As expected, the Finance Minister and Treasury have proposed some tough measures to address South Africa’s tax collection shortfall, growing budget deficit, and new spending priorities such as free education.
Pieter Bensch, executive vice-president: Africa & Middle East at Sage, offers his comments about the budget and how it will impact SMEs.

Higher VAT, fuel levies and import duties on luxury goods will no doubt crimp consumer spending, which could be bad news for smaller businesses.

But we are pleased that the Finance Minister has raised his GDP growth projections and proposed interventions to help grow South African SMs.

We welcome the steps government is taking to restore fiscal credibility, rein in spending, and hold off another credit ratings downgrade it may be painful in the short term, but we should be rewarded in the longer term.

On small businesses, competition policy and market access

It was great to see the Finance Minister talk extensively about the hopes and concerns of entrepreneurs and small businesses in his Budget Speech today. We welcome his acknowledgement that low market access and high barriers to entry are constraining the growth of the country’s small businesses. Minister Gigaba mentioned that government will take action against anti-competitive behaviour that harms these businesses.

That is a worthy goal, but we think we should also be looking more closely at how big businesses can play a constructive role in nurturing the growth of small businesses through mentoring and partnership. Small businesses are tomorrow’s customers, suppliers and employers, so it’s in everyone’s interest to grow this sector.

Small business funding

We heard more about the R2,1-billion fund Departments of Small Businesses and Science & Technology and the National Treasury are developing to benefit small and medium enterprises during the early start-up phase. It’s good news that government is investing in innovative startups, but it’s important that the funding is spent in an efficient and productive manner. Picking winners and losers isn’t easy, so we’d like to hear more details about how government will choose to allocate this money.

On public procurement

It makes enormous sense for government to use public procurement to support black economic empowerment, industrialisation and development of small businesses. We are glad to hear that government sees its billions of rand in procurement spend as a lever to empower small business owners — we look forward to more detail about how government will enable more small and micro businesses to participate in procurement opportunities. And of course, it’s critically important that government follows through on its promise to pay small businesses within 30 days of invoicing. Cash flow is a major challenge for small businesses and few of them can afford to wait three to six months for payment on a big project.

VAT

Most consumers and businesses have been preparing themselves for a VAT increase in this budget. As unpalatable as many people will find the one-percentage point hike in the VAT rate, it was an obvious choice for a Finance Minister wanting to raise more revenue without dampening business investment or consumer spending. The VAT hike will take some money out of people’s pockets, but will probably have less impact on business confidence than higher corporate taxes and less impact on consumer spending than further personal tax increases.

As expected, government has preserved the zero-rated status of some staples to lessen the impact on the poor. SMEs will need to make sure their systems are ready to cater for the new VAT rate, but this should not be too much of a challenge for those with automated accounting systems. By international standards, VAT in South Africa is still relatively low — we can just hope that this increase is not followed by another in the next year or two.