T Manuel: Budget Speech 2006

15 February 2006

There are no joys without mountains having been climbed.
There are no joys without the nightmares that precede them and spring them into
light…
The joys that spring from the challenges are profound. And the challenges will
always be there. As long as there are human beings there will be challenges.
Let no one speak (to me) of frontiers exhausted, all challenges met, all
problems solved.
There is always the joy of discovering, uncovering, and forging
new forms, new ways,…
(Ben Okri, A Way of Being Free, 1997 )

Madam Speaker

In tabling the 2006 budget proposals for the further consideration of this
House, we also place before the nation an account of the mountains we have
climbed and the frontiers before us. Our budget proposals are closely bound up
with this journey, with our conception of democracy, with the progressive
realisation of social and economic freedoms to which we aspire, with our
understanding of the service delivery obligations of government alongside the
development impetus of active citizenship, our faith in these joys and these
challenges.

We are able to report that the economy expanded by about 5 per cent last
year, and we anticipate continued growth of about 5 per cent a year over the
period ahead. Business confidence is strong, investment and employment creation
have gained momentum, inflation and interest rates remain moderate. The revenue
outcome for 2005/06 will be about R41 billion more than we expected this time
last year, creating room for both expenditure growth and tax relief in this
year’s budget.

“Umnotho wakuleli ukhulile, ngakhoke asivuneni, inala ifikile!”
Nhlanhlayenkosi Mhlungu writes: “This is the year of plenty, when all South
Africans will reap the fruits of economic growth!”

We have, as always, received a great deal of advice on what might be done in
these happy circumstances. Government departments have tabled a thousand new
service delivery proposals and expanded spending plans. Taxpayers have promised
to invest more and work harder if more money is left in their hands. Citizens
and civil society organisations have again been generous in providing tips for
Trevor, highlighting frankly and precisely what the frontiers and challenges
are that have yet to be addressed, that all possible joys may be uncovered.
Sipho Makola proposes, for example, a tax deduction on dating expenditure:
“It’s really difficult lately to find a woman without first dating her and such
expenditure is sometimes beyond our budgets. We either date or forever remain
bachelors…”

Madam Speaker, to budget is to choose. Democracy and freedom have laid on
this House the solemn duty of safeguarding the transparency and integrity of
these choices.

The budgetary choices we make give life and meaning to the Age of Hope of
which President Mbeki so rightly spoke in the State of the Nation Address. The
budget tabled here today gives practical effect, Mr President, to our programme
of social cohesion, and in particular to prioritising the needs of the poor,
for that is what it means for rich and poor to share the privilege of a common
nationhood.

There is no simple index of fiscal solidarity that measures progress along
this redistributive trajectory. The “social wage” comprises many overlapping
areas of public investment and service delivery.

This is a mountain to be climbed in stages, joys to be reached step by
step.

I refer, for example, to the growth in income support to vulnerable
households through social security and social assistance grants. This has been
the fastest growing category of government expenditure since 2001, and now
amounts to R70 billion a year, 3,4 per cent of GDP, and reaches more than 10
million beneficiaries. Social grants contribute more than half of the income of
the poorest 20 per cent of households, and have doubled in real terms over the
past five years. Recent survey data has provided clear empirical evidence of
significant improvements in child nutrition associated with the child support
grant, which in turn positively affect cognitive ability and school
outcomes.

I refer also to the expansion of primary health care since 1994. More than
1300 clinics have been built or upgraded, 2300 have seen new equipment
installed, childhood immunisation programmes have been extended, and our health
services receive 101 million patient visits a year – about eight or nine visits
per family. HIV treatment programmes are in place at 192 health facilities.
Over the MTEF period ahead, 46 hospitals will undergo physical rehabilitation
and administrative overhaul as part of the nationally coordinated Hospital
Revitalisation Programme.

I refer to steady progress in school enrolment, to the fact that 64 467
classrooms have been built in the last 10 years, that 114 000 study awards were
made by the National Student Financial Aid Scheme in 2005, that 207 497 young
people have registered for learnerships since the introduction of the skills
development programme, funded in part through tax subsidies. School fees will
be phased out in low-income communities this year, and Minister Pandor confirms
that in three weeks time the last remaining 17 trees will no longer substitute
for classrooms.

I refer to the fact that 3½ million homes have been connected to the
electricity grid since 1994, water supply infrastructure now reaches some 90
per cent of the population and the sanitation backlog is steadily declining.
R23 billion will be spent on government subsidies for 500 000 housing units
over the next three years, complemented by rising expenditure on community
sports facilities, police stations, transport infrastructure and administrative
services.

I refer to our commitment to ensure that no household is denied the simple
dignity associated with basic water, sanitation and energy supplies. Data
supplied by the Department of Provincial and Local Government indicate that 165
water service authorities currently provide 3,9 million poor households with
free basic water, and free basic electricity reaches 2,9 million
households.

In 2005 the government spent R4800 a year, per person, on community and
household services and income transfers, compared with R2000 a decade ago – an
increase of nearly 50 per cent in real terms.

What has made this possible? There are no joys without mountains having been
climbed…

Part of the answer lies in financial policy and debt management: in 1998,
for every rand of revenue collected, 24 cents was spent on servicing state
debt; in 2005 the debt cost 14 cents, and by 2009 it will be 10 cents.

Part of the answer is in the substantially improved growth of the economy on
the strength of sound macroeconomic, fiscal and monetary policies. Part of it
is in the considered reprioritisation and forward-looking policy reforms that
underlie our budget choices.

But the greater part is in the quality and energy of people working
together, citizens and civil servants, community activists and businesspeople,
workers and managers. It is not the rand cost of public services that counts in
the daily experience of women and children, workseekers, victims of crime, the
elderly or those with disabilities. It is the quality of care in the paediatric
ward, the time it takes to process a business application, the effectiveness of
court processes, the attention to special learning needs in the classroom, that
make a difference to people’s lives and well-being. As we celebrate the
progress made in meeting household and community needs, we are also conscious
of the work that lies ahead. Quality of care and efficient public services
still require greater effort from all of us: improved public administration,
and also the kind of citizen activism that contributes constructively to
community development. As we give consideration to another expansionary budget
framework for the period ahead, we need to pay tribute to the special character
of selflessness that lies behind social progress and development – people
working together, because that is what is needed to get things done.

I have in mind people like the 22-member team known as the Madida Hotshots,
led by Christopher Kasayi from Jansenville in the Eastern Cape, formerly
unemployed and now skilled and dedicated fire-fighters in our Working on Fire
programme, who joined their counterparts from the Western Cape in bringing
under control 17 forest fires in the Boland and Table Mountain areas during the
past month, under difficult and hazardous conditions.

I have in mind 63-year old court maintenance officer Hester Kok, and her
network of community workers in Kalahari communities such as Askam,
Rietfontein, Philandersbron and Loubos. Through the efforts of local volunteers
like Gwendolene Gooi of Rietfontein, also known as “Blommetjie”, people in
these very remote settlements are assisted to receive maintenance payments on
predetermined dates and without the exorbitant expense and huge inconvenience
of a monthly taxi trip to Upington.

I have in mind people like Jabulisile Gumede, one of the founders of the
Inanda Greening Project, which has established mini-nurseries at 30 schools in
the areas of Inanda, Kwa-Mashu and Ntuzuma, contributing to local vegetable
gardens for school feeding and income generation.

