Honourable Speaker
I have the honour to present the fourth budget of President
Zuma’s administration.
Mr President you said in the State of the Nation address
that “we should put South Africa first. All of us
have a patriotic duty and responsibility to build and promote our country.” You further said “The National
Development Plan provides a perfect vehicle for united action precisely
because it has the support of South Africans across the political and cultural
spectrum. Leaders in every avenue should be ready to rise above sectional interests and
with great maturity, pull together to take this country forward.”
This challenge applies to all sections of our society:
business, labour, public representatives, activists and citizens in every part of the
country.
As we pointed out in the 2012 Budget, global economic
uncertainty will remain with us for some time. South Africa’s economic outlook
is improving, but requires that we actively pursue a different trajectory if we are to address the
challenges ahead.Under your leadership Mr President, we have opened new
channels of communication and built more cohesion among key stakeholders
in South Africa. We have taken many
steps to create the conditions for higher levels of confidence in our economy and society. Now we are ready to
implement the National Development Plan.
South Africans have a rich history of acting together for a
better future. Thirty years ago, the United Democratic Front brought
together people of goodwill and foresight from all corners of the country. Many
points of view, many differences in approach, were marshalled around a
single cause – building a united and non-racial society. We did the
same for the first democratic elections in 1994 which laid the basis for
an enduring democracy.
The Reconstruction and Development Programme is the
foundation on which we build. It said:“It is this collective heritage of struggle, these common
yearnings, which are our greatest strength… At the same time the challenges
facing South Africa are enormous. Only
a comprehensive approach to harnessing the resources of our country can reverse the
crisis created by apartheid. Only an all-round effort to harness the life
experience, skills, energies and aspirations of the people can lay the
basis for a new South Africa.” The schools, clinics, taps and houses we have built since
then are testimony to the truth of these assertions. The freedom and
democracy we cherish - and the knowledge that these are permanent,
inalienable rights grounded in our basic law – are the foundation on
which all South Africans can make a contribution.
Looking back on the path we have travelled since 1994, we
see the importance of a long-term perspective on development and
change. It is people acting together for a common vision that connects the
past to the present, and makes a better future possible. The challenge for us, honourable members, is that people are
asking if we can sustain our “miracle”. They are asking whether we as a
nation have the ability, the will and the wisdom to take another leap forward in
reconstructing and developing South Africa. They are asking
whether South Africans can still show the world how to overcome intractable problems that face the
community of nations. In these trying times, South Africans too ask the
question, “can we be a winning nation?”. Of course we can!
As Benedict Mongalo, a young man from Johannesburg, writes in his
tip: “We all acknowledge that unemployment, poverty and inequality
are the greatest challenge facing our country… We will not eradicate this
problem overnight..This is like manually moving a mountain and the only way to
do it, is to move one rock aside and the next generation, or next government,
will do the same until this mountain is moved.”
Hope and confidence come from energetic involvement and a
willingness to make a direct contribution to change. The imperatives of
change are not just challenges to government, they confront all of society. A
new framework for development is an opportunity to unite around an inclusive
vision, and join hands in constructing a shared future. The National Planning Commission has cautioned that our
development objectives will take time and hard work to achieve. Measured
year by year, district by district, there will be advances and there will
be setbacks. But in each five-year term of government we must demonstrate, as we have
since 1994, that we can meet more demanding milestones – more jobs, more
enterprises, more technological innovation, better housing, progress in
education and health.
Working together we all know that we can do better. All of
us - citizens, taxpayers, public servants, teachers, activists, managers,
workers – we all have a shared future, and we have a shared plan to make it work. The Batswana’s say, “Sedikwa ke ntšwa pedi ga se thata” - working together we can do more!
Overview of the 2013 Budget
The 2013 Budget is presented in challenging times, but
against the background of a new strategic framework for growth and development.
This is a budget in which there is limited room for expansion, yet there are
significant opportunities for change.There are signs of improvement in the world economy, though
the outlook remains troubled. South Africa’s economy has
continued to grow, but at a slower rate than projected at the time of the 2012 Budget.
The 2013 Budget takes the National Development Plan as its
point of departure. The strategic plans of government and the
medium-term expenditure plans will be aligned to realise our objectives.Government has taken measures to control growth in spending. Spending plans have been reduced by R10.4 billion through reprioritisation, savings and a draw-down on the contingency
reserve.Government remains committed to a large-scale infrastructure investment programme.
Our path of spending and the recovery in revenue will
stabilise debt at just higher than 40 per cent of GDP. The budget
deficit will fall from 5.2 per cent of GDP in 2012/13 to 3.1
per cent in 2015/16. A review will be initiated this year of our tax policy
framework and its role
in supporting the objectives of inclusive growth,
employment, development and fiscal sustainability.In the 2013/14 fiscal year, personal income tax relief of R7
billion is granted.
A new local government equitable share formula is proposed,
providing a subsidy for free basic services designed to reach 59 per
cent of households.Further education and training will continue to be extended
and enhanced. And following careful consideration of inputs from various
stakeholders,a revised youth employment incentive will be tabled in the
House,
together with a proposed employment incentive for special
economic zones. In this budget we continue to invest in education, health,
housing, public transport and social development – components of the social
wage which add up to about 60 per cent of public expenditure.
Global situation
There are signs of improvement in the world economy, though
the outlook remains troubled. Growth is still muted in the United States and Japan, and much of Europe is in recession.
