Analysis of the 2012 South Afrcian National Budget

1 INTRODUCTION 2

2 ASSESSING GOVERNMENT BUDGETS 3

2.1 Efficiency 3

2.2 Equity 4

2.3 Growth 4

2.4 Stability 5

3 PROPOSED REVENUE AND EXPENDITURE OF THE 2012 RSA BUDGET 5

3.1 List of Revenue Proposals 5

3.2 List of expenditure Proposals 6

3.3 Expenditure plans for the next 3 years 6

4 EVALUATION OF SINGLE REVENUE PROPOSAL IN TERMS OF ECONOMIC PRINCIPLE EQUITY 7

4.1 Personal Income Tax 7

4.2 Equity 7

4.3 Taxes on income (Ability-to-pay principle) 8

4.4 Bracket Creep 8

4.5 Tax Shift 9

5 ANALYSING THE MACRO ECONOMICS EFFECT ON THE 2012 BUDGET 9

5.1 Fiscal Budget 9

5.2 Macro-economic effect of the budget on real GDP 12

5.3 Macro-economic effect of the budget on interest rate 13

5.4 Macro-economic effect of the budget on the level of employment 14

5.5 Macro-economic effect of the budget on the wage rate 14

5.6 Macro-economic effect of the budget on the price level 15

6 References 16

1 INTRODUCTION

The aim of this assignment is to consider the South African National Budget 2012 and develop the suitable economic principles and criteria that can be used to assess it. Identify and list the revenue and expenditure proposals of the South African National Budget 2012. Evaluate any revenue proposal in terms of the economic principle equity and distinguishing between the horizontal and vertical equity. Finally to use an AD-AS model to analyse the macroeconomic effect of the South African National Budget 2012 on real GDP, the level of employment, the interest rate, the wage rate and the price level.

The role of government is to contribute towards stimulating and strengthening sustained economic growth, Black, Calitz and Steenkamp (2008).Economic growth is described as the annual rate of increase in total production or income of the country and is measured by the gross domestic product (GDP), Mohr and Fourie (2007).

Mohr and Fourie (2007) stated that the main instrument of fiscal policy is the budget and the...