I have in mind Galeshewe community member Peter Nkota, who assists the
police in visiting schools in the area twice a week to alert children to the
risks of alcohol and sexual abuse, and has worked with youth leaders and
justice officials to create a new mobile court to deal more promptly with local
crime.

As we reflect on our macroeconomic performance, tax proposals and aggregate
spending plans for the MTEF period ahead, Madam Speaker, I know that Members of
the House, and others listening at home or in places of work, will join me in
remembering the special efforts of ordinary citizens, and the dedicated work of
our teachers, doctors and nurses in weekend casualty wards, police men and
women fighting crime, administrators creating order out of chaos: those who
every day live the nightmares that precede our joys, and turn them into
light.

Economic outlook

Growth and international developments

Madam Speaker, the South African economy has grown more strongly over the
past year than we anticipated. Our expectation in February last year was that
gross domestic product would increase by 4,3 per cent in 2005; the revised
estimate is 5 per cent. This follows a significant upward adjustment in growth
for the previous year published by Statistics South Africa last November, and
is further evidence that both economists and statisticians, as a
personality-type, are prone to pathological caution.

Indeed, when the full accounting is done towards the end of this year, we
may find that our economy grew by 5½ or 6 per cent last year. The extraordinary
pace of vehicle sales, rising house prices, traffic congestion and VAT receipts
all point towards this conclusion. Rising employee tax registrations and the
records and financial performance of the Unemployment Insurance Fund confirm
that employment is rising strongly. Labour force and household survey data
indicate that job creation is now proceeding at about 350 000 new opportunities
a year, or about 1 500 new jobs every working day.

This is in part the outcome of economic restructuring and policy reforms
over the past decade. Stronger economic growth now rests on a stable
macroeconomic foundation and healthy investment trends.

Incomes and opportunity are still profoundly unequal in our economy,
however. Growth brings with it broadening participation in the world of work
and improved opportunities for those who rely on marginal and vulnerable second
economy activities. To overcome poverty and inequality, the pace of this
restructuring needs to accelerate.

We have indeed already achieved a considerable acceleration in sustainable
growth, but we are mindful that the present buoyancy of business and consumer
confidence is, in part, a cyclical trend. Commodity prices are at record
levels, supported by strong growth internationally, global productivity growth
is robust, while inflation and interest rates have remained at moderate levels.
Preliminary indications are that South African exports grew by over 12 per cent
in real terms last year, which is a remarkable turnaround after several years
of disappointing trade performance.

However, our appetite for imported goods and services has also grown
strongly, and so the deficit on the current account of the balance of payments
has deteriorated from less than 1 per cent of GDP in 2002 to over 4 per cent
last year. We rely increasingly on capital inflows from abroad to finance the
excess of expenditure over the value of domestic production.

There is no shortage of liquidity internationally, and so inflows on the
financial account comfortably exceeded our requirements in 2005. The Reserve
Bank’s gross foreign exchange position improved from US$14,9 billion at the end
of December 2004 to US$22,2 billion in January 2006. This is a healthy
financial development, but we cannot assume that global circumstances will
always work in our favour. As has happened several times in the past decade,
financial flows could swing away from emerging markets, and these enormous
shifts in global money cannot be predicted. Commodity prices may stay high for
another year, perhaps several years, but one day they will retreat. We are
conscious of the disquiet of many manufacturers about the current strength of
the rand, but on the other hand, we know from past experience that a rapid
exchange rate depreciation would have disruptive effects on prices and
balance-sheets. Our task, as government, as households, as the business sector,
is to turn the opportunities before us into lasting progress, to translate the
resource gains of an economic upswing into real investment in productive
capacity, to moderate our consumption tendency, to broaden and diversify
economic activity. Two particular frontiers loom large in the period ahead: the
challenge of investment, and the challenge of skills.

Investment and skills development

There are encouraging signs that the investment trend is upwards. Gross
fixed capital formation has increased by at least 8 per cent annually since
2003, and we anticipate investment growth of between 9 and 10 per cent a year
over the next three years. The construction sector reports strong growth in
building contracts awarded and increased employment. Cement sales rose from 7,9
million tons in 2000 to 10,7 million tons in 2004, and by a further 11½ per
cent in the first three quarters of last year. Some R4,4 billion is currently
being invested in expanded capacity by our cement producers. Public sector
infrastructure spending increased particularly sharply last year, as investment
in electricity generation capacity, ports infrastructure, water schemes, roads
and telecommunications projects all gained momentum.

Investment in organisational and human capacity is no less important than
physical infrastructure – in the long run it is the firmest foundation of
growth and development, and for the medium term there are several pressing
skills constraints to address. Opening the doors of learning is about building
and equipping classrooms, it is about how we train our teachers, it is about
the learning materials in our schools, it is about how we pay our educators and
how we promote better school management, it is about building a culture of
enthusiasm and enterprise in our school communities. Recapitalisation of our
further education and training colleges will get under way this year, and the
revised skills development strategy for the 2005-2010 period was launched in
March last year. Training related to employment programmes in housing, roads,
water services and agriculture was prioritised in 2005, and has already
benefited 80 000 learners. Building sound institutional capacity in
municipalities and addressing associated skills constraints are clearly key
challenges for public service delivery, and are the focus of several
interventions for the period ahead.

There are no joys without mountains to be climbed…

Infrastructure investment and skills development are the main frontiers
ahead, these are journeys that have just begun, and they promise unbounded
opportunities for discovery, unprecedented opportunities for initiative and
partnership.

Accelerated and shared growth

But economic growth, and broad-based development, also depend on other
institutional dynamics, or may be held back by particular barriers or
constraints. The Accelerated and Shared Growth Initiative is designed to ensure
that we understand these dynamics fully, and to prepare appropriate policy
interventions. It recognises that the challenges in specific sectors – our
chemicals industry, clothing and textiles, business services, tourism and
hospitality, agriculture and food processing – require focused analysis and
specific solutions. It also recognises that work needs to be done on several
broad aspects of our economic prospects and policy framework:

* The level and stability of the exchange rate, and its impact on exports as
part of a growth strategy
* The role of public infrastructure in lowering the costs of economic
activity
* Appropriate, efficiently administered labour market institutions, empowerment
policies and skills development
* The role of industrial policy, competition and trade policies
* The need to increase innovation and investment in new technology capable of
competing internationally
* The role of financial markets in supporting investment activity.

For the three-year planning period of the 2006 Budget, export growth is
expected to benefit from continued commodity demand globally, favourable
tourism trends and several industrial expansion and diversification projects.
Strong investment growth by the public and private sectors and moderate growth
in household consumption are anticipated, contributing to an overall economic
expansion of about 5 per cent a year, with a deficit on the current account of
the balance of payments averaging 4,3 per cent of GDP.

Our export performance will, as always, depend greatly on the economic
fortunes of other regions of the world economy. Growth in the world economy is
expected to remain reasonably strong, averaging about 4,3 per cent over the
next three years. In the developing and emerging economies of the world,
economic growth is particularly brisk. Africa’s economies are expected to grow
by nearly 6 per cent in 2006. The commodity price cycle and sustained economic
reform in many countries have underpinned the stronger growth rates of recent
years.

