Key themes for entrepreneurs to look out for in the medium term budget
From tax proposals to funding allocations for entrepreneurs - these are the issues that should be on your radar
The medium term budget policy statement to be released this week will set the framework for government spending over the next three years. The 2016/17 fiscal year took off under the shadow of Nenegate and the threat of a downgrade of the country’s credit rating. It has been a year marked by low consumer and business confidence.
Key themes for entrepreneurs to look out for in the medium term budget include:
1. Revisions to the Treasury’s growth projections – In February, Treasury projected that the economy will grow by 0.9% in 2016, 1.7% in 2017 and 2.4% in 2018. It also identified weak economic growth as a significant risk factor. The medium term budget statement will provide a revised view of National Treasury’s estimate for growth. This not only provides insight into how the economy is likely to evolve, but also has implications for whether government can meet its deficit and debt projections, which are calculated as a proportion of GDP.
2. Adjustments to funds allocated to supporting entrepreneurs – The department for Small Business Development was set up to support and advocate for entrepreneurs in the economy. Mid-term adjustments to the budget are usually small. However, they provide some signals as to what is getting done, what isn’t and unanticipated developments. The small business department has a relatively modest budget allocated to it (R3.5 billion) though it is one of the few budget lines that received additional spending in the 2016/17 budget (R475m above what had been allocated for the medium term). Another upward adjustment is highly unlikely.
Rather, it will be interesting to see how well the department is doing in spending its allocated budget and whether there are any programmes that are lagging behind in terms of spending. Other relevant adjustments for entrepreneurs will be those effected against Department of Trade and Industry (DTI), Economic Development Department (EDD), National Treasury, Land Bank and Industrial Development Corporation (IDC) as these are the departments and institutions with the most significant contributions to entrepreneurs.
3. Further announcements on public-private partnerships and investment – in the President’s state of the nation address and in the national budget, government indicated that it would like to intensify the extent to which it partners with the private sector to deliver goods and services and to reach its economic goals. This promises opportunities for entrepreneurs to provide innovative solutions to pressing public challenges.
4. Signals about tax proposals - Given that growth in 2016 will come in under Treasury’s previous projection of 0.9%, government will also have to think about raising certain taxes (such as VAT) or introducing new ones (such as a wealth tax).
5. Updates on government’s cost containment measures – in February, various measures to contain costs were announced. These were to be achieved by restrictions on new public sector employment, better budgeting for capital projects, more efficient and clean procurement, amongst other measures. Savings made on this front are not only good for the fiscus, but indicate the degree to which National Treasury enjoys support across government.
About the author: Trudi Makhaya is CEO of Makhaya Advisory and a consulting economist to Mercantile Bank.