Today’s budget speech has South African entrepreneurs waiting with baited breath for the announcement of anything that might relieve the financial distress the current economic climate has created.
Ben Bierman, chief financial officer of South African risk finance firm Business Partners, says the 2016 budget speech is also significant as finance minister Pravin Gordhan was brought in as a solution to appease business owners after the sudden removal of Nhlanhla Nene.
The uncertainty around this decision was evident among entrepreneurs, with confidence levels plummeting as other factors came into play, such as a year of load shedding, the worst drought in decades, the weakening rand and the global economic downturn.
Now the question is whether or not Gordhan will provide the appropriate direction for business, labour and government to unify behind a plan to ensure the much needed relief when he makes his speech.
Bierman believes he can do so, albeit within the confines of a very tight budget and severely depleted state resources.
“Fortunately, one of the most important measures that government can take to boost small business and entrepreneurship – the cutting of bureaucratic red tape – does not entail significant government spending,” he said.
If the recent State of the Nation Address by the president is anything to go by, Bierman says, government is aware a huge layer of bureaucracy is stifling entrepreneurship.
“This is a perennial problem that must be addressed to make small business grow faster. Our plea to government is to look at slashing red tape, and to make sure that the remaining compliance rules that are truly necessary are implemented efficiently, effectively and with quick turnaround times,” he said.
“A coordinated effort, perhaps led by the Small Business Ministry, is needed between the different spheres and departments of government in order to prevent further proliferation of red tape.”
Bierman suggests a routine small business impact assessment process to test any new legislation and regulation for its unintended consequences and compliance burden on owner-managed businesses, much like an environmental impact assessment is mandatory for any big development.
Further tax breaks for small business owners may be a little too optimistic in light of the growing deficit facing the country, however.
“The main tax concessions for business owners, namely Small Companies Tax, Turnover Tax and the exemption on registering for Value-Added Tax, are likely to remain. Any increase in the levels of these concessions will boost entrepreneurial growth, and should the government believe that it is unable to concede more, it can help simply help by softening its stance on issuing tax clearance certificates.”
Small businesses are often behind on their VAT payments because they are required to pay VAT when they invoice, not when they get paid, and often don’t have the cash to bridge the gap. This is an issue that needs addressing.
“The South African Revenue Services (SARS) only issues tax clearance certificates provided payments are fully up to date. A new regime, in which SARS could issue letters of good standing based on a business’s longer-term tax compliance rather than its up-to-the-minute status would go a long way to ease the burden,” he said.
He hopes the speech will set the tone for a collaborative year between labour, big business and small business.
“While the budget speech discusses the finances of the country and government spending, it is an important platform from which to send signals that could soften the industrial relations battles in the coming year,” Bierman said.
“Wage demands will have to be tempered by a realistic assessment to the extent of strain on the economy. Big business will have to stop using the bargaining council system to erect barriers to entry into their industries against small businesses who can’t afford the high minimum wages.”
Despite the constraints on the budget, he believes there is a strong argument to be made for setting aside some money that could be used as an emergency fund for deserving small businesses who will otherwise fail in the difficult year ahead.