Consumer price inflation has remained within the target range of 3 to 6 per
cent since September 2003, reaching a low point of 3,1 per cent in February
last year. Excluding transport costs, which have increased in response to
higher oil prices globally, CPIX inflation for the year to December was just
2,8 per cent. Consumer price inflation is expected to average about 4½ per cent
a year over the next three years.

In sum, Madam Speaker, the economic outlook is exceedingly favourable – more
promising than has been seen in forty years, but we recognise the need for both
restraint and redoubled efforts, so that we take full advantage of the
opportunities before us. And our policy stance, unlike that of forty years ago,
emphasises development opportunities for all South Africans, built on a
foundation of social solidarity and a shared economic destiny, a partnership in
which citizens and the state face shared challenges, to meet shared joys.

Exchange controls, amnesty and international financial co-operation

Completion of exchange control and tax amnesty

Madam Speaker, I am pleased to be able to announce the completion of the
adjudication of applications received in respect of the exchange control and
tax amnesty announced in February 2003.

A total of 42 672 applications have been dealt with, and a total of R68,6
billion in foreign assets have been disclosed. The regularisation of the
foreign asset holdings and tax obligations of the vast majority of applicants
means that they can now manage their financial affairs without fear of criminal
or civil prosecution. It also raises the declared income tax base by some R1,4
billion, and contributes to the statistical records of the Revenue Service and
the Reserve Bank.

The R2,9 billion in revenue raised through amnesty levies will be assigned
to joint public-private partnership investments in community infrastructure and
business development in low-income neighbourhoods. R2,5 billion of this is set
aside for spending within the MTEF period ahead.

Further steps in exchange control reform

The completion of this amnesty process, Madam Speaker, lays a foundation for
a more orderly process of portfolio diversification by South Africans. The
offshore individual allowance will accordingly be increased from its present
limit of R750 000 to R2 million per person. To encourage participation in
projects supportive of the NEPAD development goals, the present foreign direct
investment threshold of 50 per cent will be lowered to 25 per cent for
investments in Africa by South African corporates and mandated parastatals.
Further details will be provided by the Reserve Bank.

International financial co-operation

South Africa’s international engagement is organised around four themes:
consolidation of the development agenda for Africa, co-operation between
developing nations, improved global governance and strengthening bilateral
relations.

Regional integration remains a key policy initiative. It is given practical
effect in the revised Southern African Customs Union Agreement, which
establishes joint institutions and a development-oriented distribution of
customs and excise revenue between its members.

Our international financial engagement also includes participation in the
Financial Action Task Force, the standards-setting body for combating money
laundering and terrorism financing, which is currently meeting in Cape Town
under the chair of Professor Kader Asmal. It involves 45 governments of the
major economies of the world, and in assuming the presidency for this year, the
Government has signalled South Africa’s continued commitment to combating
financial abuse, both domestically and as part of this international
effort.

Fiscal policy and the budget framework

Madam Speaker, South Africa’s economic outlook both supports a more
expansive fiscal stance, and is itself a consequence of steady improvement in
fiscal trends. Members of the House who have been with us since 1994 know that
as we enter a new phase of policy development, under the accelerated and shared
growth initiative, we do so on the strength of continuing implementation of our
reconstruction and development programme, which itself was supported by the
macroeconomic consolidation initiated in 1996 as the growth, employment and
redistribution strategy. In the noise and haste of economic policy debate, we
forget too easily that there are long lead times in the practical
implementation of policy. Our present economic performance reflects the choices
we made a decade ago, and the economic reforms now in progress will yield their
returns five and ten years from now.

There are no joys without the nightmares that precede them and spring them
into light…

Fiscal policy and budget trends

Between 2000 and 2004, general government capital formation increased by 4,8
per cent a year and investment by public corporations by an average 7,4 per
cent a year, in real terms. Higher growth in investment of 10 per cent and 15
per cent a year is projected for the period 2004 to 2008. Real wage and
non-wage consumption expenditure are expected to increase by 3 per cent and 8,4
per cent a year, respectively. Interest on public debt will continue to decline
as a percentage of GDP, and general government tax revenue will stabilise at
about 26½ per cent of GDP.

These are the statistical indicators of steady improvements in the quality
of the public finances – robust revenue performance, declining debt costs,
rising investment and a more healthy balance between personnel expenditure and
the maintenance of facilities, acquisition of equipment and support services
that allow public servants to work efficiently and effectively.

Main budget revenue in 2005/06 is expected to amount to R411,1 billion, or
R41,2 billion more than the original estimate and 18,2 per cent more than
2004/05 revenue. As noted already, we under-estimated the impetus of the
economic recovery last year, buoyant trade and rising commodity prices have
favourably impacted on corporate profits, and there has been a strong demand
boost to both VAT receipts and import taxes. But the revenue performance is
also testimony to the success of the sweeping tax reform agenda of the past
decade, and the growing competence and effectiveness of the South African
Revenue Service.

The anticipated expenditure outcome for 2005/06 of R419 billion takes into
account two additional allocations, placed before the House today as a further
adjustments appropriation bill for unforeseeable and unavoidable expenditure.
The first is an amount of R2,7 billion to relieve the cash flow crisis of the
Road Accident Fund and contribute to addressing its backlog in claims
settlements. The second is a R2 billion capital investment in Denel
Corporation, to enable it to proceed with the restructuring necessary to
achieve solvency and profitability.

The difference between revenue and expenditure is a budget deficit of R7,9
billion in 2005/06, or 0,5 per cent of GDP. At this time last year, we
anticipated a deficit of R48 billion, 3,1 per cent of GDP. Members of the House
are entitled to ask: What will be done with the extra R40 billion we planned to
raise? The answer has three parts.

* The first is that we will begin the new year with a net debt position
equivalent to 30,8 per cent of GDP, down from 33,2 per cent at the end of
2004/05. Lower debt means lower debt service costs in years to come, and lower
interest rates across the entire economy.
* The second is that we are able to table an MTEF that provides for greater
expenditure growth over the period ahead than we otherwise could have.
* The third is that we again have room for moderate tax relief, while taking
into account that the revenue outcome this year is in part cyclical and
temporary.

For the MTEF period ahead, budget plans are set out in considerable detail
in the Budget Review, and I propose to highlight just a few key features. In
recognition of the social and development challenges ahead, we propose to raise
about 26 per cent of GDP in revenue, after providing for payments to our
Southern African Customs Union partners which will amount to R19,7 billion next
year – a considerable contribution to promoting development and trade with our
neighbouring economies.

State debt cost will decline from 3,3 per cent of GDP in 2005/06 to 2,7 per
cent in 2008/09. The budget framework again contains an unallocated contingency
reserve, rising to R8 billion in the outer year. After taking into account
these amounts, R418,2 billion is allocated for national, provincial and local
government expenditure in 2006/07, rising to R507,6 billion in 2008/09.

The national budget deficit is expected to be 1,5 per cent of GDP next year,
falling to 1,2 per cent in 2008/09. Taking into account social security funds,
provinces, public entities, local government and public enterprises, the public
sector borrowing requirement is expected to average 2,4 per cent of GDP over
the period ahead.

