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Possible Impact Of 2008 Budget

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INDIVIDUAL ASSIGNMENT вЂ" LIKELY IMPACT OF THE 2008 BUDGET ON THE ECONOMY

Principles of Economics

Prepared by: Mark Simpson

Wednesday, July 09, 2008

Title Principles of Economics

Assignment Type: Individual Assignment (likely impact of 2008 Budget)

Prepared By: Mark Simpson

Date Updated: Wednesday, July 09, 2008

Submission Date: 23rd June 2008

Number of Words: 3379

Number of Pages: 18

MAP Course MAP-83

Version: 1.0

Table of Contents

1 EXECUTIVE SUMMARY 4

1.1 NATIONAL TREASURY AND THE 2008 BUDGET 4

1.2 BUDGET OVERVIEW 6

1.2.1 The economy and fiscal stance (National Treasury of South Africa 2008) 7

1.2.2 Tax proposals 7

1.2.3 Additions to spending over the next three years: 8

2 IMPACT ON THE NATIONAL ECONOMY 9

3 IMPACT OF THE BUDGET IN MY INDUSTRY 13

4 IMPACT OF THE BUDGET ON MY FIRM 15

1 Executive Summary

1.1 National Treasury and the 2008 Budget

Trevor Manual presented the 2008 Budget speech in February 2008. There were many positive changes in the way that Government would invest (expenditure) in the local economy in order to ensure sustainable growth. Below is a table reflecting Government expenditure in 2007 and what is planned for 2008.

Figure 1 - Government Expenditure (National Treasury 2008)

As can be seen from there above, there has been a substantial increase in allocated government expenditure. In 2007, government expenditure was R576 billion and the estimated allocated expenditure for 2008 is R655 billion, meaning that and additional R79 billion will be invested into the economy, mainly in the areas of Education, Welfare, Housing and Community Development and Economic services (Infrastructure, Water, Electricity, etc).

The growth of government expenditure for 2008 over 2007 is 13.61%.

Figure 2 вЂ" Percentage Increase of Government Expenditure

The government expenditure will is aimed to focus on sustainable growth of the national economy for the next three years. I would assume that this would always be the intent of government expenditure, its investment into South Africa. Another key area is that of accelerating development and creating employment opportunities which should decrease poverty. Other areas the government expenditure will focus on is that of meeting the deadlines and preparation for a successful 2010 FIFA World Cup, that will be hosted in South Africa, as well as strengthening public transport (Gautrain) and communication systems through the likes of Neotel which is partly owned by Eskom and Transtel. It goes without saying that funds will be allocated for the improvement of education (improve the skills shortage), health (improve people well-being and access to medication and medical services) and social welfare (support for those who are unemployed in order to reduce poverty).

“Over the next 10 years National Treasury priorities include increasing investment in infrastructure and industrial capital; improving education and skills development to raise productivity; improving the regulation of markets and public entities; and fighting poverty and inequality through efficient public service delivery, expanded employment levels, income support and empowerment.” (The Role of the National Treasury 2007).

Below is an overview of (1) the economy and fiscal stance, new tax proposals and additions to spending over the next three years.

1.2 Budget Overview

In order to set the scene, Trevor Manual opened the speech by saying (Budget Speech 2008) “The global economy grew by an average of 5% from 2003 to 2007.” We notice however that South Africa, as a developing economies, had a higher growth rate.

Figure 3 - Global Economic Growth (Mondi, L & Maia, J & Kuhn, G & Makaulule, L & Kelder, N 2008)

With this in mind, section 1.2.1 with briefly highlight the economy and fiscal stance of South Africa, new tax proposals and additions to spending of the next three years.

1.2.1 The economy and fiscal stance (National Treasury of South Africa 2008)

Below is a brief overview of the 2008 Budget Highlight:

• GDP growth of 5 per cent in 2007, with growth averaging about 4.3 per cent a year over the forecast period.

• CPIX inflation rising to 7.1 per cent in 2008 before declining to 4.9 per cent in 2009.

• Gross fixed capital formation projected to rise from 21 per cent of GDP in 2007 to 24 per cent in 2010.

• Estimated consolidated national budget surpluses of 1 per cent in 2007/08 and 0.8 per cent in 2008/09, with projected surpluses over the three-year period.

• Real growth in consolidated government non-interest expenditure of 6.1 per cent a year over the MTEF.

• Government contribution

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