Policy interventions by the major central banks were needed during 2012 to avert new economic and fiscal
crises. Yet many advanced economies contracted during the fourth quarter of
2012 and global prospects are expected to improve only marginally, from
growth of 3.2 per cent in 2012 to 3.5 per cent in 2013. Emerging markets,
particularly China and India, continue to lead global growth, although at lower rates than
before.
High levels of debt are inhibiting progress in many
countries. Yet measures to reduce indebtedness have the effect of holding back growth.
Unemployment remains high in many countries, yet technological progress
continues to reduce demand for labour in many industries. Around the world,
inequality is fuelling discontent. So there are parallels between the global economic discourse
and our own policy challenges. In seeking a pragmatic balance between
recovery and consolidation, between economic power and social solidarity,
between infrastructure investment and human development, between
encouraging enterprise and regulating markets – we are grappling with
issues that confront
many other nations.
South Africa’s economic outlook
South Africa’s economy has
continued to grow, but at a slower rate than projected at the time of the 2012 Budget. GDP growth reached 2.5
per cent in 2012 and is expected to grow at 2.7 per cent in 2013, rising
to 3.8 per cent in 2015. Inflation has remained moderate, with consumer prices
rising by 5.7 per cent in 2012 and projected to increase by an average of 5.5
per cent a year over the period ahead. However, our trade performance is holding us back. Exports
grew by just 1.1 per cent in real terms last year, while imports increased by
7.2 per cent. The deficit on the current account of the balance of payments
was 6.1 per cent of GDP. This means, in
simple terms, that expenditure in the South African economy exceeded the value of production and income by about
R190 billion last year. This is partly a consequence of the disruption of
mining sector activity and the structural reduction in mineral exports due to lower
demand.
Some of the foundations of faster growth are in place.
Strong capital investment by the public sector, the addition of electricity-generating
capacity, relatively stable inflation and low interest rates will support
improved growth rates over the medium term. But this is not enough. Much more is needed. In particular,
a significant increase in private sector investment and competitiveness is
needed in the wider economy: agriculture, manufacturing, tourism, communications
– every sector has to play its part in expanding trade, investment
and job creation.
The National Development Plan: a new trajectory
The NDP, supported by the New Growth Path and other
programmes, invites us to look beyond the constraints of the present to the
transformation imperatives of the next twenty and thirty years. These imperatives are already apparent in the realities of
the social and
economic restructuring that is under way. The first reality is our demographic transition – a million
young people leave school every year, and we need a package of reforms
that will
improve education, training and work opportunities for young
people.
The second is that we are a rapidly urbanising society. This
means we need to meet urgent demand for housing, municipal services,
schools, clinics, public transport and commercial development, but it
is also means we have an opportunity to build an integrated urban
landscape, with effective partnerships between municipalities, local
businesses and civic associations.
A third imperative is economic competitiveness. We need to
invest in infrastructure, raise productivity and diversify our
economy, to create jobs and raise living standards. Improving the quality of education and training is an
essential foundation of a more productive and inclusive growth path. Stronger links with Africa and other emerging economies are
needed.
We have to adapt to a low-carbon economy, including mobilisation
of our renewable energy potential.
Finally there is the social solidarity challenge that cuts
across all of these, which is to build a more equal and inclusive economy
that bridges our racial and other divides. These are themes on which the NDP provides clear guidance,
not just about strategic goals and objectives, but also about the practical
difficulties and choices we face. There are substantial strengths on which to build – a
well-established legal system, secure property rights, an effective tax system,
world-class higher education institutions and science councils, established
energy, transport, water and communications infrastructure networks, expertise
and capacity in many areas - mining, construction, retail, finance,
logistics and manufactured exports – and a sound macroeconomic and fiscal framework.
While building on these strengths, we have to tackle our
weaknesses ggressively. The NDP emphasises key institutional
capabilities: The need to professionalise the public service and
strengthen accountability, Improved management and enforcement systems to fight
corruption, Reinforcement of the education accountability chain, with
lines of responsibility from state to classroom, Improved planning and management of strategic infrastructure
projects. The NDP also highlights the need to lower the cost of living
for households, and
to reduce the cost of doing business for small and emerging
enterprises.
Let me also reiterate the NDP’s emphasis on uniting South
Africans around a common vision: it proposes a social compact to reduce
poverty and inequality, and raise employment and investment, recognising that
progress towards a more equal society requires shared efforts across the public
and private sectors. And so the 2013 Budget takes the National Development Plan
as its point of departure.
It recognises that our medium-term plans are framed in the
context of a long-term vision and strategy. It focuses on strengthening growth and employment creation. It prioritises improvements in education and expansion of
training opportunities. It promotes progress towards a more equal society and an
inclusive growth path.
The fiscal framework and long-term sustainability
National development must be coupled with fiscal
sustainability, which ensures that the progress we make will not be interrupted or
reversed. The government relies on resources derived from the wider economy, and the
best way to generate resources is to grow the economy faster and
increase the tax base. The NDP targets an annual growth rate of more than 5 per
cent a year. This would double the resources available to government in the
next two decades. The present reality is that growth is more modest. The
economic turbulence we experienced in the second half of last year has resulted in
a revenue shortfall amounting to R16.3 billion. The deficit is now estimated to
be 5.2 per cent of GDP in 2012/13. The
growth outlook for the next three years has weakened, and government’s net debt is now expected to stabilise
marginally higher than 40 per cent of GDP.
