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Sunday Times STLive By Matthew Lester , 2012-03-11

Well-balanced budget, despite the grumbles

Matthew Lester
Image: Business Times

As a student, I once received a reprimand from the then vice-chancellor, Dr Derek Henderson. "Put your God first, your fellow man second and yourself a very poor third," he said.

Those words came back to me in the two weeks after the 2012/13 budget speech. There have been some harsh words said in the press - and perhaps some commentators have lost the plot.

The first priority was to contain the budget deficit at below 5% of GDP. Failure to do so would inevitably allow room for even more criticism from the rating agencies, downgrades and interest-rate increases. The consequences of austerity measures to correct that are unthinkable for all South Africans.

Next up were the 16 million people receiving social grants: containing the old-age grant at R1200 a month (a mere R60 increase) and R280 a month for the child grant (a R15 increase. Some would call that an austerity package.

Then came the 15 million unemployed or economically inactive who should ideally receive some form of social grant, but don't. They have only a vote and a cellphone with which to face the future.

Pravin Gordhan didn't forget to keep the opposition happy. (Not the DA, that is.) When it comes to national budgets, Cosatu carries the punch. Many of the bright ideas one hears around budget time are simply not feasible, as the unions would never accept them. VAT increases are a prime example. Other taxes, such as fuel levy and carbon taxes have enormous inflationary consequences. Favouring polluters above people was one criticism. That's fine, unless you are living on a social grant.

After all that, Gordhan had to consider appeasing four million taxpayers and a million or so companies. Most of the gripes were about the increase in dividends tax and CGT inclusion rates.

SARS will get only R1-billion more from the increased dividend tax rate. Increasing the CGT inclusion rate was very unpopular, even when mitigated by the increase in the annual CGT abatement to R30000 a year and the primary residence allowance to R2-million.

The money had to come from somewhere. Every year, SARS and the national Treasury win the ball and then the government departments throw it away.

That does not mean that it was not a very well-balanced budget.

  • Lester is a professor at the Rhodes Business School, Grahamstown. See www.criticalthought.co.za