The Investor SA

 

February was an important month for the house of parliament

and for minister of finance, Nhlanhla Nene, for it was the start

of  a  new  financial  year. This  of course  meant that Minister

Nene  had  to  deliver  the  annual  budget   for   the   2015/16

financial term. Minister Nene had to present the first budget of

our fifth democratic parliament, to which Nene  recalled  to  as

an honour, even though he came to the conclusion that is has

been a challenging budget to prepare under difficult circumstances.

 

Nene made it clear that the budget is constrained by the need to consolidate our public finances, in the context of slower  growth  and rising debt. He continued by stating that we must intensify efforts to address economic constraints, improve our growth  performance, create work

opportunities and broaden economic participation. "We need to achieve these goals if our National Development Plan is to be realised" said Nene. Nene then moved on to the strategic priorities for growth and development. He stated that the  cabinet  has  agreed on nine strategic priorities to be pursued this year, in partnership with the private sector and shareholders, as outlined  by  Pres. Zuma in the State Of Nation address earlier this year. They include:

* Resolving the electricity challenge

* Revitalising agriculture

* Adding value to our mineral wealth

* Enhancement of the Industrial Policy Action Plan

* Encouragement of private investment

* Reducing workplace conflict

* Unlocking the potential of small enterprises

* Infrastructure investment,

* And support for the implementation of the National Development

Plan. At  this  point  Nene  referred to 'Phakisa Laboratories', wich

has already led to  investments  of  R9.6 billion  in  Saldanha  Bay

alone. Strategies   for   improving   primary   health   clinics,  have

also   been    developed   through   a   'Phakisa'   process.   Nene

addressed that the mining sector will be next.

 

Economic context:

Global economic growth is expected to remain sluggish over  the period  ahead, rising  from 3.3% in 2014 to 3.5%  this  year. In  the  Unites States, 3.6% growth is expected this year, while the outlook on  Europe  remains  weak. Europe  can  still  be  destabilized  by disagreement between debtor and creditor nations. In emerging markets and developing economies, growth of about 4.5% is expected. China's growth  is expected to slow  down  to 6.8% this  year. Nene  admitted  that South-Africa  will benefit  from  lower  oil  prices, but  our  major  commodity

exports have  been negatively  affected by  the  global  slowdown. Exports  to  Africa grew by 19% in 2013, and 11% in 2014. However, said minister Nene, our primary challenge is to deal with the structural and competitiveness that hold  back  production  and  investments  in  our economy. The most important of these being the security and reliability of  energy supply. The energy  crisis  is  the  main  reason  why  our projected score is only 2%, down from 2.5% indicated in October last year. Nene expects growth to rise to 3% by 2017.

 

Budget Framework:

The key features of the budget framework for the period ahead are as follows:

*A reduction in the main budget expenditure ceiling of about R25- billion over the next two years.

*An increase in taxes amounting to R17-billion over the 0'15/16 period.

*Revised  spending  plans  across  the  whole  of  government, aimed  at  greater efficiency, reduced waste and an improved composition of spending

*A consolidation of government personnel numbers.

*Financing of state-owned companies, where required, without raising the national government's budget deficit.

 

Consolidated  non-interest  expenditure is  expected to rise from R1.123 trillion this year, to R1.4 trillion in 2017/18. Interest on state debt will rise from R115 billion this year to R153 billion in 2017/18. Expenses on catering, entertainment and venues are budgeted to decline by 8% a year, while traveling and subsistence will be cut  back  by 4% a year. The  budget framework includes an unallocated contingency reserve of R5-billion next year, R15- billion in 2016/17  and  R45-billion  in  2017/18. This, said  Nene, would  allow  for  new  spending  priorities  to  be accommodated in future budgets.

 

Economic Development

" Innovation  and  technology  change  are  at the heart of this development" said minister Nene. Support for the oceans economy has been allocated R296-million over the next three years. South-African science and technology also continues to benefit from our leading role in the 'Square Kilometre Array' astronomy  partnership, which  will  spend  approximately R2.1-billion  ove the next three years. According to Nene, R2.7-billion has been allocated over die medium term under the Mineral Policy and Promotion program to promote investment in mining and petroleum beneficiation projects. Government will continue to  strengthen  support  for  agricultural  development  and  trade. The  projected conditional allocation to provinces over the medium term is R7-billion.

 

Tax Proposals

According  to  minister Nene, the 2015/16 budget tax  proposals aim to  increase tax  revenues, limit the  erosion of  the corporate  tax base, increase incentives for small businesses and promote a greener  economy. Here follows  the  main tax proposals  for the  2015/16  financial term:

*Personal income tax rates will be raised by one percentage point for all tax payers earning  more  than  R181 900 a year. This raises tax by R21 a month for a tax payer below age 65 with an annual income of R200 000.

*Those earning R500 000 would pay R271 a month more,

*And those earning R1.5-million, would pay an increase of R1 105 a month

*The increase in the general fuel levy of 30.5 cents/ litre will take effect in April.

*a More generous tax regime is proposed for businesses with a  turnover  below R1-million  a  year. Qualifying  businesses  with  a  turnover below R335 000 a year will be tax free, and the maximum rate is reduced from 6% to 3%.

 

Excise duties on alcoholic beverages and tobacco products will again increase.

*Tax on a quart of beer goes up by 15.5 cents.

*a Bottle of wine will cost 15 cents more.

*Sparkling wine goes up by 48 cents.

*a Bottle of whiskey will be R3.77 more.

*a Pack of cigarettes goes up by 82 cents.

 

The  net  effect  of  these  tax  proposals  on  2015/16  tax  revenue is an increase of R83-billion, which will bring tax revenue for the year to R1081-billion, which is about 10.4% more than  the 2014/15 tax  revenue. Minister Nene then went on to place further tax proposals, one of them includes a temporary increase in the electricity levy, from 3.5 c/kWh to 5.5 c/kWh. The additional 2.5 c/kWh will be withdrawn once the electricity shortage is over.

 

Last  but  not  least, Nene  addressed  the financial positioning of South-African Airways. SAA reported a Net Loss of R2.6-billion in 2013/14.

The Government have made guarantees of R14.4-billion available to SAA, of which the airline has drawn R8.3-billion