1. 2005/06 National Budget
BUSA submission

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

3. 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

4. Economy rebounded in 2004

5. Helped by the fall in interest rates

6. With strong import component

7. Good personal finances helped

8. Capex plans at historic levels

9. Strong rand kept inflation at low levels

10. And could lead to another fall in rates

11. The rand is being driven by a weak $

12. Which will probably remain weak

13. Economic assumptions look reasonable

14. 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

15. 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

16. The budget in a nutshell

17. The budget in a nutshell

18. Tax overshoots and undershoots

19. Revenue: some guiding principles

20. The budget in a nutshell

21. Tax changes before and after proposals

22. Tax Proposals 2005/06

23. Rates left unchanged

24. Inflation allowed for

25. Tax reduction as % income

26. Revenue: some guiding principles

27. The budget in a nutshell

28. The budget in a nutshell

29. Spending focused on welfare

30. The budget in a nutshell

31. The budget in a nutshell

32. Deficit reasonable

33. Debt stable as % of gdp

34. Interest bill under control

35. Financing will become more of a challenge

36. Financing will become more of a challenge

37. 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

38. 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

39. 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