FINANCE Minister Enoch Godongwana will need to look at how the small business sector can help grow the fiscus and the solution lays in creating an enabling environment for business and small medium enterprises (SMEs) to thrive and create jobs, says Lulalend chief risk officer Garth Rossiter.
According to the SME services provider, the vast majority of jobs come from SMEs in the private sector, which had been badly knocked by the Covid-19 pandemic.
“We want to see plans that help SMEs operate efficiently with as little cost and red tape as possible,” said Rossiter.
Lulalend said it expected that Godongwana would continue to look at reducing the corporate tax rate over time to align South Africa more closely with its trading peers and make it more globally competitive.
Rossiter said the biggest contributor to tax revenue was tax on individuals and then VAT. “However, a reduction in employment means you lose both of these (personal; because people aren’t working and VAT; because they have no money and stop spending).”
Lulalend said ultimately, the economic growth driven by small business was what the country needed to create a strong and sustainable tax base.
But Rossiter said Godongwana would struggle to reduce spending and have a hard time increasing taxes over the coming 12 months, so focusing on a thriving small business sector was the real solution to increasing the tax base and revenue.
The firm said it had recently seen some positive interactions with President Cyril Ramaphosa and the small business community, which could bring some government support for SMEs.
Also supporting SMEs had been positive news on global economic growth, with many economies rebuilding and increasing demand. Rossiter said that was great for South Africa and its growth prospects.
“We’ve been seeing some real growth in the SME environment in the last few months, which is a good indicator of positivity returning to the market. This is backed up by credit bureau data which suggests business confidence is picking up – this bodes well for the government’s future tax revenues,” he said.
Rossiter said earlier this year former finance minister Tito Mboweni was stuck between a rock and a hard place. It was no different for the new Finance Minister Godongwana, in this year’s Medium-Term Budget Policy Speech (MTBPS), which would provide an update on economic forecasts and highlight emergency changes to spending.
He said that the government would also be under pressure in the MTBPS to provide support to millions of poor South Africans as well as those who had lost jobs during the pandemic, in a time when official unemployment numbers are now close to 35 percent. Both of these would drive increased costs.
Lulalend said unemployment support in the budget usually came down to increases in grant funding, which was very visible and popular with voters.
“While it is definitely necessary, this alone is not a long-term solution since we’re not addressing the underlying problem of unemployment.”
For the upcoming MTBPS, among other measures, there would most likely be additional money spent on power utility Eskom because the country needed reliable power to have any chance of turning the economy around.
Rossiter said businesses needed to be able to keep the lights on to enable them to trade as the country could not have the lockdowns they have endured combined with no power and expect the country’s economy to thrive. If the country’s businesses were not successful, the tax revenue would dry up, he said.
“Godongwana also needs to continue spending on Covid-19 recovery and the vaccination roll-out. This is a clear priority and especially important to kick-start the sectors which have been hit hardest, like hospitality and travel - when you consider how important tourism is to the local economy and the number of small businesses and restaurants operating in this sector. This is where we have seen the most suffering,” said Rossiter.
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