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Archive for February, 2011

Budget In A Nutshell

Finance Minister Pravin Gordhan is putting pedal to the metal with his 2011/12 national budget, blasting ahead with infrastructure spending of R800bn with no plans to cut the budget deficit.

While this may raise questions over fiscal prudence, the aggressive spending may keep the economy humming in difficult times.

However, the new budget, announced on Wednesday, holds little joy for those hoping for tax relief.

Some of the highlights:

  • Gordhan has announced tax relief of R8.1bn for individuals to counteract the effects of fiscal drag – that is, the effect of inflation pushing individuals into higher tax brackets. From March 2011, tax will be payable only on income above R59 750 for taxpayers below the age of 65, and R93 150 for those 65 and older. The tax threshold for taxpayers aged 75 and older has increased to R104 261.
  • An increase in the annual tax-free interest income to R22 800 for individuals below 65 years is proposed, and to R33 000 for individuals 65 years and over. The tax-free lump sum benefit upon retirement will increase from R300 000 to R315 000.
  • From March 2012, an employer’s contribution to an employee’s retirement would be treated as a taxable fringe benefit. At the same time, employees would be allowed to deduct up to 22.5% of taxable income for contributions to approved retirement funds, up to a maximum of R200 000 per year. National Treasury is to conduct a review of retirement annuity products, which – according to Treasury – have a reputation for “high costs and consumer abuses”.
  • From Wednesday, the ad valorem excise tax on cars that cost more than R900 000 will increase by 5% to 25%. For more modest vehicles, the rate will remain unchanged.
  • Smokers will have to cough up 80 cents more for a packet of cigarettes. Drinkers did not escape the inevitable increase in excise duties either, and a can of beer will cost them 6.4 cents more, a bottle of wine 13.5 cents and a bottle of sprits R2.86.
  • Motor vehicle owners, already hard hit by the oil price increase, face an increase in the fuel levy by 10 cents per litre on petrol and diesel, effective from April 6 2011. The Road Accident Fund levy will be increased by 8c/litre on the same date.
  • Ad valorem excise duties on computer monitors – some of which are used as television screens – will be reinstated at a flat rate of 7%.
  • Gambling winnings above R25 000, including from the National Lottery, would be subject to a 15% withholding tax from April 2012.
  • To support job creation, a youth employment subsidy in the form of a tax credit costing R5bn over three years will be introduced. It will be administered by the SA Revenue Service through the PAYE system.
  • Businesses making investments qualify for tax relief. Greenfield investments in industrial development zones qualify for additional relief. Government will consider expanding incentives for labour intensive projects in industrial development zones.
  • Government and state-owned enterprises will spend more than R800bn over the next three years on infrastructure. The money will be spent on new power stations, road networks, dams and water supply pipelines, rain and ports facilities, schools, hospitals and government buildings.
  • Gordhan has downgraded expected economic growth for this year from 3.5% to 3.4%
  • In a surprise move, there will be no cut in the deficit as a proportion of gross domestic product in the new fiscal year, with the deficit budgeted at 5.3% in 2011/2012 from the same level in 2010/11. National government debt was set to rise from R526bn at the end of 2008/09 to over R1.3 trillion in 2013/14.
  • National health insurance will be phased in over 14 years. Funding options under consideration are a payroll tax (payable by employers), an increase in the VAT rate and a surcharge on individuals’ taxable income.
  • Dividends tax becomes effective from April 1 2012 and secondary tax on companies will be discontinued from that date.

How the budget will be spent

SA set for economic recovery

Bloemfontein – All is set for economic recovery in 2011, but South Africans should not begin thinking the next growth phase has dawned.

This was the view of Economists.co.za economist Mike Schüssler, the compiler of the Sake24 and BoE Private Clients provincial barometers. These indices are compiled from many data series and measure the economic pulse of five of South Africa’s provinces.

Schüssler said that provincial economies in the fourth quarter of last year wiped out much of the third quarter’s backlogs. That, together with positive factors like improved international commodity prices, gave him hope for the first quarter of this year.

It was the coastal provinces in particular that performed in December. The indices show that economic activity in the Eastern Cape was 9.9% up on a year ago. The December activity levels of the Western Cape (8%), Gauteng (5.3%), KwaZulu-Natal (4.8%) and the Free State (3.3%) were also considerably higher than in December 2009.

The coastal provinces, he said, had lower economic stress factors, lower inflation and less indebtedness than that to interior provinces.

In December all the provinces showed increases in their transport sub-indices, with the Eastern Cape (11.8%) performing best. The wheels of the economy were turning again. Road transport was increasing substantially, owing in particular to increased exports to the rest of Africa, said Schüssler.

He also forecasted better global resource prices and increased demand could not only strengthen the mining indices of Gauteng and the Free State, but would also ripple outwards to the transport sectors.

All five provinces’ trade indices improved in December. This sub-index measures economic activity at both retailers and wholesalers, as well as leisure and tourism enterprises.

The South African consumer had become stronger over the year, but Schüssler did not believe that consumers would spend much more than they did currently. Levels of indebtedness were still too high.

A sector in which economic recovery was still filtering through slowly was manufacturing. Only the Eastern Cape index (7.5%) indicated a surge while the rest of the country’s indices had all improved by less than 2.6% year on year.

The Free State (4%) still had the highest stress index of all the provinces – owing to high indebtedness and unemployment in the province. The lowest level of economic stress (-1%) was seen for the Western Cape.

– Sake24