FEDUSA supports the overall growth strategy of the Medium Term Budget Policy Statement (MTBPS) which aims to modernise the economy and improve its competitiveness. FEDUSA also support the objectives of broadening participation in the economy.

There is no doubt that part of South Africa’s "miracle" since 1994 lies in its vastly improved economy. Twenty three consecutive quarters of GDP growth have been achieved, while inflation and interest rates have declined from the double digit figures of the 1990’s.

FEDUSA has noted the substantial progress has been made in terms of ensuring:

·         high levels of confidence, certainty and stability;

·         lower government debt and inflation;

·         substantial growth in exports of manufactured goods, and generally rising

productivity and improved skills;

·         a better regional focus;

·         increased empowerment opportunities for black people, women and the poor;

·         South Africa’s improved sovereign debt ratings, which help to lower the cost of

capital making South Africa more competitive.

However the economy currently suffers from constraints even while growth has outperformed historical averages, which keeps unemployment high as well as many people trapped in poverty.

FEDUSA knows that some of the constraints are skills related amongst other factors. Some of these skills are needed in the public sector as witnessed by the inability of government to spend as the MTBPS points out. To help attract skills back into the public sector FEDUSA recommends that public sector salary levels should be addressed especially  regarding skilled professionals such as teachers, nurses, doctors, engineers, planners and accountants are concerned.

Furthermore FEDUSA feels that most of the room created by the tax revenue overrun should be made available to the economy at large by tax cuts to employees and small businesses. FEDUSA feels that South Africa could easily afford a government budget deficit of 3% -3,5% and not just the 2,2% as indicated in the MTBPS.

Moreover as National Treasury and the minister have always underestimated tax revenue over the last five years and over estimated the government ability to spend especially on infrastructure programs FEDUSA recommends that’s the minister not only lower taxes substantially, but also involves the private sector to help get infrastructure spending growth up as this is a proven way of creating sustainable jobs in the economy.

FEDUSA support the spending priorities of the MTBPS on education and welfare as these two factors help combat poverty both in the long and the short-term.

 However FEDUSA would like to see more spending on the following areas:

• The Public Works programmes for the unemployed.
• Child care and old age grants. While government aims to balance its efforts to broaden access to economic opportunity and develop human capitals this effort currently stops at age 14 for children. FEDUSA does not support a total welfare state but wishes to see the child care grant extended to age 16 so that children can get to school level 10 without to many worries for their families.
• While the justice and police budgets are set to increase with over 11%, this needs to take into account better salary levels of police men and women.
• While the Health budget is set to increase with over 12% per year for the next three years, this needs to take into account better salary levels for nurses, doctors and general medical staff.
• While the Education budget is set to increase with over 20%, this needs to take into account better salary levels for teachers in public schools as they are currently under paid in terms of their responsibilities.

Furthermore FEDUSA recommends that the tax thresholds and tax rebates for individuals be raised. Below is the detail of both the tax rebates increases and tax level increases and the estimated costs thereof.

The total cost to treasury is estimated at R17,9 billion but as some of the tax savings will be spent by employees, FEDUSA suggests that the actual loss will only be around 15,7 billion Rand. As the current treasury figures indicate a tax overrun of R30 billion FEDUSA feels that even with increased spending by government the 17,9 billion is more than possible and also due to individual tax payers. The R17,9 billion also leaves room to cut small company taxes to enhance the second economy as the government wishes to do.

FEDUSA is also disappointed that the medical scheme tax allowance for individuals has not been raised as suggested. FEDUSA would like to see the following adjustments to the proposed medical insurance benefit.

The initial cap of R500 for the first two family members is too low. The Minister of Finance has stated that average medical aid cover for a family of 2.5 people is currently already R1600 per month. The tax benefit cap on children at R300 per month is also too low.

FEDUSA would like the government to take into account the fact that according to the council of medical schemes 2004 annual report the average contribution per beneficiary per month was around R650.

This means that a family of four would have paid around R2300 (of which R1520 is tax free) per month. The current proposal would only leave the same family with R1600 tax free. Taking into account that medical inflation has averaged around 10% a year and the tax relief is for implementation only in 2006 the average tax relief at R1600 for a four person household would actually be less. (FEDUSA estimates that the actual tax relief would equal R1850 per month in 2006 versus R1600 per month as proposed by treasury).

Furthermore while the first option looks at a typical family in the sense that only two individuals get the higher tax benefit, FEDUSA encourages government to acknowledge that many households have more than two adults. Many of these Adults would not be working or could be "Adult" children (those who may already be considered adults by medical schemes – for example they could be studying). FEDUSA also estimates that medical insurance for people over the age of 21 is more expensive and would want the Tax options to reflect these realities.

FEDUSA would also recommend that other constraints in the economy are addressed but not only by tax and government expenditure programs but by cutting red tape were it is shown to limit economic growth.