Manuel
11 February 2009
If the things we face are greater and more important than the things we
refuse to face, then at least we have begun the re-evaluation of our world. At
least we have begun to learn to see and live again.
But if we refuse to face any of our awkward and deepest truths, then sooner
or later, we are going to have to become deaf and blind. And then, eventually,
we are going to have to silence our dreams, and the dreams of others. In other
words, we die. We die in life.
(Ben Okri, 1997)
Madam Speaker
The storm that we spoke of last year has broken, and it is more severe than
anyone anticipated. Confronted with the prospect of an economic cataclysm,
world leaders have announced huge supportive interventions. A transformation of
the world economy is in progress, which we trust will tame the excesses of
unregulated financial markets. A restructuring of global trade and incomes is
underway which we hope will bring greater opportunities to the worldâs poor.
But for now, the transition has brought sizeable disruptions.
The budget that I have the honour to table here today, Madam Speaker,
remains firmly focused on a longer term transformation challenge. While
responding to the changed economic outlook, our primary goal remains the
reconstruction and development of our economy, and the progressive building of
a shared future in which we can take pride in the quality of our public
services, the creation of jobs for our people and security in our
communities.
And so, in Ben Okriâs words, because we will not silence our dreams, because
we choose life and we will not die, we stand ready to face our awkward and
deepest truths.
We will not be deaf to the voice of those in pain. We will not be blind to
incompetence or greed. Our response to the present crisis is to face the
challenges before us boldly, and as a nation united. Our duty is to construct a
South African approach, founded on our own vision for a shared future. This
approach can only be built on an engagement between social partners, not just
at the level of a national dialogue, but on factory floors and in community
halls. Our resolve will be tested to its limits. We have to put self-interest
aside, we have to face each other honestly and openly. Our task is to see
through the challenges of economic vulnerability today to the construction of
the new South Africa that is our passion and our pride. We can do this all the
better as a united people.
In framing this Budget, therefore, we have been guided by five enduring
principles:
⢠Protecting the poor
⢠Sustaining employment growth and expanding training opportunities
⢠Building economic capacity and promoting investment
⢠Addressing the barriers to competitiveness that limit an equitable sharing of
opportunities
⢠And, in doing these things we must maintain a sustainable debt level so that
our actions today do not constrain our development tomorrow.
A global economic crisis
The global economy is experiencing a sharp downturn, spreading from developed
to developing countries. Its origins lie in macroeconomic imbalances of an
unprecedented scale. An accumulation of debt by firms and households in some
countries has been matched by an extraordinary rise in export earnings and
savings in other regions. Behind these flows are millions of savers and
lenders, linked through a financial architecture of such complexity that
neither accounting standards nor regulatory oversight have served their
intended purposes: prudential banking rules have been overwhelmed by folly and
fraud, masquerading as financial innovation.
This is a cycle that has played itself out periodically â economic historian
Karl Polanyi, sixty-five years ago, provided a classic account of how a utopian
faith in self-regulation has led repeatedly to exuberances of this kind in the
rise and fall of market economies.
The consequences are felt everywhere. If the balance sheet of a bank
shrinks, its capacity to lend is eroded. If its lending is curtailed,
businesses and households have to reduce their spending. If demand falls in
Birmingham, factories close in Beijing. If production lines in China slow,
demand for commodities from Africa dries up. The vegetable shop next to the
mine closes, and the drivers of the delivery vehicles are asked to work short
time, on half pay, and if the driver cannot pay his mortgage, the bank
forecloses on his bond, and the bank writes down its balance sheet again...
When a global motor company cuts back on making cars, it cancels its orders
for catalytic converters. Madam Speaker, this firm making catalytic converters
is not in Detroit or in Shanghai, it is here in the Eastern Cape. The mine
producing the platinum that goes into that converter is near Rustenburg. The
worker in the factory in Uitenhage and the mineworker in Rustenburg are now
without work. And the woman who runs the little stall selling vegetables
outside the mine is making less money each passing week. And their families,
all of them, face a future made more precarious by the vagaries of global
finance.
In a very short period, Madam Speaker, what started off as a financial
crisis may well become a second great depression. Last year, 2.6 million US
workers lost their jobs. This year, twenty million migrant workers who went
home for the Chinese New Year will not return to the cities, because those jobs
have disappeared.
In the past ten months, the International Monetary Fund has revised its
forecast for global growth in 2009 downwards no less than five times, from 3.8
per cent in April last year to its current estimate of just half a per cent.
Initially the downgrades were focused on developed countries, but projections
for GDP growth in emerging markets have now halved from 6.6 per cent in April
to 3.3 per cent currently.