Infrastructure spending

These projections allow for a marked increase in infrastructure and capital
spending by the public sector over the next three years. Infrastructure
spending has lagged somewhat behind budget allocations in recent years, and so
concerted efforts are now in progress to strengthen capacity to plan, implement
and monitor these programmes more effectively. Within the Treasury, efforts are
concentrated on support for provincial and municipal planning and construction
contract management. The Development Bank of Southern Africa is currently
assembling a task force of engineers and project managers, to be named Siyenza
Manje, to contribute to operational and strategic capacity in distressed
municipalities, and to accelerate the roll out of basic services. Under the
Department of Public Works and the Construction Industry Development Board, an
assessment of the state of public infrastructure maintenance is under way and
improved maintenance standards and management systems will be implemented.
Under the umbrella of Project Consolidate, we will give focused attention to
municipal financial management and procurement administration.

Alongside enhanced planning and project management capacity, Madam Speaker,
we are also reinforcing our tools and procedures for fighting corruption and
waste. Supply chain management reforms include rules to prohibit illegitimate
business activity of public employees and elected office bearers, and improved
guidelines for tender practice, transparency, prompt payment and performance
management. Where necessary, investigative powers and early intervention
capacity over all three spheres of government will be developed, to complement
the resources of the prosecuting authorities.

The scale of this programme, stepping up public sector project management
capacity, is considerable. The Treasury infrastructure database currently has
some 15 000 entries, and our provincial files a further 10 000 projects. Many
of these are comparatively small public works projects that require
straightforward tendering and contract management procedures. This provides
growing opportunities for small business development and empowerment. There are
also several major projects, which in turn generate more complex business
development programmes, often associated with deliberate skills development and
mentorship. I am pleased to note that joint initiatives, involving public and
private sector stakeholders, are in progress to contribute to the institutional
capacity needed for success in this broad-based development and empowerment
journey.

The investment programme is now well under way, and we will continue to see
steady growth in infrastructure spending in the government accounts, in company
reports and project announcements, and in the dust and noise of increasingly
busy construction sites.

Madam Speaker, the 2006 Budget includes a contribution to our investment
commitments for the 2010 Soccer World Cup. Details of project allocations have
not yet been allocated, but we will spend up to R5 billion in dedicated
infrastructure for the World Cup, of which R3 billion is set aside over the
next three fiscal years. I understand that both the national football side and
the cricket team have volunteered to do unpaid clearing of building rubble.

There are no joys without the nightmares that precede them…

Tax proposals

Let me turn, Madam Speaker, to the tax proposals for the 2006/07 year.

Government’s approach to meeting the state’s revenue requirements has
several components: broadening the tax base, improving tax administration and
building a culture of tax compliance, and lowering the tax burden associated
with unduly high rates of tax. These are general goals of sound tax design, and
contribute to economic growth and tax fairness, and in addition we seek to
contribute to government’s economic and social objectives where this can
efficiently be done through the tax structure.

A measure of the success of this approach is that revenue collections have
remained robust, relative to national income and output, while at the same time
rates of income tax on businesses and individuals and on international trade
have been lowered in line with international trends.

Several specific concerns are addressed in this year’s tax proposals:
* long-term retirement savings
* small business development
* investment in research and technology
* skills development, and
* home ownership.

The South African Revenue Service is also implementing several reforms aimed
at reducing compliance costs, enhancing service to taxpayers and improving tax
and customs administration over the period ahead.

As announced last year, the regional service and joint service council
levies will fall away in July this year. This amounts to effective tax relief
on the business sector and other employers of about R7 billion a year, and
lowers the costs of job creation. It also reduces the monthly administrative
burden on companies. Municipalities will receive compensating income through an
increase in their equitable share grants from nationally collected revenue.

It has also been agreed that municipal property rates revenue will be
zero-rated for VAT purposes with effect from July 2006. This will result in a
benefit of about R1 billion for municipalities, and will also contribute to
simplifying their accounting and tax records.

Personal income tax

Personal income tax relief this year will amount to a total of R13,5
billion, partially offset by an increase in the withholding rate on motor
allowances and amended treatment of company car benefits. The net benefit in
personal income returned to taxpayers is R12,1 billion.

The income threshold below which no tax is payable by individuals is raised
to R40 000 for the tax year beginning next month, and for taxpayers over the
age of 65 to R65 000 a year. Changes to the tax brackets result in significant
relief for all taxpayers, with an estimated 49 per cent of the benefit going to
those who earn less than R150 000 a year, and 24 per cent of relief going to
the income bracket R150 000 to R250 000. The maximum marginal rate of tax
remains 40 per cent, while the threshold is raised from R300 000 to R400
000.

The domestic interest and dividend exemption for taxpayers under the age of
65 is raised from R15 000 to R16 500, and for senior citizens the threshold
increases from R22 000 to R24 500. The proportion of the exemption applicable
to foreign interest income and dividends is raised from R2 000 to R2 500.

As announced last year, the deemed private usage applied in calculating tax
on motor vehicle travel allowances increases to 18 000 km per year. The monthly
taxable benefit of a company car increases to 2,5 per cent of its value with
effect from next month. In keeping with these changes, the proportion of a
motor vehicle allowance subject to PAYE tax will be increased from 50 per cent
to 60 per cent, and a new cost table will be published. The anticipated gain to
the fiscus is R1,4 billion in 2006/07.

Members of the House will recall that a revised tax regime for medical
scheme contributions and medical expenses was announced in the 2005 Budget. It
has the effect of raising the tax benefit for middle and lower-income earners,
while restricting the tax allowance in respect of more expensive medical
schemes. Monthly monetary caps for medical scheme contributions have been
introduced and the threshold for individual tax-deductible medical expenses is
raised from 5 to 7,5 per cent of income. Taxpayers 65 years and older will
continue to enjoy a full deduction of all medical expenses. These changes take
effect on 1 March 2006.

Transfer duty

Tips for Trevor this year included an interesting perspective from Norman
Greenfield, who suggests that “The high costs of transfer are deterring
retirees from downsizing, depriving younger people of the housing stock. Could
transfer duty be waived after age 60 or 65? There is only a limited time left
to amortise it…” There are ages to take into account on both sides of a
property transaction so this is probably not the right way to proceed. But I
agree that a decrease in transfer duties will encourage the secondary housing
market and contribute to promoting home ownership. With effect from 1 March
2006, houses costing less than R500 000 will attract no duty. The 5 per cent
rate will apply between R500 000 and R1 million, and 8 per cent thereafter. The
flat 10 per cent rate for companies and trusts is reduced to 8 per cent. Taking
into account the substantial increase in property prices in recent years, I
know that this will be welcome relief to all home buyers, and especially
first-time entrants to the property market. The cost to the fiscus is R4,5
billion.

The threshold exemption for stamp duties on leases is raised from R200 to
R500 per agreement, reducing the compliance burden for taxpayers and the
administrative load on the Revenue Service. Monetary thresholds for donations
tax, estate duty and capital gains tax

The tax system contains various monetary thresholds relating to individuals
that have not been adjusted for inflation for several years. Changes proposed
with effect from 1 March 2006 include the following:
* The annual donations tax exemption is increased from R30 000 to R50 000
* Exemption from estate duty is raised from R1,5 million to R2,5 million
* The annual capital gain exclusion will increase from R10 000 to R12 500
* The primary residence exclusion from capital gains tax will increase from R1
million to R1,5 million
* The capital gain exclusion on death will increase from R50 000 to R60
000.