In the Medium Term Budget Policy Statement, we noted that if
the economic environment were to deteriorate, government would reassess
its revenue and spending plans to secure South Africa’s fiscal footing. In
the circumstances, our approach involves several elements:
Additional measures to control spending, reducing real
expenditure growth to an average of 2.3 per cent over the next three
years, compared with 2.9 per cent signalled in October 2012. A reduction in the budget deficit to 3.1 per cent by
2015/16, a level consistent with the stabilisation of debt. Steps to reinforce growth, building on the competitiveness
enhancement programme introduced last year
Initiation of a tax policy review a comprehensive review of expenditure, focusing on both
spending controls and value for money in government programmes and
agencies Strengthening the capacity of the state to implement our
plans and programmes. Government is committed to remaining within the expenditure
ceiling set out in the budget. New policy initiatives over the next three years
will be financed from savings, efficiency gains and reprioritisation.
Structural increases in spending require corresponding
revenue increases if hey are to be financed sustainably. If we succeed in
driving growth towards 5 per cent a year and government revenue doubles in the next
20 years, major infrastructure projects and new policy initiatives such as
national health insurance and expanded vocational education will be
affordable with limited adjustments to tax policy. But if growth continues along the
present trajectory, substantial spending commitments would require significant
adjustments in revenue and reductions in other areas of spending.
On Parliament’s request, National Treasury has prepared a
report that considers fiscal sustainability from a long-term
perspective. The report is currently being considered within government, after which it
will be tabled for Parliament’s consideration.
Growing the real economy
Growing the economy means expanding business activity. We
recognise the key role that private companies play in our economy. In the lead-up to the Budget, we engaged with several
business leaders on the investment and development challenges we face. Allow me to
share with you some of their plans, which signal growing confidence in the
business outlook, despite difficult conditions.
Construction and refurbishment by a company in the
hospitality sector firm of R2.5 billion in the next 18 months and expansion of
R3 billion in the pipeline. Two telecommunications investments amounting to R14 billion
this year
Capital expenditure of R3.4 billion over the next three
years by a rail and logistics operator.
A R2.5 billion expansion and longer-term plans of R15
billion in mining projects
nvestment of R1.4 billion this year by a leading retailer,
and plans to open 100 new stores by another. An expansion of R1.2 billion this year by a food and
beverage sector firm. Plans for R28.5 billion in long-term infrastructure
investment by a leading industrial company, which will create 10 000 temporary and 4
000 permanent jobs.
In recent times, the world has become a more uncertain place
for businesses, causing some to build cash reserves rather than invest in
new or expanding operations. As government, we wish to encourage businesses
to keep investing in our economy, and seize the opportunities around us. We
are therefore reinforcing several initiatives that support business
development:
The Manufacturing Competitiveness Enhancement Programme
(MCEP), announced in 2012, has received a total of 215 applications
with requests for grants totalling R2.3 billion mainly from the
chemicals, metals and agro-processing sectors. Applications are
expected to increase over the period ahead and funding of R1.5 billion
per year has been provided on the budget of the Department of Trade and
Industry.
The Special Economic Zone (SEZ) Programme, also
announced last year, has received funding to build world class industrial
parks. I am in discussion with Minister Davies on specific tax incentives
to enhance this initiative.
The Jobs Fund announced in the 2011 Budget has concluded
two calls for proposals. In total, 3 614 applications have been
received, and 65 projects approved. Grant funding of R3.3 billion has been
approved, matched by a further R3.1 billion in funding raised by the
private sector.
Small, Medium and Micro Enterprises (SMMEs) play a key role
in the development of the economy and are a significant generator
of employment. Financing of SMMEs has been simplified with the
creation of the Small Enterprise Finance Agency last year. We have
been
progressively working to simplify the tax requirements for
small business. The turnover threshold will be increased this year and the
graduated rate structure will be revised.
Regional Integration
Africa is our home, and it is our future. It is a market of
over one billion people and it is growing rapidly. The National Development Plan acknowledges the global shift
of economic power from West to East, and highlights the rise of Africa. Indeed, we have already begun to see our trade patterns
shift from traditional partners in Europe and the United States to new markets in
Asia and Africa. Africa now accounts for about 18 per cent of our total
exports, and nearly a quarter of our manufactured exports. Over the past five years, the South African Reserve Bank has
approved nearly 1 000 large investments into 36 African countries. These are
mutually beneficial, as they support development in those countries,
and also generate tax revenue, dividends and jobs both abroad as well as in
South Africa.
To further support the private sector in expanding operations
in Africa, I will announce simpler rules that will reduce the time and costs
of doing business in Africa. A number of measures are proposed to relax cross-border
financial regulations and tax requirements on companies, making it easier for
banks and other financial institutions to invest and operate in other
countries. Similar measures will apply to foreign companies wanting to invest in African
countries using South Africa as their regional headquarters. The outward
investment reforms that apply as part of the Gateway to Africa reforms will
also pertain to those companies seeking to invest in countries outside Africa,
including BRIC countries.
In addition, substantial direct investments in regional
development are underway: We are helping to build infrastructure that will create
opportunities for South African companies to expand trade and investment
across the border. The DBSA is accelerating investment into the SADC
region. We are supporting infrastructure projects in multiple
countries, particularly in the key areas of electricity generation and transmission,
and in strengthening road links in the region.
Investment by the Industrial Development Corporation in 41
projects across 17 countries totalled R6.2 billion in 2012. The bulk
of those projects are in mining, industrial infrastructure,
agro-processing and tourism. As part of its long-term strategy to help secure energy
supply for South Africa and the region, Eskom is considering options for
investment in several regional generation and transmission projects.
