Download Economic assessment of the budget

BUSINESS UNITY SOUTH AFRICA (BUSA)
AND CHAMBERS OF COMMERCE AND
INDUSTRY (CHAMSA)
Presentation to the
Portfolio Committee on Finance
On the 2008 National Budget
29 February 2008, Cape Town
OUTLINE OF THE PRESENTATION:
•
Introductory remarks – Mr Abdul Waheed Patel, Chief
Parliamentary Officer, Business Parliamentary Office
•
Economic overview – Prof. Raymond Parsons, overall
Business Convener, NEDLAC and BUSA
•
Economic assessment of the budget – Mr Roger Baxter,
Chairman – BUSA Committee on Economic Policy
•
Taxation aspects of the budget – Adv. Abri Meiring.
•
Concluding Remarks – Miss Simi Siwisa, Director-Economic
Policy, BUSA
•
Questions.
ECONOMIC OVERVIEW
Economic assessment of the budget :
•
The 2008 National Budget is another example of government’s
outstanding fiscal management.
•
The 2008 budget consolidates the gains made of 14 years of
democracy in terms of good macroeconomic policy making.
•
Complementary fiscal and monetary policies have created a
sound macroeconomic platform for the growth “escalator” to lift
the whole economy.
•
Business is fully behind the need to grow the economy at >6%
which would help double the economy every 12 years.
Economic assessment of the budget :
“BUSA believes that the broad decisions in the budget
embody a realistic balance between the need to build on
the already sound macroeconomic foundation for
growth, employment creation, transformation and
poverty alleviation on the one hand, as well as the need
to weather the international storm and local
microeconomic challenges.”
Economic assessment of the budget :
•BUSA is fully behind the need to have flexible buffers,
through appropriate fiscal, monetary and exchange rate
policies, while at the same time continuing to grow the
productive base of the economy.
•BUSA is firmly behind the approach of “all hands on deck”.
“SIYABUMBA”
Economic assessment of the budget :
Business fully supports the APEX priorities:
• Increasing employment.
• Reducing poverty and inequality.
• Investing in productive capacity
• Strengthening delivery by the public sector.
• Raising net exports
• As embodied in the ASGISA initiative under the astute
leadership of our Deputy-President. ASGISA targets a 6%
growth rate by 2009.
South Africa's improving economic growth
performance
% annual growth rate
7
6.0
6
5.0
1990-1993
5
4
1st decade of
democracy
3.0
3
start of second
decade of
democracy
2009 target
2
1
0
-1
-0.6
1990-1993
1st decade of
democracy
start of
second
decade of
democracy
2009 target
The time it takes to double the size of an economy
at different growth rates (compounded)
SA’s current
growth rate
25
Where ASGISA
points
Years to doubling
20
15
10
5
0
3
4
5
6
7
% annual growth rate
8
9
10
The Budget Continues to Provide an Enabling
Environment
• Macroeconomic policies provide foundation for the growth
escalator.
• Budget has also done much in terms of microeconomic policies:
– Providing for government savings in face of lower household & business
savings
– Reduced red tape on SMMEs
– Reduced corporate tax rate and replaced STC
– Industrial incentives
– Enhancing venture capital availability for SMMEs
– Big push on skills
– Broadening the social security net
– Increasing resources for justice and security
– Large focus on the efficiency of the public service
These measures will promote greater investment in the economy
Trends in fixed investment and economic growth
• Growth in real GFCF has gone from 6.2% over the past decade to
15.9% in 2007 (1st 3 quarters).
• GFCF has improved to 20.8% of GDP.
• Strong growth in parastatal fixed investment (off low base) of 32%.
• Growth in private sector investment strong 14%.
• Challenge is that parastatal and general government investment is
mostly catch-up on the deficits on capital spending over the past 3
decades.
• At the net investment level (after depreciation) the private sector
still accounts for 80% of the total (70% at the gross level).
• Net investment is a key component of providing the foundation for
long term growth.
Growth rates in real fixed investment (GFCF), averages for past
decade, past 5 years, past 2 years and past year
Total GFCF
5.7
9.2
Public corps
13.9
8.6
General
government
3.6
6.2
0
5
9.3
10
28.5
17.8
32.0
2007
Past year
Average pas 2-years
Average past 5-years
Average past decade
12.9
14.7
8.0
6.2
Private sector
12.4
15.9
15.8
14.0
14.1
12.5
15
20
% YoY growth rate
25
30
35
South Africa: Gross fixed capital formation by type of
organisation as % of GDP (real 2000 money terms)
25.0
15.0
Public corps
Public authorities
Private sector
10.0
5.0
Mar-07
Mar-06
Mar-05
Mar-04
Mar-03
Mar-02
Mar-01
Mar-00
Mar-99
Mar-98
Mar-97
Mar-96
Mar-95
0.0
Mar-94
% of GDP
.
20.0
Contribution to gross fixed capital formation as a % of GDP, 1960's
to 2000's (current money terms)
30.0
25.0
Public authorities
Public corporations
Private sector
15.0
10.0
5.0
2005
2002
1999
1996
1993
1990
1987
1984
1981
1978
1975
1972
1969
1966
1963
0.0
1960
% of GDP
20.0
Net investment (Gross investment less provision for depreciation) by
sector, 1990 - 2006
110,000
90,000
General government
Public corporations
Private business enterprises
R'millions
70,000
50,000
30,000
10,000
(10,000)
1990
1991
1992
1993
1994
1995
1996
1997
1998
1999
2000
2001
2002
2003
2004
2005
2006
GDP growth rates versus net investment (to fuel growth)
6
Net capital formation as % of GDP
Average GDP growth rate
14
5
.