The United States has been in recession since the last quarter of 2007 and
its economy is expected to contract by 1.6 per cent in 2009. The official
interest rate has been cut to almost zero. Growth in Europe has slowed to 1 per
cent in 2008 and is forecast to contract by 2 per cent in 2009. The UK economy
is expected to shrink by 2.8 per cent in 2009.
Chinaâs GDP growth fell to 6.8 per cent in the final quarter of 2008 and
will slow this year to its lowest level since 1990. Indiaâs growth will fall by
almost half.
Sub-Saharan Africa is feeling the effects of the commodity price plunge and
declining investor confidence. Projected growth slows to 3.5 per cent in 2009
from 5.4 per cent in 2008.
In responding to the crisis, immense commitments of funds have been made by
the governments of major economies in support of their financial institutions,
and central banks have lowered interest rates to historically unprecedented
levels. However, low interest rates do not automatically translate into easily
available credit. Households remain wary of further debt, and firms that face
trading losses are not yet creditworthy. In an ironic twist, capital is leaving
emerging markets and flowing into reserve currencies such as the US dollar or
the euro, seemingly undeterred by the institutional origins of the financial
collapse. Countries such as Brazil, India and Russia cannot raise debt except
at premium interest rates. South Africaâs cost of borrowing on international
capital markets also increased sharply late last year and remains high.
Madam Speaker, while many countries are borrowing heavily to finance their
bailouts and deficits, which may well be the correct policy approach to restore
confidence in their economies, this build up of debt will have to be paid back,
with interest, by future generations. It will require higher tax rates in
future, slowing growth for decades to come. The re-evaluation of the world
cannot be indefinitely deferred.
We should also appreciate that the causes of this crisis run deeper than its
financial currents. It is embedded in the structure of growth and trade, and
the widening inequality that we have seen in the past decade and a half. In
responding to this crisis, on a global scale and here at home, we must tackle
its root causes. Financial systems cannot go unregulated, trade arrangements
cannot be subordinate to short-sighted protectionist influence, the
distribution of income cannot be entrusted to the merciless counterpoise of
executive greed and unsupervised labour market dynamics. In Polanyiâs words,
our task is to harness the instrumentality of both power and planning in
pursuit of more abundant freedoms. To say that this can be done, Madam Speaker,
nationally and globally, is to place democratic governance in its rightful
place at the head of the global development agenda.
And in facing these things that are greater and more important than the
arithmetic of our revenue and expenditure plans, we will at least begin the
re-evaluation of our world.
This means protecting the poor. It means employment and training. It means
investing in infrastructure and building a competitive economy. It means
sustainable public finances.
Outlook for the South African economy
Let me share with the House the Treasuryâs expectation for the South African
economy over the period ahead.
Incomes and output slowed sharply in the second half of last year, bringing
growth for 2008 to about 3.1 per cent. With commodity prices generating lower
export earnings, weak consumer spending and slowing private sector investment,
growth in 2009 is forecast to be 1.2 per cent, the lowest rate since 1998. We
expect output growth to improve in 2010, supported by public infrastructure
spending, lower interest rates, the 2010 FIFA World Cup and a recovery in the
world economy. But trading conditions are tough and are likely to deteriorate
further in the short term.
In 2008, South African producers were affected by a series of economic
shocks including electricity shortages, rising input costs, higher interest
rates and slowing demand. This led to a marked slowdown in consumer-oriented
sectors and weak mining and manufacturing output. Several sectors, including
mining, manufacturing, retail trade and residential construction, have
retrenched workers and the pace of job losses may accelerate further.
However, civil construction has performed well, supported by ongoing
infrastructure investment. Our agricultural sector has grown strongly in
response to higher prices and better rains.
Sharply lower oil prices â a barrel of crude oil has fallen by 69 per cent
from a peak of US$145 a barrel in July 2008 to about US$45 per barrel at
present â will help to cut our import bill, but we are also experiencing a fall
in export earnings. The platinum price has fallen by about 60 per cent, from a
high of US$2 254/oz in March 2008 to about US$980/oz currently, following the
decline in world car sales.
Lower consumer demand and the softer real exchange rate will dampen import
demand in 2009, but infrastructure investment will continue to draw in capital
goods. This will continue to generate a sizeable current account deficit,
expected to average 6.7 per cent a year over the period ahead.
Over the past five years the financing of our international balance has been
heavily dependent on portfolio inflows to the equity and bond markets. Though
still adequate to finance the current account deficit, the composition of
inflows changed significantly in 2008, including increased use of loan
financing and repatriation of foreign assets by the banking sector.
Our development expenditure over the period ahead will require both improved
domestic saving and continued capital inflows. And so a sound banking system,
healthy fiscal position, credible monetary policy and appropriate foreign
exchange regulations will continue to limit our exposure to the international
downturn, while serving as key building blocks in financing future growth and
development.
