The Budget

Feb 22, 2007 | Newsletters

MEDIA STATEMENT BY THE

INKATHA FREEDOM PARTY

Mangosuthu Buthelezi’s Weekly Newsletter to the Nation

My dear friends and fellow South Africans,

With the heavy thud of bundle of documents which landed on my desk: the Division of Revenue Bill, the Budget Speech 2007; Budget 2007; the Appropriation Bill; Estimate of National Revenue 2007 and the gigantic Estimates of National Expenditure, still ringing in my ears (I’m not sure how green this budget is judging by the amount of paper) – I add my congratulations to the Finance Minister.

Trevor Manual has, once again, presented a veritable social-market budget and enhanced his reputation as one of the finest finance ministers in the world.

The elimination of taxation on retirement savings, the correction to bracket-creep by inflation on marginal tax payers and the no increase on Value-Added Tax was good news, as was the pension reform plan. The latter, however, does not address my concern about the gap in addressing destitution in South Africa (I wrote about this in my online letter last week).

It is particularly gratifying that the budget was presented in a holistic "joined up" approach to government. It was rightly premised on the notion that the nation’s finances cannot be separated from our quest to build a just society and a new moral order. A new society in which, as the Old Testament prophet Amos so eloquently envisaged, "justice rolls on like a river and righteousness like a never failing stream".

We cannot expect equality of outcome because some people’s talents will naturally take them further than those of others, but we do strive for equality of opportunity. During the Minister’s peroration yesterday, I once again recalled John Wesley’s dictum, "Do not impute to money the faults of human nature."

With more money in their pockets, it is up to individuals to consider how they meet their obligations to their family, their community and wider society. Government itself cannot build a prosperous society in which wealth cascades down the generations. Nor can government inculcate a spirit of philanthropy which prevails in most economically free societies like Britain and America.

The Minister anticipated that the fiscus expected to see a net budget surplus for the first time prompting him to encourage domestic consumer saving. He was right to encourage households to use tax relief to save and pay existing debt rather than fuel increased spending. I also urge families to save for the proverbial rainy day – which always comes at the most unexpected time.

Looking ahead, I would like to constructively recommend that the following be considered to build upon the good work of the Finance Minister.

Corporate tax rate

A number of corporate economists have made the case recently to cut corporate tax rate from 29%. With many countries around the world pioneering flat tax rates below 20 or even 15 percent, South Africa cannot remain remotely competitive with the current figure. The Minister did not offer any relief in this respect despite its significance as a driver of economic growth. I hope that he shall do so in the next budget.

South Africa is still regarded as uncompetitive in international surveys because of the high corporate tax rate on company profits. Although the budget surplus implies that the fiscus will be able to fund some level of internal investment in the economy, foreign direct investment (FDI) by mature industrialised nations still provides the strongest basis for initiating growth opportunities in the economy.

The corporate tax rate needs to be aligned more competitively within the thirteen systemic developing nations cluster. This would provide a more competitive and attractive corporate environment in which to stimulate job creation and business initiative.

Sustained growth opportunities

The minister spoke about economic growth and the increase from 2.5% to 5% during the current cycle. Absent from the budget, I felt, were specific measures to sustain and lift this growth. Specific, responsive and measurable growth opportunities are critical to ensuring a strong economy driven by job creation and skills development. Please can we have more detail on this next time, Minister?

STC

The minister announced a decrease in the Secondary Tax on Companies from 12,5% to 10%. He outlined that in a two-stage process, individuals would be taxed on distributions in their own hands. Companies, by STC, have previously been disincentivised to distribute profits to equity holders and have consequently built up significant cash reserves on their balance sheets. The decrease in the rate to 10% however, does not provide relief to equity holders if they are to be taxed on distributions in their own hands, consequently, providing little net relief.

Collection and SARS

The budget saw an overall increase in the level of government spending. The Minister referred to the increased effectiveness and efficiency of the Revenue Services. I feel that I must strike a cautionary note.

Although collection of revenue has increased 17% year on year, the capacity for improvement in revenue collection is likely to be depleted soon. Any increase in real terms will need to come from increased revenues from companies and individuals paying greater tax. Government spending will not enjoy the boon of increased efficiency in collecting taxes for much longer.

These, I believe, are suggestions worth considering since, in spirit, they complement the budget’s overall phrasing and priorities.

The Budget process to most people – including members of parliament – is a labyrinth worthy of the De Vinci Code. More than any individual I know, Trevor Manuel has a wonderful knack of decoding the mysteries of government spending; he can make the driest figures sing.

I would therefore like to conclude with the reminder that the government does not have one rand to its name; it spends your money and my money on our behalf. I therefore encourage members of the public to write to me, other party leaders and the Finance Minister so that we can better shape our inputs and responses to the Budget. It is too late for you – the citizen and taxpayer – to complain when the Budget debate is over.

Yours sincerely

Mangosuthu Buthelezi MP

ifp.org.za

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