NATIONAL ASSEMBLY
QUESTION FOR WRITTEN REPLY
QUESTION NUMBER 964
DATE OF PUBLICATION: 28 AUGUST 2009
Dr D T George (DA) to ask the Minister of Finance:
(1) With regard to the macroeconomic policy response as set out in the
framework for South Africaâs response to the international crisis, (a)
what (i) fiscal and (ii) monetary measures will be taken and (b) how
will these be combined;
(2) What resources will be made available for industrial policy
interventions;
(3) Whether he intends providing tax relief for (a) low-income workers,
(b) the poor and (c) companies in distress; if not, why not; if so,
what are the relevant details?
NW1163E
REPLY:
(1) Sustained public spending and a flexible approach to monetary
policy have enabled South Africa to weather the global crisis
relatively well compared to many other countries. While there are
indications that the South African economy might have reached the
bottom of its sharp downturn, the road to recovery will be slow and
gradual as the world recovers from the worst economic crisis in 80
years.
(a) (i) The 2009 Budget made provision for a countercyclical fiscal
response to the economic crisis to cushion the impact of the crisis on
demand. Revenue receipts have been severely affected by the slowing
economy, but growth in public spending has been sustained to build on
the public-sector investment programme already under way, to expand
labour-intensive employment progrmmes, to broaden social security
benefits, to continue to invest in education, health and other public
services, and to support well-targeted industrial development.
Provision was made for consolidated non-interest government
expenditure to grow by 5.1 per cent a year in real terms over the next
three years. Our budget deficit estimate for 2009/10 was revised to
3.8% of GDP, a swing of nearly 5 percentage points, and the public
sector borrowing requirement was sharply increased to reflect the
policy intention to raise borrowing from domestic and foreign sources
to support demand in the economy as a whole. The latest revenue data
suggests that tax receipts will be at least R60Â billion below target
this year, which will result in a considerably higher fiscal deficit
than originally expected. Full details will be published in the Medium-
term Budget Policy Statement on 27 October 2009. Government is mindful
of the difficulties of raising large amounts of debt in the present
environment, and that maintaining a prudent level of borrowing and
keeping borrowing costs and inflation low is critical to sustaining
South Africaâs developmental objectives. For these reasons areas need
to be identified where spending efficiencies and better public
services can be achieved.
(ii) The South African Reserve Bank has responded to the crisis by easing
the repo rate by 500Â basis points to 7% between December 2008 and
August 2009. CPI inflation has been above the 3-6% target range for
28Â months since April 2007. More recently, inflation pressures have
moderated along with the widening output gap and the decline in
commodity prices. CPI inflation fell to 6.7% in July 2009 from 8.1% in
January and the SARB expects it to return to the 3-6% target range in
the second quarter of 2010. Real interest rates are close to zero when
calculated using actual inflation and this should provide support to
household consumption and investment in the second half of the year
(b) Fiscal and monetary policy measures, which have resulted in a much
wider budget deficit and lower interest rates, are working in tandem
to support domestic demand and investment in the economy.
An important part of the crisis response has been to ensure that
Development Finance Institutions are providing financial and technical
support for public sector investment taking into account both
immediate and long term needs (see details below)..
2) The final regulations with respect to the previously announced
industrial policy tax incentives will be published soon. This
incentive will provide for additional deductions for qualifying
manufacturing companies amounting to tax relief of R5.6 billion over a
three to five year period. Qualifying criteria will include energy
efficiency, business linkages, skill training and job creation. The
Department of Trade and Industryâs budget for transfers and subsidies
has increased by 70% since 2006/07 and 30% since last year to
R5.3Â billion in 2008/09. In particular the amount allocated to public
corporations and private enterprises has more than doubled since
2006/07 to R3.88Â billion in 2008/09.
The global economic meltdown prompted government to request the DFIs
to consider mitigating the effects of arising diminished access to
finance. The Development Bank of Southern Africaâs (DBSA) capital
structure will be enhanced by increasing its callable capital from
R4.8Â billion to R20Â billion. This will effectively help the DBSA to
leverage on its borrowing up to R140Â billion. The Industrial
Development Corporation (IDC) intends to inject more than R70Â billion
into the economy over the next five years, of which R6.1Â billion is
set aside to assist distressed companies through the financial crisis.
Further, the government has increased the guarantee to the Land Bank
from R1.5Â billion to R3.5Â billion and will convert it into capital
injections over next four years.
3) Tax relief measures:
(a) As part of the support measures agreed to by all social
partners the taxation of withdrawals from retirement savings as a
result of involuntary retrenchments (including severance/retrenchment
packages) will qualify for favourable tax treatment.
The first R300Â 000 lump sum payment from retirement savings
prior to retirement and as a direct result of involuntary
retrenchment will be tax free. This is the same tax treatment of lump
sum payments upon retirement. However, it should be noted that a
lifetime aggregation principle will apply: once the R300 000 tax free
amount has been âusedâ any additional lump sums whether received as a
result of a retrenchment or upon retirement will be tax at higher
marginal rates.
(b) Any additional tax measures to support poor households will
only be announced in the Budget in February 2010. However, income
support to households will be maintained through the provision of
social grants to qualifying recipients. These are the most effective
and targeted support measures for those in need. The expanded public
works programme should help to provide additional job opportunities.
For those who have lost their jobs, the Unemployment Insurance Fund
(UIF) provides a crucial means of support. Claims hit their highest
level in July with new claims amounting to 85 562, up 38% from 61 965
in July 2008. Additional measures like the proposed training layoff
scheme provide a layer of protection for workers, giving firms an
alternative to retrenchments during the recession.
c) Any additional measures relating to company taxes will only be
announced in the Budget in February along with other tax proposals.
Qualifying companies in distress will be considered for support
measures through a facility to be managed by the Industrial
Development Corporation (IDC).
END.