To be honest I’ve been waiting the entire week to speak about the budget, I get very excited by it for some odd reason.
Lets talk about the positive aspects of the budget first:
-The economy has grown by five percent in the past year; this is generally a good thing. The downside here is that inflation is going to go up by 7.1% which means things will get more expensive. This is not so bad as inflation is only expected to grow by 4-5 percent in the next few years.
-Good news for business owners is that the tax rate has gone down a percent to 28% and businesses will only pay tax if their turnover is higher than 1 million rand. This should help promote small business ownership. Individuals paid less than 46000 rand a year will now no longer be taxed, a welcome relief for the poor.
-A large chunk of money has been distributed to areas such as job creation, social security grants including pensions and child support, sorting out crime problems, increasing housing and the health sector. The biggest winner of the 2008 budget is the education sector, which I think is a particularly critical requirement considering the low level of education in this country. It is only through educating the masses that we can grow and stem the current skills shortage.
Then lets talk about the negative aspects that I find frustrating
-Firstly there are the usual sin taxes. Cigarettes go up by a large 66 cents per carton and a bottle of wine will go up by twelve cents. While I’m not a chain smoking alcoholic so this doesn’t really affect me it strikes me as ironic that the bulk of the chain smoking alcoholics are in fact on the lower end of the income spectrum so while one hand gives them social benefits and lowered tax rates the other hand takes and taxes their vices.
-Drivers are in for yet another shock this year with the fuel levy going up 11 cents per liter. 6 of these cents go to government while the rest goes to the Road Accident Fund. The Road Accident Fund is a trust to compensate people injured in accidents related to cars. Firstly I can’t quite work out where this money would go to and secondly the Road Accident Fund is one of the most morally corrupt institutions in our country and is constantly in the news for embezzlement. I don’t like paying tax to supplement some thief’s new house/car/whatever.
-Then we get to the energy section of the budget and I get really annoyed with the situation. The government has given Eskom 60 billion (yes billion!) rand as a “loan” which will be paid back to the government over the next few years. The loan is to sort out Eskom’s cash flow to build new power stations. Considering the amount of money the Eskom directors were given in bonuses I’m not terribly surprised about there being cash flow issues. Now considering this is just under ten percent of the total budget amount it’s not an insignificant amount. Manuel also introduced a 2-cent per kilowatt-hour tax for homes and businesses that do not lower their electricity consumption by 10 percent. I’m really annoyed that the government is bailing out Eskom but considering the government is essentially the Eskom board of directors it’s probably a very good investment for them, as they will see that investment returned ten fold.
The rand dived about forty cents to the dollar after the announcement but has bounced back somewhat in later trading. This is quite scary as it makes you wonder what sort of investor confidence we have?
All in all I feel like this was one of the best budgets Trevor has delivered in the 11 years he’s been in charge. A 5 percent growth in GDP despite a very difficult year is quite impressive and lets hope that even if Manuel gets replaced after the 2009 elections his successor can do as good a job.
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