BUDGET 2006: TOO MANY FISH, TOO FEW FISHING RODS

DR PHILIP THEUNISSEN, COMPUTUS BESTUURSBURO

Trevor Manuel treated the public to a “good news” budget this year. However, most economists feel he squandered a golden opportunity to stimulate the supply segment of the economy, including the agricultural sector, by opting to stimulate demand.  

The Minister of Finance, Trevor Manuel had a pleasant problem when he drew up this year's budget. The state performed better than what was expected a year ago, therefore he had a few billion extra rands to allocate. Manuel had two choices: he could have dished the money out or ploughed it back into the economy. The first option is a popular one and would have delighted many South Africans. The second option, although not as popular, would have created more jobs and contributed to the sustainable growth of the economy. To quote the cliched Chinese proverb: If you give someone a fish, you feed him for a day, but teach him how.to fish and you feed him for the rest of his life. 

Unfortunately, Manuel dished out too many "fish" in his 2006 budget, and no fishing rods. He has used the bulging state coffers to stimulate demand rather than stimulate supply. In other words, he has chosen to put more money in people's pockets rather than expanding the factory.

 Tax relief

The largest fish are tax relief to individuals, lowering of transfer duties on properties, and a large increase in social welfare grants. He neglected to reduce company taxes and to allocate more money to goveminent departments that are able to create jobs, such as agriculture and energy affairs, which would have stimulated supply. So while individuals are pleased because they'll have more spending money, companies will complain that there is no relief for them, except that they'll be able to swing more products to cash-flush individuals. 

·        The result of the demand-stimulating budget will be:

·        that the income of individuals will be higher than the previous year;

·        the increase in income will lead to more spending by the public, including spending on credit;

·        higher credit will push up the inflation rate;

·        and rising inflation will then lead to an escalation in interest rates. 

The increase in spending will stimulate imports, and local producers such as farmers will lose ground against prices based on import parity. 

The slices 

The alternative that wasn't exercised by Manuel, namely a supplystimulating budget, would have stimulated job opportunities, more long-term economic sustainability, more exports, less imports, a decrease in the inflation rate and less pressure on interest rates. Because of the government's policy of keeping citizens happy with handouts rather than with job creation, there has been an alarming increase in the state's slice of the economic pie. 

In 2002/03, the state appropriated 23,2% of the gross domestic product for its coffers in terms of taxes. The current budget has increased this portion to 26%, while Manuel's projection for 2008/09 is 26,1%. It's clear that the state wants to collect more taxes so that it can dish out more money. As a result, an expenditure such as social development will rise from R30,2 billion in 2002/03 to a projected R73,3 billion in 2008/09 (see graph). Agriculture's budget will increase from R933 million to R2,299 billion in the same period. So by 2008/09 agriculture will only receive 0,4% of the budget while social development will get 12,8%. The total expenditure on social services in the 2006 budget amounts to 15,5%, while 5,3% is spent on agriculture, water affairs and forestry.

Individuals 

Although agriculture has been neglected in the budget, farmers will individually also benefit from the "fish" that were doled out. The softening of personal tax scales means that tax liability now only kicks in at an income of R40,000 per year, compared to the threshold of R35,000 of the previous year. For people aged 65 and older, the threshold increases from R60,000 to R65,000. At the same time, the amount at which the maximum tax rate of 40% is applied has been raised from an annual income of R300,000 to R400,000. Money earned as interest will be tax-exempted if it's less than R16,500 per year, up from R15,000 the previous year, and people older than 65 won't have to pay tax on interest as long as it's less than R24,500 per annum, up from R22,000 the previous year. 

Results 

The maximum tax~exempted donation has been increased from R30,000 to R50,000. In addition, exemption from estate duty has been increased from Rl,5 million to R2,5 million. Both these rebates apply to husband and wife separately, so a couple can, with proper planning, donate Rl00 000 tax free per year. The first R5 million of their combined estate will also be exempted from taxation. Given the size of most farmers' estates, this is a considerable concession. 

Enterprises that qualify as small businesses don't have to pay tax on the first R40,000 earned per year, while only 10% income tax will be levied on earnings between R40,000 and R300,0000, and for income over R300,000 the tax rate will be 29%. Most farmers will be able to benefit from these tax structures after restructuring their enterprises. 

