The Budget with the benefit of hindsight

Looking back at the Budget presented just over a week ago, I find the tax proposals present the most surprising twist.

Finance Minister Trevor Manuel announced a R13,6-billion adjustment to personal income tax to account for the effects of inflation and then took back a big chunk of that with increases in the fuel levy and other indirect taxes.

On the personal income tax side, government foregoes R13,6-billion in revenue it would have got had it not adjusted tax (and allowable medical-aid deductions) at all.

That was rightly applauded, even if higher income earners end up paying more in tax because they could have ended up paying much more.

“Fiscal drag”, as it used to be known, simply means the government gets more from inflation-adjustments to pay. It’s a kind of hidden tax.

Yet some commentators were expecting no adjustment.

At the start of his Budget speech, Manuel painted such a dismal picture of the world economic outlook that he could have got away with almost any unpleasant stratagem — except running a balanced Budget or a Budget surplus.

And his forecast for economic growth of around 1% this fiscal year could be optimistic.

Then there was the around R1-billion of business tax foregone, for industrial incentives and the like. This was the only concession to firms, whose tax rate stays at 28%.

Nonetheless, what Manuel gave away with one hand, he took back with the other.

This fiscal year indirect taxes, apart from VAT, rise by almost R10-billion. This is mostly the higher sin taxes and fuel levy and the electricity tax.

So the handout was not as generous as it appears. The increase in the fuel levy is especially surprising given that increased fuel prices as a component of transport would seem to be inflationary and hit the poor.

Transport costs are out of the control of people who take buses and taxis to work, never mind better-off motorists who might need the flexibility of having to drive to Fourways for business meetings.

Fuel taxes have gone from being one-quarter of the fuel price to one-third overnight, a steep increase.

The electricity tax was also surprising when it was announced in the previous Budget. It kicks in this fiscal year.

Surely prices have to rise anyway as Eskom funds an expansion programme? And isn’t this inflationary?

What else could have been done? Well, there’s this delicate little issue of VAT itself.

Many finance ministers might have contemplated rounding off the VAT rate to a nice 15% instead of the 14% it is now. That would have brought in billions at the stroke of a pen.

But of course ANC alliance partners Cosatu and the SACP, who already want Manuel’s head, would have rioted outside parliament.

There’s no doubt that there’s still a lot more to be realised about the Budget.

As I tell journalism students, it takes a week or more for a proper assessment of the copious documentation, which puts at some disadvantage the poor hacks who have to squeeze off hundreds of words after a morning perusing those documents. I know, I used to be one of them.

And in his speech it’s natural that the minister will highlight the good, play down the bad and ignore the ugly parts of the Budget.

This time round, as in the past, there was much good in the Budget to trumpet.

One thing that stands out as ugly was the R1.6-billion bail-out for state-owned SAA. Surely this kind of thing should stop.

It is true that privatisation, in the sense of selling off of state assets, is too politically unpalatable to contemplate and probably a non-starter in the present economic climate.

But if we are to run an efficient state, developmental or not, we must look at what the state should own and what it should not.

Even the non-duds turn to government in hard times, but the dud companies just keep coming back for more.

There’s not a mention of the sale of any state-owned entity or asset in the Budget Review that I could see.

However, the sale of Telkom’s 15% stake in Vodacom to Vodafone will bring in a handy R3,5-billion, thanks to the government’s continued ownership of almost 40% of Telkom.

We should be thankful for that windfall, for who knows what other taxes might have been slipped in without it.

Reg Rumney

A journalist for more than two decades, Reg Rumney has just returned from Grahamstown to Johannesburg after spending more than seven years at Rhodes University, teaching economics journalism. He is keenly interested in the role of business in society, and he founded the Mail & Guardian Investing in the Future Awards in 1990 to celebrate excellence in South African corporate social responsibility. Most recently, as executive director of BusinessMap, he was responsible for producing reports on foreign investment, black economic empowerment and privatisation, and carried out research work in Africa on issues related to the investment climate. He writes on, amon other things, foreign investment and BEE, focusing on equity transactions.

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