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Budget Speech 2016

Honourable Speaker
Mister President
Mister Deputy President
Cabinet Colleagues and Deputy Ministers
Governor of the Reserve Bank
MECs of Finance
Fellow South Africans
I have the honour to present the 2016 Budget of President Zuma’s second
administration.

We do so in a spirit of frankness, both about our challenges and the opportunity to
turn our economy’s direction towards hope, confidence and a better future for all.
Low growth, high unemployment, extreme inequality and hurtful fractures in our
society – these are unacceptable to all of us.

I have a simple message. We are strong enough, resilient enough and creative
enough to manage and overcome our economic challenges.

All of us want jobs, thriving businesses, engaged professionals, narrowing inequality,
fewer in poverty.
All of us want a new values paradigm, a society at peace with itself, a nation
energised by the task of building stronger foundations for our future society and
economy.
We want our government to function effectively, our people to work in dignity, with
resources for their families, decent homes and opportunities for their children.
We want to see progress throughout our land, in agriculture, manufacturing, mining,
construction, tourism, science and research, sport and leisure, trade and commerce.
It is within our grasp to achieve this future.
It requires bold and constructive leadership in all sectors, a shared vision, a common
purpose, and the will to find common ground. Above all we need action, not just
words.
Let us unite as a team, sharing our skills and resources, building social solidarity,
defending the institutions of our democracy and developing our economy inclusively.
We do have a plan, to:
 Manage our finances in a prudent and sustainable way,
 Re-ignite confidence and mobilise the resources of all social partners,
 Collectively invest more in infrastructure to increase potential growth,
 Give hope to our youth through training and economic opportunities,
 Protect South Africans from the effects of the drought,
 Continuously improve our education and health systems,
 Accelerate transformation towards an inclusive economy and participation
by all,
 Strengthen social solidarity and extend our social safety net.
The Budget rests on the idea of an inclusive social contract, encompassing an
equitable burden of tax and a progressive programme of expenditures.
The Budget relies on institutions of good governance and a public ethic that values
honesty and fairness.

If we act together, on these principles, as public representatives, civil servants,
business people, youth, workers and citizens, we can overcome the challenges of
tough economic times and difficult adjustments.
In acting together we can address declining confidence and the retreat of capital, and
we can combat emerging patterns of predatory behaviour and corruption.
We are conscious of the difficulties we face. Our resilience as a nation, black and
white, can propel us to a better future if we make the right choices.
Honourable Speaker, I hereby table before the House:
 The 2016 Budget Speech,
 The 2016 Budget Review, including
o The fiscal framework,
o The revenue proposals, customs and excise duties and
estimates of national revenue, and
o Our responses to the Budgetary Review and Recommendation
Reports,
 The Division of Revenue Bill,
 The Appropriation Bill, and
 The Estimates of National Expenditure.
In addition, I am introducing the Revenue Laws Amendment Bill 2016 to adjust
certain provisions regarding to retirement funds, and related matters.
These are our budget proposals, and I look forward to further engagement through
the Parliamentary budget process.

Overview of the Budget
Honourable Speaker, the past year has seen a deterioration in the global economy.
In our own region, weaker business confidence coincides with a severe drought,
bringing with it rising prices and threats to water supply in many areas.
In addition we are obliged to confront the impact of slow growth on our public
finances, while continuing to respond to the expectations of citizens and communities
for improved education, reliable local services and responsive public administration.
The combination of multiple demands and constrained resources at times seems
overwhelming. How does the state deal with such complexity? What should we
prioritise?
As in the past, we have sought advice from citizens. This year, I sought budget
pointers on several specific things: What does government do well? What should we
stop doing? How can we achieve inclusive growth?
 On what we do well, South Africans have very clear views: Tax
administration. And paying social grants.
 What we should stop doing: Corruption and waste. Bailing out state
entities.
 How to support inclusive growth: Support for small business. Job
opportunities targeting the youth.
I greatly appreciate the response from so many South Africans – over 1500 in all. Mr
Faiek Sonday, and Ms Thuli Ngubane are with us today. Mr Sonday’s advice was
that “we should build more roads and train routes, because the sooner you get a
worker at the desk or machine the more productive the economy will be”. And Ms
Ngubane expressed the views of so many tipsters: “Let our schools’ infrastructure be
improved so that all schools are conducive to learning. This will ensure that we
produce the quality of students that can take our country forward.”
We agree, and indeed these are central priorities of the National Development Plan.
As points of departure for the 2016 Budget, Honourable Speaker, allow me to
emphasise several broad principles that flow through our NDP:
 It is a programme for inclusive growth – our social programmes, industrial
action plan, promotion of agriculture and rural development, skills and
training initiatives, investment in housing and municipal services are aimed
at both prosperity and equity, creating opportunities for all and broadening
economic participation.

 It is a plan for a strong mixed economy – in which public services and state
actions complement private investment, expansion of trade and social
enterprise.
 It recognises that improvements in the quality of education are the
foundations of broad-based growth, productivity improvement and
sustainable growth.
 It acknowledges that investment in infrastructure has to be enhanced and
sustained both to underpin economic growth and address the spatial
inefficiency and fragmentation of the apartheid landscape.
 It emphasises that employment creation has to be accelerated if growth is
to be inclusive, and that income security for all relies also on appropriate
social security, health services and social development programmes.
 It prioritises building the capability of the state, and strong leadership
throughout society, to drive development and promote social cohesion.
 It highlights that partnership between government, business, organised
labour and civil society is the key to policy coherence and more rapid
development.
The Budget tabled today is guided by the NDP. It is a budget for inclusive growth, it
emphasises partnerships amongst role players in our economy, it prioritises
education and infrastructure investment, it supports employment creation and it
contributes to building a capable, developmental state.
In brief, we propose the following:
 Against the background of slow growth, rising debt and higher interest
rates, the pace of fiscal consolidation will be accelerated. The budget
deficit will be reduced to 2.4 per cent by 2018/19.
 The expenditure ceiling is cut over the next three years by R25 billion,
mainly by curtailing personnel spending.
 Tax increases amounting to R18 billion in 2016/17 are proposed, and a
further R15 billion a year in 2017/18 and 2018/19.
 An additional R16 billion is allocated to higher education over the next
three years, funded through reprioritisation of expenditure plans.
 Taking into account projected increases in the cost of living, R11.5 billion is
added to social grant allocations over the next three years.
 Funds have been reprioritised to respond to the impact of the drought on
the farming sector and water-stressed communities.

In support of growth and development, Honourable Speaker, our initiatives are also
aimed at enabling and mobilising private sector and civil society capacity.
 Building on the success of our Renewable Energy initiatives, the
Independent Power Producers Programme will be extended to include coal
and gas power projects over the period ahead.
 Measures to strengthen tourism, agriculture and agro-processing are in
progress.
 Collaboration with regional partner countries is being stepped up to
improve border management, streamline trade flows and invest in
transport and communications corridors.
 Investment in our cities is being accelerated, creating opportunities for
participation of developers and other partners in housing, infrastructure
and commercial development.
 Regulatory challenges that affect mining investment and employment are
being addressed.
 A pathbreaking study of the cost of doing business has been completed,
and municipalities are working on identified reforms.
 Progress has been made towards a minimum wage framework, and to
reduce workplace conflict.
 The National Health Insurance White Paper has been published, and
proposals for comprehensive social security will be released by mid-year.
Engagement with social partners needs to be intensified. Project plans and
investments need to be managed and implemented.
But I know you will join me in acknowledging that the real champions of our
development are the activists and entrepreneurs, officials and facilitators, who get on
with the job, day by day, of managing programmes and running businesses, serving
communities and meeting needs.
Our faith communities, non-governmental organisations and community volunteers
all demonstrate daily that basic needs can be met with dignity. Initiatives like
“Operation Hydrate” and “Gift of the Givers” have led the way in responding to the
impact of the drought. The Gauteng Province’s Ntirhisano outreach programme
similarly emphasises that communities can be co-partners with government in
accelerating service delivery. We can strengthen these efforts as government,
business, religious and community organisations, by working together.

Global outlook
Honourable Members, South Africa’s economic prospects are intertwined with global
economic developments. A period of unprecedented monetary stimulus in response
to the 2008 recession is not yet over, and global volatility and structural imbalances
are far from resolved.
The pace of economic growth has slowed in many countries. The price of oil has
fallen by 50 per cent since December 2014.
Our major exports – platinum, gold, iron ore and coal – have seen substantial
declines in global demand and in prices. The effects on our economy are
widespread:
 lower export earnings,
 lower revenue,
 declining investment,
 job losses, and in some cases business failures.
For the world as a whole, growth declined from 3.4 per cent in 2014 to an estimated
3.1 per cent last year. In sub-Saharan Africa, the decline was from 5 per cent to 3½
per cent. A moderate recovery is expected over the next two years.
It is notable that faster growth is being achieved in countries which have undertaken
bold structural reforms, such as India’s scaling back of subsidies for industry and
opening up of trade opportunities, and the promotion of skilled immigration, urban
investment and labour-intensive manufacturing and agro-processing in South-east
Asian and several African economies. These efforts have helped boost investor
sentiment and reduce economic vulnerabilities.
Our own structural challenges and reforms are articulated in the National
Development Plan. Our economic recovery depends on our ability to convert the plan
into actions that deliver on the promise for a better life for all.
South African economic outlook
Fellow South Africans, growth rates of below 1 per cent fall short of what we need to
create employment and reduce poverty and inequality. The Treasury currently
expects growth in the South African economy to be just 0.9 per cent this year, after
1.3 per cent in 2015. This reflects both depressed global conditions and the impact of
the drought.

