JOHANNESBURG – South Africa is set to unveil a range of corporate tax breaks in its 2006 budget today as the government works to sustain faster growth and job creation in the continent’s biggest economy.
Revenue overruns raked in last year may also pave the way for the first balanced budget since 1981 – or even a possible surplus – making further improvements in the country’s investment-grade credit ratings look likely, analysts say. South Africa’s governing African National Congress has vowed to boost annual economic growth to six per cent by 2010 as part of its efforts to reduce widespread poverty and a steep jobless rate of 26 per cent, seen as a threat to social stability.Given the headway seen so far, many economists believe that goal is within reach, provided there are no global disruptions.”Stakeholders and financial markets are unlikely to be disappointed by a pro-growth, job-creating budget which is expected to elevate the economy towards the six per cent GDP growth objective,” Brait economist Colen Garrow said.South Africa’s growth rate has accelerated sharply since apartheid ended in 1994, when the annual average was just 1,4 per cent after years of “boom and bust” — but it still lags many of the emerging markets popular with global investors.Finance Minister Trevor Manuel has already said the economy grew by five per cent in 2005 – its fastest since 1984 – and is seen as likely to revise his predictions for 2006 and 2007 above earlier forecasts of 4,2 per cent and 4,4 per cent respectively.The government has embarked on a R372 billion infrastructure spending drive, but economists believe more efficient tax collection and faster growth allowed revenue to overshoot projections by more than R40 billion last year.This was likely to have reduced the budget deficit for the fiscal year which ends in March 2006 to less than 0,5 per cent of gross domestic product (GDP) from an estimate of 3,1 per cent last year – which has already been revised down to 1,0 per cent.”There have been huge revenue overruns from company taxes, individual taxes and value-added tax — this could give us a deficit of 0,1 per cent of gross domestic product, effectively a balanced budget,” said Efficient Research economist Dawie Roodt.The last time South Africa had such a small budget deficit was during 1981, which was mainly due to revenue from high prices for gold — which last week hit 25-year peaks.South Africa is still the world’s main gold producer but now the metal only accounts for a small portion of its exports.Surplus cash would give Manuel plenty of leeway for measures to spur economic growth, with the emphasis on breaks for companies — especially the small and medium enterprises seen as key to job creation, analysts said.At present the sector accounts for a third of GDP, but half of the formal black labour force, where unemployment is highest.”Although the long-term focus of the government is likely to remain on accelerating spending on social and capital priorities, the emphasis in 2006 could well be on tax relief for companies,” Nedbank said in a research note.Most analysts expect a one percentage point cut in the main corporate tax rate, which stands at 29 per cent.There could also be a reduction in the unpopular secondary tax (STC) on companies — a levy on dividends, which now amounts to 12,5 per cent.Value-added tax is likely to remain unchanged at 14 per cent, but further reductions are anticipated in taxes on the retirement industry — which were reduced to 18 per cent from 25 per cent a few years ago, but are still seen as too high.A surprise could be delivered on the extent to which remaining foreign exchange controls are loosened, although the government has repeatedly said the process would remain gradual.-Nampa-ReutersSouth Africa’s governing African National Congress has vowed to boost annual economic growth to six per cent by 2010 as part of its efforts to reduce widespread poverty and a steep jobless rate of 26 per cent, seen as a threat to social stability.Given the headway seen so far, many economists believe that goal is within reach, provided there are no global disruptions.”Stakeholders and financial markets are unlikely to be disappointed by a pro-growth, job-creating budget which is expected to elevate the economy towards the six per cent GDP growth objective,” Brait economist Colen Garrow said.South Africa’s growth rate has accelerated sharply since apartheid ended in 1994, when the annual average was just 1,4 per cent after years of “boom and bust” — but it still lags many of the emerging markets popular with global investors.Finance Minister Trevor Manuel has already said the economy grew by five per cent in 2005 – its fastest since 1984 – and is seen as likely to revise his predictions for 2006 and 2007 above earlier forecasts of 4,2 per cent and 4,4 per cent respectively.The government has embarked on a R372 billion infrastructure spending drive, but economists believe more efficient tax collection and faster growth allowed revenue to overshoot projections by more than R40 billion last year.This was likely to have reduced the budget deficit for the fiscal year which ends in March 2006 to less than 0,5 per cent of gross domestic product (GDP) from an estimate of 3,1 per cent last year – which has already been revised down to 1,0 per cent.”There have been huge revenue overruns from company taxes, individual taxes and value-added tax — this could give us a deficit of 0,1 per cent of gross domestic product, effectively a balanced budget,” said Efficient Research economist Dawie Roodt.The last time South Africa had such a small budget deficit was during 1981, which was mainly due to revenue from high prices for gold — which last week hit 25-year peaks.South Africa is still the world’s main gold producer but now the metal only accounts for a small portion of its exports.Surplus cash would give Manuel plenty of leeway for measures to spur economic growth, with the emphasis on breaks for companies — especially the small and medium enterprises seen as key to job creation, analysts said.At present the sector accounts for a third of GDP, but half of the formal black labour force, where unemployment is highest.”Although the long-term focus of the government is likely to remain on accelerating spending on social and capital priorities, the emphasis in 2006 could well be on tax relief for companies,” Nedbank said in a research note.Most analysts expect a one percentage point cut in the main corporate tax rate, which stands at 29 per cent.There could also be a reduction in the unpopular secondary tax (STC) on companies — a levy on dividends, which now amounts to 12,5 per cent.Value-added tax is likely to remain unchanged at 14 per cent, but further reductions are anticipated in taxes on the retirement industry — which were reduced to 18 per cent from 25 per cent a few years ago, but are still seen as too high.A surprise could be delivered on the extent to which remaining foreign exchange controls are loosened, although the government has repeatedly said the process would remain gradual.-Nampa-Reuters
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