The soundness of South Africaâs financial system was subjected to an
international assessment last year, which concluded that our banking system is
diversified and is supported by an appropriate financial infrastructure and a
generally effective regulatory framework. Although South African banks were not
significantly exposed to sub-prime related products, they are nonetheless
affected by deteriorating credit conditions. That our banks are mainly
capitalised in rands is an important strength. This is a key element of our
evolving macro-prudential framework.
Nevertheless, it is incumbent on us to remain vigilant, to sharpen our
regulatory oversight and to work with banks to identify any potential problems
early and deal with them decisively. Credit extension has slowed, probably more
rapidly than is desirable. We expect our banks to continue to extend credit to
worthy customers, noting that it is precisely the rapid withdrawal of credit
that has plunged much of the developed world into crisis.
Budget policy in a time of crisis
The central goals of economic policy remain accelerating growth and job
creation, broadening economic participation and reducing poverty. Progress in
these areas will be more difficult over the period ahead. Policy adjustments
need to reinforce macroeconomic stability in the context of a deteriorating
international environment and provide a temporary cushion to the domestic
economy. Lower inflation in the months ahead should contribute to moderating
interest rates.
Under the leadership of President Motlanthe, a task team comprising of
business, organised labour, community organisations and government has been
convened to agree on an appropriate South African response to the current
crisis. Chaired by the managing director of Nedlac, Mr. Herbert Mkhize, this
initiative is rightly focused on both the immediate response required and our
longer term policy goals.
I have alluded already to the five principles that have informed our budget
planning this year: Protecting the poor, creating employment, investing in
infrastructure, promoting competitiveness and fiscal sustainability. The
largest adjustments to spending plans go to poverty reduction: R25 billion is
added to the budgets of provinces, mainly for education and health care, and
R13 billion for social assistance grants and their administration. R4 billion
is added to the school nutrition programme and R2.5 billion goes to
municipalities for basic services. Madam Speaker, the quantum of the rands and
cents allocated to these programmes is not what provides relief. No, we can
only be satisfied when we know that the quality of life of the poor is
improving, that children are being properly educated, that learners have access
to food in schools, that mothers visiting clinics get proper and dignified
treatment, that the criminal justice system is putting those who rob and thieve
behind bars. Itâs what the money buys that matters, and so fixations with the
size of deficits or surpluses are illusory detours.
Secondly, greater effort is needed to accelerate employment growth.
Government will work with business and organised labour to protect work
opportunities and accelerate skills development over the period ahead.
Additional funding over the medium term will go to the Working for Water and
Working on Fire programmes, and R1 billion goes to the Umsobomvu Youth Fund.
R3.7 billion is added for low-income housing projects and R4.1 billion is set
aside for the second phase of the expanded public works programme.
I propose that participating departments, provinces and municipalities
should be challenged to exceed their targets for creating EPWP jobs over the
period ahead, and so the contingency reserve this year has been increased to
allow for additional funding of employment projects in the 2009 Adjustments
Appropriation, if sufficient progress is made.
Building our capacity to grow is the third thrust of our spending plans. It
is reflected in governmentâs R787 billion infrastructure investment plans and
is a cornerstone of our development contract with business, organised labour
and other social partners. In this budget a further R6.4 billion is added for
public transport, roads and rail networks, R4.1 billion for school buildings,
clinics and other provincial infrastructure projects, and R5.3 billion for
municipal infrastructure and bulk water systems. Major investments in power
generation, transport networks and telecommunications are in progress, building
an environment within which mining and industrial development, tourism and our
services economy will prosper, even if the short term outlook is poor.
Fourthly, a time of restructuring is an opportunity to address regulatory
and microeconomic barriers to our competitiveness. This involves detailed
Sectoral analysis, and ongoing consultation with affected industries and
interest groups it is the key to sustained, faster, long-term growth. In this
budget, R1.6 billion is added to industrial development and small enterprise
support programmes, and R1.8 billion goes to rural development and small farmer
support. A further R1 billion is added for electricity demand management,
together with tax incentives for investment in energy efficient technologies.
The new automotive production and development programme includes a production
subsidy, which receives R870 million over the next three years. Additional
funding also goes to consumer protection, the competition authorities and
enhanced testing capacity of the SA Bureau of Standards.
The fifth principle is the sustainability of the public finances. In the
present global uncertainty, our task is to respond to the economic downturn
without putting our long-term financial position at risk. Although the budget
deficit will rise to 3.8 per cent of GDP next year, debt service costs will
remain moderate over the next three years, at about 2.5 per cent of GDP. This
is possible because we have had the courage to make the right choices, over the
past decade.
