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No major policy shifts are expected from the finance minister in his budget tomorrow, with economists predicting there will probably be no relief for high- and middle-income earners.
FINANCE Minister Pravin Gordhan is expected to elaborate on how the country and indeed Joburg – its economic powerhouse – will benefit from recent economic growth, which picked up in the latter part of 2009.


Finanace minister Pravin GordhanFinance minister Pravin Gordhan (Photo: Finance ministry website)However, no major policy shifts should be expected in his annual budget speech. Gordhan has forecast a 3,5 percent gross domestic product (GDP) expansion for this year. He will table his budget in parliament in Cape Town on 23 February at 1pm. It will be flighted on SABC television and Etv; President Jacob Zuma is expected to attend.

The government’s consolidated budget for the current fiscal year is projected at R907-billion, with more than R2,9-trillion to be spent in the next two years. About R112-billion would be added to departmental budgets, a chunk of which would be earmarked for provinces and municipalities to overhaul education, health, municipal infrastructure and human settlements.

Economists predict that Gordhan is likely to raise his inflation prediction from its current 4,7 percent average for the year to reflect the increase in the Consumer Price Index (CPI). In last year’s budget, Gordhan said South Africa’s inflation rate was higher than those of its trading partners, which lowered competitiveness.

He said it was essential to have a low and stable inflation rate to protect the livelihoods of workers and the poor. “I wish to confirm that the Reserve Bank will continue to pursue a target for CPI inflation of 3- to 6 percent,” he said at the time.

In his budget tomorrow, he is expected to give an overview of the current economic climate and forecast prospective growth as well as a constructive future. An increase in welfare expenditure is expected, as the government grapples with a 25 percent unemployment rate. Economic growth is expected to rise from 2,3 percent to 3,6 percent by 2012.

Deficit
In 2010, Gordhan said that because of the deterioration of the national economy, the budget would have a R69-billion deficit. Most economists think that this year, he will aim for a budget deficit of 4,6 percent of the GDP for the fiscal year ending in March 2012, in line with previous forecasts.

Consolidated revenue would be around R600-billion.


EPWP The EPWP will create more jobsThe minister previously assured citizens that the country was on a stable path of weathering the global economic storm, which had crippled economic growth for over a year. He conceded, however, that job creation, economic expansion and reducing poverty were still pressing issues.

This year, budget allocations are expected to be made to health, education, rural development, job creation, land reform, and fighting crime and corruption, in line with the government’s key priorities.

Total allocations to municipalities are expected to rise from R55-billion in the current financial year, to R78-billion in 2012/13. Gordhan said municipalities should work towards improving financial management and ensuring that higher spending allocations translated into real improvements in people’s lives.

Joburgers are most likely to benefit from the second phase of the Expanded Public Works Programme, which Gordhan said would create 4,5 million short-term job opportunities. About R52-billion was allocated to various public works projects over the next two years.

Gordhan warned in 2010 of a future tax increase for the government to fund its public spending commitments. “We are instead proposing moderate tax relief for households, to assist in sustaining the economic recovery,” he noted.

As a result, income tax relief for individuals would amount to R6,5-billion. Most of the relief is provided to taxpayers in lower-income brackets.

According to auditing firm Price Waterhouse Coopers, there will probably be no relief for high- and middle-income earners in this year’s budget.

In this year’s state of the nation address on 10 February, Zuma announced that R20-billion would go in tax breaks to manufacturing firms, R10-billion to the state-owned Industrial Development Corporation to invest in employment-intensive sectors, and R9-billion to a new jobs fund.


Low income groups are expected to benefit from tax reliefLower-income tax-payers are likely to benefit from tax reliefIn his budget speech, Gordhan is likely to share Zuma’s sentiments and shed some light on the Reserve Bank’s foreign exchange intervention initiatives to curb the strength of the rand, which has gained nearly 23 percent against the dollar since the start of 2009. Economists say an 8,5 percent drop in the rand this year, due to increased central bank dollar-buying, has eased pressure.

Transparency
In addition, Budget Survey 2010, an independent transparency and accountability entity, has ranked South Africa’s budget process among the most transparent and accountable in the world.

The Budget Survey is produced every two years by independent experts and is based on documented evidence. It found that seven of 94 countries assessed release extensive budget information, and 40 countries release no meaningful budget information.

“Greater transparency enables better oversight, better access to credit, better policy choices, and better service delivery,” said Warren Krafchik, its director. A lack of budget transparency allowed corruption and mismanagement to go unchecked.

The open budget survey uses internationally recognised criteria to give each country a transparency score on a 100-point scale called the Open Budget Index. There was a nine-point increase in the average score from 47 in 2006 to 56 in 2010 among the 40 countries surveyed in 2006, 2008 and 2010.

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