Working with our BRICS Partners
Next month, we will host the 5 th annual BRICS Summit, which brings together Brazil, Russia, India, China and South Africa. The Summit
will unveil the work we have been doing with our BRICS partners on the following
projects: The possible establishment of a BRICS-led bank is intended
to mobilise domestic savings and co-fund infrastructure in developing
regions. The pooling of members’ foreign exchange reserves with the
view of using them to support each other at times of balance of
payments or currency crisis. Collectively, BRICS countries hold reserves
totalling USD 4.5 trillion.
Work is underway on creating a trade and development
insurance risk pool. The aim is to establish a sustainable and alternative
insurance and reinsurance network for the BRICS countries.
Financing infrastructure investment
The NDP reminds us that “South Africa needs to invest in a
strong network of economic infrastructure designed to support the country’s
medium- and longterm economic and social objectives.” Over the next three years, R827 billion is planned to be
spent by the fiscus and
state-owned companies to build infrastructure. The financing
for these projects is in place, and is not affected by the spending cuts in the
budget. The fiscus has allocated just under R430 billion for
schools, hospitals, clinics, dams, water and electricity distribution networks,
electrification of over a million new homes, sanitation schemes, building more courtrooms and
prisons, and improved bus, commuter rail and road links. Most of the
spending falls under provinces and municipalities.
Eskom, Transnet and other State-Owned Companies fund a
further R400 billion of projects. This will be financed both through own
resources and additional borrowing over the next three years, supported by Treasury
guarantees. This will pay for the ongoing building of power generation
plants and new transmission lines, investment in rail, ports and pipelines,
large new water transfer schemes, and various airport upgrades.
Of course, we are well aware that there are parts of
government that struggle to spend their full infrastructure budgets. It is important to
bear in mind that spending programmes have become more ambitious, funding
levels have increased, and pressure to deliver has intensified. Records
show that government’s ability to spend has been steadily rising from
year to year. But it is not yet fast enough. On this challenge, Willie du Preez expresses concern about
whether infrastructure investment is actually taking place. He
suggests: “
As a citizen one should be able to obtain from the treasury website at
the end of each financial year what amount was spent on what infrastructure.” Mr du Preez, you
can already obtain that information from the treasury
website, not just every year, but every month!
Investing in Urban Development
Our urban areas make a vital contribution to the national
economy, hosting factories and offices and many work opportunities, and will
always be attractive to young people seeking a better life. It is little surprise
then that the Census 2011 shows that 62 per cent of South Africans are now living
in our cities and towns. And that the population of some municipalities grew
by over 50 per cent between 2001 and 2011. The challenge we face of highly inefficient, segregated and
exclusionary divides between town and township imposes costs not only on the
economy and th fiscus, but also on families and communities.
A new formula for the local government equitable share will
be introduced in 2013/14 that recognises the need to better differentiate
assistance to different municipalities, including those in rural areas. Municipal
infrastructure grants will also be re-aligned, and go hand in hand with more integrated
planning of new developments, so that we can make meaningful strides in
overcoming the spatial inequalities of the past.
Low carbon economy
The Development Plan further calls on government to send a
signal to industry and consumers that we are living in an environmentally
stressed world. And so Government proposes to price carbon by way of a
carbon tax at the rate of R120 per ton of CO2 equivalent, effective from 1 January 2015. To soften the impact, a tax-free exemption threshold of 60 per cent
will be set, with additional allowances for emissions intensive and
trade-exposed industries. An updated carbon tax policy paper will be published for
further consultation by the end of March 2013.
To ensure that South Africa produces fuel that is more
environmentally friendly, support mechanisms for both biofuel production and the
upgrade of oil refineries to cleaner fuel standards will be introduced. In addition, government continues to direct spending towards
environmental programmes, such as installing solar water geysers,
procuring renewable
energy, low carbon public transport, cleaning up derelict
mines, addressing acid mine drainage, supporting our national parks, and in
particular, to saving our rhino population, who remain under threat.
We are also encouraging the private sector and smaller
public entities to be creative and develop low-carbon projects through the Green
Fund. In the first call for proposals, 590 applications were received. The R800
million that was previously allocated is to be topped up with an additional
R300 million.
The social wage
The NDP recognises that reducing the cost of living is
essential for broadening economic participation and eliminating poverty. Alongside
the “economic wage” earned through work, the “social wage” provided by
government is a steadily rising contribution to the living conditions of working
people and their families. Substantial growth in social spending over the past decade
has financed a threefold increase in the number of people receiving social
grants, a doubling in per capita health spending, construction of 1.5 million free
homes and the provision of free basic education to the poorest 60 per cent
of learners. The impact is evident in improved living standards, expanded access
to basic services and the changing landscape of both urban and rural
areas.
The social assistance budget has increased by an average of
11 per cent a year since 2008/09, in part due to the extension of the
child support grant to the age of 18. Spending on social assistance will rise to R120
billion next year. The old age and disability grants will increase in April
from R1 200 a month to R1 260, The foster care grant will increase from R770 to R800, and the child support grant will increase to R290 in April and
R300 a month
in October.
It is also proposed that the old age grant means test should
be phased out by 2016, accompanied by offsetting revisions to the secondary
and tertiary rebates. All citizens over a designated age will be eligible
for the grant, which will simplify its administration and address the
disincentive to save that arises from the present means test. Alongside social assistance, access to health care is a
vital element in the social wage. There has been progress in reducing mortality
and improving our HIV and TB programmes, and an expansion in medical and nurse
training capacity is under way.
Pilot national health insurance projects have been initiated
this year in ten districts, and will include improvements to health
facilities, contracting with general practitioners and financial management reforms. A
new conditional grant is introduced this year to enable the national
Department of Health to play a greater role in coordinating these reforms.