Tax on retirement funds

As part of a broader review of public policy relating to social security and
retirement saving, the tax treatment of retirement funds and aspects of
industry practice have come under scrutiny over the past year. The tax regime
aims to encourage South Africans to make provision for their retirement, and
options for achieving this more effectively have been intensively assessed. In
order to contribute to the build up of retirement savings and taking into
account that interest rates have stabilised at lower levels, the present tax on
retirement funds will be reduced from 18 per cent to 9 per cent with effect
from 1 March 2006, at a cost of R2,4 billion.

Regulatory reforms relating to cost disclosure, the structure of commissions
and governance of funds will be proposed in a policy paper to be released
shortly. Our pension reform aims to ensure that the benefits of the favourable
tax regime are passed on to retirement fund members in the form of improved
returns, that retirement savings are not depleted by excessive charges and
penalties.

Although not a question of tax policy, I have been reminded by many retired
correspondents this year that civil pensions, and many private pension
arrangements, have in the past not adequately kept pace with inflation. Mr
Rademeyer reminds me that I too will grow old. I have taken note, and would
welcome appropriate remedies. I do agree that preservation of the real value of
pensions should be a central principle of our retirement industry reform
programme.

Small business development

Following various stimulus measures aimed at small business development in
the 2005 Budget, a number of monetary thresholds adjustments will take effect
in the year ahead.

* With effect from tax years ending on 1 April 2006 or after, the annual
turnover threshold to qualify as a small business corporation will be raised
from R6 million to R14 million, the taxable income threshold for the lower 10
per cent rate will be increased from R250 000 to R300 000 and the small
business income tax exemption threshold will be increased from R35 000 to R40
000
* One-time capital gains tax relief will increase from R500 000 to R750 000
after 1 March 2006, and
* The asset value threshold for immediate depreciation will increase from R2000
to R5000.

These measures will cost an estimated R400 million.

The South African Revenue Service will also offer a tax amnesty to small
businesses with a turnover not exceeding R5 million, who have not been
compliant with the tax system. One of the aims of the amnesty is to afford
those who have been historically marginalized an opportunity to regularise
their tax status. Taxes and penalties will be waived for years of assessment
ending on or before 31 March 2004, subject to a non-disclosure penalty of 10
per cent based on taxable income for 2005. The first phase of the amnesty will
take effect between August 2006 and May 2007, and will focus on the taxi
industry. A second phase will extend the amnesty to other small businesses
later in the year.

Allowances for learnerships, scholarships and research and development

Madam Speaker, I am pleased to be able to confirm that the learnership
allowance introduced in 2002 will be extended for a further five years in view
of its contribution to encouraging on-the-job training and skills development.
The allowances will also be increased in value, at an estimated cost of R80
million. A more favourable allowance will be introduced with effect from July
2006 for the additional expenses associated with employing disabled persons as
learners. An enhanced learnership allowance for the business process
outsourcing sector is under consideration.

With effect from 1 March 2007, a simplified set of rules for the tax
treatment of bursaries and scholarships provided by employers will be
introduced.

To encourage businesses to increase investment in technology and innovation,
the deduction for current research and development expenditure will be
increased from 100 per cent to 150 per cent, and a more favourable regime for
depreciation of R&D capital expenditure is proposed.

Excise duties on alcohol and tobacco products

Members of the House will be aware that the Minister of Health has not
relaxed her vigilance regarding tobacco products and alcoholic beverages. To
the extent that this commitment contributes to reduced consumption, the fiscus
is disadvantaged. Happily we can more than compensate through raising rates of
duty, and I trust that the House will welcome the following measures as
enthusiastically as in the past.

Excise duties on sparkling wines rise by 20 per cent, unfortified wine by
12½ per cent and other alcohol products by between 9 and 10 per cent this year.
Tax on cigarettes, cigarette tobacco, pipe tobacco and cigars will increase by
10 per cent, 5 per cent, 8 per cent and 5 per cent, respectively. These changes
take immediate effect, and will raise R1,4 billion in revenue.

My officials have again neglected to recommend changes to the tax on
traditional beer and beer powder.

Fuel tax

No increase in the general fuel levy is proposed this year.

However, an additional 5 cents a litre on petrol and diesel will go to the
Road Accident Fund, with effect from 5 April 2006.

This will bring the tax share of the pump price of petrol to between 28 and
29 per cent – down from about 36 per cent a year ago.

Following a review of international practice, it is proposed that the fuel
levy rebate to encourage a domestic bio-diesel industry should be raised from
30 per cent to 40 per cent.

It has been agreed that the new diesel-powered electricity generation plants
planned for the national electricity network should be fully exempt from fuel
levies.

Overview of tax relief and tax administration reform

Madam Speaker, these and other tax measures, together with an ongoing
programme of improvements in tax administration, are discussed in more detail
in the Budget Review and will be elaborated in further communication from the
South African Revenue Service. The list of tax-exempt public benefit activities
has again been refined, and deductible donation status will be extended this
year to organisations undertaking conservation, environmental and animal
welfare activities. Work is still in progress on some reforms, such as the
proposed diamond export levy, tax treatment of the synthetic fuels industry,
mining royalties and tax incentives for environmental rehabilitation funds.

Corporate taxpayers will welcome moves towards a self-assessment system, and
the introduction this year of an advance tax ruling procedure. The record 3,7
million individual income tax returns filed in 2005 is evidence of a growing
culture of tax compliance, and plans for the phasing in of electronic filing by
individuals are now in place.

On the subject of tax compliance, there was this tip in my mail, from a
taxpayer whose name I had best withhold: Eienaars wie strandhuise besit en oral
in Suid-Afrika woon verhuur hul tweede huise aan vakansiegangers. Ontduiking
van betaling kan plaasvind … ek stel voor dat huisverhuringsfirmas by u
geregistreer word en verplig word om `n sekere bedrag terug te hou om oorbetaal
te word as belasting…(Owners of beach houses who live elsewhere in South Africa
rent their second houses to holidaymakers. Evasion of tax takes place… I
propose that home rental agencies should be registered and required to withhold
a certain amount to be paid over as tax…) It’s just a tip; I’ll pass it on to
the Commissioner…

The overall impact of the tax proposals is to reduce the tax burden by R19,1
billion, bringing total main budget revenue to an estimated R446,4 billion for
the 2006/07 year.

Hard work by dedicated officials of the Revenue Service, and the honesty and
good judgement of those who pay their taxes on time, are features of the
mountain to be climbed, towards our season of joy.

Division of revenue

Madam Speaker, the Constitution requires that nationally raised revenue
should be equitably shared between national, provincial and local government,
in line with their respective functions and fiscal capacity.

The Division of Revenue Bill sets out these allocations and details of the
various conditional grants to provinces and municipalities, which include
funding flows for several key development programmes.

Two significant changes in the division of revenue take effect this year.
The national Department of Social Development takes full responsibility in
April 2006 for social assistance grant programmes, administered through the
newly established South African Social Security Agency. This means that R61
billion shifts from the provincial share to the national share. The second
change is that R7 billion is added to the local government equitable share in
2006/07, and R24 billion over the MTEF period, to compensate for the removal of
RSC levies as a municipal revenue source.

