Transcript A Economic Preview of 2004

1
2006/07 Budget Review:
A Missed Opportunity
Presented by: Dawie Roodt
16 February 2006
2
Dawie Roodt
Chief Economist
Efficient Group
81 Dely Road
Hazelwood
0081
Tel: (012) 460-9580
Cell: 082 456 0204
Email: [email protected]
3
Contents





Some Background
Some Fiscal Background
Review of 2005/06
Fiscal 2006/07 – The Main Issues
Asset Allocation
4
Some Background…
5
Economic Overview
2006
Efficient
Budget
Prime (full year)
10.0%
M3 (end of year)
12.8%
PSCE (adj. end of year)
17.2%
CPIX (average)
4.5%
4.5%
- 4.4%
-4.3%
R/$ (end of year)
6.39
6.27
GDP (full year)
4.6%
4.9%
Current Account: GDP
6
Political Overview
President
Challenges:
Poverty
 Underdevelopment
 Marginalization – emphasis on authorities

7
Political Overview
ASGISA


Sectors identified:
- Business Process Outsourcing
- Tourism
- Chemicals
- Bio-fuels
- Metals and metallurgy
- Wood, pulp and paper
- Agriculture
- Creative industries
- Clothing and textiles
Particular attention:
- Scarce skills
- Supply side drivers
- Authorities
8
Some Fiscal Background…
9
Background
Revenue & Expenditure:GDP
%
30
29
Trevor’s reign!
28
27
26
25
24
Zero?
Gold
23
22
21
20
1980
1982
1984
1986
1988
1990
1992
1994
1996
1998
2000
2002
2004
2006
10
2008
Background
Gold
Zero?
Deficit:GDP
%
0
-1
-2
-3
-4
-5
-6
-7
-8
1980
1982
1984
1986
1988
1990
1992
1994
1996
1998
2000
2002
2004
2006
2008
11
Background
%
State Debt:GDP
48
45
42
39
36
Debt Trap
Recovery
33
30
27
1980
Good/Stable
1982 1984
1986
1988
1990 1992
1994
1996 1998
2000
2002
2004 2006
12
2008
2005/06 in Review…
13
2005/06 in Review:
Revenue
R bn
Budget ’05
Budget ’06
Expected
Diff. (%)
Income Tax
201.0
228.7
234.6
33.6 (16.7%)
Individual
116.9
125.8
127.4
10.5 (9.0%)
Company
STC
Other
68.7
8.7
6.7
84.9
11.9
6.2
90.0
11.9
5.3
21.3 (31.0%)
3.2 (36.8%)
-1.4 (-20.9%)
VAT
106.0
115.0
113.0
7.0 (6.6%)
Excise Duty
14.5
14.6
14.2
-0.3 (-2.1%)
Fuel Levy
20.7
20.7
20.2
-0.5 (-2.4%)
Other
27.9
32.1
32.0
4.1 (14.7%)
Total
370.1
411.1
414.0
43.9 (11.9%)
14
Contribution to Fiscus
Revenue Sources
Sources (1994)
(Est.)
Revenue
13%
21%
26%
28%
5%
4%
5%
8%
Individual Tax
Company Tax
VAT
Excise Duties
Fuel Levy
Other
39%
32%
10%
9%
15
Revenue
What happened to the “surplus”

