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2014/15 budget – simply complicated

2014/15 budget – simply complicated

A budget speech in an election year is traditionally very conservative and geared towards ruffling as few feathers as possible. This, however, does not mean that a deaf ear should be turned to Wednesday’s budget speech.

The Minister is widely expected to propose no tax increase and fund the increasing deficits with further borrowing, considering that tax collections are continually under pressure and government budgeted spend on education, policing and other social obligations will not reduce. However, the increased borrowing may have significant impact for our economy.

If the Minister however disregards the elections as a consideration to his budget proposal increases in tax should be expected.

Ettiene Retief, Chairperson of the National Tax Stakeholders Committee of the South African Institute of Professional Accountants (SAIPA) shares a few thoughts to keep in mind while listening to the budget speech:

SA finances not just about the money

-        The true impact of wasteful expenditure on the budget must be taken into account. Fraud and corruption not only reduces the amount of money reaching its intended area of impact, but also lessens the amount of confidence potential foreign investors have in SA, and negatively influences the exchange rate, leading to reduced revenue from exports and increased cost of imports, not to mention the impact on tax morality.

-        Balance in social areas is needed in order to balance the budget.

  • BEE initiatives should start from the grassroots to enable organic growth that does not need any interventions that place businesses under pressure.
  • Social behaviours such as strikes moving between extremes affect the economy adversely. Laws that are more balanced, suited to equally benefiting all parties, will influence the social behaviour balance, which will in the end stabilise the economy.

Reducing unemployment

-        No government should be the biggest employer in its country. Governments should be freed up to manage infrastructure and enable business to become the biggest employers, through for example labour laws, infrastructure and tax.

-        SMMEs are the key to creating more employment, as skills transfer happen simultaneously with the creation of new jobs. Skills transfer in turn leads to innovation, which then leads to more job creation.

-        Personal service businesses have the lowest capital setup costs, and tax initiatives in this area could be applied to stimulate job creation. Current tax concessions and initiatives do however not make allowances for personal services businesses.

Money matters

-        Savings from the implementation of programmes to curb wasteful expenditure announced during the 2013/14 budget speech is not yet enough to make a sufficient impact.

-        Increases in individual taxes and VAT will quickly generate additional revenue for the country’s coffers, but is an unpopular strategy, especially during an election year.

-        Tax incentives for SMMEs should be a focus area, as this type of business grows the fastest and can therefore have a short or medium term impact on increasing revenue for the fiscus. The recommendations on this matter from the Davis Tax committee will hopefully be taken into consideration.

-        The deficit of any country should be limited to increasing future income opportunities, such as infrastructure development, and should not be spent on day-to-day running costs. A country should focus its borrowing with an eye on long to medium term spending needs, and not on short term deficits.

Wishful thinking

-        South Africa has not yet adopted self-beneficiation as a possible solution to decreasing the deficit. Factors hampering this approach include labour law and compliance restrictions, among others.

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