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.
27 October 2004
Foreign exchange
controls eased
Exchange control limits on outward foreign direct investment (FDI) by South African companies are to be abolished, together with the removal of restrictions on the repatriation of foreign dividends, Finance Minister Trevor Manuel announced on Tuesday.
According to the medium-term budget policy statement (MTBPS) tabled in the National Assembly, growth is projected to average about four percent a year over the next three years, and CPIX inflation to remain within the three to six percent target range.
The document says application to the South African Reserve Bank's exchange control department will still be necessary for monitoring purposes, and for approval in terms of existing FDI criteria, including demonstrated benefit to South Africa.
The SARB reserves the right to stagger capital outflows relating to very large foreign investments so as to manage any potential impact on the foreign exchange market.
South African corporates will be allowed to retain foreign dividends offshore, and dividends repatriated to South Africa after October 26, 2004, may be transferred offshore again at any time for any purpose.
South African individuals will also be able to invest, without restriction, in foreign companies listed on South African bond and security exchanges.
The 2005/06 Budget will provide for improved remuneration for police and educators.
The MTEF provides an additional R5-billion for teachers, to be used to address backlogs in salaries, career "pathing", and scarce skill shortages, while the South African Police Service will get R2.25-billion over the next three years to support the retention of skilled officers.
Next year, tax reforms are likely to simplify compliance for small enterprises, introduce measures to make basic health care benefits more affordable, restrict the deductibility of motor vehicle allowances, and provide for South Africa's hosting the 2010 Soccer World Cup.
Main budget revenue for 2004/05 has been revised upwards by R1.2- billion to R328.2-billion, and spending to R371.7-billion, including additional allocations to provinces to meet social grants commitments and adjustments to take account of the public sector wage settlement.
The budget deficit also rises slightly to R43.5-billion, or 3.2 percent of projected GDP, and a further increase to 3.5 percent is expected in 2005/06, before it is expected to decline to 2.7 percent in 2007/08.
Gross tax revenue is expected to be R1.9-billion higher than estimated, mainly due to higher than projected revenue of R3.8-billion from personal income tax and R4-billion from VAT.
However, corporate income tax is expected to be R6.2-billion less than budgeted this fiscal year, the document says.
Over the MTEF period, rising corporate taxes and further tax base broadening measures will contribute towards increased revenue buoyancy, resulting in a slight increase in the overall tax burden.
For the MTEF period ahead, the budget framework provides for real non-interest spending growth of 4.3 percent a year.
Spending priorities for the period include rapidly rising spending on social security, mainly because of growth in disability and foster care grants; completion of the land restitution programme and support for emerging farmers; housing; stepped up rehabilitation and maintenance of roads; and improving hospital infrastructure and administration.
The MTBPS document states the economy has recovered strongly in the first half of this year, experiencing broad-based expansion, attaining a seasonally adjusted and annualised growth rate of 3.3 percent.
Investment in the productive potential of the economy has been particularly robust, with real gross fixed capital formation rising by 8.5 percent year-on-year in the first half of 2004.
Real economic growth is expected to rise to 2.9 percent in 2004, from 1.9 percent in 2003, and to average four percent a year over the next three years.
CPIX inflation is forecast to average 4.4 percent in 2004 and to remain within the target range, rising a bit — due to high demand pressures and exchange rate-related import costs — to about five percent in 2005.
To deepen the long-term growth potential of the economy, government was also seeking to raise the overall rate of capital formation from its present level of about 16 percent of GDP, to 25 percent by 2014.
Sapa
