Tight-belt budget

2013-02-28 00:00

FINANCE Minister Pravin Gordhan yesterday presented a tough and businesslike 2013/14 budget with no major surprises except a little R7 billion sweetener in the form of personal tax relief.

Money is tight. This was the message from Gordhan’s speech — in a clear sign of the current uncertain economic times.

Gone are the days of major tax breaks for individuals.

Gordhan announced personal income tax relief of R7 billion, down from R9,5 billion last year — a figure that will not make a substantial difference in disposable incomes of medium to higher income earners.

In 2006 during the height of South Africa’s economic boom, the then Finance Minister Trevor Manuel announced personal income tax relief amounting to R13,5 billion.

The Treasury has to make do with a shortfall of R16,3 billion in tax revenue.

Using a tough and businesslike approach, Gordhan reminded the nation that economic growth has been disappointing.

The performance of the economy will have a significant impact on the government’s budget, which in 2013/14 amounts to R1,15 trillion.

The Treasury is expecting South Africa’s economy to grow by a pedestrian 2,7% this year. The budget deficit is now expected to come in at 5,2% of Gross Domestic Product (GDP) in 2012/13, while the government’s net debt is expected to reach 40% of GDP.

“Spending plans have been reduced by R10,4 billion through reprioritisation, savings and a draw-down on the contingency reserve,” Gordhan said.

Standard Bank chief economist, Goolam Ballim, told The Witness that Gordhan delivered a pertinent, timeous and contemporary analysis of the challenges facing South Africa.

“We face a harsh external climate, difficult circumstances in our labour market and various government failings.”

Ballim added that Gordhan was candid about the need to enhance efficiency in the delivery of services.

“He placed a great deal of emphasis on internal reforms. The minister at times sounded like an opposition minister, when he spoke of wasteful expenditure and graft in government,” said Ballim.

Several key proposals were unveiled, including the establishment of a Chief Procurement Office (CPO) in the National Treasury — which is at an advanced stage of development.

“Among the first initiatives of the CPO will be to enhance the existing system of price referencing,” Gordhan said.

He added that the Treasury is currently scrutinising 76 business entities with contracts worth R8,4 billion which are believed to have infringed the procurement rules.

“The CPO may in time become a crucial measure to address the underspending, overspending and misspending by government departments and municipalities,” said the South African Chamber of Commerce and Industry (Sacci).

In addition, Gordhan announced a newly-proposed local government equitable share formula which will provide a services subsidy of R275 for every household with a monthly income less than R2 300.

“This implies that there should be less pressure on local government to supply free basic services, which should mitigate the need to put huge tariff increases in place,” said Melanie Veness, CEO of the Pietermaritzburg Chamber of Business (PCB).

Gordhan also announced plans to introduce a tax incentive aimed at sharing the costs of employing young work-seekers — a move welcomed by Sacci.

“It will help young people enter the labour market to gain valuable experience and access career opportunities. A similar incentive is proposed for eligible workers of all ages within special economic zones,” Gordhan said.

The three-year infrastructure plan amounting to R827 billion is still on track and has not been affected by the spending cuts in the budget, he said.

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