It also reflects policy uncertainty, the effect of protracted labour disputes on business
confidence, electricity supply constraints and regulatory barriers to investment.
However, the institutional foundations of our economy remain resilient:
 Macroeconomic policy is effective,
 The inflation targeting framework provides an anchor for price and wage
setting,
 Our banks and financial institutions are well-capitalised, and we have liquid
rand-denominated debt markets,
 The architecture of our Constitution, justice system, public and private law
and dispute resolution mechanisms is robust,
 We have excellent universities and research centres,
 We have a strong private sector,
 We are a resourceful people, committed to contributing to a better South
Africa.
Mr Raymond Wesley wrote to me as follows: “As South Africans, we don’t have an
appreciation of the strides we’ve made. Minister, show South Africans, especially the
rich, that people’s lives have changed for the better.”
This is true, yet there is more to be done.
We are resilient, we are committed, we are resourceful. We know how to turn
adversity into opportunity.
In the numbers, Honourable Speaker, there are indicators that an economic
turnaround is possible if we build confidence and make the right choices.
 Business services, tourism and communication services continued to
expand over the past year, contributing positively to job creation.
 While overall agricultural output has declined under severe drought
conditions, there has been strong growth in several export products:
including nuts and berries, grapes and both deciduous and citrus fruits.
 Overall export growth by volume was over 9 per cent last year, and will
continue to benefit from the competitiveness of the rand. South African
exports to the rest of Africa now exceed R300 billion a year, up from about
R230 billion just three years ago.

 Retail trade data for the last quarter of 2015 indicate growth of over 4 per
cent in real terms, signalling that consumer spending remains buoyant
despite declining confidence.
 Investments amounting to over R20 billion have recently been announced
in the automotive sector.
Yet our economy is not growing fast enough to raise employment or improve average
incomes, Honourable Speaker. Investment growth must be substantially scaled up.
Growth and development
So we are resolved to restore the momentum of growth, to ensure that it is inclusive
and sustainable, and to preserve our economy’s investment-grade status.
As Minister Nene put it in his October Medium Term Budget Policy Statement
address: “If we do not achieve growth, revenue will not increase. If revenue does not
increase, expenditure cannot be expanded.”
This means we must address institutional and regulatory barriers to business
investment and growth. It means we must give greater impetus to sectors and
industries where we have competitive advantages. And it means being bold where
there is need for structural change, innovation and doing things differently. We need
agility and urgency in implementation.
International experience has demonstrated that growth is ignited by strong and stable
political and economic institutions, sound infrastructure that reduces the cost of doing
business and facilitates trade, competition between firms and openness to trade and
an environment where firms invest and undertake research and development. We
also know that the more inclusive the economy the greater its scope for growth.
These are the challenges we hear in South Africa today.
 We are responding to appeals from the business sector for greater
certainty in respect of policies that affect investment decisions.
 We are engaging with proposals from organised labour for a minimum
wage policy, and for progress on opportunities for young people.
 We are responding to action in communities where services are missing or
badly managed.
 We are crafting solutions to the voices of students regarding fees and
housing.

I need to emphasise that violent protest is not an acceptable way of articulating these
challenges.
Also, in these and other areas, the choices we make cannot meet every need, and
the action we require involves collective action by many stakeholders. Today’s
Budget sets out government’s plans for the next three years, building on what we
have achieved since 1994. It also signals the actions underway to improve policy
coordination and collaboration between social partners and stakeholders.
As outlined by the President, initiatives are in progress to address our policy
coordination and implementation challenges.
 Over 80 bills and plans have been reviewed since September last year as
part of the new socio-economic impact assessment programme, under
Minister Radebe’s oversight. The aim is to address possible regulatory
constraints pro-actively before they take effect.
 Visa regulations have been revised following consultation between
Ministers Gigaba and Hanekom and concerns raised by the tourism
industry.
 Talks are in progress under Minister Olifant’s leadership to improve
workplace dispute resolution procedures.
 Minister Davies is introducing a new investment promotion agency to
streamline administrative procedures and enhance our position as an
African financial centre.
 Special economic zones and employment-intensive sectors with export
potential have been prioritised for support by the Industrial Development
Corporation.
 Initiatives to transform ownership of land and improve productivity in
agriculture are under way, and Ministers Zokwana and Nkwinti are
addressing drought-related challenges in rural areas.
 Under Minister Molewa’s guidance, South Africa’s response to the global
climate change challenge has been prepared, and work with the National
Business Initiative on the green economy has been strengthened.
 Our environmental employment programmes continue to earn international
recognition. The Community Work Programme is expanding its reach and
Jobs Fund partnership projects of R12 billion have been approved.
 Building on the Phakisa oceans economy initiative, a R9 billion investment
in rig repair and maintenance facilities at Saldanha Bay is planned, and
work has begun on a new gas terminal and oil and ship repair facilities at
Durban.

 Minister Joemat-Pettersson is overseeing our renewable energy, coal and
gas IPP programme, and preparatory work for investment in nuclear
power.
 Minister Pandor’s department is leading work on beneficiation initiatives,
including titanium, fuel cells, fluorochemicals and composite materials.
 Minister Motshekga is working with social partners on the National
Education Collaboration Trust to identify and implement school
improvement initiatives.
In recent weeks, President Zuma, other Ministers and I have engaged with business
leaders to understand their concerns and views. Confidence and shared
understanding have been reinforced. These engagements are clearly critical to
boosting our economy, and must be extended to include regional forums and other
stakeholders.
We particularly welcome the working groups that have been established and several
practical proposals for joint action. These include a collaborative initiative to combat
corruption and abuse of tender procedures, a new fund to accelerate small and
medium enterprise development and measures to build investor confidence and
contribute to social cohesion.
By removing constraints, supporting innovation, protecting jobs, diversifying our
economy and exploring new opportunities, we can expand growth prospects.
Our economic outlook is not what it should be, global uncertainty and the drought are
very real challenges, but our efforts to build a better future continue.
We are resilient, we are committed, we are resourceful.
By working together we can increase growth, broaden participation and inspire
confidence in our economy and society.
Investment and sustainable growth
Honourable Members, the economist Dani Rodrik has recently noted that in those
countries that are still growing rapidly, despite global economic headwinds, public
investment is doing much of the work. To finance the investment needed for
sustainable growth, we have the institutional capacity to blend international and
domestic savings, and to combine public and private sector financing to mitigate risk
and reduce the cost of capital.
The Presidential Infrastructure Coordinating Commission, under Ministers Nkwinti
and Patel, has brought greater coherence to our strategic investment plans. They

have drawn attention to the need for multi-year appropriations for major capital
projects. Reform in this regard is under consideration.
 Energy investment amounts to R70 billion this year and will be over
R180 billion over the next three years, as construction of the Medupi,
Kusile and Ingula power plants is completed.
 Transport and logistics infrastructure accounts for nearly R292 billion over
the next three years under Minister Peters’ oversight. Transnet is acquiring
232 diesel locomotives for its general freight business and 100 locomotives
for its coal lines. There is R3.7 billion to upgrade the Moloto Road,
R30 billion for provincial roads maintenance, R18 billion for bus rapid
transit projects in cities and refurbishment of over 1700 Metrorail and
Shosholoza Meyl coaches.
 R62 billion is allocated for the housing subsidy programmes of Minister
Sisulu’s department, and R34 billion for bulk infrastructure and residential
services in metropolitan municipalities.
 R28 billion will be spent over the MTEF on improving health facilities and
R54 billion on education infrastructure.
 Under Minister Mokonyane’s leadership, the next phase of the Olifants
River water scheme is in progress, completion of the supply to Lukhanji
Municipality in the Eastern Cape, completion of the Wolmaransstad
wastewater treatment works and construction of the Polihali Dam as part of
the Lesotho Highlands project.
These are some components of the R870 billion public sector infrastructure
programme over the next three years.
But our growth and development depends also on an expanding envelope of
enterprise investment in industry, mining and mineral beneficiation, agriculture and
agro-processing, housing, commercial development and tourism facilities. There are
also initiatives in progress to reinforce financing of these projects.
 The Industrial Development Corporation continues to play a leading role in
financing manufacturing and beneficiation. It plans to invest R100 billion
over the next five years, including R23 billion set aside to support black
industrialists.
 We have completed a R7.9 billion capital transfer to the Development
Bank of Southern Africa, approved in 2013, which enables it to expand
lending and implementation support to municipalities, and to complement
private sector funding of strategic infrastructure projects. The Bank aims to
increase lending by R48 billion over the next three years. Initiatives to
reinforce municipal implementation capacity have been prioritised.

