Posted: 2008-02-20 23:58 Budget 2008 - business as usual?  Presenter: David Williams Guest(s): Pheiffer, Mufamadi, Van Vuuren - Click here to listen to the interview What’s the effect of the 2008 Budget going to be on business? Summit TV speaks to Vic van Vuuren from Business Unity South Africa (Busa), Vhonani Mufamadi from Ideco and Craig Pheiffer from Absa Investments about the business and investment influence of Trevor Manuel’s statements DAVID WILLIAMS: Welcome to Summit TV, joining me tonight to look at the Budget’s impact on business is Vic van Vuuren from Business Unity South Africa (Busa), Vhonani Mufamadi from Ideco, and Craig Pheiffer from Absa Investments. We’re talking about entrepreneurship, business, the organised business perspective and the investment perspective. Craig, what signal did the Budget send to investors? One thinks of the 1% point cut in corporate tax - which perhaps was a surprise and sent a good signal in terms of being business friendly? CRAIG PHEIFFER: I think it was positive. Some in the market did anticipate a lower tax rate - we were anticipating more detail on the STC changes. We did see something - that’s only coming in 2009. A bit more clarity also on STC credits - those will be abolished by 2009 if you don’t use them. But I think generally good news around the corporate tax rate. Other bits of positive information was the VAT threshold increase and small business incentives. A bit more funding in the bond market - hopefully over the next three years with public sector borrowing requirement up to 1.2% or 1.4% - and that was from a positive budget balance that we were looking at before. I don’t think there’s too much pressure on bond yields - they have been drifting up. Today if I look the equity market started down and finished the day 0.25% down - so nothing much from that point of view. Bond yields did drift up early in the morning and pretty much stayed there. It was really on the rand today that we saw the move - it was weak in the morning and weak again in the afternoon maybe a bit around the exchange control relaxation for institutional investors could read into that - but generally emerging markets also weaker. So maybe not too much to read into it from what the markets have done today - I think overall for business fairly positive Budget. DAVID WILLIAMS: Sounds like steady as she goes. Vhonani, you’re an entrepreneur and executive chairman of Ideco - a lot of small business friendly and middle business friendly stuff in this Budget - what was your reaction? VHONANI MUFAMADI: Certainly I think the overall signal to entrepreneurs - to the SME sector is a very positive one. The move on VAT and corporate income tax - all of that is very encouraging to the risk takers that entrepreneurs are. Overall the encouragement to invest is very good news for entrepreneurs. The news on income tax for employees is very good news for this sector of business. DAVID WILLIAMS: One thing that worried me was that the threshold seemed very low - you have one-person businesses where there’s lots with turnover of more than R1million - so isn’t it again an issue of the thresholds look good and sound good but they’re actually too low? VHONANI MUFAMADI: Overall they do remain very low - but the administrative impact on individual businesses, the red tape that’s involved with registration and administration and so on means moving the threshold from R300,000 to R1million makes a very significant difference to the impact on individual businesses. DAVID WILLIAMS: Vic, you’re a representative of organised business - what does organised business think? VIC VAN VUUREN: Many people would say this is a business-friendly Budget, but we would like to term it a social solidarity budget - one that caters for needs across the spectrum. We are very positive about it - despite the short term national and international problems and challenges out there the Minister stuck to his guns. We welcome the investment into infrastructure - there are some key areas, particularly Eskom with the crisis we have on energy generation - so it was good to see some specific statements regarding that investment and the funding of Eskom over the short term. That was good news. Business confidence overall looking at exchange control, the intention of looking at STC next year, the SME’s as mentioned and the corporate tax reduction - those are positive signs for business. But one has got to go beyond that to look into the social needs as well - because in the long term that does affect business and our ability to deal with the growth that we need. The investment into skills is extremely important to us, dealing with crime, also the health and poverty - dealing with poverty at the levels that it was dealt with. So those aspects - although not directly linked to business performance - in the long term are extremely important for us. DAVID WILLIAMS: Let me