In 1996 public debt was 48 per cent of GDP and rising. We brought to this
House a macroeconomic strategy that confronted the problem, boldly and
decisively. Today, public debt is 23 per cent of GDP. Reducing the budget
deficit was neither easy nor popular. But it was the right thing to do, and the
outcome is that, year by year, the burden of debt service costs has declined
and resources have been released to spend on education, healthcare, housing and
infrastructure. This also means that today we are able to respond to the
economic downturn, boldly and decisively. We are able to announce a
countercyclical fiscal stimulus, on the strength of a secure and
sustainable
fiscal position.
Members of the House will know that substantial capital spending projects
are under way in the electricity sector, in the construction of new commuter
rail facilities and in improving the Gauteng freeway network, that are financed
outside of the main budget framework. Taking the financing needs of these
entities into account, the public sector borrowing requirement for next year is
expected to be 7.5 per cent of GDP, or some R186 billion to be raised from
domestic institutions, investors, multilateral institutions and portfolio
inflows from abroad.
This is a substantial fiscal boost, against the background of the budget
surplus recorded over the three years to 2007/08. But Members of the House, and
fellow South Africans, we are borrowing not to rescue failed banks or to
artificially delay the restructuring of our industry and trade, but to
construct the roads and the power stations, the classrooms and hospital wards,
to modernise technology and transform public service delivery, as the
foundations of growth and broad-based development in the decades ahead.
The term âshovel readyâ has sometimes been used to distinguish projects that
are ready for implementation from those that have still to be planned, designed
and contracted. We are fortunate in that so much of our spending programme is
not just âshovel readyâ, but is âalready shovellingâ. The expansion of our
public employment programme has been a year in the planning and is ready for
implementation. Rapid bus transit systems, freeway improvements, electricity
and water systems and rail projects are under way. And so our roads, our
airports and our railway stations have become construction sites, as millions
of inconvenienced commuters experience daily.
The national budget contributes to the financing of some of these
investments, and there is also a role for our development finance institutions
in supporting state owned enterprises, municipalities and private companies
raise the finance required for major capital projects.
The success of Siyenza Manje in bringing in skills in support of municipal
infrastructure investment is an example of how a developmental state can better
coordinate its interventions. The Development Bank of Southern Africa is now
considering broadening this model to support the financial management and
delivery capacity of municipalities. In addition, a proposal to strengthen the
balance sheet of the Development Bank of Southern Africa is currently under
consideration, to enable it to expand its contribution to financing municipal
infrastructure improvements in partnership with private sector lenders.
Key to transforming rural livelihoods is to better enable small scale
farmers to use land more productively. Improved support to farmers is
important, but access to long term finance is a critical ingredient too.
Following good progress in repairing its integrity and in giving effect to its
core mandate to support agricultural investment, government will also consider
proposals by the board of the Land Bank to strengthen its balance sheet.
The Industrial Development Corporation is currently assessing its possible
role as a partner in supporting investment and employment in sectors or
industries affected by the cyclical slowdown. Differentiating the effects of
short term cyclical difficulty with the need for longer term industrial
restructuring is difficult and sometimes involves policy considerations, and so
risk sharing with the private sector has its place in preparing for future
growth. At the same time, government is mindful of the need to avoid passing on
risks to taxpayers that would be better managed in the business sector. Though
there may be a role for public funds in support of businesses in difficulty, we
need to ensure that an undue capitalisation of private wealth does not result
in a financial burden of debt on future generations.
Madam Speaker, there is also an expanding role for our housing finance
institutions, and for the agencies that support small enterprise development
and economic empowerment transactions in the evolution of our development
finance architecture. These are the instrumentalities of our developmental
state, not in isolation from the wider financial system, but sharing risk,
co-financing investment and jointly engaging with the banking sector in
constructing a vibrant growing economy.
Public expenditure plans: growth, employment and social development
Total government spending next year, Madam Speaker, will amount to R834
billion, including the second tranche of the R60 billion loan to Eskom and an
unallocated contingency reserve of R6 billion. Real growth in spending on
public services will average 5.1 per cent over the next three years. Let me
elaborate briefly on some of the key spending proposals that are provided for
in the medium term expenditure framework set out in this yearâs Budget Review
and the Estimates of National Expenditure.
Education
Governmentâs contribution to public education remains our single largest
investment, because we know that it is the key to reducing poverty and
accelerating long-term economic growth. Education spending has grown by 14 per
cent a year for the past three years and accounts for R140.4 billion in the
spending plans of provinces and national government for 2008/09.
We received a tip from Mr. Xolani Notshe of Port Elizabeth thanking us for
allocating money to libraries. He says âlibraries are central in community
development. Libraries will assist your successor to collect more taxes because
we would be an educated and skilled nationâ. I agree entirely.