 The Land Bank has set aside a concessionary loan facility to assist
farmers in recovering from the impact of the current drought conditions.
Over the next three years R15 billion is allocated for land acquisition, farm
improvements and expanding agro-processing opportunities.
 I am also pleased to confirm that the New Development Bank will open its
Africa Regional Centre in Johannesburg next month. Our first instalment of
R2 billion was paid in December last year, and the Budget makes provision
for our further commitments over the medium term. This initiative gives
impetus to our role as a financial centre for Africa, and will facilitate access
to global finance by African investors and institutions.
So the capacity to mobilise finance is in place. Amendments to bank regulations are
proposed, furthermore, which will facilitate lending for long-term infrastructure
investment.
In energy, transport, telecommunication and urban development, there are many
opportunities for joint public and private investment and facilities management.
Corporate investment and participation by trade union funds in infrastructure
development needs appropriate policies and market structure frameworks, clarifying
the roles and linkages between public and private sector service providers. Progress
in these regulatory arrangements is the key to more rapid investment and more
inclusive growth in these sectors.
Our working partnership with business leaders and social stakeholders, under
President Zuma’s initiative, is about implementing these and other aspects of the
National Development Plan.
Fiscal consolidation
This year’s Budget, Honourable Speaker, is focused on fiscal consolidation. We
cannot spend money we do not have. We cannot borrow beyond our ability to repay.
Until we can ignite growth and generate more revenue, we have to be tough on
ourselves.
A central objective is to stabilise debt as a percentage of GDP. To achieve this, the
new budget framework sets deficit targets for the next three years which are lower
than the October Medium Term Budget Policy Statement projections. Spending plans
are reduced, a higher revenue target is set and net national debt is projected to
stabilise at 46.2 per cent of GDP in 2017/18, and to decline after that.
These budget proposals signal government’s commitment to a prudent, sustainable
fiscal policy trajectory, and respond directly to the changed circumstances since the
2015 MTBPS was tabled.

Honourable Members, we have had to take into account the slowdown in revenue
associated with slower economic growth over the past year. In last year’s Budget we
projected total tax revenue of R1 081 billion. The revised estimate is R11.6 billion
short of this total, but nonetheless about 8.5 per cent more than the 2014/15
outcome. This is a most commendable effort in the circumstances: all South Africans
have contributed, and the 14 000 staff of the Revenue Service have done a sterling
job.
A consolidated revenue target of R1 324 billion is set for 2016/17, or 30.2 per cent of
GDP. Expenditure will be R1 463 billion, leaving a budget deficit of R139 billion, or
3.2 per cent of GDP. The deficit will decline to 2.4 per cent in 2018/19.
Details of the proposed adjustments are set out in the Budget Review. I have
highlighted key spending priorities already. I need to emphasise that additional
spending on higher education, small business development, and amounts set aside
for responding to the drought and other contingencies, are accommodated through
stringent cost containment measures across all departments.
These include:
 Restrictions on filling managerial and administrative vacancies, subject to
review of human resource plans and elimination of unnecessary positions;
 Reduced transfers for operating budgets of public entities;
 Capital budgeting reforms to align plans with budget allocations while
strengthening maintenance procedures;
 Mandatory use of the new e-tender portal, thereby enforcing procurement
transparency and accessible reference prices for a wide range of goods
and services;
 A national travel and accommodation policy and instructions on conference
costs;
 New guidelines to limit the value of vehicle purchases for political officebearers;

 Renegotiation of government leasing contracts;
 New centrally negotiated contracts for banking services, ICT infrastructure
and services, health technology, school building and learner support
materials.
Initiatives of the Chief Procurement Officer will be extended to include monitoring of
state-owned companies’ procurement plans and supply chain processes, and
reviews of contracts above R10 million to ensure value for money. Centrally
negotiated contracts will be mandatory with effect from April 2016.

As Ms Nobuntu Mbelle advised me: “Minister, government should also tighten its
belt.”
The OCPO’s mandate is to achieve savings of R25 billion a year by the third year of
the current MTEF period, out of a government procurement budget of about
R500 billion a year. Our reform proposals draw on a consultation programme last
year that reached over 7 000 suppliers and 2 500 supply chain practitioners, and
attracted over 27 000 responses to a national survey.
It is clear that we can achieve considerable savings to government, while also
ensuring that procurement processes are streamlined and service providers are paid
on time.
I need to acknowledge the valued cooperation of Minister Ramatlhodi in addressing
our personnel management challenges. Government procurement reforms also rely
on collaboration with my colleagues and their respective departments: Minister Nxesi
at Public Works, Minister Davies and Minister Zulu in respect of industrial
participation, supplier development and black economic empowerment, and Minister
Cwele on telecommunications and the rollout of broadband services, which is both
an area of cost-saving in itself and an enabling condition for more efficient
procurement systems and electronic communication.
In saying this, Members of the House, I want to draw attention to the broader
opportunities that well-managed public administration reforms offer. Investments by
telecommunication partners in fast internet connectivity for schools, clinics and
government buildings brings down the costs, over time, for internet connectivity for
neighbouring homes and businesses. When government office accommodation
projects are well planned, they create opportunities for commercial and residential
development in the surrounding precinct. And government as an employer
contributes to training and organisational development across the wider economy.
Inclusive growth is in part about these linkages between public and private sector
development.
Tax proposals
Inclusivity is also an important principle in our tax system, Honourable Speaker.
South Africa has built one of the most effective tax authorities in the developing
world. The Revenue Service has made huge strides over the past decade in
enforcing the law while providing assistance to small businesses and individuals.
Public compliance with tax obligations is high. I am deeply mindful that we have a
corresponding obligation, as government, to improve the impact of every rand spent,
and to eliminate waste and corruption.

Inclusivity is also about the details of tax design, how it supports or hinders small and
growing businesses, how the burden of tax is shared across individuals and
households in different circumstances and in different income brackets, and how
taxes contribute to environmental and health objectives.
This year, in view of the need to raise additional revenue and reduce the budget
deficit, we have paid special attention to the fairness and inclusivity of the tax
system.
We have also been mindful of the need to moderate the impact of tax increases on
households and firms in the present economic context.
Our tax proposals include the following:
 Personal income tax relief of R5.5 billion, which partially compensates for
inflation, focused mainly on lower- and middle-income earners;
 An increase in the monthly medical tax credit allowances;
 An increase of 30 cents a litre in the general fuel levy;
 Introduction of a tyre levy to finance recycling programmes, increases in
the incandescent globe tax, the plastic bag levy and the motor vehicle
emissions tax;
 Introduction of a tax on sugar-sweetened beverages; and
 Increases of between 6 and 8.5 per cent in the duties on alcoholic
beverages and tobacco products.
The Income Tax Act already contains measures to encourage provision of bursaries
by employers to employees or their relatives. It is proposed that the income eligibility
limits and qualifying bursary values should be increased. Inclusion of industry-based
training organisations in the list of activities qualifying for tax-exemption is also under
consideration.
Our current taxes on wealth are under review by the Davis Committee. Higher capital
gains inclusion rates are proposed, together with an increase in the annual amount
above which capital gains become taxable. The transfer duty rate on properties
above R10 million will increase from 11 per cent to 13 per cent, and measures are
proposed to strengthen the estate duty and donations tax.
We will continue to act aggressively against the evasion of tax through transfer
pricing abuses, misuse of tax treaties and illegal money flows. Drawing on the work
of the OECD, the G20 joint project on base erosion and profit shifting and
independent bodies such as the Tax Justice Network, further measures will be taken

to address such revenue losses, including inappropriate use of hybrid debt
instruments.
With effect from 2017, international agreements on information sharing will enable
tax authorities to act more effectively against illicit flows and abusive practices by
multinational corporations and wealthy individuals. Building on the expertise gained
by the Large Business Centre since its establishment in 2004, SARS is well placed to
take advantage of the new Common Reporting System. Our international
collaboration is an essential part of efforts to ensure that the tax system remains
robust and contributes to inclusive growth. I will announce further steps in this regard
later in the year.
Time is now running out for taxpayers who still have undisclosed assets abroad. With
next year’s deadline in mind, additional relief will be offered for a period of six
months, from October this year, to allow non-compliant taxpayers to regularise their
affairs. Though not introduced today, we publish on our website the draft bill on the
special voluntary disclosure programme and the rates and threshold bill.
Social security, health insurance and retirement reform
Alongside the impact of tax on take-home pay, Honourable Members, there are also
contributions to pension and provident funds, group life arrangements and medical
schemes. Not everyone makes these contributions, and so their benefits are not
universally enjoyed.
Our policy commitment is to achieve universal health coverage, and comprehensive
social security. These contribute to the broader framework for inclusive growth,
decent work, income security and social protection that forms part of the National
Development Plan.
These are not straightforward reforms. Health financing is complex, because the
demands unavoidably exceed available funds. This is the case even in advanced rich
countries. Retirement and social security reform is complex, because existing
arrangements create long-term obligations, and the needs of today all too easily
crowd out provision for tomorrow.
Yet we must confront these challenges.
Minister Motsoaledi has published the White Paper on National Health Insurance. He
has rightly emphasised that public health service delivery improvements must be
prioritised, and reform of the private health and medical scheme environment is
needed. In order to take the White paper’s proposals forward, the Treasury will
shortly release further details on financing aspects.