Unpopular items 

As usual, Manuel raised the taxes on liquor and tobacco. In the past, heavier taxation has not reduced the consumption of these commodities. One can also argue that the concessions made by the minister in respect of personal taxes will more than offset the detrimental effect of excise duties, so that individuals will probably have more money available to spend on liquor and cigarettes, even at higher prices. 

Manuel doesn't seem to like company vehicles and high medical fund contributions - he curtailed tax benefits associated with both these items in his new budget. 

Critisism 

Bethlehem
February 2006

BEGROTING 2006: TE VEEL VISSE EN TE MIN VISSTOKKE

DR PHILIP THEUNISSEN,COMPUTUS BESTUURSBURO

Die Minister van Finansies, Mnr Trevor Manual, het met ‘n besonder aangename probleem gesit toe hy vanjaar se begroting moes opstel.  Sy besigheid het beter gedoen as wat hy ‘n jaar gelede verwag het.  Dit het beteken dat hy ‘n paar miljard ekstra gehad het waaroor hy moes besluit oor hoe hy dit gaan aanwend.  Hy het twee keuse gehad: hy kon dit uitdeel of hy kon dit terugploeg in sy besigheid.  Die eerste opsie is ‘n baie gewilde een en sal die landsburgers oor die korttermyn baie bly maak.  Die tweede opsie is nie so gewild nie maar sou meer volhoubaar gewees het om werk te skep en om tot volgehoue groei vir die ekonomie by te dra.  Dit is soos die geykte chinese spreukwoord wat lui dat as jy vir iemand ‘n vis gee, voed jy hom vir een ete maar as jy hom leer om vis te vang, voed jy hom vir die res van sy lewe. 

Mnr Manual het ongelukkig met 2006 se begroting net visse uitgedeel en nie vistokke nie.  Hy het die oorvol staatskas gebruik om vraag te stimuleer eerder as om aanbod te stimuleer. Hy het dus verkies om vir die volgende jaar geld in mense se sakke te plaas eerder as om die fabriek ‘n bietjie groter te maak.  

Toegewings 

Die grootste visse wat hy uitgedeel het is belastingverligting aan indiviue, verligting van hereregte op eiendomme en ‘n groot toename in sosiale welsynstoelaes. Hy kon daarenteen maarskappybelasting verlig het en meer geld aan werkskeppende departemente toegedeel het, soos landbou en energiesake, sodat hy die aanbodkant kon stimuleer.  In kort juig individue omdat hulle meer geld gaan hê om uit te gee terwyl maatskappye kla oor daar basies geen verligting vir hulle is nie, behalwe dat hulle dalk meer produkte aan die individue gaan verkoop. 

Uitwerking 

Die effek van ‘n vraagstimulerende begroting is dat: 

·        Inkomste van individue relatief tot die vorige jaar gaan verhoog;

·        ‘n Verhoging in inkomste tot ‘n verhoging in besteding gaan lei;

·        ‘n Verhoging in besteding tot ‘n toename in krediet gaan lei;

·        ‘n Toename in krediet tot ‘n styging in die inflasiekoers gaan lei;

·        ‘n Styging in inflasie tot ‘n eskalasie in rentekoerse kan lei.

Bogenoemde scenario sal invoere stimuleer en plaaslike produsente, soos boere, in ‘n swakker posisie teenoor invoerpariteitspryse plaas. Daar teenoor kon ‘n aanbodstimulerende begroting gelei het tot: 

·        ‘n Vermeerdering in werksgeleenthede;

·        Langtermyn ekonomiese volhoubaarheid;

·        Verhoging in uitvoere;

·        Verlaging in invoere;

·        Laer inflasiekoers;

·        Minder druk op rentekoerse. 