Key priorities in education include extending the no-fee schools policy to
60 per cent of schools, from 40 per cent at present, expanding the school
nutrition programme, reducing average class sizes in schools serving lower
income communities, increasing expenditure on school buildings, strengthening
teacher training programmes and recapitalising technical high schools over the
next three years. An additional R700 million is allocated for higher education
subsidies and to accommodate the anticipated growth in student enrolment from
783 900 last year to 836 800 in 2011. The National Student Financial Aid Scheme
receives an additional R330 million. Funding is provided for a new National
Education Evaluation Unit. Many South Africans will agree, I am sure, with Mr.
Paul King who writes, âRegarding the salaries of teachers, I personally feel
that we do not reward them enough for what they do and what we expect from them
in terms of the daily care and education of our children.â Madam Speaker, a new
salary dispensation for teachers was introduced last year, linked to school and
teacher performance, hence the urgency of establishing this new Evaluation
Unit.
Health services
A new unit to address the quality of service provision is also included in our
health spending proposals. This will be named the National Office for Standards
Compliance, and it will set and audit norms and standards for hospitals and
primary care centres.
We are profoundly conscious of the complexity of the challenges facing our
health services, and the strain on resources associated with a rising disease
burden. Policy interventions supported in this budget focus both on health
facilities and services and on more aggressively combating the causes of
ill-health. An additional R1.8 billion is budgeted to introduce three new child
vaccines, which have proved effective in preventing infant and child deaths.
The tuberculosis and HIV and Aids programmes both receive additional resources.
We are budgeting to extend screening of pregnant mothers coming into the public
health system and to phase in an improved drug regimen to prevent
mother-to-child HIV transmission. Our anti-retroviral programme now covers 630
000 people, and the medium term expenditure framework provides for an increase
to 1.4 million by 2011/12.
The 2009 Budget makes provision for further improvements in the remuneration
of health professionals, and for continued expansion of the hospital
revitalisation programme. A total of 31 hospitals are under construction, 18 of
which will be completed over the next three years.
The development of a national health insurance system is aimed at improving
the equity of health care financing and enhancing the quality of care for all
South Africans. These are complex reforms and the task team on social security
has been mandated to conduct research and advise on the way forward.
Fighting crime
The fight against crime is drawing on the work of the criminal justice sector
review. Efforts to overhaul the forensic and investigative capacity of the
police are under way, together with enhanced use of available technology. A
further R5.4 billion is allocated to interventions aimed at improving criminal
justice services, the creation of an integrated fingerprint and DNA database,
improving detective capacity, upgrading IT and telecommunications systems and
increasing the number of police officials from 183 000 last year to over 204
000 in 2011/12. Funding is provided for additional policing capacity during the
2010 FIFA World Cup, for construction of new prisons and for implementation of
the Child Justice Bill.
Agricultural support and rural development
A notable tip on to the current economic situation and the steps which can be
taken to alleviate its effects came from Mr Lazarus Lamola of Polokwane. He
writes that when he was a teenager, âthe villagers used to plough their land
and harvest enough food to last at least a year. There was plenty of maize,
beans and other vegetables, and except for drastic drought years, we would
never go hungry. The subsistence farming system has totally collapsed in many
areas. It is sad to see vast amounts of land go to waste when we have a food
price problem.â He suggests the encouragement of partnerships between private
farmers and villagers to once again use the land for food production and
sustenance.
Madam Speaker, increasing agricultural output, raising rural incomes,
supporting small scale farmers and investing in rural roads are key objectives
of governmentâs rural development strategy. The budgets of the Illema/Letsema
campaign, which distributes agricultural starter packs to poor households, the
comprehensive agricultural support programme and allocations to targeted rural
infrastructure projects receive a further R1.2 billion boost. The budget for
land reform and land restitution over the next three years totals R20.3
billion.
Investing in housing and municipal infrastructure Housing and the eradication
of informal settlements remain at the forefront of our infrastructure
investment plans, and impact significantly on both employment creation and
poverty reduction. In the past three years, the municipal infrastructure grant
programme has spent about R32 billion. Over the next three years,
infrastructure grants to municipalities total R67 billion, and a further R45
billion will be spent on the Breaking New Ground housing programme. Together
with investment in roads and public transport, these constitute one of the
largest areas of expansion of public sector spending, and are rightly
prioritised as part of our response to the current deterioration in employment
and economic activity.
Social grants
The budget adds R13.2 billion to our social grants programme. The extension of
the child support grant to 15 takes effect this year and the reduction in the
eligible age for men to 60 is in progress. Strengthening our social security
safety net is critical during this period when many more poor families are
vulnerable.
With effect from April this year, the maximum values of the old age,
disability and care dependency grants will rise by R50 to R1010 a month, the
foster care grant will increase to R680 and child support will rise to R240 a
month. Compelling evidence that the phasing-in of the child support grant has
contributed significantly to reducing child poverty has emerged in recent
research, and so consideration is being given, subject to affordability, to the
extension of the child support grant to the age of 18.
