2006/07 Budget Review:

2. 2006/07 Budget Review: A Missed Opportunity Presented by: Dawie Roodt 16 February 2006

3. Dawie RoodtChief EconomistEfficient Group81 Dely RoadHazelwood0081Tel: (012) 460-9580Cell: 082 456 0204Email: dawie@efgroup.co.za

4. Contents • Some Background • Some Fiscal Background • Review of 2005/06 • Fiscal 2006/07 – The Main Issues • Asset Allocation

5. Some Background…

6. Economic Overview

7. Political Overview President Challenges: • Poverty • Underdevelopment • Marginalization – emphasis on authorities

8. Political Overview ASGISA • Sectors identified: - Business Process Outsourcing - Tourism - Chemicals - Bio-fuels - Metals and metallurgy - Wood, pulp and paper - Agriculture - Creative industries - Clothing and textiles • Particular attention: - Scarce skills - Supply side drivers - Authorities

9. Some Fiscal Background…

10. Background Trevor’s reign! Zero? Gold

11. Background Gold Zero?

12. Background

13. 2005/06 in Review…

14. 2005/06 in Review:Revenue

15. Contribution to Fiscus

16. RevenueWhat happened to the “surplus” • R44bn • SARB R36bn – long term deposit • Funding

17. 2005/06 in Review:Expenditure

18. Spending Priorities

19. 2005/06 in Review:Funding

20. Summary 2005/06

21. Expansion vs. Contraction • Deficit: • Changes in deficit – Contr. • Level – Contr. • Debt • Changes in Debt – Contr. • Level – Contr. • Mix of expenditure and revenue – Very Exp.

22. FISCAL 2006/07…

23. TAXES

24. Current Effective Tax Rates

25. Redistribution

26. Fiscal Redistribution 2005/06

27. Low Saving • Personal saving rate decline when tax burden increase • Tax cuts accrued to those with least capacity to save

28. Trevor’s Gift Parcel ONLYR 19.1 bn!

29. The Good , the Bad, and the Terrible

30. Changes to Taxes

31. Tax Table

32. Effects of Tax Changes

33. New Effective Tax Rates

34. Redistribution

35. Tax Redistribution 2006/07

36. Individuals

37. Allowances • Travel allowances tightened Yes • Home office expenditures deductible? No

38. Medical • Help poor and nail rich • First two members R500, thereafter R300 No • Health department proposal (4,5% payroll tax) No - unlikely • Additional Medical Expenditures: Yes • Younger than 65: expenditures in excess of 5% of taxable income still deductible. Definition to exclude medical scheme contributions. 5% possibly increased to 7.5% including medical contributions

39. Companies

40. Corporate Tax • Effective corporate tax rate (37.9%) • 7.8% higher than global average • STC : Perhaps – 10% No - Lets hope 5%? • Corp. tax down - 28% No - Lets hope more! • Group taxes No

41. Small Businesses • Currently complete 12 tax returns • Increase turnover limit (R6mil. - last year) R14mil. • Increase payroll limit (last year R500k) No • Increase tax threshold to R40k (R35k) Yes

42. RSC • Replaced by: • VAT on property No • Regional company tax No • Company licensing tariff No • Grant to municipalities Yes • Part of fuel levy No • Electricity levy No • Royalties to municipalities No

43. Retirement Industry • Currently 18% on rent and interest • Cut to 15%? • Perhaps 10%? 9%

44. VAT

45. VAT • Certain state organizations no longer need to be registered Yes • More goods exempted – unlikely No • Farmers with turnover of R1m - VAT returns every six months - up to R5m? Yes R1.2m

46. General

47. Taxes

48. Wet Blankets:Taxes Long Unchanged • CGT: • Exemption primary residence R1m, since 2001 • Average price of medium house R2.2m in 2005 • Up exemption to R2m? R1.5m • Retirement Funds: • Yearly deduction for pension fund and retirement annuity, since 1980 on R1 750 per annum No • Single amount exemption on retirement annuity, provisional and-pension funds almost 20 years fixed on R120 000 No • Single amount retirement gratification of the employer last changed in 1984, equals R30 000 No • Transfer duties: • Up limit to R210k (now R180k) R500k 0%

49. Minor Revenue Sources, R bn

50. Expenditure