Commenting on the budget proposals announced today by the Minister of Finance, Mr Pravin Gordhan, in Parliament – the President of the National Association of Automobile Manufacturers of South Africa

    (NAAMSA) – Mr David Powels said that against the background of slower growth in the domestic economy and an uncertain and challenging global economic outlook – the Minister had tabled an appropriate and disciplined set of budget proposals intended to support growth, employment and poverty alleviation through targeted interventions. Particularly noteworthy was the substantial expenditure earmarked for competitive enhancing capital infrastructure development focusing on projects in the energy, transport and logistics sectors.

    Mr Powels welcomed the Minister’s commitment to fiscal discipline and the Treasury’s intention to reduce the budget deficit to 3% of GDP by 2014/2015. This, despite the unexpected but welcome announcement of personal income tax relief in the 2012 / 2013 budget to the extent of R9.5 billion to compensate personal tax payers for the effects of inflation. The latter was expected to have a positive impact on consumer sentiment and demand.

    The innovative proposals to promote savings by individuals through a combination of tax exempt interest, dividends or capital gains should boost savings and investment. However, the increase in capital gains taxes for individuals and companies were unexpected and could prove counterproductive in promoting investment.

    NAAMSA noted the further substantial increase in expenditure on a broad range of social priorities and poverty alleviation. However, the fact that expenditure on social priorities and social grants would comprise 58% of government expenditure next year, raised questions about the sustainability of this form of fiscal spending.

    NAAMSA welcomed Government’s commitment to strengthen financial management in the public sector and combat fraud and corruption. In particular, NAAMSA endorsed the envisaged levers of economic change and development including the public sector infrastructure programme, support for industrial development and economic zones, the rollout of employment programmes and the investment in further education and skills The Minister had again correctly highlighted that the proposed national health insurance system would have major cost and funding implications. The various funding options identified including a payroll tax, an increase in the VAT rate and a surcharge on personal incomes would have far reaching economic implications.

    These matters required careful evaluation, including detailed impact assessment, so as not to prejudice future consumer demand and economic growth in South Africa.

    NAAMSA noted the Government’s decision to proceed with the toll system in respect of Gauteng Freeways. Whilst welcoming the appropriation of R5.8 billion designed to reduce the debt associated with the project and the associated possible reduction in toll charges, the Automotive Industry would have preferred to see freeway improvement programmes being financed through an administratively more efficient and less costly fuel levy.

    On balance, the budget would support investment, competitiveness improvement programmes and should be supportive of economic activity levels in South Africa. The Minister had maintained a firm focus on the long term growth, development and employment imperatives for South Africa whilst maintaining fiscal discipline.

    Overall, the budget contained no major tax shocks and should contribute positively to business confidence and consumer sentiment and was expected to be reasonably well received by the financial markets.