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Cape Town, South Africa, 2011/02/22 - As a precursor to the budget announcement tomorrow, the New Growth Path and the State of the Nation Address each had a core focus on job creation.
Frost & Sullivan contemplates whether the same should be expected from the budget speech?
The major issues that are likely to be discussed in the budget speech will include job creation, tax incentives as well as the exchange rate. However, Frost & Sullivan believes that a 'new' area deserving mention is the inclusion of the green economy as a potential area for job creation, as per the State of the Nation address. The R39 million allocated to job creation will be achieved through allocations to the IDC (R10 billion), the granting of R20 billion in tax allowances and an allocation of R9 billion for the establishment of a "job creation" fund. "It is interesting to note that there is still a marked focus on big business to solve the unemployment problems of the country," comments Frost & Sullivan's Economics Research Analyst, Craig Parker.
The manufacturing sector has been prioritized for job creation and tax incentives have been offered. In order to qualify for these incentives, a minimum of R200 million should be spent on new projects and R30 million for expansions and upgrades. It is unlikely that this will include SMEs. The State of the Nation Address did mention the creation of an SME financing agency, however, there is a marked lack of recognition for the role of smaller enterprises in job creation, through policy and incentive schemes.
Frost & Sullivan is interested to hear if there will be further clarification on exchange reforms. With the exchange rate dropping by 8.5 per cent since the beginning of 2010, Frost & Sullivan believes it is unlikely that further exchange reforms will be proposed. "The rising threat of global food and fuel prices should also be a cause for concern when considering devaluing the currency, as CPI and PPI figures are already showing an upward trend, with inflationary pressures on the rise," says Parker.
Parker is doubtful of any tax relief announcement as the budget deficit may be higher than expected. "It is also likely that there may be a substantial increase in taxes on alcohol as well as a possible increase in the carbon tax on new vehicles," remarks Parker.
Social Security Reform and National Health Insurance are expected to be mentioned, as both are due for parliamentary review later this year. "These policies deserve serious attention as they will affect households and the business sector," remarks Parker. "These policies may influence the behavior of individuals and firms and will have an impact on budget revenues and economic growth. The government should, therefore, strike the correct balance between social security and job creation policies."
The Budget Speech on Wednesday is likely to deliver further insight into many questions that were raised after the New Growth Path and the State of the Nation Address.
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