While this year’s budget would be a “challenging” one for the National Treasury, it could be pleasantly surprised in terms of the country’s growth, Deloitte economist Kay Walsh said on Thursday.

She noted during a prebudget media briefing that the National Treasury had initially expected South Africa’s growth in the 2010 financial year to have been about 1,5%.

However, Walsh pointed out that many economists now expected the country’s gross domestic product (GDP) growth to be about 2,5% for the year, which could lead to higher revenues for the South African Revenue Service (Sars).

Nevertheless, the country still faced a huge budget deficit that could amount to about 8,5%, said Walsh. This was higher than the 7,6% forecast by the National Treasury in October last year.

Deloitte noted that while the National Treasury would probably not raise the personal income tax rates, this would be the only way in which it could really try to close the budget deficit in the short term.

The tax firm said that it would not be sensible to raise corporate taxes, as this would scare off investment.

Walsh pointed out that the country’s public borrowings was expected to exceed 12% of GDP, with the largest amount of this being invested in the country’s energy sector.

The economist emphasised that the country’s high unemployment rate would also be a big consideration in this year’s budget.

It would be dangerous to consider making “quick fixes”, such as meddling in the exchange rate and dropping interest rates to try to boost employment, while there were other larger structural challenges, such as the country’s failing education system, that could lead to more sustainable results, said Walsh.

She added that that National Treasury was also not likely to change the inflation target band, but might consider being more transparent about how the South African Reserve Bank made its interest rate decisions.

Further, Walsh said that the 2010 FIFA World Cup could boost South Africa’s GDP growth by between 0,3 and 0,8 percentage points over the second and third quarters of this year.

This could potentially also assist in creating jobs in certain sectors, such as the tourism industry.

ADMINISTRATIVE CHALLENGES

Meanwhile, the tax firm said that it did not expect any major tax changes to be announced this year, as the National Treasury was facing a huge administrative challenge in terms of legislation it had already introduced in previous years, as well as with the introduction of new customs legislation and the Tax Administration Bill.

To that end, it was unlikely that the Treasury would introduce the proposed National Health Insurance Scheme or the proposed National Social Security Fund this year, also given that the country did not have the finances available to do this.

IDZS RE-EVALUATED

Deloitte director Duane Newman, meanwhile, noted that government could re-evaulate the country’s industrial development zones (IDZs), as these were not globally competitive.

He pointed out that, unlike those in other countries, South Africa’s IDZs did not offer investors tax holidays or additional tax incentives, which deterred potential foreign investors from investing in the country’s IDZs.