2005/06 National Budget BUSA submission

Budget 2005/06 Economic assumptions General policy direction: the overall stance Revenue Expenditure

Economic background: assessment Domestic spending on fire on back of low inflation, interest rate cuts and improved confidence Growth ahead of expectations but in line with budget This despite strong rand weighing on exports Revenue exceptionally strong as a result Some job creation Low savings and a growing current account deficit Prospects for 2005/06 remain good, with very similar mix expected Key danger: global economy

Economy rebounded in 2004

Helped by the fall in interest rates

With strong import component

Good personal finances helped

Capex plans at historic levels

Strong rand kept inflation at low levels

And could lead to another fall in rates

The rand is being driven by a weak $

Which will probably remain weak

Economic assumptions look reasonable

Some conclusions Assumptions look reasonable if a little high due to optimism on export and import volumes Revenue growth should be good in the year ahead

General policy principles Budget should be judged by long-term objectives: boosting savings and investment to over 20% of gdp, growth to over 6%, halving poverty and unemployment in 10 years Fiscal discipline to reduce public– and private–sector interest rate burden and create space for more useful spending Improve savings through reducing government dissavings and encouraging private sector savings Revenue burden to be contained, spread wider and be reduced to improve competitiveness of economy Redistribution efforts to be carried out on spending side of the budget, delivery to be improved dramatically

The budget in a nutshell

The budget in a nutshell

Tax overshoots and undershoots

Revenue: some guiding principles

The budget in a nutshell

Tax changes before and after proposals

Tax Proposals 2005/06

Rates left unchanged

Inflation allowed for

Tax reduction as % income

Revenue: some guiding principles

The budget in a nutshell

The budget in a nutshell

Spending focused on welfare

The budget in a nutshell

The budget in a nutshell

Deficit reasonable

Debt stable as % of gdp

Interest bill under control

Financing will become more of a challenge

Financing will become more of a challenge

Exchange control relaxation Lack of movement disappointing Would help to normalise the exchange rate market Would encourage fdi and local confidence (foreign investors ask why keep excon?) Morally, perverse that the dishonest have more diversified portfolios than the honest Won’t help savings and investment: evidence suggests the opposite

General policy principles Fiscal discipline to reduce public– and private–sector interest rate burden and create space for more useful spending – no further progress Improve savings through reducing government dissavings and encouraging private sector savings – some progress, but limited Revenue burden to be contained, spread wider and be reduced to improve competitiveness of economy - some progress, but limited Redistribution efforts to be carried out on spending side of the budget, delivery to be improved dramatically – continued progress

Assessment Short-term objectives Long-term objectives Expansionary stance continues Budget appears fiscally responsible although based on strong cyclical assumptions Tax burden does rise much overall, but impact significant in pockets Lack of movement on exchange control and retirement funds a pity Markets should take the budget in their stride Equity market very positive Bonds positive initially, but medium term financing Long-term objectives Incremental rather than radical Won’t alter investment/ savings/ growth / jobs reality drastically