THE BIG SMALL BUDGET

Myles Wakefield, CEO of Wakefields Real Estate, shares his thoughts on the forthcoming BUDGET.

South Africa is currently teetering on an economic tightrope. We fully appreciate the limited space within which our finance minister has to manoeuvre such a severely constrained budget. It is critical that the ratings agencies are appeased - we simply cannot be assigned junk status. The burden of interest which we're currently paying, would be pushed up even further, and with our massive debt level, South Africa would be in an extremely precarious position.

We are fully cognisant of the fact that our finance minister has to keep the budget deficit at less than four percent, and the debt of the country at less than 60 percent of GDP. All this while balancing expectations of ordinary South Africans, all of whom have been made promises, the majority of which the country simply cannot afford. Not only that, but dysfunctional sectors such as education and health, need massive injections of human and other capital, before 'new' or 'free' solutions can even be considered.

Some costs are immovable, like our social grants. But others aren't.

The minister has a massive, massive task ahead.

FROM A PROPERTY PERSPECTIVE

Examining the current statistics around the property market, it's clear the bottom end has been considerably more active than the top. There are a number of reasons why, but there's one significant one over which the government does has control.

Property transfer duty

At the higher end of the market, it is undoubtedly affecting movement. Over the past few years, those fees have been nudged higher and higher, and as all the tax and financial gurus know, you can tax people so far, and then you reach a tipping point. When you push it past that psychological point, the drop off in output or growth, removes the increase in tax that the government would have earned for it.

In short, increasing transfer duty at the high end of the market, means less movement in that sector. Less movement, fewer transactions, and less transfer duty goes into the government coffers. On paper, as government, the ongoing assumption that transfer duty is putting X amount into the fiscus is a fallacy - it's assuming the same volume, and those volumes are dropping. People are remaining in their houses for longer, because the transfer duty is becoming a handbrake to the transaction - it's making it unaffordable, or simply put, the maths doesn't work.

Don't touch transfer duty at the top end. It would stimulate that sector if it was reduced, but realistically, that's unlikely to happen. Just don't raise it.

What about transfer duty at the lower end? Given our country's need for entry level housing, it's extremely welcome. Are we able to sustain that? Is it possible to increase that slightly, rather than touching the upper end? Is it possible to differentiate investors from end users?

RATHER TAX BREAKS

If taxes are to go up, rather use tax breaks. The higher the tax rate, the more people look offshore. We need their money and skills to stay in the country. The downside of high taxation, is people are moving businesses offshore to welcoming, business-friendly countries like Mauritius. We aren't considered business friendly.

Likewise with capital gains tax. Yet another reason for those deciding to transact, to take their businesses, finances and skills elsewhere. Dividends tax, too. We can't keep on pushing and pushing tax on wealth - too many obstacles, and those funds go elsewhere.

REBATES

Enough have been said about Eskom. Dividing it into three businesses, is believed to be a step in the right direction. In my view, privatising at least portions of it, would be a giant step for South African mankind. The problem is too great, the impact too massive, to pacify the nay-sayers.

Encourage homeowners to explore alternative energy sources, by way of rebates. Just as with Inner City Regeneration and other projects, clean, alternative energy is considered critical to the future of the country...indeed, the world.

EASE OF BUSINESS

Red tape, inefficiencies, lack of policy clarity, labour complexities, infrastructure issues and lengthy, cumbersome legislation, do not make it attractive to do business in South Africa. There appears to be a good understanding at municipal and government level, that this is the case, yet somehow, the status quo remains. It's a big red flag for investors, and it's hurting South Africa.

It's critical that the state step back, and work towards being an enabler of business.

AUSTERITY MUST RULE

We all know it. Corruption needs to be halted right now, perpetrators rooted out, monies repaid, and all leaks closed.

Government expenditure is way beyond what South Africa can afford, in particular the public sector numbers and their wage increases. Public sector increases average far higher than inflation, and the percentage of GDP we're spending on unproductive public sector staff, is simply not sustainable.

South Africa doesn't have the luxury of paying this massive interest on non-functional entities.

Tough decisions have to be taken for the good of ALL.

CONFIDENCE

Confidence in the government's ability to manage our taxes, couldn't be lower - it's time to rebuild that confidence, so that South Africans can feel assured that their taxes will go towards necessary and worthwhile infrastructure and other projects, projects which are realistically priced, contractors and sub-contractors stringently audited, and managed by those who have the skills.

Spend on infrastructure, spend on education - these are our future. But make sure they're superbly managed, so South Africans feel their taxes are a contribution to a better South Africa for their children.