IT is difficult to make a realistic wish list for the national budget speech on Wednesday. Times are tough and substantial tax concessions are a pipe dream as South Africa remains in survival mode.

A third of South Africans live in Gauteng and the Western Cape and they pay two-thirds of South Africa’s tax. Because they can. The remaining provinces have two-thirds of the population and pay onethird of the taxes. Because they cannot pay more. Yet they are subject to the same inflationary pressures.

We have to do more for the remaining provinces and recognise that tourism is not saving them.

I would like to see a substantial increase in the child and pensioner grant. If they drink it away, 55% goes back in tax anyway. But the grants are the only thing keeping the economies of rural South Africa sort of going. Without grants there would be anarchy.

The employment tax incentive could help rural South Africa. A R2 000 monthly salary, of which R1 000 is subsidised, could employ far more people than the expanded public works programme will ever achieve. Right now, the incentive is inaccessible to businesses in rural South Africa because the subsidy has to be claimed through the employees’ tax system — and most employers do not have the liability to offset the subsidy.

We could employ rafts of rural South Africans by making a few simple changes to the incentive. Increase the age limit above 29 years, and allow the offset of the subsidy against the VAT and income tax liability of the employer. Surely the South African Revenue Service systems could cope with the requisite journal entries?

Or perhaps the new Special Economic Zone Bill could be amended to make all of rural South Africa such a zone. That would give a 15% corporate tax rate to rural South Africa and make the employment tax incentive available for all new jobs, regardless of the age of the employee.

Oddly enough, the legislative framework for this is ready. With a final creative tweak we could give hope to rural South Africa and two-thirds of the population. After all, they cannot eat scenery.

By Matthew Lester

Source: Sunday Business Times

Lester is a professor at the Rhodes Business School, Grahamstown