Madam Speaker, the budget papers contain details of many more areas of
public expenditure â increased allocations for roads and commuter transport
services, an allocation to the Universal Access Services Agency to subsidise
set-top boxes as part of the digital television broadcasting initiative, an
expansion in training capacity for the Reserve Force of the Department of
Defence, upgraded IT systems for the Department of Home Affairs and to
modernise immigration and customs services at border control points. Funding
goes to the Independent Electoral Commission for 30 000 barcode scanners and
105 000 transparent ballot boxes. We are budgeting for R1.6 billion for South
African Airways to support its turnaround strategy, which includes reducing
costs and improving efficiency. I am sure that the House will agree with my
hope that this will not be a recurring allocation.
Efficiency and effectiveness
Budgeting is not only about expanding expenditure on constructive and necessary
activities, it is also about rooting out waste, promoting cost-efficiency and
phasing out ineffective programmes. Departments have again been asked to
identify savings, and cuts amounting to R19 billion were effected in the final
stages of preparing the 2009 Budget.
In the period ahead, it will be necessary to take stronger action in pursuit
of efficiency and better targeted expenditure. There is insufficient control of
foreign travel, advertising and public relations activities and consultancy
services. Stricter oversight of the activities and executive remuneration in
agencies and government enterprises is also required. I believe, Madam Speaker,
that Parliament and our committees should play a more active role in
challenging accounting officers to plan their efficiency saving initiatives up
front, and report regularly on progress. A greater sense of responsibility
needs to permeate the ethos of government all the way through the
accountability chain.
Madam speaker, the next few years are going to be tougher. If we are to
afford continued expansion of social services and our social wage, then, in
addition to the need for greater efficiency, we have to conduct a thorough
assessment of all of governmentâs programmes to see how we can improve value
for money and to identify areas where we can eliminate or reduce wastage. The
Ministersâ Committee on the Budget intends, in its handover report to the new
administration, to propose that the incoming President announce a Comprehensive
Expenditure Review. Its aim would be to ensure that as we spend more, we also
spend better. In addition, should confront the awkward truth that there are
programmes of government that do not work, and on which we should spend
less.
Revenue estimates and tax proposals
Madam Speaker, the revised estimate of revenue for 2008/09 is R14.2 billion
less than we planned in the 2008 Budget. For the year ahead, the main budget
revenue estimate is R50 billion lower than we projected in February last year,
against the background of slower growth, depressed trade and declining company
profits.
In setting the gross tax revenue target of R659 billion for the year ahead,
we have taken into account the need to provide relief to households and
encouragement to the business sector, while continuing to broaden the tax base
through which the requirements of the fiscus have to be met.
Personal income tax
The proposed adjustment to the personal income tax schedules will provide
relief of R13.6 billion to individual taxpayers, compensating fully for the
effects of inflation and providing further relief mainly to lower and middle
income earners. The tax-free income threshold next year will be R54 200 for
taxpayers below the age of 65 and R84 200 for those over 65.
It is gratifying to note that there has again been excellent progress in
expanding the number of registered taxpayers. In view of progress in
simplifying the tax return process and the waiver of the annual filing
requirement for qualifying taxpayers, it is proposed that the current Standard
Income Tax on Employees system should be discontinued by 2010. I appreciate
that the administrative reforms, the adjustment to efiling arrangements and the
construction of more effective communication channels between SARS and
individual taxpayers are huge reform projects, on the one hand, and sources of
numerous personal inconveniences, on the other. But we are getting there, and
these improvements will serve as a platform for improved fiscal integrity
for
decades to come.
Mineral and petroleum royalties
After discussions with both labour and the mining industry and taking into
account the potential impact of the economic slowdown on the mining industry, I
propose to defer the mining royalties regime from this year to 2010. This
provides a boost to the industry of about R1.8 billion, which will assist in
minimising job losses. I have agreed with the mineworkersâ unions and the
Minister of Minerals and Energy that government will consider establishing an
agency, to be jointly managed by business, labour and government, to invest in
economic development in mining towns or labour-sending areas affected by
retrenchments.
Madam Speaker, perhaps it is because miners are used to digging deeper, that
their creativity and commitment to improve conditions for mining communities
serve as an example of the kinds of partnership required to ensure that South
Africa emerges stronger from this global crisis. If the new development agency
can be established this year, we will make an allocation towards its activities
in the adjustments budget.
Environmental fiscal measures
Tax tips continue to make up the majority of the tips submitted. Mr. Saul
Margolis of Johannesburg called for a tax to be imposed on incandescent light
bulbs to encourage people to use compact fluorescent lightbulbs and save
energy. Mr. Margolis, I have asked that this be included in the revenue
proposals this year.