The initial phase of NHI development will
not place new revenue demands on the fiscus. Over the longer term, however, it is anticipated
that a tax increase will be needed. The National Treasury is working with the
Department of Health to examine the funding arrangements and system reforms
required for NHI. A discussion paper inviting public comment on various options
will be published this year.
Government’s contribution to housing and basic municipal
services is a substantial component of the social wage. The budget for
housing and community amenities has increased by over 16 per cent a year
since 2008. Progress continues to be made in extending access to
housing, electricity, water, sanitation and refuse removal services. The main
contribution of the national budget to the financing of household amenities is
the local government equitable share. A new equitable share formula is proposed
in this Budget,
which will provide a subsidy of R275 for every household
with a monthly income less than R2 300, or about 59 per cent of all
households.
We also recognise that many businesses provide their
employees with housing assistance or home loans. However, the current fringe
benefit tax is unduly burdensome in cases where an employer transfers a house to a
low-income worker at a price below market value. Tax relief is proposed
to address this difficulty. The social wage complements employment earnings and
contributes to a more equitable and inclusive economic growth path. National
health insurance and further steps in social security reform will also reinforce
social solidarity and the decent work agenda.
Social spending, however, is not a substitute for job
creation. One of our most pressing development challenges is to expand
work opportunities for young people. There has been extensive
debate on how this should be done. The answer is that a wide range of measures
are needed, including further education, training, public employment
opportunities and
support for job creation in the private sector. To complement existing programmes, a tax incentive aimed at
sharing the costs of employing young work-seekers will be tabled for
consideration by Parliament. It will help young people enter the labour
market to gain valuable experience and access career opportunities. A similar
incentive is proposed for
eligible workers of all ages within special economic zones.
Financial services and retirement reform
In last year’s Budget, I indicated the need for South
African households to save more. I am now able to announce the following proposals, for
consultation before we introduce the necessary legislation later this
year: Tax-preferred savings and investment accounts will be
introduced in 2015. Retirement funds will be required to identify appropriate
preservation
funds for exiting members, who will be encouraged to
preserve when changing jobs.
Retirement funds will be required to guide their members
through the process of converting savings into a regular income after
retirement, and to choose or establish default annuity products that meet
appropriate principles and standards. More competition will be promoted
by allowing providers other than life offices to sell living annuities.The tax treatment of pension, provident and retirement
annuity funds will be simplified and harmonized.
Governance reforms of retirement funds will also be
implemented, with measures in place to ensure trustees of retirement funds are
trained once they have been appointed. I intend to call up a
conference of all trustees this year to take this process forward. We are also considering how to encourage all employers to
provide appropriate retirement mechanisms for their employees, as part of the
broader social security reforms. In implementing these reforms, the vested
rights of current members of retirement funds will be protected.
Let me take this opportunity, to confirm that the Government
Employee Pension Fund has remained fully funded despite the turmoil
in financial market in recent years. A 6 per cent increase in civil service
pensions will be effected in April this year. Credit There has been rapid growth in unsecured credit in recent
years. The share of new mortgage lending has fallen rapidly, and is now less
than or almost equal to both new vehicle credit and new personal loans. We will
engage with the banking sector to explore how to increase the level and
share of new mortgage loans. Small business financing must also be supported to a
far greater extent han is being done.
We are concerned by the abuse of emolument attachment orders
that has left any workers without money to live on after they have
serviced their debts every month. We are in discussion with the National Credit
Regulator, the Department of Justice and banks, to ensure that the lending
market remedies its behaviour. In the meanwhile, all employers, including
the public sector, can play a role and assist their workers to manage their
finances and to interrogate all emolument attachment or garnishee orders to ensure that
they have been properly issued. I also call on the various law societies to
take action against members who abuse the system.
Tax policy
Allow me to turn now to the revenue proposals. We find ourselves in a challenging period, with revenues
lower than expected by R16.3 billion compared with estimates at the time of the
2012 budget. This is predominantly due to weak economic growth during the second
half of 2012, mining sector disruptions and lower commodity prices. Tax
revenues are
expected to improve over the medium-term in line with higher
economic growth and the stabilization of key commodity prices.
Over the past decade, we have steadily broadened the tax
base, both through policy reforms and improved revenue administration. This has
made substantial tax relief possible, contributing both to household
disposable income and a lower cost of doing business.
The main tax proposals for 2013 are as follows: Personal income tax relief of R7 billion, together with
adjustments to the medical tax credit and other monetary thresholds, amounting
to about R350 million. Reforms to the tax treatment of contributions to retirement
savings. An employment incentive through the tax system for
first-time job seekers.
Further tax relief for small businesses, including an
increase in the monetary tax thresholds applicable for small business
corporations. An overall increase of 23 cents per litre in fuel levies in
April, which includes 8 cents per litre in the road accident fund levy. Increases in excise duties on alcohol and tobacco products
of between 5.7 and 10 per cent, and
Introduction of the carbon tax in 2015, together with the
phasing-out of the electricity levy.
A tax review will be initiated this year to assess our tax
policy framework and its role in supporting the objectives of inclusive growth,
employment, development and fiscal sustainability, amongst other things.
The Budget Review outlines various measures proposed to
protect the tax base and limit the scope for tax leakage and avoidance. The
taxation of trusts will come under review to control abuse; modifications are
proposed to the tax treatment of employment share schemes and disability or
income-protection policies; outstanding difficulties in the distinction
between debt and equity will be addressed; and it is proposed that foreign businesses
which sell e-books, music and other digital goods and services should be
required to register as VAT vendors, in line with regulations which have been
adopted by the European Union and other jurisdictions.
