The National Budget Speech-South Africa

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Abstract

The purpose of this essay is to identify the pros and cons of the factors leading to economic growth, address governments policies towards small businesses, highlight tax reforms that need more time to be judged whether or not they will succeed and to decide whether or not government will achieve a 6% growth rate by 2010. The issues addressed are particular poignant given the fact that there has been a lot of media coverage over the new budget due to a number of significant changes in the tax structure. Governments new tax reforms were analysed along with its initiatives in achieving economic growth. It was found that if Governments proposals are followed through affectively and efficiently they should reach a growth rate of 6% or more by 2010.

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Introduction

The measure of a countries economic growth has somewhat changed over time, from its early years under Mercantilism where a countries economic growth was believed to be in its measure of increased specie, to present day times with the sources of economic growth conventionally defined to include savings, investment in the form of both physical and human capital formation, technological inventions and innovations, and increases in the availability of labour of different skills (Wikipedia, 2006). The countries policy towards these factors is positive to say the least, coupled with new tax reforms that both decrease the burden to middle to low income earners and theoretically widen the tax base South Africa has a strong chance of achieving a growth rate of 6% or higher.

The factors leading to economic growth

With economic growth comes a number of positive affects, generally it raises the standard of living for its citizens, lowers unemployment as an increase in the aggregate demand effectively means there is an increased demand for a countries resources hence an increase in demand for labour, tax revenue will also increase thus allowing Government to finance more projects and as economic growth and firms profits generally have a positive correlation business confidence will increase leading to new investment (Wikipedia, 2006). Thus it is in Government's best interests to pursue a policy that leads to growth, the following noteworthy actions taken by Government have been listed below.

Government's stance on infrastructure

According to the deputy president Phumzile Mlambo-Ngcuka (2006:2), Government spending on infrastructure in the current medium term expenditure framework (MTEF) has seen an unprecedented increase which totals R371 billion. The majority of this sum will be designated to public works such as harbours, ports, railways, airports, electricity generation and distribution, improving on existing soccer stadiums and the development of new stadiums, to mention a few. As South Africa is hosting the 2010 soccer world cup it is vital that our infrastructure can meet the demands of the expected increase in tourism thus fully benefiting from the increased funds that are associated with the profound increase in tourism. These new developments are part of the initiative taken by ASGISA, a catalyst to accelerated and shared growth development, which will act as an aid alongside GEAR in achieving economic growth through increased investment. One problem that can arise with this increased government expenditure is the possibility of "crowding out" whereby interest rates may rise causing individual consumption to decline (Economy Professor, 2006).

Whilst these plans for improved infrastructure can increase economic growth, Government identifies a severe lack of skills to be its biggest hindrance to achieving these goals (Southafrica.info, 2006).

Increase spending on education

One of the consequences of South Africa's apartheid era was that generally only the white population was afforded the right to a respectable education; in other words, whites received a better education than non-whites. As a result only about 20% of the...
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