Budget 2013: the South Africa business owner’s wish list

nazeem-Jan2013Chances are that when Finance Minister Pravin Gordhan steps in behind the podium to deliver his Budget speech at the end of February, he knows that the only way to promote growth and jobs in the current economic climate is to support South Africa’s business owners.

Of course Mr Gordhan will be addressing not only business owners, but also South Africa’s trade unionists, government employees, the unemployed, investors, the poor, captains of industry, informal traders – in short, all of South Africa’s wide-ranging constituencies, each with their own interests and convictions of what should be done. The Budget, unfortunately, is too often a short-term political compromise at the expense of long-term economic and jobs growth.

But what would Mr Gordhan’s main budget features look like if he had a free hand to prime South Africa’s one true growth engine – small and medium businesses? Quite possibly, something like this:

A whip to get infrastructure spend going

If there is only one thing Mr Gordhan does for South Africa’s owner-managed businesses, it must be to get the promised government infrastructure spend going, says Business Partners CEO Nazeem Martin.

Last year already, no less than R3.2 trillion was earmarked to be spent on 40 major infrastructure projects over the next three years – a remarkable stimulus that can truly get the economy going again. The problem, though, is the capacity of the state to spend the money, and spend it effectively. At the time that Mr Gordhan announced the plan, government departments and municipalities were spending a mere 68% of their allocated infrastructure budgets. He promised careful monitoring and tough action against under-spending departments.

What the business community needs to hear now is not promises of more money set aside, but how much the rate of real spending has improved over the last year, and what will be done to improve it even more in the coming year.

Why is the infrastructure spend so important to business owners? After all, how does the building of a 5000MW solar park in the Northern Cape help a shop-owner in the Eastern Cape, for example?

First, spending those billions at a time when everyone else is holding onto their pennies kickstarts the economy out of its slump. Even though only a few companies benefit directly from the project, the effects trickle down through the rest of the economy. For example, a construction company working on the project may employ several workers from the Eastern Cape. They send money home, and their families spend the money at the shop, which in turn employs more locals.

Second, once the economy starts to recover, South Africa has an extra 5 000MW to power growth, and our shop owner in the Eastern Cape runs less risk of losing refrigerated stock in an electricity blackout, for example. New infrastructure will benefit the whole economy, and nothing supports business owners as much as a strong economy.

The youth wage subsidy

In last year’s Budget speech Mr Gordhan barely concealed his anger at the fact that Cosatu had refused to accept the idea of a Youth Wage Subsidy. The scheme, announced by the government in 2011 and budgeted to the tune of R5billion, would pay up to R12 000 of the annual wages of young first-time workers. It was supposed to be implemented last year, but opposition by the trade union federation has delayed it.

The subsidy means that a trainee worker that previously would have cost a business R2 000 per month, would cost as little as R1 000 per month. The subsidy will certainly go some way to offsetting the cost of time and energy that goes into training young workers on the job.

If Mr Gordon announces in his coming Budget speech the start of the subsidy, many business owners will suddenly find it affordable to take in trainees – a prospect which opens up all sorts of possibilities for expansion for business owners.

Lighter labour laws

All over South Africa, business owners are constantly trying to work out ways of running their businesses with fewer workers. Mechanisation, outsourcing, subcontracting and even importing are thoughts that occupy the minds of many.

Mr Gordhan’s challenge is to swing that thinking towards expansion, recruitment and building teams of productive workers. He is probably aware that research shows unambiguously that if you want businesses to hire more, make it easier to fire.

It isn’t strictly a budget item, but the Budget speech is a good platform to announce the relaxation of labour laws, especially around the cost of hiring and the ease of firing. There are many places to begin: Penalise people for bringing frivolous and vexatious cases to the CCMA, loosen the grip of bargaining councils on small and medium businesses, exempt businesses below a certain size from all labour laws apart from health and safety, strengthen the exemption of a probationary period from dismissal rules, end closed-shop agreements, create special economic zones where labour laws are lighter. All this can be done without infringing the rights of workers.

Tax breaks

There is one direct “thank you” that the South African government gives to business owners for taking the risk of running a business and putting up with the hassles of employing others. It is called Small Business Corporation Tax. Instead of paying the usual 28% tax on profits, a business with a turnover of less than R14m only pays 7% tax on its first R350 000 profit per year. That is a tax break of about R80 000 per year.

Thank you, Mr Gordhan, but how about extending that to businesses with turnovers of below R20m, and up to the first R500 000 profit? You will get back much more than that in the form of job creation and growth.