BUDGET 2005/06
Manuel delivers upbeat Budget
24 February 2005
Finance Minister Trevor Manuel delivered an upbeat 2005/06 Budget on Wednesday, including tax relief for both individuals and business, increased social spending, and higher "sin taxes" and fuel levies.
Significant attention was also paid to the plight of small businesses, and steps were announced to crack down on motor vehicle allowance abuse.
Tax relief for individuals
Delivering the Budget in Parliament in Cape Town, Manuel said individual taxpayers would save R6.8-billion to compensate for inflation and real tax relief in all income groups - with about 60% of the total going to those earning below R200 000 a year.
Further relief for pensioners was also part of this year's tax package.
The income tax threshold - below which no tax is payable - was raised from R32 222 to R35 000, and for taxpayers over 65 from R50 000 to R60 000.
The interest income exemption for individuals was raised
from R11 000 to R15 000, and for those over 65 from R16 000 to R22 000.
From April 1, the maximum old age, disability, and care dependency grants increase by R40 to R780 a month, foster care grants by R30 to R560, and the child support grant by R10 to R180 a month.
Tax relief for small business
To make "life easier" for small businesses, and to encourage growth and investment, Manuel announced they would be targeted for tax relief of R1.4-billion.
This included the extension of relief to a broader range of service companies, and raising the turnover limit for eligibility from R5-million to R6-million.
Qualifying small companies would pay no tax on the first R35 000 of taxable income, 10% on income in the range R35 000 to R250 000, and 29% thereafter.
Additional relief of R367-million would form part of streamlining ongoing filing obligations. This would involve halving the number of VAT payments small businesses made
in a year, and exempting them from the skills development levy.
The corporate income tax rate would drop from 30% to 29%.
Transfer duties, 'sin taxes', vehicle allowances
Taking into account the sharp rise in property prices over the past two years, the transfer duty exemption threshold would be raised from R150 000 to R190 000, together with an increase in the upper threshold from R320 000 to R330 000. The duty payable on a property of R330 000 or more would fall by R2300.
Excise duties on alcoholic beverages and tobacco would again increase slightly this year, while the general fuel levy and the Road Accident Fund levy increase by five cents each.
Manuel also announced details of a revised approach to the calculation of "deemed business travel" expenses against a motor vehicle allowance. The changes would lower the tax benefit associated with deemed motor vehicle use calculations, particularly where the vehicle value
exceeded R360 000, he said.
Changes include increasing the deemed distance formula, updating the deemed cost table, and capping the maximum value of a motor vehicle for purposes of determining the cost of business travel for a vehicle allowance at R360 000.
Better tax collection
Manuel said that due to the strength of the economy and excellent tax collection by the SA Revenue Service, it was projected that R11-billion more than originally budgeted would be raised this year (2004/05).
The National Budget provided for estimated total spending of R417.8-billion in 2005/06, rising to R494.8-billion in 2007/08. Revenue was estimated at R369.8-billion in 2005/06, rising to R444.6-billion in 2007/08.
National departments accounted for 37% of Budget allocations, and provinces almost 58%. Grants to municipalities totalled 5% of available resources.
In 2005/06, R135-billion would be distributed between provinces in terms of the
equitable share formula, and R75-billion as conditional grants from national departments.
Main spending breakdown
On the main spending side, Manuel allocated R6-billion to the Department of Land Affairs to allow the land restitution programme to be completed over the next three years.
Also over the next three years, an additional R22.3-billion was allocated to increase social security grants, R5-billion to improve police salaries and increase their numbers, and R6.9-billion to improve salaries for teachers and social workers.
In addition, R2-billion would go to the new housing strategy, R3-billion to related community infrastructure, R1.7-billion to water, sanitation and other municipal infrastructure, and R3-billion to public transport investments and roads.
Other allocations included R3.7-billion for the delivery of municipal services, and R7.4-billion to step up education and health spending in provinces.
Economic forecasts
Manuel said the economy was expected to grow by 4.3% this year and average 4.2% over the next three years. Gross fixed capital formation growth was projected to average 7%, with exports rising by about 4.5% a year.
CPIX inflation was expected to average 4% in 2005, rising to between 5% and 5.5% percent in 2006 and 2007.
Official foreign exchange reserves had increased to over US$15-billion - four times more than the current short-term debt level.
Sapa
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