Prior to the 2008 Medium-term Budget Policy Statement presented in parliament on Tuesday, 21 October by Trevor Manuel, there had been suggestions that a fundamental shift in fiscal policy might be announced due to the influence of the SACP on a post-Polokwane ANC.However, Paul Gering, a tax director at PKF Chartered Accountants and Business Advisers, reported that the speech itself did not reflect such a change in position.
Gering highlighted a quote from the speech where the Minister of Finance said: "We can say to our people: our finances are in order, our banks are sound, our investment plans are in place, our course is firmly directed at our long term growth and development challenges, and we will ride out this storm, whatever it takes, on the strength of a vision and a plan of action that we share.”
Gering said: "One can only hope that these comments will provide the medicine that our markets need to bring calm to the Rand and our stock exchange.”He also felt that Manuel’s comments that "short-term gains would quickly give way to long-term misery” if populist economic policies were followed, would give some comfort to the market.
Commenting on some of the specifics of the policy statement, Gering said that one of the areas that the SACP/Cosatu alliance had hoped to change was the inflation target band."Despite the revision on the growth forecast,” he said, "the target band set for the Governor of the Reserve Bank remains at between three to six per cent with a hope that the band will be met by the third quarter of 2009.”
A further challenge to decisions made at Polokwane came with comments related to VAT zero rating. "The minister indicated quite firmly that there will be no further zero rating of goods,” said Gering, who also welcomed the change of the compulsory VAT threshold to R1 million.This measure will come into effect on 1 March 2009, when the presumptive turnover tax for micro business with a turnover of less than R1 million will also be introduced.
As in past years, the Minister projected some relief for individual taxpayers in the 2009 budget to compensate for the effects of inflation.
"The loan to Eskom of R60 billion that was announced will in due course provide some relief to electricity users, since this is a beneficial use of the budget surplus to ensure that the level of tariff increases can be minimised,” noted Gering.
Gering also commented more broadly on the purpose of the policy statement. "One of its key functions is to set out the main spending priorities over the next year, which shows little change from previous years,” he said.Broadly stated, these are to improve education and skills development, raise productivity, improve healthcare, invest in the criminal justice system, improve public transport and meet access targets for the provision of water, sanitation, electricity and housing. In addition, there is a continuing commitment to decreasing rural poverty.
Immediate action announced by Manuel was an increase in child support, disability and care dependency grants, and an expansion of the school feeding scheme."In summary,” said Gering, "the budget showed the same maturity of the past, which will hopefully lead the way to the stability we need in our financial markets.”
Source: By Paul Gering (TaxTALK)