R44bn


SARB R36bn – long term deposit
Funding
16
2005/06 in Review:
Expenditure
R bn
Voted Amounts
Budget ’05 Budget ’06 Expected
Diff. (%)
223.9
226.3
225.9
2.0 (0.9%)
Central Gov.
27.6
24.4
27.7
0.1 (0.4%)
Fin. & Admin.
15.3
17.9
15.3
0.0 (0.0%)
Social Services
81.4
81.1
87.6
6.2 (7.6%)
Justice & Protect.
65.2
68.2
63.1
-2.1 (-3.2%)
Eco. & Infrastruc.
31.8
34.7
32.2
0.4 (1.3%)
State Debt Cost
53.1
51.2
50.6
-2.5 (-4.7%)
Transfer Provinces
134.7
135.3
134.7
0.0 (0.0%)
Other
6.1
6.2
6.0
-0.1 (-1.6%)
Total
417.8
419.0
417.2
-0.6 (-0.1%)
17
Spending Priorities
Expenditure:
Expenditure: Functional
Functional Classification
Classification (1994)
(Est.)
1%
17%
12%
2%
17%
8%
4%
13%
14%
52%
43%
5%
21%
19%
10%
11%
16%
17%
6%
Central Gov
Justice and Prot.
Eco. & Infra.
State Debt Cost
Other
Education
Social Dev.
Other Social Serv.
Health
7%
18
2005/06 in Review:
Funding
R bn
Budget ’05 Budget ’06 Expected
Diff.
Extraordinary
-5.5
-2.4
-2.6
2.9
TB’s
5.0
5.9
5.2
0.2
Bonds
25.8
23.3
22.6
-3.4
Foreign Loans
12.0
0.7
0.5
-11.5
Use of balances
10.6
-19.6
-22.5
-33.1
Total Funding
48.0
7.9
3.2
-44.8
19
Summary 2005/06
R bn
Budget ’05 Budget ‘06 Expected
Diff.
Revenue
370.3
411.1
414.0
43.7
Expenditure
418.3
419.0
417.2
-1.1
Deficit/Surplus
48.0
-7.9
-3.2
-44.8
% of GDP
3.0%
0.5%
-0.3%
20
Expansion vs. Contraction

Deficit:



Debt



Changes in deficit – Contr.
Level – Contr.
Changes in Debt – Contr.
Level – Contr.
Mix of expenditure and revenue – Very Exp.
21
FISCAL 2006/07…
22
TAXES
23
Current Effective Tax Rates
Effective Tax
%
40
35
30
25
20
15
10
STC
5
'000
0
0
250
500
Individuals
750
1,000
1,250
Small Companies
1,500
1,750
2,000
Large Companies
24
Redistribution
Rand In : Rand Out Ratio
2005/06
32 222
18.40
74 000
3.54
115 000
1.45
155 000
0.73
195 000
0.49
270 000
0.29
1 000 000
0.05
25
Fiscal Redistribution 2005/06
Redistribution Graph (% Income)
%
%
140
140
120
120
100
100
80
80
60
60
40
40
20
20
0
0
1000
R32 222
R74 000
R115 000
R155 000
R195 000
R270 000
R1 000 000
26
Low Saving


Personal saving rate decline when tax burden increase
Tax cuts accrued to those with least capacity to save
27
Trevor’s Gift Parcel
ONLY R 19.1 bn!
28
The Good , the Bad, and the
Terrible
Good
RSC
- R7bn cut
SMME tax relief
Retirement tax
relief - 9%
Transfer duties –
R500 000
Tax amnesty
Training allowance
and R&D
Bad
Personal
tax –
R13.5bn
Company tax
RAF
Terrible
STC
SASOL
29
Changes to Taxes
TAX
Change
(R bn)
Exemption R40k, Middle bracket up to R300k Top
rate down to 28% (29%)
-3.3/
-0.4
Increase Brackets (Lowest bracket R10k R20k,
Middle brackets R20k R40k, Top brackets R30k
R100k) Reduce all (except first bracket) by 1%
no change Increase Rebate by R900
-18.5/
-12.1
Excise Duties
+10%
1.0/1.4
Fuel Levy/RAF
+5c/l each Only RAF
1.0/0.0
Unchanged
0.0/-0.1
Companies &
STC
Personal
Income Tax
VAT
Other
-10.2/
-7.9
TOTAL
-30.0/
-19.1
30
Tax Table
Efficient 2006/07
Taxable Inc (R)
Rates of Tax
0 – 90 000
18%
90 001 – 150 000
Budget 2006/07
Taxable Inc (R)
Rates of Tax
0 – 100 000
18%
R16 200 + 24% 100 001 – 160 000
R18 000 + 25%
150 001 – 200 000 R30 600 + 29% 160 001 – 220 000
R33 000 + 30%
200 001 – 270 000 R45 100 + 34% 220 001 – 300 000
R51 000 + 35%
270 001 – 330 000 R65 500 + 37% 300 001 – 400 000
R79 000 + 38%
330 001 –
R117 000 + 40%
R91 400 + 39% 400 001 –
Rebates
Primary
Rebates
7 200
Primary
Tax Threshold
Below 65
40 000
7 200
Tax Threshold
Below 65
40 000
31
Effects of Tax Changes
Income
Budget Tax
Efficient Tax
Benefit (% Inc.)
Benefit (% Inc)
35 000
0
0
0 (0.0%)
0 (0.0%)
50 000
1 800
1 800
900 (1.8%)
900 (1.8%)
75 000
7 200
6 300
900 (1.2%)
900 (1.2%)
100 000
10 800
11 400
1 700 (1.7%)
2 300 (2.3%)
175 000
30 300
30 650
3 450 (2.0%)
3 100 (1.8%)
225 000
45 550
46 400
4 950 (2.2%)
4 100 (1.8%)
300 000
71 800
72 800
6 900 (2.3%)
7 900 (2.6%)
500 000
149 800
150 200
9 500 (1.9%)
9 900 (2.0%)
1 000 000
349 800
345 200
14 500 (1.5%)
9 900 (1.0%)
32
New Effective Tax Rates
Effective Tax
%
40
35
30
25
20
15
10
STC
5
'000
0
0
250
500
750
1,000
1,250
1,500
1,750
Individuals
Small Companies
Large Companies
2,000
33
Redistribution
Rand In : Rand Out Ratio
2006/07
32 222
17.86
74 000
3.55
115 000
1.47
155 000
0.75
195 000
0.51
270 000
0.30
1 000 000
0.05
34
Tax Redistribution 2006/07
Redistribution Graph (% Income)
%
%
140
140
120
120
100
100
80
80
60
60
40
40
20
20
0
0
1000
R32 222
R74 000
R115 000
R155 000
R195 000
R270 000
R1 000 000
35
Individuals
36
Allowances

