Tuesday, 21 February 2012

Build-your-own: Budget at a glance

Tomorrow afternoon the Minister of Finance will be reading the Budget Speech in Parliament and this week everyone is opining about it. Chris Hart of Investment Solutions has called it “The most critical Budget since 1994”. He argues for a need for a fiscal policy shift and raises a number of points:

  • Recognition of the difference between poverty alleviation and poverty reduction. He argues that poverty alleviation shifts resources from production/investment to consumption and fosters dependency. The budget should rather pursue poverty reduction outcomes that come from economic growth.
  • The tax base is at the point of exhaustion and spending should be brought in line with available resources. Additional resources can be released by improving government effectiveness and reducing corruption.
  • Government should shift expenditure to make the economy more competitive – i.e. invest in the tax base.
  • Finally he makes a strong case in favour of the role of small business in driving growth and job creation. Government can support SMEs through simplification of tax policy, shifting the tax burden onto consumption, away from savings and investment and deregulation and the removal of obstacles to SME formation and growth.
Cees Bruggemans of FNB has linked his budget comments to President Zuma’s State of the Nation Address and how South Africa is gearing up for a growth boost through infrastructure investment. While more details are awaited on the infrastructure programmes, there has been speculation about financing the spending. In the Mail and Guardian Nickolaus Bauer has wondered about a possible combination of only limited tax relief, a possible increase in the VAT rate and user charges as sources of finance. In a related article Linley Donnelly reported a number of economists’ view that the state can easily borrow the money. Public private partnerships will also play a role.

Instead of offering more opinions of my own, I have decided to put together a little resource for those listening to the Budget Speech tomorrow afternoon. Students love templates, so here is one to build-your-own Budget at a glance:
Key points to listen out for…
Your notes!
Economic outlook:
What does the global economy imply for the SA economy? 
What does that mean for:
o  The need to spend?
o  The ability to collect revenue?

Fiscal framework:
·  Tax collection in 2011/12
·  Spending over R1 trillion?
·   And relative to GDP?
·  Public service wage bill
·  Budget deficit to GDP
·  Public borrowing requirement
·  Government debt to GDP

Spending proposals:
·  Social security, grants
·  Infrastructure investment and maintenance
o  Energy, transport, health facilities, education infrastructure,
·  Expanded public works programme
·  Support of structural change, industrial policy, business development
·  Education
·  Health (NHI?)
·  Local government, housing and community amenities
·  Public order and safety
·  Environmental protection and green economy
·  Science and technology

Tax proposals:
·  Personal income tax
·  VAT
·  Company tax
·  Other taxes?
·  User charges

If you are not watching the broadcast, you can always use Twitter to follow the speech. Along with all the economists, @mailandguardian should be tweeting live. Also, Chris Hart and JP Landman is having a budget face-off that you can follow via @InvestmentSolZA.

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