|
February 21st, 2008 My dear friends and fellow South Africans, Yesterday Trevor Manual presented a prudent social-market budget which will promote stability in the deteriorating global environment. Mr Manual deserves his hard-won reputation as Mr Prudent. Every economic project has a political fuse (you can inverse this truism). Not only must South Africa weather the global downturn, the economy must also absorb the impact of electricity outages; the volatile political environment; and the delayed impact of interest rate increases. Mr Manual,
of course, is not just an economist. He is also a politician
and, as they say in America, a damn good one! He cleverly
crafted his Budget with the rousing call: In another place, 65 years ago, Franklin D Roosevelt addressed a "stricken nation". He spoke of "social values more noble than mere monetary profit", and honour in place of "callous and selfish wrongdoing", and trust (I like this bit best) in "the future essential of democracy". I think Mr Manual eloquently echoed these sentiments on Wednesday. If we cannot trust in the "future essential" of our democracy, economic confidence will ebb away. I welcomed the budget's thrust of stimulating growth through foreign direct investment and job creation, rather than by simply fuelling consumer consumption through personal income tax cuts and irresponsible credit lending. This is a significant development which hopefully will forestall the consumer credit crunch facing people in America and Britain. Whilst we believe in tax cuts in principle when the economic circumstances are precipitous, they are pointless if they are taken away in the other hand by high interest rates. As for Eskom, the R60-billion earmarked to help fund the utility's massive short-term expansion plans is spot on as the right intervention, but Eskom's monopoly must be broken to prevent a reoccurrence in the future. The Minister gave an estimate of growth over the next three years averaging three percent, down from 5% in last year's forecast. Whilst I accept that this largely reflects global turbulence, the government must not inflate expectations about what can be achieved in eliminating persisting widespread poverty. The next few years are set to be lean years - I hope the new ANC leadership were listening. On the business side, I welcomed the reduction of corporate tax from 29% to 28%. SA is still regarded as uncompetitive in international surveys because of the high corporate tax on company profits. With many countries pioneering flat tax rates from below 25% (like China, Ghana and Botswana) or even 15 percent (like Mauritius and Germany), SA cannot remain competitive as an emerging market with the current figure. This is one of the primary economic drivers to stimulate economic growth, attract FDI and reduce unemployment. The Minister also announced that the Secondary Tax on Companies would be replaced by a withholding tax on dividends. We would like clarification if there will be, as Deloitte & Touche have suggested, discrimination between local companies and foreign companies. As a withholding tax will be levied on dividends distributed to any individual, it is implied that dividends distributed to a SA company will not be taxed until they are passed on to an individual shareholder. Could the Minister clarify if this will fall foul of non discrimination clauses contained in certain double taxation agreements? I was disappointed that the Minister did not cut the rate from 10% and hope he will do so next time. One of the most encouraging elements of the budget was the increased allocation of R46 billion over the next three years to the provinces. But again, wider reform is needed to build capacity in the provinces and eliminate fraud and wastage. The IFP believe that service delivery should take place at the lowest level of government, yet we remain concerned about unspent grants and the lack of proper monitoring at provincial and local level. All too often good money is chasing bad money. A case in point is the KZN Department of Agriculture where an amount of R80 million remains unaccounted for. The same is true of local government oversight institutions like SALGA. Replacing overpaid and underperforming municipal managers with experienced officials would be the fairest and cheapest way to build the capacity that many of our municipalities lack so desperately. In essence, I am saying that the budget process still needs to be better integrated with the implementation of the public policy imperatives of our country. Economics might be 'the method', but we still need to 'change the soul'. Yours sincerely, Prince Mangosuthu Buthelezi MP |