Allocations for national department functions amount to R215,0 billion next
year, provinces receive R176,7 billion and R26,5 billion goes to local
government. All three shares grow strongly over the MTEF period, providing for
balanced and progressive support for the objectives of economic growth,
broad-based empowerment and social development.

In 2006/07, R150,8 billion will be distributed between provinces in terms of
the equitable share formula, which takes into account population size,
education and health needs, amongst other factors. R18,1 billion will be
distributed through the municipal equitable share formula. The Financial and
Fiscal Commission has again provided valued advice on the structure of the
distribution formula, the design of several conditional grant programmes and
the design of the local government equitable share formula.

After the transfer of responsibility for social assistance grants to
national government and several other adjustments, conditional grants to
provinces are budgeted to grow from R19,2 billion in 2005/06 to R30,4 billion
in 2008/09. Growth is mainly due to increased allocations for the housing and
human settlement grant, the hospital revitalisation programme, forensic
pathology services and a new grant for recapitalisation of further education
and training colleges.

Social and community development

The success of these programmes, as in so many areas of social development,
relies on both competent planning and administration and the dedication and
commitment of community partners. Four recently upgraded hospitals in Piet
Retief, Colesberg, Calvinia and Swartruggens, bring to these communities the
benefits of new buildings, fully equipped wards and newly trained management
teams and clinical personnel. In the coming year new or upgraded hospitals will
be completed in another four communities in the Western Cape, Limpopo and
Eastern Cape. Madam Speaker, our revitalised hospitals are truly a new joy
sprung from past nightmares: safe, clean, modern and properly administered.

Effective housing and community development initiatives, similarly, rest on
dynamic local joint initiatives, state and citizen in partnership. In Newtown,
at the heart of Johannesburg’s regeneration zone, in view of the Nelson Mandela
Bridge, for example, the Brickfields and Legae housing projects, undertaken in
partnership with the Johannesburg Housing Company, has seen 537 families
recently moved into new affordable apartments designed around safe play areas
and community facilities.

And the revitalisation of education institutions brings light and joy
equally profound. In 1994, the Tsolo Special School in the Mhlontlo
Municipality north of Mthatha, housed 72 mentally disabled learners in two
dilapidated prefabricated classrooms which also served as hostels. Today there
are 240 learners, in three new hostels, with a fourth under construction, 10
new classrooms and facilities for practical and occupational learning in
leatherwork, hairdressing and switchboard operation.

Shared and accelerated growth, Madam Speaker, is partly about how we
mobilise joint resources and initiative of the public and private sectors in
pursuit of the development goals for which our main provincial and local
government grants have been established. We have a new funding programme for
our further education colleges – their contribution to meeting the skills needs
of the economy depend on stronger linkages with employers and enterprises. We
will introduce this year a new grant programme for local development projects –
this will specifically target public-private partnerships to invest in
infrastructure and community services in low-income residential
neighbourhoods.

Medium term expenditure estimates

Let me turn to the main expenditure proposals for the MTEF period ahead.
Details are set out in the Budget Review and the Estimates of National
Expenditure. Members of the House will find a wealth of information on the
links between spending plans and the service delivery objectives and targets
set out for each vote and departmental programme – information intended to
support the work of Parliamentary committees, the media, civic organisations
and indeed anyone with an interest in public affairs.

2006 Budget priorities

A core priority is to strengthen education, public health services and
social welfare services. These are largely provincial responsibilities, and so
the largest adjustment in the 2006 Budget is to the provincial equitable share,
which receives an additional R30,9 billion over the next three years. Increased
resources for schools, an expansion of pre-school learning opportunities,
implementation of the new curriculum for grades 10-12 and stepped up school
building and equipment programmes will be prioritised. Approximately R4 billion
will be spent over the MTEF period on social sector employment programmes:
home-based community care and early childhood development, community health
workers and social development partnerships with nongovernmental organisations.
Care of child-headed households, strengthening of HIV and AIDS programmes and
appropriate management of children in conflict with the law are among the
social service priorities.

Education, health and welfare services also feature strongly in adjustments
on the national budget. Higher education and recapitalisation of further
education institutions receives R2,4 billion more, revitalisation of hospitals
and forensic pathology services a further R1,6 billion, and social assistance
grant programmes an additional R2,7 billion.

Income transfers to households, mainly through our social assistance grant
programmes, have increased from R42,9 billion in 2002/03 to R74,2 billion last
year – an increase of 20 per cent a year. The 2006 Budget provides for
continuing growth in eligible beneficiary numbers, and social grants will
increase in real terms on 1 April. The maximum old age and disability grant and
the care dependency grant will increase by R40 to R820 a month, the foster care
grant by R30 to R590 and the child support grant by R10 to R190 a month. We are
mindful that these amounts are modest in relation to household needs, although
alongside education this is the largest programme of expenditure on the budget.
The challenge remains, to balance these income support commitments with
continued strengthening of expenditure on infrastructure and service
delivery.

Housing and municipal infrastructure, local transport and water schemes are
allocated an additional R9,3 billion in this budget. A new subsidy programme
for community libraries will be introduced, and cultural institutions and
sports promotion receive supplementary funding.

R3,5 billion is added to our national roads and rail infrastructure spending
plans, and R7,1 billion is set aside as a national contribution to the Gautrain
rapid rail project. Industrial development zones, the pebble bed modular
reactor project, various research and technology initiatives, tourism promotion
and support for the business process outsourcing industry receive additional
funding allocations.

R5,4 billion will go to expanding and equipping the police service and
improvements in courts administration and capacity of the Justice Department.
R3,1 billion is added to defence modernisation and infrastructure, and R900
million to foreign affairs capacity and the African Renaissance Fund.

R3,3 billion is proposed for improved maintenance of government buildings
and R2 billion will supplement the capacity of the Revenue Service and
investment in government financial management systems.

Consolidated expenditure growth

The 2006 Budget Review provides a new and more complete classification of
government expenditure, Madam Speaker, extending our data to include a further
66 public entities and government business enterprises, many of which have
substantial economic infrastructure and development responsibilities. The main
research organisations are now included, 22 sector education and training
authorities, 15 water boards, the Marine Living Resources Fund, the National
Roads Agency, the Post Office and the South African Bureau of Standards. The
resulting consolidated statistics provide a compelling picture of government at
work, of decisive reprioritisation in favour of social and household services,
and of robust growth in spending on economic infrastructure.

Spending on community development will increase by 29 per cent a year over
the next three years. Support for housing, agriculture and land affairs
increases by nearly 16 per cent a year, and investment in transport and
communication by 18 per cent.

Non-interest government expenditure will grow by an average of 11,6 per cent
a year over the MTEF period ahead, or 6,7 per cent in real terms.