In taking the comprehensive social security agenda forward, we have to recognise
that existing social security arrangements are fragmented, which raises costs and
leaves several social needs unaddressed.
Minister Dlamini and I have a shared responsibility for the social security reform
programme, which has to draw on both international good practice and
interdepartmental work of recent years.
Tighter regulation of the retirement funding industry is part of this reform effort. The
intention is to protect members’ interest and ensure that funds are not dissipated by
unnecessary administration and financial costs, and that an income in retirement is
assured. Our engagements with stakeholders will continue this year.
To support a greater national savings effort, we introduced Tax Free Savings
Accounts last year. The response has been most gratifying – about 150 000
accounts have been opened, with savings totalling R1 billion. For those who have not
yet taken this opportunity, you have until the end of this month to take advantage of
this year’s R30 000 limit for special tax treatment in these accounts.
Let me assure public servants, again, that reform of the retirement system will not
affect their accrued pension rights. Indeed, I am pleased to report that the investment
portfolio of the Government Employees’ Pension Fund grew by 12.2 per cent to
R1.6 trillion in the year to March 2015. GEPF pensioners will receive a 5.3 per cent
increase in April this year.
The Revenue Laws Amendment Bill 2016 introduced today gives effect to the
decision by Cabinet last week to postpone the annuitisation requirement for provident
fund members for two years to allow for further consultation with key stakeholders.
The tax benefits will continue to be implemented from 1 March 2016 for all retirement
fund contributions, including for provident funds.
State-owned Entities
State-owned companies, Honourable Speaker, have important roles to play in
boosting growth and development. But there are issues to address in their
governance, mandates, financing and operations.
The recently-released report of the Presidential Review Commission on State-Owned
Enterprises is a very welcome guide to the path ahead. It rightly emphasises that
effective leadership is central to progress. It notes that our infrastructure financing
requirements are huge, and require effective co-funding arrangements between
SOCs and other investors.

The asset base of state owned entities is over R1 trillion, equivalent to about 27 per
cent of GDP. They maintain networks and provide services – power, roads, transport,
water, communications – on which the rest of the economy depends.
But the PRC report indicates that the mandates of some of our entities overlap, some
operate in markets that should be more transparently competitive and some are no
longer relevant to our development agenda. Some are in perpetual financial
difficulties. So we must take decisive steps to ensure that they are effectively
governed and that they contribute appropriately to the attainment of the National
Development Plan.
Firstly, as President Zuma has indicated, entities that are no longer necessary should
be phased out. The resources raised or saved will be redirected to the balance
sheets of SOCs that should grow.
Secondly, where entities have overlapping mandates, rationalisation options will be
pursued. The merger of our housing DFIs is already in progress. There are entities
with regulatory responsibilities where capacity should be combined. We have
national and provincial entities with diverse property holdings, interests in farming or
trading or manufacturing enterprises – often inherited from the pre-1994
dispensation, typically buried in subsidiary companies that are not publicly
accountable. These are unnecessary state investments, and often a drain on
government resources. They are also assets with potential for growth in independent
hands.
It seems clear, furthermore, that we do not need to be invested in four airline
businesses. Minister Brown and I have agreed to explore the possible merger of SAA
and SA Express, under a strengthened board, with a view to engaging with a
potential minority equity partner, and to create a bigger and more operationally
efficient airline.
Thirdly, the balance sheets of several entities with extensive infrastructure
investment responsibilities are now stretched to their limits. Government has
provided support in the form of guarantees, which now total R467 billion or 11.5 per
cent of GDP. This is a source of pressure on the sovereign rating. Yet we need to
accelerate infrastructure investment in the period ahead. So we must broaden the
range and scope of our co-funding partnerships with private sector investors. This
requires an appropriate framework to govern concession agreements and associated
debt and equity instruments, and appropriate regulation of the market structure.
In taking this forward, we are able to draw on our experience in road funding
concessions, in building the renewable energy market, and in promoting broadband
telecommunications. Across these and other sectors we have much to learn from
each other, both nationally and through provincial and local initiatives.

Minister Brown is in discussion with Transnet’s leadership on measures to accelerate
private sector participation in the ports and freight rail sector. The intention is to
improve efficiencies, reduce the cost of doing business and increase investment in
new port facilities and inland terminals. This will complement investments that
Transnet has already initiated through its Market Demand Strategy.
Our aim is to strengthen our state entities so that they can play a propulsive and
dynamic role in our development. Further financial support to state-owned
companies will depend on clarity of this mandate and firm resolution of governance
challenges.
Our regulatory agencies have a special responsibility in this regard: in setting prices
for electricity, transport and water utilities, they have to ensure that investment can
continue to be financed and that costs are properly managed.
The strength of our major state-owned companies does not lie in protecting their
dominant monopoly positions, but in their capacity to partner with business investors,
industry, mining companies, property and logistics developers, both domestically and
across global supply chains.
The 2016 Budget: Government’s Action Plan
Before concluding, Honourable Speaker, allow me to return to the main elements of
the 2016 Budget, our spending plans and their contribution to growth and broadening
development.
Our approach is to build on our strengths, directly address weaknesses and be bold
where new initiatives are needed.
 The budget framework brings forward our fiscal consolidation, reducing the
budget deficit to 2.4 per cent by 2018/19.
 Taxes are raised moderately, across a broad base, while limiting the
impact on lower-income families.
 Personnel spending has been curtailed and cost containment measures
are reinforced.
 Expenditure growth is focused on post-school education and training,
economic infrastructure, social protection and health services.

Economic infrastructure
Budget allocations for water infrastructure this year take into account the special
needs of drought-affected areas and the need to address water losses in critical
supply networks.
The Regional Bulk Infrastructure Grant programme has been allocated R15 billion
over the medium-term for the construction of the bulk water and sanitation
infrastructure.
Public transport improvements in our cities are again prioritised, alongside better
road maintenance and rehabilitation plans.
Over the MTEF period R1.6 billion is allocated to the SA Connect broadband
programme to support access in remote areas and of schools, health care facilities
and government institutions.
Business support and empowerment
Steps to reduce the regulatory burden for business investors are in progress. These
include the establishment of Invest South Africa as a partnership with the private
sector and concerted efforts by our largest cities to reduce the administrative costs of
starting businesses.
A review of business incentives has been initiated, to strengthen their impact on
growth, productivity, competitiveness, trade and competitiveness.
R475 million has been reprioritised to the Department of Small Business
Development for assistance to small and medium enterprises and cooperatives.
Agriculture
Programmes aimed at revitalizing agriculture include spending on small-scale
farming and developing agri-parks in rural economies.
An amount of R2.8 billion is allocated over the medium term to Fetsa Tlala, a food
security initiative. The Department of Agriculture, Forestry and Fisheries aims to
bring 120 000 hectares of land into productive use in the period ahead, benefitting
145 000 subsistence and smallholder producers each year.
Already this year, the department of Water and Sanitation has reprioritised
R502 million to deliver water, protect springs and refurbish boreholes in response to
drought conditions. Funds have also been provided for feed and support for livestock
farmers, and disaster relief measures. Additional drought response allocations will be
made, as required, in the Adjustments Appropriation later this year.

Higher education
An additional R16.3 billion has been allocated for higher education over the next
three years. R5.7 billion of this addresses the shortfall caused by keeping fees for
2016 academic year at 2015 levels, and the carry-through costs over the MTEF
period. R2.5 billion goes to the National Student Financial Aid Scheme to clear
outstanding student debt, along with a further R8 billion over the medium term to
enable current students to complete their studies.
Basic education and early childhood education
Our expenditure on basic education will increase from R204 billion this year, to R254
billion in 2018/19. By 2018, 510 inappropriate and unsafe schools will be rebuilt,
1 120 schools will be supplied with water and 916 schools with electricity.
An additional allocation of R813 million for early childhood development is proposed
to increase the number of children in ECD centres by 104 000 over the MTEF period.
Health and welfare services
R4.5 billion is budgeted over the medium term for revitalizing health facilities in the
eleven NHI pilot districts, and related health system reforms. An additional R740
million has been allocated to strengthen TB programmes to encourage early
detection and treatment, and R1 billion for expansion of the antiretroviral treatment
programme.
Additional funds are allocated for new substance-abuse treatment centres in the
Northern Cape, Free State, Western Cape and North West provinces.
Social grant increases
Our overall expenditure on social assistance will increase from R129 billion this year
to R165 billion in 2018/19.
 The old age, disability and care dependency grants will rise by R80 to
R1 500 in April 2016, and by a further R10 to R1 510 in October.
 The child support grant will rise by R20 to R350 in April and the foster
care grant by R30 to R890.
Defence, public order and safety
Spending on defence, public order and safety services will rise from R172 billion this
year to R204 billion in 2018/19.