12
4
10
8
3
6
2
4
1
2
0
0
1960's
1970's
1980's
1990's
2000's
GDP growth rate %
Net capital formation as % of GDP
.
16
Economic growth rates, South Africa versus major groupings
12
10
Developing Asia
6
CIS
Africa
4
other Europe
South Africa
2
World
0
Western Hemisphere
Advanced economies
% growth
.
8
-2
-4
1998
1999
2000
2001
2002
2003
2004
2005
2006
2007
Economic assessment of the budget :
Nevertheless, BUSA believes that a number of microeconomic
challenges will continue to confront the country •Regulatory red tape continues to undermine investment (B: focus on
improving capacity of state to deliver, lowering red tape).
•Skills shortages (B: extra focus on skills).
•Reducing crime (B: extra allocations to crime/justice)
•Electricity (B: extra allocations and 2c/kwh tax)
World Bank Ease of doing business, South Africa's country
ranking per category
Top quartile
Trading across borders
Employing workers
Enforcing contracts
Registering property
Closing a business
2007
2008
Paying taxes
Starting a business
Dealing with licenses
Doing Business
Where we
should aim
Getting credit
Protecting investors
0
20
40
60
80
100
120
140
160
Note on the electricity emergency:
•We want to shake everyone’s complacency on this matter.
•South Africa faces the serious challenge of providing enough electricity to feed our
growing economy. The problem is slow growth in supply & s/t supply disruptions,
demand curtailment & load shedding became necessary in January 2008.
•Given slow pace of growth of new supply, the only way out is reducing demand and
ensuring that generation, transmission and distribution components of electricity
supply system have no more “unplanned outages”.
•For sectors with electricity intensive production processes the impact of curtailment of
electricity supply is significant, with concomitant negative impacts on economic
growth, investment and employment.
•“Business unusual” requires concerted efforts from all stakeholders – but the key
issue is the need for URGENCY.
•Current situation undermines progress towards AsgiSA targets, but impacts can be
mitigated if we take a strategic approach to the problem.
•Lessons for other network industries? (water, liquid fuels)
External balances remain vulnerability
• Challenge: SA consumes and invests more than it produces or
saves. Result is a high current account deficit (8.1% Sept quarter
2008). This is funded by foreign savings into the financial account
of BOP. Despite Budget propping up domestic savings, export
sectors have had weak growth.
• Electricity crisis has significant impact on export sectors and ability
of the country to attract foreign savings (80% of capital flows in
2007 went into equities).
• BUSA supports Minister’s call for promotion of exports to reduce
this vulnerability. Need a strategic approach to electricity rationing,
reducing red tape and building export infrastructure.
• Having flexible exchange rate has greatly assisted the country as a
shock absorber.
South Africa: current and financial accounts of BOP as a
% of GDP (4 quarter moving average)
8.0
6.0
2.0
0.0
-2.0
-4.0
-6.0
Current account % GDP
Financial account % GDP
20
07
20
06
20
05
20
04
20
03
20
02
20
01
20
00
19
99
19
98
19
97
19
96
19
95
-8.0
19
94
% of GDP
4.0
South Africa: Sector GDP growth rates in real terms,
average 2002 to 2006
9.9
Construction
6.4
Finance, real estate & business services
6.1
Transport, storage & communication
Wholesale, retail trade, hotels & rest
5.6
Total GDP
4.3
Personal services
3.5
3.2
Manufacturing
2.8
Electricity, gas & water
2.4
General government
Mining
1.6
Agric, forestry &fishing
-0.6
-2
0
2
4
% growth rate
6
8
10
Exchange controls
• Move towards prudential regulation and proper surveillance
away from specific exchange controls, is simply bringing
South Africa in line with best global practice and is a welcome
development.
• Continues strategy of integrating South Africa into the global
market place.
Economic projections in the BUDGET
• For past 4 years Treasury has been more optimistic versus
consensus forecasts and has been closer to the actual
outcomes.
• For 2008, in face of slowing global economy, domestic
microeconomic challenges (electricity), slowing domestic
demand and strong investment growth, Treasury has
downgraded its growth forecast to 4% from 4.5%. This is
prudent.
Treasury versus Reuters Consensus GDP projections
done for Jan 2007 and Jan 2008
5.4
5.2
Reuters Consensus GDP
Nov 2007
Treasury GDP Feb 2008
% growth rate
5
4.8
Reuters Consensus GDP
Jan 2007
Treasury GDP Jan 2007
4.6
4.4
4.2
4
2006
2007
2008
2009
2010
TAXATION ASPECTS OF THE BUDGET
•Introduction
•Macro taxation Environment
•The Tax-to-GDP ratio
•The split between Direct and Indirect Taxation
•Tax Administration and Collection
TAXATION ASPECTS OF THE BUDGET (cont.)
•The Business Tax Environment
•The Corporate Income Tax rate
•STC reforms
•So-called “Closely held (passive) Companies”
•Simplified Tax System for Small Business
•Electricity levy
•Venture Capital Incentives
•Industrial policy incentives
TAXATION ASPECTS OF THE BUDGET (cont.)
•Employer Provided Benefits
•Bursaries
•Share incentive
•Low cost housing
•Environmental Conservation
•“Cleaner technologies”
•Biodiversity Conservation
•Social Security and Retirement Fund Reform
•Conclusion on specific tax matters
CONCLUDING REMARKS
• The success of the country in weathering the international
storm and addressing local microeconomic challenges rests
heavily on the continued cooperation between business,
government and labour.
• But Parliament has a very special oversight role in checking
that the path is true.
• We look forward to working with Parliament in this important
oversight role in the year ahead.