2006 Appropriation Bill

Madam Speaker, the 2006 Appropriation Bill provides for expenditure of
R260,0 billion in the financial year ending 31 March 2007. Direct charges
against the National Revenue Fund will amount to R52 billion in state debt
cost, R150,8 billion in provincial equitable share allocations, R5,5 billion in
skills development funds and R1,3 billion in other statutory amounts and
standing appropriations. I need to advise that an amount of R600 million
remains unallocated at this stage, to provide for possible cost implications
for national departments of the new Government Employees’ Medical Scheme, and
to contribute to the planned new and refurbished stadiums for the 2010 World
Cup. A contingency reserve of R2,5 billion is set aside. Subject to
finalisation of business plans, allocations may be made from these funds in the
Adjustments Budget for the capital requirements of state-owned enterprises, and
we anticipate that the recent flooding in some parts of the country and fire in
others may require emergency relief allocations.

Having reached this place, on our mountain journey, Madam Speaker, let no
one speak of frontiers exhausted…We have ahead of us the joy of discovering,
uncovering, and forging new forms, new ways…within an expenditure framework
designed to accelerate growth, broaden reconstruction and development, and
reinforce the partnerships between state and citizen on which our progressive
democracy rests.

Madam Speaker, the preparation of a Budget relies on the hard work of many
people, both in the Treasury and in other national and provincial departments.
It also depends on understanding and good will of Cabinet colleagues, and most
especially on President Mbeki’s wise leadership. Our task has been aided this
year by the energetic guidance given by Deputy President Mlambo-Ngcuka to our
growth initiative. Members of the Ministers’ Committee on the Budget, and
especially Deputy Minister Jabu Moleketi, have shared in the difficult task of
assessing spending proposals and reviewing policy options.

We have had another fruitful year of engagement with the Provincial
Executive Council Members responsible for finance. They have brought both
energy and good judgement to the enormously important challenge of deepening
the quality of provincial budgeting and service delivery.

Governor Tito Mboweni and the staff of the Reserve Bank have steered an
excellent course at the helm of our monetary ship.

The Financial and Fiscal Commission was ably led by Renosi Mokate until her
move to the Reserve Bank, and we welcome Bethuel Setai as the new chair of this
important advisory team.

We have also benefited from the advice of the business, labour and community
representatives in the Public Finance chamber of Nedlac, and the support of its
head, Herbert Mkhize.

Pali Lehohla continues to drive ongoing improvements in the extent and
quality of government statistics, supported by a new Statistics Council chaired
by Howard Gabriels.

I would like to express special appreciation to Nhlanhla Nene, chair of the
Portfolio Committee on Finance, Tutu Ralane who chairs the Select Committee on
Finance, and the joint chairs of the Budget Committee, Buti Mkhalipi and Louisa
Mabe, who now take on responsibility for the next phase in the 2006 Budget
process.

Thanks, finally, to Pravin Gordhan and the staff of the Revenue Service, who
have surpassed all expectations, and Lesetja Kganyago, who leads the National
Treasury with inimitable flair and conviction.

Having reached this place, let no one speak of frontiers exhausted…We have
ahead of us the joy of discovering, new forms, new ways to accelerate growth,
broaden reconstruction and development, and give light to the shared nationhood
on which our progressive democracy rests.

SUMMARY OF THE NATIONAL BUDGET (R million)

REVENUE

Estimate of revenue before tax proposals: 465 486

* Tax proposals:

** Taxes on individual and companies: -14 925

- Personal income tax: -12 125
-- Adjust personal income tax rate structure: -13 500
-- Increase in interest and dividend exemption under 65 years: -50
-- Increase in interest and dividend exemption 65 years and over: -45
-- Increase thresholds for learnership allowances: -80
-- Increase PAYE withholding rate on motor allowances and fringe benefit on
company cars: 1 370
-- Capping of medical scheme contributions: 180

- Corporate income tax
-- Reduction in retirement fund tax: -2 400

- Small business tax relief
-- Increase in monetary thresholds: -400

** Taxes on property: -4 540

- Increase thresholds of donations tax and estate duty: -40
- Adjust table for transfer duties: -4 500

** Stamp duties: -10
- Increase threshold exemption for stamp duties on leases

** Taxes on goods and services: 348

- Increase in duties on alcohol: 725
- Increase in duties on tobacco products (52% incidence): 645
- Abolish ad valorem excise duties on certain products: -22
- Zero rating of municipal property rates: -1 000

Estimate of revenue after tax proposals:
2005/06 Budget estimate: 369 869
2005/06 Revised estimate: 411 085
2006/07 Budget estimate: 446 362
2006/07 Budget estimate percentage change from previous year: 8.6%
2007/08 Medium term estimates: 492 003
2007/08 Medium term estimates percentage change from previous year: 10.2%
2008/09 Medium term estimates: 547 091
2008/09 Medium term estimates percentage change from previous year: 11.2%

EXPENDITURE

* Statutory and standing appropriations
2005/06 Budget estimate: 193 913
2005/06 Revised estimate: 192 669
2006/07 Budget estimate: 209 599
2007/08 Medium term estimates: 228 408
2008/09 Medium term estimates: 250 781

- Cost of servicing state debt
2005/06 Budget estimate: 53 125
2005/06 Revised estimate:51 160
2006/07 Budget estimate: 52 049
2007/08 Medium term estimates: 53 324
2008/09 Medium term estimates: 55 716

- Provincial equitable share
2005/06 Budget estimate: 134 706
2005/06 Revised estimate: 135 292
2006/07 Budget estimate: 150 753
2007/08 Medium term estimates: 167 701
2008/09 Medium term estimates: 187 100

- Skills development levy
2005/06 Budget estimate: 3 259
2005/06 Revised estimate: 4 934
2006/07 Budget estimate: 5 500
2007/08 Medium term estimates: 6 000
2008/09 Medium term estimates: 6 500

- Other (1)
2005/06 Budget estimate: 2 823
2005/06 Revised estimate: 1 283
2006/07 Budget estimate: 1 297
2007/08 Medium term estimates: 1 383
2008/09 Medium term estimates: 1 465

* Appropriated by vote
2005/06 Budget estimate: 221 406
2005/06 Revised estimate: 226 307
2006/07 Budget estimate: 260 026
2007/08 Medium term estimates: 284 466
2008/09 Medium term estimates: 310 347

- Current payments
2005/06 Budget estimate: 71 111
2005/06 Revised estimate: 71 526
2006/07 Budget estimate: 80 983
2007/08 Medium term estimates: 87 985
2008/09 Medium term estimates: 94 439

- Transfers and subsidies
2005/06 Budget estimate: 144 410
2005/06 Revised estimate: 149 128
2006/07 Budget estimate: 173 066
2007/08 Medium term estimates: 189 881
2008/09 Medium term estimates: 208 478

- Payments for capital assets
2005/06 Budget estimate: 6 155
2005/06 Revised estimate: 5 653
2006/07 Budget estimate: 5 976
2007/08 Medium term estimates: 6 601
2008/09 Medium term estimates: 7 430

* Plus

- Unallocated funds
2005/06 Budget estimate: 500
2005/06 Revised estimate: -
2006/07 Budget estimate: 600
2007/08 Medium term estimates: 1 300
2008/09 Medium term estimates: 2 140

- Contingency reserve
2005/06 Budget estimate: 2 000
2005/06 Revised estimate: -
2006/07 Budget estimate: 2 500
2007/08 Medium term estimates: 5 000
2008/09 Medium term estimates: 8 000

* Estimate of national expenditure
2005/06 Budget estimate: 417 819
2005/06 Revised estimate: 418 976
2006/07 Budget estimate: 472 725
2006/07 Budget estimate percentage change from previous year: 12.8%
2007/08 Medium term estimates: 519 174
2007/08 Medium term estimates percentage change from previous year: 9.8%
2008/09 Medium term estimates: 571 268
2008/09 Medium term estimates percentage change from previous year: 10.0%

*2005 Budget estimate of expenditure
2005/06 Revised estimate: 417 819
2005/06 Revised estimate increase/decrease (-): 1 157
2006/07 Budget estimate: 456 393
2006/07 Budget estimate increase/decrease (-): 16 332
2007/08 Medium term estimates: 494 894
2007/08 Medium term estimates increase/decrease (-): 27 280

1. Salaries of Members of Parliament, salaries of judges and standing
appropriations (claims on guarantees and subscriptions to funds of the World
Bank, African Development Bank and International Monetary Fund).