We propose taking further steps to encourage energy efficiency and reduce
harmful emissions, some of which have tax implications.
⢠An incentive for investments by companies in energy-efficient equipment will
be introduced, in the form of a supplementary depreciation allowance.
⢠The levy on plastic shopping bags will be increased from 3 cents to 4
cents.
⢠An increase is proposed in the international air passenger departure tax,
which was last raised in 2005/06.
⢠The existing excise duties on motor vehicles will be adjusted to take into
account carbon emissions.
It is important, furthermore that we should encourage South African
companies to take advantage of the clean development mechanism established in
the Kyoto Protocol. A favourable tax treatment will therefore be introduced for
the recognition of income derived from the sale of emission reductions, as
certified through this mechanism.
Customs and excise duties
The tax code discourages another category of atmospheric emissions, Madam
Speaker. I refer to the duties on tobacco products. This yearâs increase in the
duty on cigarettes and cigars is 13 per cent, with somewhat lower increases in
respect of cigarette and pipe tobacco. A packet of 20 cigarettes will cost 88
cents more. I should also advise that a bottle of wine will cost 10.5 cents
more, and a can of beer 7 cents more.
Mr At du Plooy has written to ask, âplease be a little more lenient on the
tax on whisky for the old folks. We have so little to enjoy, you know things
that used to happen after dark, no longer happen. All we have left to enjoy is
a little entertainment before supper.â He asks for leniency, reminding me that
this will ultimately be for my own benefit as well. A bottle of whisky, Mr. du
Plooy, goes up by R3.21.
Fuel levies
As road-users, Madam Speaker, we have gained some advantage since mid-2008 from
lower international oil prices. As road-users we also know that there is a
substantial increase in spending on maintenance and construction under way, and
we still face a heavy burden of road accidents and associated compensation
claims. These are costs that have to be covered, and so there will be increases
in the fuel levies on 1 April this year, of 23 cents and 24 cents per litre in
respect of the general petrol and diesel levies, and 17.5 cents in the road
accident fund levy.
As indicated last year, it is proposed that the general fuel levy should
form part of a new municipal revenue arrangement to replace the former Regional
Service Council levies. In 2009/10, 23 per cent of the general fuel levy will
be earmarked for metropolitan municipalities to support expenditure on roads
and transportation infrastructure.
VAT and Tax administration
Over the years, we have received many tips from people running small
businesses, calling for an increase in the VAT registration thresholds. Mr.
Ivan Faught wrote in 2003 that âsuch a change would make it easier to work
oneself up to entrepreneurial status.â Effective from this year, the VAT
threshold is increased from R300 000 to R1 million.
Several administrative reforms are also in progress at SARS, including
customs modernisation in support of the rapidly changing trade environment, and
improved use of technology and third-party information to authenticate data and
reduce the need for supporting documents.
I am pleased to announce that taxpayers, practitioners and employers can
look forward to the return of the traditional tax season deadlines this year.
The Tax Season 2009 timetable includes a 60 day reconciliation period for
employers in April and May. Tax season for individuals starts in July. The
deadline for submission of income tax returns for individuals and trusts is 18
September for manual filers and 20 November for electronic submissions.
Tips for Trevor
Madam Speaker, I need to thank those many South Africans who have
contributed to the âTips for Trevorâ campaign. Since it was first introduced
nearly 10 years ago, you have sent over 20 000 suggestions, including 2 363
this year.
Your voices have been heard, in countless ways. You advised in the early
years that the child support grant should be extended above its initial age
threshold of 7, and that has been done. You advised that public benefit
organizations needed greater tax relief, and that has been done. You advised
that the tax treatment of retirement fund withdrawals was too onerous, and so
that has been revised. You have advised in no uncertain terms that the SARS
call centre is dysfunctional, and so that is being fixed, as we speak.
The call for the provision of free anti-retroviral treatment was another
topic that persistently featured over the years. Jackie Mondi of Berario wrote
an extensive tip in 2003, calling for a âspecial fund for fighting HIV/AIDS;
that focus should be on both care and prevention.â In 2004 government was able
to roll-out ARV treatment in public health facilities around the country for
those living with HIV and Aids. Recent tips reflect appreciation of this, such
as the one from Gemi Malau who wrote: âI think the budget needs to be commended
as it is now focusing on HIV/AIDS.â
Conclusion
At this time last year, Madam Speaker, we noted that ââ¦as with the
weatherâ¦,economic trends do not stop at border posts, they carry no passports,
yet they have the potential to wreak havoc, even when plans have been carefully
laid.â Every corner of the globe is affected by the economic turmoil that we
are currently experiencing. It is not just that the adjustments to the economic
crisis may be difficult or expensive, there is also the uncertainty about the
burden that will be visited on future generations by the interventions being
contemplated today.
