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South Africa: Gordhan To Table 2012 Budget

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All eyes will be on Finance Minister Pravin Gordhan when he tables the 2012 National Budget Wednesday.

Gordhan will table his budget in Parliament at 2pm on Wednesday, at a time when the country’s budget deficit is under the spotlight. The speech will be broadcast live on SABC radio and television.

When the Medium-Term Budget Policy Statement (MTBPS) was tabled in October last year, Treasury projected that the budget deficit would narrow from 5.5% of GDP in the current fiscal year to 3.3% by 2014/15.

“I think that we will still see a declining trend although it will be slower,” said Sanlam’s Group Economist Jac Laubscher on Tuesday, adding that Gordhan had little room to manoeuvre.

Nedbank economists expect the minister will announce a better outcome for 2011/12 than the 5.5% predicted in the MTBPS. “A late flurry in taxation receipts could mean a deficit outcome close to 4.5% of GDP,” said the bank.

Old Mutual Investment Group (SA) senior economist Johann Els said this year’s budget will be much tighter, adding that it will come down to managing a deficit which has been higher over the past few years on the back of the global situation.

He, however, said that South African deficits are much lower than those of several Eurozone countries.

Laubscher said growth of around 2.5% and 3% is projected this year (down from the 3.4% assumption in the MTBPS). He added that the infrastructure announcement made in President Jacob Zuma’s State of the Nation Address earlier this month was a good thing. Improving savings and having more entrepreneurs are some of the things South Africa can do to improve growth prospects.

Economists would like Gordhan to give more clarity on how the infrastructure spending will be financed.

On the issue of the expanding wage bill, Laubscher said: “The wage bill issue is a big problem. It has been allowed to explode in the past three years to 43%. Government will have to find a way to reduce it,” he said.

Associate Director at Webber Wentzel Nola Brown, meanwhile, said to encourage foreign direct investment in South Africa, some improvements should be made.

“Considerable progress has been made with regard to the stated intention to make South Africa an attractive spring board into, mostly, Africa. However, in order to enhance South Africa’s attractiveness as a holding company jurisdiction, we also need to see improvements in respect of South African capital gains tax on the sale of foreign subsidiaries by headquarter companies,” said Brown.

South Africa and foreign investors can use headquarter companies to ensure a less burdensome tax regime in relation to cross-border activities.

On what the minister should do to address the expected shortfall in revenue, Tax Director at the law firm, Des Kruger, said though the country has been somewhat protected from the negative effects of the economic crisis, the South African economy has not been making progress as expected.

“As a result, there is an anticipated shortfall in revenue. The issue is how is this going to be addressed? Nothing needs to be done in regard to raising income tax on individuals as ‘fiscal drag’ operates to increase the tax take even if rates remain the same,” questioned Kruger.

Fiscal drag is the term given to the effect of the progressive individual tax rates on increases in remuneration.
Els added: “At the end of the day, I don’t think there will be many big surprises or shocks in the 2012 National Budget.”

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