Tax administration
Millions of honest taxpayers in our country continue to
sustain our growth and development agenda. To them we owe a debt of gratitude and,
more importantly, a commitment to spend that money wisely,
efficiently and effectively. We thank you!
Tax avoidance We also owe it to our taxpayers to ensure they are not
carrying the burden of
those who benefit from our country’s infrastructure and
resources without paying their fair share of the costs. Around the world, taxpayers and their governments are
challenging large
multinational companies that pay little or no tax in the
countries in which they operate. Meeting in Moscow earlier this month, finance
ministers of the G20 countries were united in supporting an overhaul of
international company tax rules to address this issue. The South African Revenue
Service is currently engaging with companies that have their base of operations
in SA but appear to have shifted a large proportion of their profits to low tax
jurisdictions where only a few people are employed. This is unacceptable!
SARS is also pursuing schemes identified under the revised
general antiavoidance rules following several years’ painstaking work tracing
transactions through multiple jurisdictions and entities. These benefits
typically accrue to advisors and pre-existing shareholders, rather than new
shareholders who were introduced as the ostensible beneficiaries of the
transactions.
Voluntary disclosure. A temporary voluntary disclosure programme was implemented
under legislation enacted in 2010 which allowed taxpayers in
default to regularise their tax affairs. More than 18 000 taxpayers made use of
the programme and tax of more than R3 billion has so far been collected as a
result of the programme. From 1 October 2012, a permanent voluntary disclosure
programme became effective as part of the Tax Administration Act (2011). Some
700 taxpayers have already come forward. Tax of more than R200 million
will be collected before the end of March 2013.
Non-compliance
SARS is also targeting other areas of non-compliance,
including recipients of government expenditure who are not up to date with their
taxes. By working closely with Treasury and interfacing with the government
payment system, SARS has identified companies who have received payments but
have not declared their full income. They are being audited, and
others will follow. This intervention will be further underpinned by the reform
of the Tax Clearance Certificate process which I announced in October.
In the near future, SARS will introduce a Single
Registration process in which companies are able to register once-off in a simple manner
for all tax types and Customs activities. On this, we can perhaps consider adding the suggestion by
Amanda Hayes, who runs a small business in Cape Town. She proposes that a
single database of suppliers to government be created out of all the
companies that apply to SARS for tax clearance certificates. In addition to reducing
the burden on small businesses, Amanda says this database will help reduce
corruption because of the tighter national oversight over companies who are
registered.
Medium-term expenditure framework and division of revenue
I have indicated many of the specific programmes and
activities of government that contribute to our growth and social development
objectives. Allow me to summarise the framework within which these allocations are
made. The 2013 Budget provides for continued real growth in
spending to support service delivery, and to expand investment in
infrastructure. It will also accommodate the costs of the three-year public service wage
agreement signed last year.
In the past, we have been able to add substantially to
medium term spending plans during the Budget, but this year is different. Money
has been taken away from programmes that are not performing or are not aligned
to government’s core priorities and given to programmes that are delivering
as planned. The main appropriation provides for R1 055 billion in
expenditure next year, rising to R1 226 billion in 2015/16. Debt-service costs will
come to R100 billion next year, and R4 billion is set aside as a contingency
reserve. This leaves R951 billion to be divided between the national, provincial
and local spheres.
National departments are allocated 47.6 per cent of
available funds in 2013/14. Provinces are allocated 43.5 per cent, mainly for education,
health and social welfare. Local government receives 8.9 per cent, primarily
for providing basic services to low-income households. Allocations from the contingency reserve will be made later
in the year, mainly
for unforeseeable and unavoidable expenditure. Work is in
progress to determine funding requirements for reconstruction and
rehabilitation following flood damage in Western Cape, KwaZulu-Natal, Limpopo and
Mpumalanga. An allocation will also be made in the adjustments
appropriation for the Dinaledi schools connectivity programme and other broadband
infrastructure projects, subject to finalisation of implementation plans.
The equitable division of revenue between provinces and
municipalities takes into account the 2011 Census, which shows substantial shifts
in the distribution and age structure of the population since 2001. The changes
to provincial and municipal allocations will be phased in to avoid disruption
of services.
Allocations to provinces and municipalities
The provincial equitable share amounts to R338 billion in
2013/14, and conditional grants to provinces will total R77 billion.
Additional allocations have been made to increase employment of social workers and to
provide additional support to non-governmental organisations which provide
critical welfare services. There is additional funding for teachers in the
poorest 20 per cent of schools and grade R classes, and for community library
services. Provinces are also funded for an expansion in HIV and Aids programmes and
an improved TB diagnosis system.
Infrastructure transfers to provinces have increased sharply
in recent years, growing from R4.8 billion in 2005/06 to R39.7 billion in
2012/13. To improve the quality of spending, the application process for
infrastructure grants is being revised: provinces will be required to submit building plans
two years ahead of implementation and will only receive allocations if plans
meet certain benchmarks. A total of R85 billion is allocated for transfer to
municipalities in 2013/14, rising to R101 billion in 2015/16. Additional allocations are made
for municipal water infrastructure, public transport and integrated city
development.
Consolidated government expenditure
There is considerable detail in the Budget Review and the
Estimates of National Expenditure on government spending plans and
service delivery targets. I will highlight just a few key points. Consolidated government expenditure is budgeted to increase
by 8.1 per cent a year, from R1.1 trillion in 2012/13 to R1.3 trillion in
2015/16.
