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BUSINESS UNITY SOUTH AFRICA

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Title: No Slide Title Author: Chamber of Mines Last modified by: Chamber of Mines Created Date: 2/23/2004 3:00:46 PM Document presentation format – PowerPoint PPT presentation

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Title: BUSINESS UNITY SOUTH AFRICA


1
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
2
  • From fiscal stabilisation to a commitment to
    government delivery
  • An assessment of the 2004/05 National Budget by
  • Connie Motshumi
  • Roger Baxter

3
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
4
  • 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.

5
  • 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.

6
  • 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).

7
  • 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.

8
  • 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.

9
  • 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.

10
  • 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.

11
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13
THE COMPANY TAX RATE AFTER STC REMAINS TOO HIGH
AND HAS BECOME GLOBALLY UNCOMPETITIVE.
14
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16
THERE WAS LITTLE DETAIL PROVIDED ON HOW THE
NATIONAL TREASURY INTENDS PROMOTING BLACK
ECONOMIC EMPOWERMENT (LARGE BEE DEALS REMAIN TAX
UNFRIENDLY).
17
THERE WAS LITTLE TANGIBLE PROGRESS ON THE FURTHER
LIBERALISATION OF EXCHANGE CONTROLS - EVEN GIVEN
THE FOREX AMNESTY PROCESS.
18
  • 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.

19
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21
THE BUDGET DEFICIT IS AGAIN BEING USED TO FUND
RECURRENT EXPENDITURE.
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23
  • 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).

24
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27
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.
28
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30
  • 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.

31
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.
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