BUSINESS UNITY SOUTH AFRICA

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BUSINESS UNITY SOUTH AFRICA (BUSA)
Presentation to the Parliamentary Portfolio on
Finance on the subject of the 2004/05 National
Budget 24 February 2004 Cape Town
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• From fiscal stabilisation to a commitment to
  government delivery
• An assessment of the 2004/05 National Budget by
• Connie Motshumi
• Roger Baxter

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The Budget recognised the critical imperative of
higher levels of investment, economic growth,
broad based empowerment and employment creation
in the years ahead But we recognise that the
pace of economic growth has to be
accelerated. Investment in industry and
infrastructure and an expansion of job
opportunities are critical challenges for the
decade ahead both to underpin growth and expand
room for broad-based empowerment. Minister
Manuels Budget Speech p.5
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• Our task is, simply put, to accelerate the pace
  of growth and job creation and extend the scope
  of development and empowerment. Our approach has
  four key priorities for the decade ahead
  (Minister Manuels Budget Speech p.7.)
• We aim to increase the share of investment and
  saving out of national income, to provide the
  infrastructure and industrial capital formation
  required for sustained output growth. Our
  policies must aim to raise the level of
  investment in the economy from its present 16 per
  cent to 25 per cent, and to halve the
  unemployment rate by 2014.
• We will improve the quality of education and
  access to training opportunities, to ensure that
  skills development and productivity enhancement
  contribute to expanding participation in social
  and economic development.

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• Our task is, simply put, to accelerate the pace
  of growth and job creation and extend the scope
  of development and empowerment. Our approach has
  four key priorities for the decade ahead
  (Minister Manuels Budget Speech p.7.) cont.
• We will reduce poverty by creating work
  opportunities and building sustainable
  communities, alongside consolidation of the
  social security system. Over time, we will
  diminish the inequality and economic divisions
  that characterise our society through broad-based
  empowerment.
• And we must continue to build sound institutions
  competitive markets, support for emerging
  entrepreneurs, better governance and regulation,
  rigorous monitoring and measurement of public
  service delivery.

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• POSITIVE ASPECTS OF THE BUDGET
• No new changes to the systemic tax system (after
  CGT, Source to residence, etc.).
• Small and appropriate widening of the deficit.
• The evidence of lower debt costs is in the extra
  resources made available for delivery of
  government services.
• There are no real prompts that will make the SARB
  change its monetary policy stance.
• There is a positive emphasis placed on improving
  the efficiency of key infrastructure.
• There will be further institutional reform on the
  tax collection side (I.e. the tax payer charter
  by SARS).

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• POSITIVE ASPECTS OF THE BUDGET cont.
• Some details on the proposed Mineral and
  Petroleum Royalty Bill, including the phase out
  of the lock-in premium and the 5-year exemption
  period on royalties until mining companies have
  converted to the new minerals system.
• The focus on lowering the compliance costs to
  small business.
• The move to make ESOPS more tax friendly.
• The extension of the Public Finance Management
  Act in the form of the Municipal Management Act
  on local government.
• The Budget sets a platform for further
  deliberations on economic growth, development,
  empowerment and the restructuring of state assets.

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• NEGATIVE ASPECTS OF THE BUDGET
• The Budget was not bold enough in tackling the
  key savings, investment, growth and empowerment
  issues.
• There was little concrete progress made on the
  taxation of retirement funds and addressing
  incentives for promoting much higher savings
  rates.
• The company tax rate after STC remains too high
  and has become globally uncompetitive.
• There was little detail provided on how the
  National Treasury intends promoting black
  economic empowerment (large BEE deals remain tax
  unfriendly).
• There was little tangible progress on the further
  liberalisation of exchange controls - even given
  the forex amnesty process.

