Budget strikes right balance between taxes and incentives for businesses to grow.
South Africa’s 2018/19 Budget has come at an important juncture for the economy, with Standard Bank Head of Commercial Banking, Craig Polkinghorne saying entrepreneurs will be encouraged by the higher level of business certainty.
While a raft of tax increases were aimed at the consumer and notably wealthier taxpayers, it was equally important that economic growth was given a priority via incentives and policies to support growth. The measures are seen as sufficient to prevent another ratings downgrade for now.
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Incentives and funds for business industry
The Budget said GDP growth of 1 per cent is expected for 2017, up from 0.7 per cent projected in the 2017 Medium Term Budget Policy Statement (MTBPS), and is forecast to reach 2.1 per cent by 2020. The improved outlook flows from strong growth in agriculture, higher commodity prices and an incipient recovery in investor sentiment.
“It is crucial industry is supported and the Budget has put aside both incentives and funds for this purpose,” says Polkinghorne.
Notably, a fund with an allocation of R2.1 billion over medium term being developed between the Departments of Small Businesses, Science and Technology and the National Treasury to benefit small and medium enterprises during the early start-up phase.
Furthermore, a provisional allocation of R6 billion has been set aside in 2018/19 for several purposes, including drought relief and to augment public infrastructure investment.
“We will be a water scarce country and so it is now crucial to innovate and this will also create opportunities for businesses in this sector,” says Polkinghorne.
Impact of fuel levy, VAT and carbon tax
Weighing on business growth will be the increase in the increase in the fuel levy, VAT and carbon tax (from 2019). In this regard fuel increases by 52c/litre for fuel, consisting of a 22c/litre increase in the general fuel levy and 30c/litre increase in the Road Accident Fund levy was announced – adding pressure on businesses and also on those products where prices have to absorb the higher costs of transport.
Increasing the VAT rate by one percentage point is estimated to have the least detrimental effect on economic growth and employment over the medium term.
However, Polkinghorne says despite the increases and higher VAT you can expect the consumer to begin leading the recovery, with fixed investment to follow, albeit with some lag.
Immediate measures to establish policy certainty in key areas to rebuild trust and create an enabling environment for investment include telecommunications, mining and transport.
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Supporting entrepreneurs in business growth
“Business certainty and confidence is crucial as the economy looks likely to turn the corner. Entrepreneurs need to be driving this growth and importantly, need to be confident enough to look through the current challenges to a brighter future,” says Polkinghorne.
In this regard, Standard Bank believes that the outcome for smaller businesses can be improved through supporting entrepreneurs on their growth journeys.
“Farmers will be feeling more confident and at these exchange rates tractors and implements become cheaper. If the Budget supports a steady rand, then the importers have a gap to purchase goods more cheaply,” says Polkinghorne.
Coming down hard on corruption is crucial to instilling more confidence and this was a major theme in the budget. Efficiency in the public sector, including a commitment to timeous payment by Government will also assist smaller businesses in the public sector supply chain.
“Nothing could be more important and the balance in the Budget between ensuring state expenditure is reduced and corruption targeted – together with the tax increases – was crucial and an important first step to getting our economy back on track,” concludes Polkinghorne.