Taking into account recommendations of the Farlam Commission of Inquiry, an
amount of R598 million is allocated to enhancing capacity of Public Order Policing
units over the MTEF period ahead. Allocations are also made to strengthen
institutions supporting Constitutional democracy and to combat corruption, and to
enhance the independence of the judiciary. Funds are allocated for the Information
Regulator established in terms of the Protection of Personal Information Act of 2013.
Provincial expenditure management
Honourable Speaker, our Constitution requires an equitable division of nationally
collected revenue between national, provincial and local government.
Taking into account the current fiscal framework, the Provincial MECs for Finance
have agreed to a Joint Action Plan to address expenditure management and service
delivery improvement challenges.
Key measures include:
 Containment of administrative personnel expenditure while protecting
education and health service staff;
 Improved revenue collection;
 Rationalisation and closure of redundant and underperforming
programmes and entities;
 Intensification of cost-containment measures, in keeping with national
guidelines.
Municipal financial management
We are mindful that municipalities face growing pressures from both the rising cost of
bulk services and rapidly growing numbers of households.
Municipal capital spending exceeded R53 billion in 2014/15.
Yet we continue to see underspending of infrastructure grants in many local
authorities. A review of these grants has led to several proposals for improvement:
 Grant frameworks will in future allow for refurbishment of assets,
recognising the long-term nature of municipal infrastructure.
 Water sector grants will be restructured to reduce duplication and the
associated administrative burden.

 Refinements are proposed to take into account the diverse challenges of
urban and rural areas, and different-sized towns and cities.
 Public transport transfers to cities will now be allocated through a formula,
bringing greater certainty and sustainability to these funding arrangements.
This year brings our fourth fully democratic local government elections. In recognition
of this, the National Treasury will launch a data portal to provide all stakeholders with
comparable, verified information on municipal financial and non-financial
performance. I hope this will further stimulate citizen involvement in local
governance.
The elections will also see a significant change in municipal demarcations. The
number of municipalities will be reduced from 278 to 257, with the objective of
improving their viability and sustainability. Local government allocations will be
revised to take account of these boundary changes and over R400 million is
allocated over the next two years to assist with the transition.
The “Back to Basics” programme launched in 2014, aimed at improving service
delivery performance of municipalities, is entering its second phase of
implementation. It involves active monitoring of performance in governance and
service delivery, support to struggling municipality and stronger accountability
measures.
Investment in cities and urban networks
Cities are already taking steps to encourage higher land use density and inner city
redevelopment, under the authority of the new Spatial Planning and Land Use
Management Act. This will unlock significant further private sector development
potential across our cities, focussed on strategic corridors.
Bus rapid transit systems are operational and expanding in Johannesburg, Tshwane,
Cape Town and George, and will be extended to Ekurhuleni and eThekwini this year.
About R6 billion is allocated to this programme in 2016/17. Improvements to rail
rolling stock and infrastructure will begin to improve the daily travel experience for
commuters.
Associated with these transport investments, over 90 integrated land development
projects valued at more than R130 billion are in progress to reshape our cities in
partnership with the private sector.
 In eThekwini, the Cornubia node comprises 25 000 housing units. An inner
city regeneration programme is also underway, including projects at Bridge
City, Centrum, the Point and the interconnecting corridor.

 In the Tembisa Corridor in Ekurhuleni, R6.5 billion in public investment will
leverage R8 billion in private sector investment to deliver housing,
commercial and office facilities.
 In Cape Town, the N2 Gateway housing programme is continuing, together
with redevelopment of the Voortrekker Road Corridor, Conradie Hospital,
the Athlone Power Station and other sites.
 In Tshwane, investments are focused on the Mabopane Station Hub which
is the gateway to the north for more than 150 000 passengers a day and
has an informal market accommodating approximately 2500 traders.
 In Manguang, the R2.6 billion mixed use Airport Development Node is in
construction. An inner city residential development is planned and the
Vista Park and Brandkop projects will yield over 8 500 housing units at a
total development cost of over R1.9 billion.
 In Johannesburg, the “Corridors of Freedom” connecting Soweto,
Alexandra, Sandton and the Johannesburg CDB bring together public
transport improvements, social amenities and partnerships with property
developers to increase settlement densities and improve social mobility.
Growth, Inclusion and Social Cohesion
Honourable Speaker, our economic imperative is to ignite inclusive growth.
This is central for jobs, for lowering debt, for delivering services and building
infrastructure for a 21st century economy. Let us chart a new course for the economy
and well-being of all South Africans, particularly for those hardest hit by
unemployment – the low-skilled and the youth. This is not only crucial to address
social imbalances and inequality, it is also fundamental to encouraging investment.
The recent tremors felt by emerging markets are a warning that we need to take
corrective steps urgently or we will be worse off. At the same time, we need to move
forward to mobilise the resources and capacity of all our people, large and small
enterprises, civil society organisations and public-private partnerships.
The joint actions we need will not always be easy. All too often, bureaucrats and
businesspeople speak past each other; the needs of the young are not the same as
those of the elderly; the rhythms of the township differ from those of the suburb.
Race, class and language differences interfere with progress, even when we have
shared aspirations. We need to bridge these divides.
Yet we are resilient, we are committed, we are resourceful.

We can turn today’s adversity into opportunities.
We can address the weaknesses that create policy uncertainty, we can build on the
strengths that are our resource base, our institutions and our workforce. We can do
things differently where we need to innovate.
We have avoided reckless policies which might have dragged us into recession or
reversed the capital flows we need. We have a sound macroeconomic and fiscal
framework, and the will to work together for faster and inclusive growth.
Allow me to thank you, Mister President and Mister Deputy President, for your
leadership and support. I must also thank Cabinet colleagues for your contributions
to addressing the challenges before us.
Members of the Ministers’ Committee on the Budget, including Deputy Minister
Jonas, have provided sterling support.
I thank our Provincial Premiers and Finance MECs, and Municipal Mayors, who
share our fiscal and financial responsibilities.
Please join me in expressing appreciation to:
 Director-General Lungisa Fuzile and officials of the National Treasury;
 Governor Kganyago, the Deputy Governors and staff of the South African
Reserve Bank;
 Commissioner Moyane and staff of the South African Revenue Service;
 Commissioners and staff of the Financial and Fiscal Commission;
 The Chairpersons, Boards, Chief Executive Officers and staff of the DBSA,
the Land Bank, the Public Investment Commission, the Financial Services
Board, the Financial Intelligence Centre and the Government Pension
Administration Agency;

 The staff and constituency representatives of NEDLAC, and particularly its
Public Finance Chamber, and
 Judge Dennis Davis and members of the Tax Committee.
I am especially grateful to the chair of the finance committee, the honourable Carrim,
acting chair of the appropriation committee, honourable Gcwabaza and chairs of the
select committee on finance and appropriation, honourable de Beer and honourable
Mohai, who have responsibility for facilitating the consideration of the Division of
Revenue Bill and the Appropriation Bill, and the revenue bills which will be tabled
later in the year.
We are resilient. We are committed. We are resourceful.
Looking back on his extraordinary life of resilience, and of commitment, former
President Mandela said this: “I am fundamentally an optimist. Whether that comes
from nature or nurture I cannot say. Part of being optimistic is keeping one’s head
pointed toward the sun, one’s feet moving forward. There were many dark moments
when my faith in humanity was sorely tested, but I would not and could not give
myself up to despair. That way lays defeat and death.”

Budget Speech 2015

Honourable Speaker

I have the honour to present the first budget of our fifth democratic Parliament.

Members of the House, and fellow South Africans -Over the past twenty years we have built houses, delivered water and electricity, improved access to schools and health care. Yet there are people living in shacks, there are schools without sanitation, there are patients without care.

We have made progress in dismantling apartheid divisions. Yet there are still fault-lines across our social landscape. We have agreed on a National Development Plan. But there is still hard work ahead in its implementation. Though we continue to register positive growth rates, many businesses have struggled to maintain profitability, unemployment remains high and government has had to adjust to slower revenue growth.

Today’s budget is constrained by the need to consolidate our public finances, in the context of slower growth and rising debt.

And so we must intensify efforts to address economic constraints, improve our growth performance, create work opportunities and broaden economic participation. We need to achieve these goals if our National Development Plan is to be realised.

On the one hand, our development path is limited by the resource constraints of the current economic outlook. On the other hand, it seeks to lift these constraints by strengthening public institutions, investing in infrastructure and our people, supporting innovation and making markets work better. The 2015 budget is aimed at rebalancing fiscal policy to give greater impetus to investment, to support enterprise development, to promote agriculture and industry and to make our cities engines of growth.