Job creation and labour
Allocations for employment programmes increase by 13.5 per
cent a year over the next three years. There will be higher funding for employment projects of
non-governmental
organisations and for Working for Fisheries. The expanded
public works programme aims to support 684 800 fulltime equivalent jobs
in 2013/14. Additional allocations are also made for the sheltered
employment factories of the Department of Labour, and to support the work of the
Commission for Conciliation, Mediation and Arbitration.
Health and social protection
Consolidated spending on health and social protection is
R268 billion in 2013/14. Health infrastructure remains a priority. In 2012, a total
of 1 967 health facilities and 49 nursing colleges were in different stages of
planning, construction and refurbishment. Substantial improvements in the social assistance payments
system are in progress, providing easier access by recipients to their
grants. The cost of social grants payments has been reduced from R32 to R16 per
disbursement.
Education, sport and culture
Spending on education, sport and culture will amount to R233
billion in 2013/14. Over the period ahead, the basic education sector
will focus on improving numeracy and literacy, expanding enrolment in
grade R and reducing school infrastructure backlogs. Together with the broader
education infrastructure grant, R23.9 billion is available to
provincial education departments for infrastructure over the next three years. R700 million has been allocated over the MTEF period for the
technical secondary schools recapitalisation grant. This will finance
construction and refurbishment of 259 workshops and training of over 1 500
technology teachers.
Transfers to higher education institutions increase from
R20.4 billion in 2012/13 to R24.6 billion in 2015/16. The total number of students
enrolled in higher education institutions is expected to increase from 910 000
currently to 990 000 in 2015. Funding has been allocated for the construction of
new universities in the Northern Cape and Mpumalanga to commence this year.
Economic services
Expenditure on economic services in 2013/14 will amount to
R48 billion, including R5.3 billion for the manufacturing competiveness
enhancement programme and R2.9 billion for special economic zones. Additional allocations include R450 million over three years
to the Economic Development Department for the Small Enterprise Finance
Agency. The Department of Agriculture, Forestry and Fisheries will
continue its support for smallholder farmers. Additional funding goes to the
Department of Mineral Resources to support beneficiation and rehabilitate derelict
and ownerless mines. The allocation to the Department of Science and Technology
includes R2 billion to support the Square Kilometre Array project.
Transport, energy and communications
Expenditure on transport, energy and communications will
amount to R89 billion next year.
The allocation to the Department of Transport increases from
R42.3 billion next year to R53.4 billion in 2015/16, reflecting increased
allocations to the Passenger Rail Agency for its rolling stock procurement
programme and further investment in the national road network. Additional funding
goes to integrated public transport networks in urban areas, and for provincial
road maintenance. The integrated national electrification grant is allocated
additional funding to increase the number of new electricity connections by 645
000 over the next three years. The solar water geyser programme will be
continued until 2015/16 and Sentech will receive R599 million over the medium term
for the migration from analogue to digital terrestrial television.
Local government, community amenities and housing
Local government, community amenities and housing are
allocated R132 billion in 2013/14. The largest increases go to bulk water, water
treatment and water distribution projects, and allocations to the local
government equitable share. R4.3 billion is allocated to a new grant to be administered
by the Department of Water Affairs, providing for water treatment, distribution,
demand management and support for rural municipalities. The Municipal
Infrastructure Support
Agency of the Department for Cooperative Governance receives
R820 million to provide technical assistance to rural and low-capacity
municipalities. Funding for improving human settlements will grow from R26.2
billion to R30.5 billion over the next three years, including R1.1
billion to support the informal settlement upgrading programme in mining towns.
Social housing receives an additional allocation of R685 million.
General public services
The general public services function is allocated R57
billion in 2013/14. This includes the SARS budget of R9.5 billion, which is just over
1 per cent of revenue to be collected. The Department of Public Works reprioritised R464 million
over the mediumterm to fund its turnaround strategy, which focuses on lease and
property management portfolios. The Public Service Commission
receives R71.4 million to combat corruption and address grievances.Over the MTEF period, the Department of Home Affairs will
spend R1 billion on
its information systems modernisation programme, which has
already led to substantial reductions in the time required to produce
official documents.
The allocations for defence, public order and safety amount
to R154 billion in 2013/14. Provision is made for peace-keeping operations in the
Central African Republic, where 400 defence force personnel have been deployed. The Department of Police has reprioritised R2.5 billion over
the MTEF to improve detective and forensic capability. The Department of
Justice and Constitutional Development receives R1.2 billion for the
criminal justice sector
revamp and modernisation programme. There is increased
funding allocated to the National Prosecuting Authority for the Thuthuzela Care
Centres. The Public Protector of South Africa receives funding to increase its investigative
capacity and additional funds are also made to Legal Aid South Africa
and the South African Human Rights Commission.
Procurement and combating corruption
Last year I said to this House that we will continually
endeavour to increase the value which government receives for the money it spends. Let me be frank. This is a difficult task with too many
points of resistance! However, we have registered some progress. In the present
system, procurement transactions take place at too many localities
and the contracts are short term. Consequently there are hundreds of thousands
of transactions from a multitude of centres. There is very little visibility
of all these transactions.
While our ablest civil servants have had great difficulty in
optimising procurement, it has yielded rich pickings for those who seek
to exploit it. There are also too many people who have a stake in keeping the
system the way it is. Our solutions, hitherto, have not matched the size and
complexity of the challenge. As much as I want, I cannot simply wave a magic
wand to make these problems disappear. This is going to take a special
effort from all of us in Government, assisted by people in business and broader
society. And it will take time. But we are determined to make progress.