break in there and suggest to you and perhaps all of you that on the one hand these things look very good - you’ve got around R7billion handed back to individual taxpayers - but each individual tax payer is not going to see that much of a difference. Again the thresholds are at the low end - so for example with the skills issue bursaries for people that earn under R100,000, if you send your kids to university or technikon or a technical college you get a R10,000 rebate - but what about all the people say between R100,000 and R300,000? Why shouldn’t they be rewarded for giving bursaries? Aren’t these thresholds too low Craig? CRAIG PHEIFFER: I think they are, and you could probably nit-pick a lot of the single lines in the Budget - but obviously the Finance Minister has only got so much room to move. I think we are also looking at growth slowing in the year ahead - so you can’t get too carried away there. I think the government is probably a little over optimistic on growth even - so I think it’s small steps, small steps. That’s what they have been doing over the last 12 years quite positively - of course we would like to see those thresholds higher, but you know in small increments. DAVID WILLIAMS: Vhonani, the things Vic was mentioning - crime, education, health - it looks wonderful and the Minister puts it across in a very persuasive way. In itself that is confidence boosting, but it’s about delivery isn’t it? We have a big problem with “putting the money on the ground” as was the phrase he used… VHONANI MUFAMADI: It certainly is. The major problem that still remains in the system is of course the capacity to spend the money that year after year the Finance Minister is allocating to the different departments. Overall there is an increase with regards to every single department year-on-year on the allocations that they are getting. The biggest challenge still remains to spend that money. DAVID WILLIAMS: So really my question I suppose Vic is it is a very confidence instilling Budget given the hard couple of months that we have been through - but is it going to make a difference on the ground? VIC VAN VUUREN: The trick is going to be where we have the joint initiatives between the private sector and government and local government - there has got to be a connect from national government, local government and the private sector in order to deliver. If we don’t deliver we are wasting our time having good Budgets every year. I think as the Minister said that the money hits the ground - that is important. It’s interesting to see this “poverty war room” that’s been mentioned. This year the debates around social security and retirement fund reform - there are some very keen debates that we are entering into that are going to deal with the with the aspects of alleviating poverty. There’s got to be a connect between that and business confidence and long term growth - but yes readjustment for some of the problems we have got. DAVID WILLIAMS: Let’s move back to the investment specifically retirement funds and institutional investors - there’s some benefits there and the social security scheme - what is your sense of that? Craig, the balance between an investment private sector driven retirement industry and the government getting more and more involved? CRAIG PHEIFFER: Again it has its merits because we are a nation that has a very poor savings record - so any kind of incentive to make us save should be encouraged. It’s more of a stick approach rather than the carrot approach. But from the exchange control point of view from the institutional investors - I think that was very positive in that they can invest more offshore. DAVID WILLIAMS: In effect it’s a gradual abolition of exchange control by another name, isn’t it? CRAIG PHEIFFER: There’s no more exchange controls really - they’re just going to have to report on their offshore investments on a quarterly basis. So for institutional investors really that is a thing of the past. DAVID WILLIAMS: Shouldn’t this have made more of an impact? If he said “we are abolishing exchange controls” maybe it would have. But the other name that is being used - it had a gentle landing. CRAIG PHEIFFER: I think generally investors have been quite hesitant to move offshore. We’ve had this gradual phasing in off allowances for individuals up to R2million in 2006. So we have got some assets off shore - there just seems to be reluctance to diversify more. I would think a 10% to 20% allocation in investment portfolios is a fair offshore diversification - so with those limits we are thereabout already. DAVID WILLIAMS: Coming from diverse places it sounds like you’re all happy with the Budget - now the baton is handed from Trevor Manuel to the other Ministers to deliver. www.summit.co.za Transcripts: onsub1@avusa.co.za ar/met Comments Related to this transcript: Comment on this transcript... Name : Email : Comments :