Strategic priorities for growth and development

As outlined by President Zuma in the State of the Nation Address on the 12th of February, Cabinet has agreed on nine strategic priorities to be pursued this year, in partnership with the private sector and all stakeholders. They include:

• Resolving the energy challenge,

• Revitalising agriculture,

• Adding value to our mineral wealth,

• Enhancement of the Industrial Policy Action Plan,

• Encouragement of private investment,

• Reducing workplace conflict,

• Unlocking the potential of small enterprises,

• Infrastructure investment, and

• Support for implementation of the National Development Plan through indepth, results-driven processes, known as phakisa laboratories. The first of these laboratories focused on the oceans economy, including off-shore oil and gas exploration and aquaculture opportunities. Already this has led to investment of R9.6 billion in Saldanha Bay.

Strategies for improving primary health clinics have also been developed through a phakisa process. The mining sector will be next. These processes draw widely on the talents and expertise of South Africans, from the public and private sectors, and the scientific and research community.

In each of these areas, there are many programmes and interventions underway, and numerous stakeholders and institutions involved. Members of the House will appreciate, however, that having a plan and a series of activities is not enough. Intensive effort has to go into the details of implementation, understanding the risks and opportunities of changing market conditions as well as identifying institutional and financial options.

There are many possible plans and priorities: the challenge of governance is to choose wisely between competing alternatives. The budget plays a role in clarifying these options, probing their costs and assessing implementation modalities. It seeks to allocate resources systematically and fairly. This year, we received around 400 tips from fellow South Africans on the budget.

Quite rightly, there are two main areas of concern.

• Many people have concerns about public service delivery. For example, Asif Jhatham advises that municipalities should follow SARS in adopting electronic payments systems. Marc de Chalain appeals for an improved work ethic and pride in a job well done in the public service. Mpumelelo Ncwadi suggests that youth-owned cooperatives should be supported to produce lettuce and herbs for local hospitals and schools.

• And then there is much advice to me on tax matters. Christopher Pappas suggests that fast foods should be subject to sin tax. Mandy Morris says it is time VAT was increased to 15 per cent. On the other hand, Thabile Wonci proposes that young professionals should be exempt from tax for at least one year of work.

Honourable Speaker, I will return shortly to these tax questions.

The budget documents I table today are designed to make our budget choices and their implications transparent. The processes which follow in this House, bringing medium term plans and programmes under the scrutiny of portfolio committees and subjecting Ministers and officials to Parliamentary accountability, are essential disciplines in the translation of plans into service delivery programmes. And so in presenting this Budget to Members of the House, I am obliged to caution that it again comprises a weighty set of documents and explanatory papers. Members who feel that the burden of after-hours reading is excessive are referred to my predecessors, Minister Gordhan and former Minister Manuel, who oversaw the of these instruments of accountability.

Thankfully their advice to me is that it does not all have to be incorporated into the budget speech.

Allow me therefore to recommend this year’s Budget Review for the further attention of Members. It is somewhat differently structured from the past. There is a new chapter on the financial position of public sector entities, and an annexure on progress in infrastructure spending.

Economic context

I turn now to the economic context within which the budget has been prepared. Global economic growth is expected to remain sluggish over the period ahead, rising from 3.3 per cent in 2014 to 3ó per cent this year. There is considerable variation in economic performances between countries and economic trends are likely to be volatile. In the United States, 3.6 per cent growth is expected this year, but in Europe the outlook remains weak, and could still be destabilised by disagreements between debtor and creditor nations. In emerging markets and developing economies, growth of about 4ó per cent is expected. China’s growth is expected to slow to 6.8 per cent this year. Amongst our neighbours in Africa, the recent shifts in commodity prices will benefit some countries and disadvantage others.

South Africa will benefit from the lower oil price, but our major commodity exports have been negatively affected by the global slowdown. Our deepening trade and investment links with sub-Saharan Africa continue to offer favourable growth prospects. Exports to Africa grew by 19 per cent in 2013 and 11 per cent in 2014. However, our primary challenge is to deal with the structural and competitiveness challenges that hold back production and investment in our economy.

The most important of these is the security and reliability of energy supply. Electricity hold back growth in manufacturing and mining, and also inhibit investment in housing and raise costs for businesses and households. Mainly for this reason, our projected economic growth for 2015 is just 2 per cent, down from 2.5 per cent indicated in October last year. We expect growth to rise to 3 per cent by 2017. Consumer price inflation peaked at 6.6 per cent in June last year.

It has subsequently declined to just 4.4 per cent last month, and is expected to average 4.3 per cent in 2015, laying a foundation for economic growth. Higher growth is possible, if we make good progress in responding to the electricity challenge or if export performance is stronger. The best short-term prospects for faster growth lie in less energy-intensive sectors such as tourism, agriculture, light manufacturing and housing construction. These are also sectors that employ more people, and so they contribute to more inclusive growth. Efforts to support these sectors have to be intensified.

Progress in agriculture and manufacturing employment requires a constructive labour relations environment, and well-targeted support for emerging enterprises. While the manufacturing sector has largely underperformed in recent years, there has been an encouraging growth in investment since 2010, particularly in upgrading machinery and equipment. The turnaround in footwear and textiles is also welcome, and should boost job creation over the period ahead. In agriculture we have seen investment and export growth in horticultural products such as grapes, citrus and tree nuts.

Tourism and related services, oil and gas development, communications and information technology also offer many opportunities. Although our fiscal position is constrained, there are considerable financial strengths on which South Africa’s growth strategy can build.

• Interest rates have remained moderate, which reflects the credibility of fiscal and monetary policy and the favourable inflation outlook. The capital market rates at which government and the corporate sector borrow have declined over the past year, signalling continued investor confidence in the South African economy.

• The exchange rate depreciated by 11 per cent against the US dollar in 2014, after declining by 15 per cent in 2013. This coupled with low inflation contributes to our trade competitiveness, and partially offsets the deterioration in commodity prices.

• Our banks and other financial institutions are well-capitalised. South Africa has a buoyant capital market, is open to foreign investors and is a major contributor to foreign direct investment elsewhere in Africa. Our company law and tax frameworks are robust, and we have excellent property market institutions.

The first phase of implementation of the National Development Plan is elaborated in Government’s medium term strategic framework. If we remain united and energized around its implementation – government, labour, business and all South Africans – we will continue to make progress towards a just and prosperous future.

Budget framework and fiscal policy

A sound budget framework is one of the enabling conditions for implementation of the National Development Plan. It has now been eight years since the global financial crisis began. In responding to low economic growth, government allowed for continued expenditure growth and a wider budget deficit to cushion the economy from a potential hard landing, resulting in an increased debt burden on the state. Fiscal room created during the economic boom leading up to the financial crisis cushioned against tax increases as a first response.

Our fiscal rebalancing has included cost containment measures and intensified efforts to improve efficiency in expenditure. These measures are yielding positive results. However, growth performance remains weak and substantial repayments of debt are becoming due. It is now clear that we can no longer postpone consideration of additional revenue measures. In choosing amongst our tax options, the financial health of households and businesses is a primary consideration.

As indicated in the Medium Term Budget Policy Statement, the key features of the budget framework for the period ahead are as follows:

• A reduction in the main budget expenditure ceiling of about R25 billion over the next two years, compared with the 2014 Budget baseline,

• An increase in taxes amounting to R17 billion in 2015/16,

• Revised spending plans across the whole of government, aimed at greater efficiency, reduced waste and an improved composition of spending,

• A consolidation of government personnel numbers, and

• Financing of state-owned companies, where required, without raising national government’s budget deficit.

In the budget framework tabled today, a consolidated deficit of 3.9 per cent of GDP is projected for 2015/16, falling to 2.5 per cent in 2017/18.

Consolidated non-interest expenditure will rise from R1.123 trillion this year to R1.4 trillion in 2017/18, which is an average real increase of 2.1 per cent a year. The share of personnel compensation is projected to remain about 40 per cent of noninterest spending. Interest on state debt will rise from R115 billion this year to R153 billion in 2017/18.

Reductions in budget allocations have been targeted at non-critical activities. Cost containment and reprioritisation measures will limit growth in allocations for goods and services to 5 per cent a year. Spending on catering, entertainment and venues is budgeted to decline by 8 per cent a year, travel and subsistence will be cut back by 4 per cent a year, in real terms. But allocations for critical items such as school books and medicine, for police vehicles’ fuel and for maintenance of infrastructure, will grow faster than inflation.

Compliance will be reported by the Auditor-General.

The budget framework includes an unallocated contingency reserve of R5 billion next year, R15 billion in 2016/17 and R45 billion in 2017/18. This could allow for new spending priorities to be accommodated in future budgets. It takes into account that the economic outlook is uncertain and that both weaker growth and rising interest rates are possible over the period ahead. We are also mindful that public service salary negotiations have still to be concluded. We hope that agreement will be reached in time for salary improvements to be implemented in April.

Over the next three years, government’s gross debt stock is projected to increase by about R550 billion, to R2.3 trillion in 2017/18. Redemptions on debt issued over the past decade will add R190 billion to the medium term borrowing requirement. Net loan debt of the national government is expected to stabilise at less than 45 per cent of GDP in three years’ time. South Africa’s liquid capital market and our standing in international markets enable us to meet this borrowing requirement. But we are mindful that debt sustainability requires a prudent budget framework and improvements in both saving and investment.

