The Minister of Finance introduced a very gutsy budget. It is bold and to the point and clearly indicates the policy priorities of the government. It contains a comprehensive set of tax reforms, and continues to close the gap between the rich and the poor, which represents a cornerstone of the UDM economic policy.

While the Minister used the window of opportunity for the SA economy by introducing measures to encourage domestic savings and putting back money in the pockets of taxpayers, it missed opportunities to announce substantive policies to create wealth, to introduce innovative job creation programmes, and addressing sufficiently the inflexibility of the labour market. He also could have expressed himself on the issue of shifting the focus of taxation away from income to expenditure and transactions.

The UDM welcomes the following announcements:

  1. Reducing the total tax burden on individual taxpayers by way of a tax relieve amounting to R10 billion. It is hoped that this reduction will increase the propensity to save.

  2. Reducing the budget deficit to 2.6% of GDP. While the UDM welcomes the steady decline in the budget deficit over the last few years, this deficit remains a tax on future generations, and therefore maintains the view that it should be reduced to zero within the next 3 years.

  3. Inflation targeting of 3-6% by 2002 in a low and narrow band. This will enhance predictability and push inflation expectations downward. We also welcome the definition of inflation in this regard, namely CPI minus interest rates.

  4. Assistance to small businesses by introducing new tax rates of 15% on the first R100 000 of taxable income and 30% thereafter. It makes tax compliance easier. However, much more measures are needed to encourage small businesses. They are the real wealth creators in our economy. This assistance to SMME’s are in line with the UDM policy of enterprise development.

  5. Exchange control relaxation, especially for companies and unit trusts.

  6. The attempt to fight crime more effectively, by giving the Police Service R1.1 billion more over the next 2 years. It will mainly be used to improve information technology. It is, however, a pity that there is no indication to increase the number of police officers on our streets, for patrolling and crime prevention.

  7. Special allocation of R75 million in the current year to fight HIV/AIDS.

  8. The intention that there will be a better balance between personnel and non-personnel spending, which will improve the quality of services delivered. What is lacking, however, is the detail in this regard. How will the government address the wage bill of the public service?

The UDM expresses its concern over the following announcements:

  1. The introduction of a Capital Gains Tax (CET), despite the fact that the Katz Commission has recommended that such a tax should not be introduced. This can be regarded as a “wealth tax”. Its probably the biggest surprise in the budget. Generally the market does not like surprises!

  2. An economic growth of 3.4% over the next 3 years is just not sufficient in an economy where the unemployment rate is over 30%. Such an estimated growth rate will not absorb new entrants into the labour market, and may result in “jobless growth”. Originally GEAR expected a growth rate of 6% per annum in 2000.

  3. Privatisation is not fast tracked, which means that potential proceeds will not be used to reduce the largest expenditure item for Government, namely state debt, fast enough. Proceeds from privatisation for 2000/01 is expected to amount to R5 billion, only doubling to R10 billion in 3 years from now.

  4. No new, innovative infrastructural job creation programmes were announced. Unemployment remains the single most important socio-economic problem in SA. We expected a much more serious attempt by the government to tackle this problem!

  5. The fuel levy increase will hit daily commuters severely and represents bad news for low-income commuters. This levy will increase by 5c/litre for petrol and 3c/litre for diesel.

  6. The interest income exemption from R2000 to R3000 a year is an insufficient increase and is unlikely to encourage domestic savings. It won’t create a culture of savings. The Minister could have been more innovative in this regard!

The UDM congratulates the Minister on the bold steps taken in many areas, but is concerned that not all the opportunities opened to the Minister, have been utilized. Much more hard work lies ahead to ensure a higher level of sustainable economic growth which will attract much needed domestic and foreign investment.

Gerhard Koornhof, MP
UDM Spokesperson for Finance

23 February 2000