Travel allowances tightened Yes

Home office expenditures deductible? No
37
Medical




Help poor and nail rich
First two members R500, thereafter R300 No
Health department proposal (4,5% payroll tax) No
- unlikely
Additional Medical Expenditures: Yes

Younger than 65: expenditures in excess of 5% of taxable
income still deductible. Definition to exclude medical scheme
contributions. 5% possibly increased to 7.5% including medical
contributions
38
Companies
39
Corporate Tax

Effective corporate tax rate (37.9%)


7.8% higher than global average
STC : Perhaps – 10% No
- Lets hope 5%?

Corp. tax down - 28% No
- Lets hope more!

Group taxes No
40
Small Businesses




Currently complete 12 tax returns
Increase turnover limit (R6mil. - last year) R14mil.
Increase payroll limit (last year R500k) No
Increase tax threshold to R40k (R35k) Yes
41
RSC

Replaced by:
 VAT on property No
 Regional company tax No
 Company licensing tariff No
 Grant to municipalities Yes
 Part of fuel levy No
 Electricity levy No
 Royalties to municipalities No
42
Retirement Industry



Currently 18% on rent and interest
Cut to 15%?
Perhaps 10%?
9%
43
VAT
44
VAT



Certain state organizations no longer need to be
registered Yes
More goods exempted – unlikely No
Farmers with turnover of R1m - VAT returns every six
months - up to R5m? Yes R1.2m
45
General
46
Taxes
47
Wet Blankets:
Taxes Long Unchanged



CGT:

Exemption primary residence R1m, since 2001

Average price of medium house R2.2m in 2005

Up exemption to R2m? R1.5m
Retirement Funds:

Yearly deduction for pension fund and retirement
annuity, since 1980 on R1 750 per annum No

Single amount exemption on retirement annuity,
provisional and-pension funds almost 20 years fixed
on R120 000 No

Single amount retirement gratification of the employer
last changed in 1984, equals R30 000 No
Transfer duties:

Up limit to R210k (now R180k) R500k 0%
48
Minor Revenue Sources, R bn
Tax on retirement
2.2
2.4
STC
13.9
13.9
Transfer Duties
6.0
6.2
Other Property Taxes
2.6
2.6
Other Taxes on Goods
0.7
0.9
Other Taxes on Int. Transactions
0.3
0.4
Stamp Duties
0.9
1.0
Non-Tax Revenue
8.4
8.6
Other (Nine small fry)
7.6
7.5
42.6
43.5
Total
49
Expenditure
50
The Good , the Bad, and the
Dangerous
Good
Bad
Dangerous
World
Cup – R3bn Social sector
Denel R2bn
employment
Police – R5.4bn
Child support
program – R4bn
grants & Disability
Municipal infra. –
RAF – extra R2.7bn grants
R9.3bn
-Too many
Municipal Grant –
dependants
RSC – R24bn
National road/rail –
R3.5bn
Gautrain –R7.1bn
51
Spending Priorities 2006/07
Expenditure: Functional Classification (Est.)
1%
11%
16%
14%
7%
51%
18%
16%
11%
6%
Should be
stopped!
Central Gov
Justice and Prot.
Eco. & Infra.
State Debt Cost
Other
Education
Social Dev.
Other Social Serv.
Health
52
Changes to Social Grants
Current
Expected
Budget
Child Support (13)
R180
R190
190
Old Age/Disability
R780
R810
820
Foster Care
R560
R585
590
53
Other