Nouriel Roubini, an economist popularly credited with predicting the present
financial crisis, recently said, â...while this crisis does not imply the end
of market economy capitalism, it has shown the failure of a particular model of
capitalism: the laissez faire unregulated (or aggressively deregulated),
wild-west model of free market capitalism without prudential regulation and
supervision of financial markets and with the lack of proper provision of
public goods by governments.â
Fellow South Africans, our response to the challenge before us builds on
policies we have consistently pursued over the past decade and half: sound
prudential regulation of the financial sector and a strong emphasis on the
provision of public goods by government.
Last week, President Motlanthe summarised our response to this financial
crisis.
⢠Over the next three years, we will invest R787 billion in the infrastructure
needed for future growth and development.
⢠We will accelerate the Expanded Public Works Programme, and work with
business to mitigate job losses and accelerate skills development
⢠We will strengthen our development finance institutions, and support
industrial restructuring and agricultural development
⢠Our social assistance programmes will reach over 13 million people and public
expenditure on education and health care will increase strongly.
But it is not the numbers in the Budget that will measure the quality of our
response to the present crisis, Madam Speaker, but the character of our resolve
to work together, putting others before ourselves, confident in the choices we
have made and committed to face our awkward and deepest truths.
Madam Speaker, there will be a new administration in place next year, and
there will no doubt be new insights on which to draw in framing the next budget
and medium term expenditure framework. But the National Treasury as a source of
economic and fiscal expertise will still be in place, and I want to commend to
the House the constructive role that the Treasury plays in absorbing and
synthesizing a vast tapestry of economic and financial statistics, policy
documents and programme information, as part of the process of preparing the
national budget proposals.
After drawing on advice from so many diverse quarters, I am also indebted to
my colleagues in Cabinet who share with me the collective responsibility for
the overall integrity and coherence of the Budget. President Mbeki, and in
recent months President Motlanthe, have provided the leadership and good
judgment required to bring the budget process to a conclusion, ably supported
by Deputy Presidents Mlambo-Ngcuka and Mbete.
I am especially indebted to members of the Ministers Committee on the
Budget, who have set aside their time, reviewed lengthy budget memoranda and
engaged with insight and energy in the debates that contribute to refining the
spending proposals.
Deputy Minister Jabu Moleketi served the Treasury with distinction, notably
in representing the fiscus on the Local Organising Committee for the FIFA World
Cup. His successor, Nhlanhla Nene, has brought a keen eye for detail to the
final stages of the budget process. The MECs for Finance have again been
generous in sharing theirexperience and insights and in dealing with difficult
challenges this year â I wish to express a personal appreciation for their
support and dedication to the cause of sound public finance.
Our collective thanks are due also to:
⢠Governor Tito Mboweni, whose leadership of the Reserve Bank is cause for both
pride and confidence in our monetary management and banking supervision
⢠Commissioner Pravin Gordhan and the staff of the South African Revenue
Service, who continue to serve the nation and the fiscus with dedication beyond
the call of duty
⢠Mr Howard Gabriels, chair of the Statistics Council, Statistician-General
Pali Lehohla and the staff of Stats SA, whose economic reports in recent months
have sometimes brought unwelcome news, but nonetheless timely and
comprehensive
⢠The Financial and Fiscal Commission and its chairperson, Dr Bethuel Setai,
whose advice remains critical to the integrity of our intergovernmental fiscal
system
⢠NEDLAC, its Managing Director, Mr Herbert Mkhize, and representatives of the
business, labour and community constituencies on the Public Finance and
Monetary Chamber, particularly for their efforts to bring coherence to a
national perspective on the current economic crisis and how we should
respond
⢠The Honourable Arthur Moloto and Honourable Tutu Ralane who chair the
Portfolio and Select Committees on Finance respectively and to the joint chairs
of the Budget committee, Honourable Louisa Mabe and Honourable Elliot
Sogoni.
Lesetja Kganyago leads the National Treasury team with unflagging
energy.
The staff in the Ministry still tolerate me with good grace and endless
patience.
I also have to thank my family for support and inspiration.
Nineteen years ago, on this date, in this city, just 200 meters down the
road, former President Mandela stepped up to the podium to make his first
address as a free man.
He said, and I quote, âThe need to unite the people of our country is as
important a task now as it has always been. No individual leader is able to
take on this enormous task on his own.â
Madam Speaker, these words remain profoundly relevant today.
Fellow South Africans, we cannot promise an easy road ahead, or a rapid
resolution of the economic and social challenges we face. But we know that the
choices we have made set us on a path of shared growth and broadening
participation in a fairer and more dynamic economy â there is hard work to be
done if we are to achieve the transformation we seek. To travel this road with
confidence, we must remain united.
Ngiyabonga
Issued by: National Treasury
11 February 2009