*Revenue
2005/06 Budget estimate: 369 869
2005/06 Revised estimate: 411 085
2006/07 Budget estimate: 446 362
2007/08 Medium term estimates: 492 003
2008.09 Medium term estimates: 547 091

* Expenditure
2005/06 Budget estimate: 417 819
2005/06 Revised estimate: 418 976
2006/07 Budget estimate: 472 725
2007/08 Medium term estimates: 519 174
2008.09 Medium term estimates:571 268

* National Budget Deficit
2005/06 Budget estimate: -47 950
2005/06 Budget estimate percentage of GDP: -3,6%
2005/06 Revised estimate: -7 890
2005/06 Budget estimate percentage of GDP:-0.5%
2006/07 Budget estimate: -26 363
2005/06 Budget estimate percentage of GDP: -1,5%
2007/08 Medium term estimates: -27 171
2005/06 Budget estimate percentage of GDP: -1,4%
2008/09 Medium term estimates: -24 177
2005/06 Budget estimate percentage of GDP: -1,2%

- Plus: Extraordinary transfers
2005/06 Budget estimate: -7 000
2005/06 Revised estimate: - 8 871
2006/07 Budget estimate: -
2007/08 Medium term estimates: -
2008/09 Medium term estimates: -

- Less: Extraordinary transfers
2005/06 Budget estimate: 1 529
2005/06 Revised estimate: 6 496
2006/07 Budget estimate: 1 700
2007/08 Medium term estimates: 1 450
2008/09 Medium term estimates: 1 450

* Net borrowing requirement
2005/06 Budget Estimate: -53 421
2005/06 Revised Estimate: -10 265
2006/07 Budget Estimate: -24 663
2007/08 Medium term estimates: -25 721
2008/09 Medium term estimates: -22 727

* Financing

** Change in loan liabilities

- Domestic short-term loans (net)
2005/06 Budget Estimate: 4 974
2005/06 Revised Estimate: 5 850
2006/07 Budget Estimate: 5 800
2007/08 Medium term estimates: 5 750
2008/09 Medium term estimates: 5 750

- Domestic long-term loans (net)
2005/06 Budget Estimate: 25 768
2005/06 Revised Estimate: 23 306
2006/07 Budget Estimate: 8 694
2007/08 Medium term estimates:16 529
2008/09 Medium term estimates: 22 996

-- Loans issued for financing
2005/06 Budget Estimate: 18 768
2005/06 Revised Estimate: 19 065
2006/07 Budget Estimate: 8 694
2007/08 Medium term estimates: 16 529
2008/09 Medium term estimates: 22 996

-- New loans
2005/06 Budget Estimate: 48 431
2005/06 Revised Estimate: 46 220
2006/07 Budget Estimate: 45 489
2007/08 Medium term estimates: 49 918
2008/09 Medium term estimates: 49 417

-- Less: Discount
2005/06 Budget Estimate: -3 291
2005/06 Revised Estimate: -781
2006/07 Budget Estimate: -989
2007/08 Medium term estimates: -1 918
2008/09 Medium term estimates: -1 417

-- Less: Redemptions (net of book profit)
2005/06 Budget Estimate: -26 372
2005/06 Revised Estimate: -26 374
2006/07 Budget Estimate: -35 806
2007/08 Medium term estimates: -30 471
2008/09 Medium term estimates: -25 004

-- Loans issued for switching
2005/06 Budget Estimate: -
2005/06 Revised Estimate: -299
2006/07 Budget Estimate: -
2007/08 Medium term estimates: -
2008/09 Medium term estimates: -

-- New Loans
2005/06 Budget Estimate: 7 000
2005/06 Revised Estimate: 4 266
2006/07 Budget Estimate: -
2007/08 Medium term estimates: -
2008/09 Medium term estimates: -

-- Less: Discount
2005/06 Budget Estimate: -
2005/06 Revised Estimate: -25
2006/07 Budget Estimate: -
2007/08 Medium term estimates: -
2008/09 Medium term estimates: -

-- Less: Loans switched (net of book profit)
2005/06 Budget Estimate: -7 000
2005/06 Revised Estimate: -4 539
2006/07 Budget Estimate: -
2007/08 Medium term estimates: -
2008/09 Medium term estimates: -

-- Loans issued for extraordinary purposes
2005/06 Budget Estimate: 7 000
2005/06 Revised Estimate: 4 539
2006/07 Budget Estimate: -
2007/08 Medium term estimates: -
2008/09 Medium term estimates: -

-- New loans
2005/06 Budget Estimate: 7 000
2005/06 Revised Estimate: 4 539
2006/07 Budget Estimate: -
2007/08 Medium term estimates: -
2008/09 Medium term estimates: -

- Foreign loans (net)
2005/06 Budget Estimate: 12 039
2005/06 Revised Estimate: 742
2006/07 Budget Estimate: 2 415
2007/08 Medium term estimates: 3 638
2008/09 Medium term estimates: 2 362

-- Market loans (net)
2005/06 Budget Estimate: 9 390
2005/06 Revised Estimate: 50
2006/07 Budget Estimate: 6 240
2007/08 Medium term estimates: 6 850
2008/09 Medium term estimates: 7 880

-- Arms procurement loan agreements
2005/06 Budget Estimate: 4 708
2005/06 Revised Estimate: 3 164
2006/07 Budget Estimate: 3 569
2007/08 Medium term estimates: 2 491
2008/09 Medium term estimates: 2 139

-- Less: discount on issues of new loans
2005/06 Budget Estimate: -
2005/06 Revised Estimate: -
2006/07 Budget Estimate: -
2007/08 Medium term estimates: -
2008/09 Medium term estimates: -

-- Less: Redemptions (including revaluation of loans)
2005/06 Budget Estimate: -2 059
2005/06 Revised Estimate: -2 472
2006/07 Budget Estimate: -7 394
2007/08 Medium term estimates: -6 153
2008/09 Medium term estimates: -7 657

** Change in cash balances
2005/06 Budget Estimate: 10 640
2005/06 Revised Estimate: -19 633
2006/07 Budget Estimate: 7 754
2007/08 Medium term estimates: -196
2008/09 Medium term estimates: -8 381

* Total financing (net)
2005/06 Budget Estimate: 53 421
2005/06 Revised Estimate: 10 265
2006/07 Budget Estimate: 24 663
2007/08 Medium term estimates: 25 721
2008/09 Medium term estimates: 22 727

Issued by: National Treasury
15 February 2006