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• NEGATIVE ASPECTS OF THE BUDGET cont.
• There is an increasing skewness in tax
  collections away from indirect taxes towards
  direct taxation which is out of synchronisation
  with global trends.
• The capacity of provincial and local government
  to effectively and wisely spend on priorities is
  questioned.
• The budget deficit is again being used to fund
  recurrent expenditure.
• There appears to be a lack of progress on the
  restructuring of state assets front.
• The adherence to a gross revenue royalty for the
  mining sector is not only out of sync with global
  practice but will undermine investment,
  empowerment and growth as well as sterilise a
  portion of the national patrimony.

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• SOUTH AFRICAS LOW SAVINGS AND INVESTMENT RATES
  REMAIN SERIOUS CAUSE FOR CONCERN
• There was little progress on the taxation of the
  retirement fund industry and few extra incentives
  to promote discretionary savings.
• No moves on the corporate tax front.
• Little long-term foreign direct investment to
  boost South Africas low savings rates.

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THE COMPANY TAX RATE AFTER STC REMAINS TOO HIGH
AND HAS BECOME GLOBALLY UNCOMPETITIVE.
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THERE WAS LITTLE DETAIL PROVIDED ON HOW THE
NATIONAL TREASURY INTENDS PROMOTING BLACK
ECONOMIC EMPOWERMENT (LARGE BEE DEALS REMAIN TAX
UNFRIENDLY).
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THERE WAS LITTLE TANGIBLE PROGRESS ON THE FURTHER
LIBERALISATION OF EXCHANGE CONTROLS - EVEN GIVEN
THE FOREX AMNESTY PROCESS.
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• THE CAPACITY OF PROVINCIAL AND LOCAL GOVERNMENT
  TO EFFECTIVELY AND WISELY SPEND ON PRIORITIES IS
  QUESTIONED.
• Every rand spent unwisely by these tiers of
  government will be growth reducing!
• The MFMA may help address some of the problems
  here.

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THE BUDGET DEFICIT IS AGAIN BEING USED TO FUND
RECURRENT EXPENDITURE.
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• THERE APPEARS TO BE A LACK OF PROGRESS ON THE
  RESTRUCTURING OF STATE ASSETS FRONT
• Business does not only view ROSA as a useful
  source of funding debt write-offs.
• There are infrastructural and service constraints
  that are holding up growth in many key export
  industries.
• The lack of competition in many parastatal areas
  not only compounds poor service delivery but also
  results in high administered prices.
• The poor net investment performance of state
  parastatals (they are not even investing enough
  just to maintain the existing fixed capital
  stock).

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THE ADHERENCE TO A GROSS REVENUE ROYALTY FOR THE
MINING SECTOR IS NOT ONLY OUT OF SYNC WITH GLOBAL
PRACTICE BUT WILL UNDERMINE INVESTMENT,
EMPOWERMENT AND GROWTH AS WELL AS STERILISE A
PORTION OF THE NATIONAL PATRIMONY.
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• ADOPTING AN APPROPRIATE REGULATORY IMPACT
  ASSESSMENT FOR SOUTH AFRICA
• Over the past decade over 1000 new Acts of
  Parliament, thousands of regulations and by-laws
  have been passed as the country has transformed
  into a democratic non-racial society.
• Some of the convoluted old order regulation
  remains - such as the complex of regulations
  required to register a company. This needs to be
  assessed to reduce the compliance costs of
  operating in South Africa.
• BUSA remains of the view that the government
  should adopt a Regulatory Impact Assessment
  Strategy that would assess all future legislation
  and regulation for the impact on investment,
  employment and nation building.

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CONCLUSION Overall the budget does deserve praise
in relatively difficult circumstances. Obviously
the efficacy of provincial and local government
expenditures will be a key to the performance of
this budget. Business does support the 4 key
challenges alluded to by Minister Manuel for the
decade ahead. With government having recognised
the key investment, growth, skills development,
institutional improvement and empowerment issues,
it will be necessary in the next budget to
effectively boost these priorities.