The process for setting up the Chief Procurement Office in
the National Treasury has begun in earnest and I shall soon be able to
announce the name of a Chief Procurement Officer. A project team seconded from
state agencies and the private sector has identified four main streams of
work, involving immediate remedial actions, improving the current system,
standardising the Defence, public order and safety procurement of critical items across all government and the
long-term modernisation of the entire system. Among the first initiatives of the CPO will be to enhance
the existing system of price referencing. This will set fair value prices for
certain goods and services.
Secondly, it will pilot procurement transformation
programmes in the Departments of Health and Public Works, nationally and in
the provinces. National Treasury is currently scrutinising 76 business
entities with contracts worth R8.4 billion which we believe have infringed the
procurement rules, while SARS is currently auditing more than 300 business entities
and scrutinising another 700 entities. The value of these contracts is
estimated at over R10 billion. So far 216 cases have been finalised resulting
in assessments amounting to over R480 million being raised. The Financial
Intelligence Centre has referred over R6.5 billion for investigation linked to
corrupt activities.
I fully support Minister Sisulu’s call for appropriate curbs
on officials doing business with government. I will complement her initiative
by aligning the Public Finance Management Act with the provisions of the Public
Service Act. Worldwide, special measures are being taken to oversee the
accounts of what have become known as “politically exposed persons” – public
representatives and senior officials. I have asked that the FIC should explore how
we might bring South Africa into line with these international
anti-corruption and antimoney
laundering standards.
Taxpayers, and indeed all South Africans are understandably
impatient for tangible change. A recurring theme in the tips sent to me
for this Budget was to ensure value for money. Peter Maibelo, aged 24, from
Pretoria, summed it up as follows:
“Minister I won't be fancy with words or complicated ideas …
my
advice for a healthy and sustainable fiscus is to brutally
eradicate corruption,
then we will be honoured to pay taxes.” Mr Maibelo, I couldn’t agree more. Rooting out corruption
requires collective effort from all of us.
Conclusion
My sincere appreciation goes to President Zuma and Deputy
President Motlanthe for their guidance and support. My appreciation also goes to Colleagues of the Ministers’
Committee on the Budget, for their continuous and vigorous engagement with
the challenges that face us, and their bold and steadfast advice to Cabinet.
I wish to thank my Cabinet colleagues who collectively own
this budget. Their support and understanding for tough measures is highly
appreciated. A heartfelt thank you to Deputy Minister Nene, whose
vigilant participation and sound advice is invaluable to me.
My thanks to the MECs of Finance, who play a critical role
as guardians of 43 per cent of our spending.Our appreciation also goes to: Governor Gill Marcus and the Deputy Governor of the South
African Reserve Bank, for their constructive management of monetary
policy,
Commissioner Oupa Magashula and the staff of the South
African Revenue Service for their diligent contribution to fiscal
stability – I hope better times return for them soon!
The Financial and Fiscal Commission and its acting
Chairperson, for their contributions,
Mr Jabu Moleketi, Chair of the DBSA and its new CEO, Mr
Patrick Dlamini, who are positioning the DBSA to make a greater
contribution to infrastructure development,
The Chair of the Land Bank, Mr Ngubane, and CEO Mr Phakamani Hadebe, for their illustrious service to the bank, The leadership of the Public Investment Corporation, the
Financial Services Board, the Financial Intelligence Centre and the
Government Pension Administration Agency, The managing director of NEDLAC, Mr Alistair Smith, and the
constituency representatives for their engagements with the
Treasury, The Honourable Thaba Mufamadi and Charel de Beer, who chair
the Standing and Select Committees on Finance respectively, and
the chairpersons of the the Appropriations Committees, the Honourable Elliot Sogoni and Tebogo Chaane, who ensure that Parliament
remains a vibrant forum for engagement, accountability and public
participation,
Director-General Lungisa Fuzile (and Mrs Fuzile) for his
professionalism, frankness and profound commitment to building credible
institutions and advancing government’s objectives, The management team and staff of the National Treasury,
whose extraordinary contributions and caring for a better South
Africa enhance our country’s standing in international fora,
My Chief of Staff, Dondo Mogajane, and the Ministry staff
for their enthusiastic support, My very supportive family who make my contributions
possible. And finally, I must express sincere gratitude to South
Africans from all parts of the country who offer words of encouragement – as well as
critiques and concerns! This is what keeps us accountable and drives us to
constantly improve.
The key pillars of this Budget are: Global growth is improving, though uncertainty remains.
South Africa’s economy must grow faster and more
inclusively. Future growth is also dependent on private-sector investment
in the economy. The National Development Plan will be implemented by
government and budgets will be aligned to it. Government continues to invest significantly in
infrastructure We are taking additional steps to create opportunities for
young people. Reduced revenue results in less spending in the years ahead
unless the
economy grows.
There are new opportunities to be seized in Africa and other
emerging markets.We have committed to reviewing and assessing our tax policy
framework and its role in supporting the objectives of inclusive
growth, employment, development and fiscal sustainability.
A new local government formula benefits rural
municipalities.Honourable Speaker, I table this budget in the hope that as
a nation we will be able to rise above our sectional interest, and, as you said
Mr President, prevail with greater maturity, pull together and take this country
forward. We have said that South Africa is changing. Let us work
together to ensure that really, tomorrow, will be better than today.
In conclusion, let me remind this House of what former
President Nelson Mandela said: “What counts in life is not the mere fact that
we have lived. It is what difference we have made to the lives of others that
will determine the significance of the life we lead…”
I thank you