Our fiscal policy stance recognises that state-owned companies and municipalities will continue to face substantial investment requirements over the period ahead. Moderation in the main budget deficit creates space in the wider capital market for infrastructure financing of both the wider public sector and private businesses. In addressing these and other fiscal challenges, government is firmly resolved to steer a responsible and sustainable course.

Medium term expenditure and the division of revenue

Honourable Speaker, our Constitution requires an equitable division of nationally collected revenue between national, provincial and local government. This is set out in the Division of Revenue Bill and its accompanying Explanatory Memorandum. The allocations are explained in the Budget Review and elaborated in the Estimates of National Expenditure.

In preparing these proposals, we have benefited from recommendations of the Financial and Fiscal Commission and Parliament’s committees. As is required by section 7 of the Money Bills Amendment Procedure and Related Matters Act of 2009, a report is included in the Budget Review which responds to concerns raised by the finance and appropriations committees, and in portfolio committees’ budgetary review and recommendation reports. We greatly appreciate these contributions of Parliament to the rigour and integrity of our budget process.

The national share of non-interest expenditure is about 48 per cent, provinces receive 43 per cent and 9 per cent goes to municipalities.

Allocations to basic services provided by municipalities have been prioritised, despite the constraints of the budget framework. A new approach is proposed for cities, to support their growth and restructuring and strengthen infrastructure investment. A review of local government infrastructure grants is in progress, which will lead to simplification and consolidation of the financing arrangements.

Over the longer term, progress in municipalities requires local economic growth, property development and revenue capacity, alongside national support. These are key elements in the “back to basics” municipal development strategy.

Economic development

Honourable Members, our support through the budget for economic development is wide-ranging, as it must be if we are to diversify our growth and broaden participation. Innovation and technology change are at the heart of this development strategy. Support for the oceans economy has been allocated R296 million over the next three years. This will enhance our climate change research and management of ocean resources. South African science and technology also continues to benefit from our leading role in the Square Kilometre Array astronomy partnership, which will spend approximately R2.1 billion over the next three years. Minister Pandor is guiding our science councils towards more effective partnerships with industry and academic institutions.

R2.7 billion has been allocated over the medium term under the Mineral Policy and Promotion programme to promote investment in mining and petroleum beneficiation projects. R108 million has been allocated for research and regulatory requirements for licensing shale gas exploration and hydraulic fracturing.

Government will continue to strengthen support for agricultural development and trade, under Minister Zokwana. The projected conditional allocation to provinces over the medium term is R7 billion. Access of emerging farmers to finance will be expanded, in collaboration with the Land Bank.

Since the inception of the recapitalisation and development programme in 2008, 1 459 farms have been supported, and 4.3 million hectares has been acquired for redistribution. A further 1.2 million hectares will be acquired over the next three years, and R4.7 billion is allocated for recapitalisation and development of farms. Establishment of the Office of the Valuer-General in Minister Nkwinti’s department will assist in the orderly implementation of land acquisition and redistribution activities.

Employment and enterprise development

Honourable Members, unemployment remains our single greatest economic and social challenge. Government continues to prioritise measures aimed at generating employment. These include tax incentives for employment and investment, support for enterprise development, skills development and employment programmes.

R10.2 billion has been allocated over the MTEF period to manufacturing development incentives and support for growing service industries, such as business process outsourcing. Under Minister Davies’ oversight, the manufacturing competitiveness enhancement programme will spend R5.4 billion and will assist 1 450 companies with financial support to upgrade facilities and skills development. Special economic zones are allocated R3.5 billion over the medium term, mainly for infrastructure development. The work of Minister Hanekom’s department in promoting tourism continues to be supported. Over the MTEF period, Minister Zulu’s new Department will spend R3.5 billion on mentoring and training support to small businesses.

The Jobs Fund will spend R4 billion in partnership with the private sector on projects that create new employment, support work-seekers and address structural constraints to more inclusive growth. The community work programme will be extended to all municipalities. Its allocations increase by 21 per cent a year. The Department of Environmental Affairs has an allocation of R11.8 billion to fund more than 107 000 full time equivalent jobs and 224 000 work opportunities through environmental EPWP programmes.

A total of R590 million has been allocated to the Green Fund over the medium term, for strategic environmental projects in partnership with the private sector.

Health and social protection

Honourable Speaker, expenditure on health and social protection will continue to grow steadily, contributing to better life expectancy and household income security. Health spending will reach R178 billion in 2017/18. We have seen a marked reduction in child mortality over the past five years, supported by improved access to antenatal services.

Our antiretroviral treatment programme now reaches 3 million patients. The motherto- child transmission of HIV has decreased from 20 per cent a decade ago to 2 per cent last year, and is expected to decline further over the period ahead. In this budget, R1.5 billion is shifted from provincial budgets to the national Department of Health to enable the National Institute of Communicable Diseases to be directly funded. This will be offset by lower tariffs for services provided by the National Health Laboratory Service. Port health services have also been shifted from provinces to the national department.

The Office of Health Standards Compliance has been listed as an independent legal entity with a budget rising to R125 million in 2017/18. Under Minister Motsoaledi’s direction there has been progress over the past year in preparing for the transition to national health insurance. A discussion paper on financing options will be released shortly by the National Treasury, to accompany the NHI white paper.

Honourable Speaker, I have also agreed with Ministers Dlamini and Oliphant that we will jointly publish the long-outstanding discussion paper on social security reform. Both health insurance and social security are vital concerns of all South Africans, and we look forward to public debate and engagement between stakeholders. Social grants play an important role in protecting the poorest households against poverty. Social assistance beneficiaries numbered 16.4 million in December 2014. In order to accommodate the growth in numbers, the budget proposals include an additional R7.1 billion on the Social Development vote.

I am also pleased to be able to announce adjustments to monthly social grants with effect from 1 April:

• The old age, war veterans, disability and care dependency grants will increase by R60 to R1 410.

• Child support grants increase to R330.

• Foster care grants increase by R30 to R860.

In consultation with the Department of Social Development and taking into account consumer price inflation, we will review the possibility of further adjustments to grant values in October.

Education, sport and culture

Honourable Speaker, over R640 billion will be allocated to basic education during the next three years.

Under Minister Motshekga’s oversight, personnel planning for schools is currently under review, to ensure that learner-teacher ratios are maintained at appropriate levels.

The number of qualified teachers entering the public service is projected to increase from 8 227 in 2012/13 to 10 200 in 2017/18. To support teacher training, R3.1 billion will be awarded in funza lushaka bursaries over the next three years. We will print and distribute 170 million workbooks at 23 562 public schools over this MTEF period. Each learner in Grades R to 9 will receive two books per subject each year in numeracy, mathematics, literacy, language and life skills.

The school infrastructure backlogs programme is allocated R7.4 billion for the replacement of over 500 unsafe or poorly constructed schools, as well as to address water, sanitation and electricity needs. The education infrastructure grant of R29.6 billion over the medium term will enable all schools to meet the minimum norms and standards for school infrastructure by 2016.

The budget also includes R4.1 billion over the MTEF period to build and support public libraries. School and community sport programmes and sports academies will receive R1.7 billion in conditional allocations to provinces.

Post-school education and training

Honourable Speaker, allocations to post-school education and training exceed R195 billion over the medium term, increasing at an annual average of 7.1 per cent. University operating subsidies will amount to R72.4 billion. Transfers to universities for infrastructure of R10.5 billion are proposed, including R3.2 billion for the new universities of Mpumalanga and Sol Plaatje.

We are mindful of the pressures on student financing at our higher education institutions. The National Student Financial Aid Scheme is projected to spend R11.9 billion in 2017/18, up from R9.2 billion in 2014/15. This will support a further increase in university enrolments and in technical and vocational colleges. Progress in the quality of post-school education programmes is clearly critical. Under Minister Nzimande’s direction, the 21 sector education and training authorities and the National Skills Fund will continue to provide work placements for students and graduates. Raising the number of trainees who qualify as artisans is a special priority. Options for improving the skills funding system will be reviewed in the period ahead.

Transport, energy and communications

Fellow South Africans, we have all been reminded of the importance of infrastructure investment and maintenance over the past year. It is not just an inconvenience when the lights go out, there is a cost to the economy in production and income and jobs foregone.

Many South Africans regularly experience other kinds of infrastructure failure: unreliable water supplies, roads that are impassable when it rains, trains that break down or poor telecommunication linkages.

These are large, long-term, costly challenges, and so the work of Minister Peters, Minister Joemat-Pettersson, Minister Cwele, Minister Mokonyane and Minister Patel in securing maximum value out of available funds is especially critical. We are able to make substantial contributions through the fiscus to infrastructure services over the MTEF period:

• R1.1 billion is allocated for the upgrade of the Moloto Road to improve safety and mobility on this road.

• The Passenger Rail Agency’s R53 billion ten-year renewal programme is now in progress. The first 44 new train sets, or 528 coaches, will be delivered over the next three years.