Omdat dit die regering se beleid is om eerder met “handouts” as met werkskepping die landsburgers gelukkig te hou, neem die staat se sny van die ekonomiese koek kommerwekkend toe.  In 2002/03 het die staat 23,2% van die Bruto Binnelandse Produk vir die staatskas in terme van belastings toegeëien.  In die huidige begroting gaan hierdie gedeelte 26% beloop terwyl die projeksie wat die minister vir 2008/9 gemaak het op 26,1% te staan kom.  Die staat wil dus meer belasting invorder sodat hy meer kan uitdeel.  Gevolglik sal ‘n uitgawe soos Sosiale Ontwikkeling volgens Figuur 1 vanaf R30,2 miljard in 2002/03 tot R73,3 miljard in 2008/09 verhoog. Oor dieselfde tydperk sal Landbou se begroting vanaf R933 miljoen na R2299 miljoen verhoog. Landbou se begroting sal dan 0.4% van die totale begroting uitmaak terwyl Sosiale Ontwikkeling 12,8% sal beloop. Volgens Figuur 2 beloop die totale besteding aan Sosiale dienste 15,5% van die begroting terwyl Landbou, Waterwese en Bosbou 5,3% beloop. 

Individue 

Hoewel Landbou se begrotingspos afgeskeep is, vind boere in hulle individuele hoedanigheid uiteraard ook baat by die visse wat uitgedeel is.  Die verlaging in persoonlike belastingskale beteken dat die belastingdrempel nou eers op R40,000 se jaarlikse inkomste intree terwyl dit op R35,000 in die vorige jaar was. Vir persone van 65 jaar en ouer verhoog die drempel vanaf R60,000 na R65,000. Terselfdertyd verhoog die bedrag waar die maksimum belastingskaal van 40% intree vanaf R300,000 na R400,000. Die vrygestelde inkomste uit rente word vanaf R15,000 tot R16,500 vir persone jonger as 65 jaar verhoog terwyl dit vanaf R22,000 na R24,500 vir persone van 65 jaar en ouer verhoog word. 

Die maksimum belastingvrye skenking verhoog vanaf R30,000 per jaar na R50,000. Daarmee saam verhoog die vrystelling by boedelbelasting vanaf R1,5 miljoen tot R2,5 miljoen.  Beide hierdie kortings geld vir man en vrou afsonderlik sodat daar met effektiewe beplanning R100,000 se belastingvrye skenkings in ‘n jaar gemaak kan word terwyl die eerste R5,0 miljoen van ‘n gesamentlike boedel belastingvry kan wees. Gegewe die grootte van meeste boere se boedels is hierdie dus ‘n beduidende toegewing. 

Kleinsake toegewings 

Besighede wat as klein sake kwalifiseer gaan nie inkomstebelasting op die eerste R40,000 betaal nie terwyl daar slegs 10% inkomstebelasting op die gedeelte bo R40,000 tot en met R300,000 betaal word.  Bo R300,000 word daar 29% belasting betaal. Daar sal in ‘n latere artikel meer breedvoerig oor die voorwaardes berig word waaraan ‘n klein sake-onderneming moet voldoen.  Vir nou is dit net nodig om daarvan kennis te neem dat die meeste boere hierdie voordeel sal kan benut met ‘n bietjie herstrukturering van hulle ondernemingsvorme. 

Ongewilde items 

Oudergewoonte het die minister belasting op drank en sigarette weer verhoog.  In die verlede het sulke verhogings nie juis die verbruik daarvan laat afneem nie.  Daar kan ook geredeneer word dat die toegewings op persoonlike belasting baie meer is as die nadelige impak van aksynsbelasting sodat die individu waarskynlik meer geld vir drank en sigarette sal hê, al is dit nou duurder. 

Die Minister hou egter nie van maatskappymotors en duur mediese fondsbydraes nie.  Beide hierdie items se belastingvoordele is in die nuwe begroting ingekort. 

Kritiek 

Dit is miskien ‘n bietjie onbillik om Mnr Manaul te kritiseer want hy doen vir etlike jare al ‘n uitstekende werk as Minister van Finansies.  In 1998 is 24 sent van elke rand se inkomste wat hy ingevorder het gespandeer om staatskuld mee te diens.  In 2005 is slegs 14 sent daarvoor gebruik en sy mikpunt is om in 2009 maar 10 sent daarvoor te begroot. Dit is dus seker sy prerogatief om te besluit hoe hy sy surplusse wil aanwend en daarom is dit vir die individu ‘n “goeie nuus” begroting.  Die gevoel onder meeste ekonome is egter dat die minister dalk ‘n gulde geleentheid deur sy vingers laat glip het om eerder die aanbodkant van die ekonomie, waaronder landbou ook sorteer, as die vraagkant te stimuleer.

Bethlehem
Februarie 2006