SA budget sees faster growth, first surplus

CAPE TOWN – South Africa’s economy will sustain growth near two-decade record levels, while a huge revenue overrun has allowed for tax cuts and the country’s first-ever budget surplus, Finance Minister Trevor Manuel said.

Manuel’s budget for the 2007/08 fiscal year put growth at 4,9 per cent in 2006 – higher than the 4,4 per cent forecast in October last year – and it was set to stay around that level for the next three years, buoyed by rising exports. “After stabilising the economy and the public finances, we have created the conditions for rapid growth job creation and broadening of opportunities,” he said in a speech to parliament yesterday.The document also showed a budget surplus of 0,3 per cent of gross domestic product for 2006/07 – South Africa’s first positive balance – rising to 0,6 per cent of GDP in 2007/08 before falling back into a small deficit.Manuel left the corporate tax rate at 29 per cent but announced the secondary tax on companies (STC), a levy on dividends, would be replaced with a tax at shareholder level from the end of 2008.As part of a phasing out of STC, the tax rate applied on all distributions would be cut to 10 per cent from 12,5 per cent from October 1.The current nine percent tax on retirement funds would be scrapped, and individuals would receive limited relief to compensate for the effects of inflation, thanks to a 29 billion rand tax overrun.Personal income tax breaks, directed largely at lower and middle-income earners, totalled 8,4 billion rand – smaller than in previous years but bringing cuts during Manuel’s 11 years as finance minister to more than 90 billion rand.The Treasury said in its budget review that economic growth continued to strengthen in 2006, supported by benign global conditions and strong domestic demand, and the trend was expected to continue in the medium term.The economy should grow by 4,8 per cent in 2007, a slight slowdown due to lower spending following a two percentage point increase in interest rates last year, accelerating to 5,1 per cent in 2008 – equal to the two-decade high of 2005.South Africa’s government is pushing a programme to lift growth to an average of more than six per cent by 2010 in a bid to slash widespread poverty and cut stubbornly high unemployment.Inflation would remain within the central bank’s three to six per cent target range as household spending growth eases to around five percent from seven per cent on the higher rates.Manuel also announced more spending to fight crime, AIDS and for the hosting of the 2010 Soccer World Cup, and proposals for a rand futures market to increase liquidity in the currency market.Nampa-Reuters”After stabilising the economy and the public finances, we have created the conditions for rapid growth job creation and broadening of opportunities,” he said in a speech to parliament yesterday.The document also showed a budget surplus of 0,3 per cent of gross domestic product for 2006/07 – South Africa’s first positive balance – rising to 0,6 per cent of GDP in 2007/08 before falling back into a small deficit.Manuel left the corporate tax rate at 29 per cent but announced the secondary tax on companies (STC), a levy on dividends, would be replaced with a tax at shareholder level from the end of 2008.As part of a phasing out of STC, the tax rate applied on all distributions would be cut to 10 per cent from 12,5 per cent from October 1.The current nine percent tax on retirement funds would be scrapped, and individuals would receive limited relief to compensate for the effects of inflation, thanks to a 29 billion rand tax overrun.Personal income tax breaks, directed largely at lower and middle-income earners, totalled 8,4 billion rand – smaller than in previous years but bringing cuts during Manuel’s 11 years as finance minister to more than 90 billion rand.The Treasury said in its budget review that economic growth continued to strengthen in 2006, supported by benign global conditions and strong domestic demand, and the trend was expected to continue in the medium term.The economy should grow by 4,8 per cent in 2007, a slight slowdown due to lower spending following a two percentage point increase in interest rates last year, accelerating to 5,1 per cent in 2008 – equal to the two-decade high of 2005.South Africa’s government is pushing a programme to lift growth to an average of more than six per cent by 2010 in a bid to slash widespread poverty and cut stubbornly high unemployment.Inflation would remain within the central bank’s three to six per cent target range as household spending growth eases to around five percent from seven per cent on the higher rates.Manuel also announced more spending to fight crime, AIDS and for the hosting of the 2010 Soccer World Cup, and proposals for a rand futures market to increase liquidity in the currency market.Nampa-Reuters