … dividends tax rate of 15% so late in the day will no doubt cause considerable administration burdens on those companies and regulated intermediaries that have to account for the tax,” Kruger said.

The CEO of the Pietermaritzburg Chamber of Business (PCB), Melanie Veness, told The Witness that the additional taxes would have a negative effect on economic growth, job creation and foreign direct investment.

Gordhan called for greater urgency in reaching an agreement between labour, government and business on a discussion paper proposing a youth employment incentive.

“It is under discussion at Nedlac [the National Economic Development and Labour Council], where the labour constituency has expressed reservations. In our view these concerns can be addressed in the design and implementation of the incentive. We would all like to see greater urgency in resolving this matter,” Gordhan said.

He also announced that although the levy on electricity generated from non-renewable sources would increase by one cent per kilowatt-hour (kWh), the levy would have a very minor impact on electricity tariffs.

In calling for ordinary citizens to play more than an armchair role in the country’s development, Gordhan cited famous statements from iconic statesmen Nelson Mandela and John F. Kennedy.

Paraphrasing Kennedy’s famous quote, Gordhan said: “Our development requires every one of us to ask: what can I do for my country, my people, our future?”

Gordhan saved perhaps the most powerful message for the conclusion of his speech, quoting the words of Mandela: “The future of our country is in your hands. It will be what you make of it today.

“In the competitive international market place to which we are opening our economy, success and even survival of the nation will depend on you.”

Our development requires every one of us to ask: what can I do for my country, my people, our future?

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