Spending increases on: Yes









Housing
Crime prevention
Improving local government
Transport
Education
Health
Social welfare
Upgrade all settlements
National roads is to be increased substantially
54
Special attention








More to provinces for schools, hospitals, social
development and welfare
Increased investment in infrastructure (World cup –
R5bn), support emerging farmers
Investment in housing, municipal infrastructure, water,
public transport, community facilities
Education, hospital revitalization, libraries
Communications infrastructure, national roads
Courts, police and improved access to justice
Investing in public admin., including the modernization
of financial admin.
Denel’s to secure R5bn bail-out? Yes R2bn
Total R29.3bn
55
Capital Expenditure
General Government (Dis-) Saving
R bn
10
5
0
-5
-10
-15
-20
-25
-30
1980
1982
1984
1986
1988
1990
1992
1994
1996
1998
2000
2002
2004
2006
2008
56
Funding
Expected
Budget
Efficient
Difference
Extraordinary
-1.0
1.7
1.7
0.0
Short Term Debt
5.0
5.8
5.5
-0.3
Long Term Debt
10.2
8.7
8.7
0.0
Foreign Debt
3.3
2.4
2.3
-0.1
Cash Balances
12.8
7.8
4.5
-3.3
Total
30.3
26.4
22.6
-3.7
57
What happened to privatisation?

Telkom value – R30bn
ACSA value – R40bn
SAA – just give it away, get Kulula as flag carrier

Two additional allocations:




Denel – R2bn capital investment
Road Accident Fund – R2.7bn
58
Summary 2006/07
Expected
Budget
Efficient
Difference
Revenue
440.3
446.4
450.8
4.4
Expenditure
470.6
472.7
473.4
0.7
Deficit
-30.3
-26.3
-22.6
3.7
% of GDP
-2.0%
-1.5%
-1.4%
59
Foreign Exchange Control

Amnesty unit to tie up – offshore individual allowance to
R2m





Major relaxation for individuals
Perhaps abolish
Retirement funds to invest 20% abroad (15%)
Unit trusts to invest 30% abroad (20%)
FDI from 50% to 25% for SA corporates and parastatals,
investment in Africa
60
Asset Allocation
61
Local Equities, 2006
Economic Sector
Q2 06 Q:Q
Weighted
Allocation
Asset
Allocation
Agri, Forestry and Fishing
3.6%
1.5%
0.0%
Mining and Quarrying
3.4%
3.4%
12.5%
Manufacturing
5.0%
12.4%
10.0%
Electricity, gas and water
0.9%
0.3%
0.0%
10.8%
4.0%
5.0%
Trade, hotels, restaurants
5.9%
11.9%
10.0%
Transport, storage, comm.
6.1%
9.0%
10.0%
Finance, prop and bus. Serv
5.0%
14.0%
17.5%
Personal Service
5.1%
5.2%
5.0%
Construction
62
Local Equities, 2006
Economic Sector
Agri, Forestry and
Fishing
EAA
0%
JSE Sector
Food Prod
Mining and Quarrying
10%
Mining, Platinum, Gold, Coal
Manufacturing
15%
Auto, Basic Ind, Beverages, Chem, Elect, IT
Hard, Pharm & Bio, Steel & Other
Electricity, gas and water
0%
Oil & Gas
Construction
5%
Const & Build
Trade, hotels and
restaurants
7%
Cyc Cons, Food & Drug, Gen Retail, House
Goods, Non-cyc Cons
Transport, storage and
comm.
12%
Telecomm, Transport
Finance, prop and bus.
Serv
15%
Banks, Insurance, Life Ass, Media & Pht, IT,
Property, Support Serv
Personal Service
5%
Cyc Serv, Health, Leisure Ent, Non-cyc Serv,
Person Care
Total Investment
61%
63
64