• Over R80 billion is allocated to over 220 water and sanitation projects and for local roads.

• R105 billion will be spent on housing and associated bulk infrastructure requirements.

• Over R18 billion in electrification funding will provide for 875 000 households to be connected to the grid or to receive off-grid electricity.

• R1.1 billion is allocated for broadband connectivity in government institutions and schools.

I need to emphasise, Honourable Speaker, that not all infrastructure services qualify for budget funding. Cost recovery from users is a key foundation of infrastructure sustainability, together with fiscal support for access to essential services. I therefore wish to endorse the Deputy President’s carefully balanced approach to resolving the Gauteng Freeway financing matter. Concerns regarding the socioeconomic impact of toll tariffs have been heard, and revised monthly ceilings will shortly be proposed.

We will include a national contribution to meeting the associated cost in the Adjustments Appropriation later this year. Measures will also be taken to ease compliance and improve enforcement. But cost recovery from road-users will continue to be the principal financing mechanism for this major road system.

Investing to transform our urban space

Honourable Members, national government is working closely with metropolitan municipalities to invigorate urban development. As the NDP emphasises, realizing the economic dividends of urban growth requires a new approach to providing infrastructure, housing and public transport services, while overcoming the spatial

divisions of apartheid. This budget recognises the need to assist cities in mobilising the finance required for more rapid infrastructure investment and maintenance. Amendments will be proposed to the Municipal Fiscal Powers and Functions Act to clarify the rules surrounding bulk infrastructure charges, and ensure an equitable and transparent system of contributions by land developers.

The National Treasury has recently met the Mayors and City Managers of all eight metropolitan municipalities to discuss how to accelerate investment, improve infrastructure maintenance and strengthen financial management. Metropolitan councils will announce details of their investment programmes in their forthcoming budget statements. The Treasury, the Department of Cooperative Governance and the Development Bank of Southern Africa will host a conference on urban infrastructure investment later this year to enable private investors to obtain further details of financing opportunities that will arise from this new programme.

I have also been reminded of the role of tax measures in supporting urban development. With us in the gallery today is Mr Vuyisa Qabaka, a Cape Town entrepreneur and co-founder of an organisation called the Good Neighbourhoods Foundation. His advice is that “Government should encourage township investment. For instance, it could promote urban development and regeneration through accelerated depreciation allowances for new building constructions or refurbishment of existing buildings.”

National allocations to municipalities continue to be equitably allocated and aligned with Minister Gordhan’s “Back to Basics” strategy. The local government equitable share was protected from the baseline reductions, to ensure that service delivery to the poor is prioritised. Allocations for water, sanitation and electricity in rural municipalities have been increased substantially. R4.3 billion will be spent over the next three years to build capacity and strengthen systems for financial management and infrastructure delivery. The collaborative review of local government infrastructure grants will give special attention to the maintenance of infrastructure, so that the gains made over the past 20 years continue to be extended and enjoyed by all over the life of these assets.

Defence, public order and safety

Honourable Members, we still confront unacceptably high levels of crime in our country. Government spending on public order and safety and on defence will therefore continue to increase, from R163 billion this year to R193 billion by 2017/18.Police services receive about 48 per cent of the total allocation.

Effective and efficient courts, under Minister Masutha’s oversight and Chief Justice Mogoeng’s leadership, are central to constitutional democracy and the functioning of the criminal justice system. Over the medium term, a total amount of R492 million has been reprioritised towards improving access to justice. This will increase capacity for court support personnel, public defenders and prosecutors. In order to strengthen the independence of the judiciary, the Office of the Chief Justice has been established as a new department. It becomes fully operational on 1 April 2015, with a budget over the MTEF period of R5.2 billion.

The fight against corruption remains a central priority. Additional allocations have been made to the Public Protector and the Financial Intelligence Centre for increasing their human resource capacity. South Africa’s defence force under Minister Mapisa-Nqakula will continue to be deployed for safeguarding our borders and in peacekeeping operations in several conflict areas. Budget provision for border safeguarding and regional security amounts to R2.8 billion and R4.5 billion, respectively, over the next three years.

The budget also includes R834 million for access of military veterans to health care and housing services.

Financial management: ensuring value for money

Honourable Members, better value for money in public service delivery depends on rigorous financial management, effective systems and an unrelenting fight against corruption. Supply chain management in the public sector is far from perfect. There are frequent allegations of corruption and inefficiency. Against this background, the National

Treasury has conducted a review of public sector supply chain management, drawing on the views and experience of government, business and civil society. The review was published last month, and is a candid reflection of our current state of public sector procurement, the reforms that are needed and the opportunities that an efficient, transparent SCM system presents. In consultation with the Minister of Basic Education, the following reforms are in progress:

• All books delivered to schools from January 2016 will be managed through a centrally negotiated contract.

• With effect from May this year, all school building plans will be standardised and the cost of construction will be controlled by the Office of the Chief Procurement Officer. Too often, and for too long, we have paid too much for school building projects.

• Routine maintenance of school buildings and minor construction works will be decentralised. This will be accompanied by measures to combat inefficiency and corruption at district and school level.

From April 2015, a central supplier database will be introduced. Suppliers will only be required to register once when they do business with the state. This will significantly reduce the administrative burden for business, especially small and medium-sized enterprises. The database will interface with SARS, the Companies and Intellectual Property Commission and the payroll system. It will electronically verify a supplier’s tax and BEE status, and enable public sector officials doing business with the state to be identified. This intervention will also reduce the administrative burden for SCM practitioners and address many of the concerns raised by the Auditor-General every year.

In close collaboration with the State Information Technology Agency, a central etender portal will be implemented from April this year. It will be compulsory that all tenders be advertised on this portal, and all tender documents will be freely available there. Tender advertisements in newspapers and the government gazette will be phased out.

A new approach to funding health and education infrastructure in provinces was introduced in 2013. Following a two-year planning cycle, the 2015/16 allocations for the education infrastructure grant and the health facility revitalisation grant reflect this new approach. On top of their base allocations, provinces that meet the minimum planning standards have been rewarded with additional allocations. For instance, the Eastern Cape receives an additional R233 million due to the quality of its plans for health and education infrastructure investment. Provinces that failed to meet the minimum standards will be prioritised for assistance through the on-going

Infrastructure Delivery Improvement Programme. This allocation methodology will be expanded over the MTEF period so that all provincial departments continuously improve their planning to be eligible to receive incentive allocations. The non-payment of suppliers on time is a perennial problem that needs serious attention. This practice works against government’s efforts to grow the economy and develop the SMME sector. Payment of suppliers within 30 days will now be included among other SCM requirements in the performance agreements of accounting officers.

Revenue and tax measures

In turning to the revenue proposals for the year ahead, Honourable Members, let me emphasise again that we are accountable to citizens and taxpayers for ensuring value for money in our stewardship of public resources. Our current projection is that tax revenue will amount to R979 billion in 2014/15, or about R14.7 billion less than the budget estimate a year ago. Including non-tax revenue, social security funds and other receipts, and after deducting R51.7 billion which goes to Southern African Customs Union partner countries, consolidated budget revenue will be R1 091 billion this year, or about 8.2 per cent more than in 2013/14.

In the recent past, there has been considerable variation in customs union receipts, because of fluctuations in regional trade. The period ahead will also see large shifts in customs receipts, with potentially adverse implications for our partner countries. South Africa remains keen to see a revised and improved revenue sharing arrangement that would stabilise and safeguard these resource flows. Personal income tax remains a buoyant source of revenue, but the slowdown in business conditions is reflected in lower-than-expected company tax, value added tax and customs revenue.

Once again, the South African Revenue Service has done sterling work in difficult circumstances. In welcoming Mr Tom Moyane as the new Commissioner, I would like to convey my appreciation to all the personnel of SARS for their efforts over the past year.

Tax policy aims to raise revenue in a manner that is fair and efficient, while contributing to social solidarity and supporting long-term economic growth and job creation. Tax reforms since 1994 have considerably broadened the tax base, through inclusion of capital gains and closing of tax loopholes. As I indicated in the Medium Term Budget Policy Statement in October, even after lowering our expenditure ceiling, and taking into account the need for sustainability in managing our debt, there is a structural gap between our revenue requirements and projected tax proceeds. To bridge this gap we require additional revenue. In considering tax policy options, we have drawn on advice of the Davis Tax Committee and through the broader annual tax consultation process. In my view, the need to maintain the overall progressivity of the tax structure is a compelling consideration.

Tax proposals

The 2015 Budget tax proposals aim to increase tax revenues as required, limit the erosion of the corporate tax base, increase incentives for small businesses and promote a greener economy.

The main tax proposals are as follows.

Personal income tax rates will be raised by one percentage point for all taxpayers earning more than R181 900 a year. This raises tax by R21 a month for a taxpayer below age 65 with an annual income of R200 000. Those earning R500 000 would pay R271 a month more, and at R1.5 million a year the tax increase is R1 105 a month. However, tax brackets, rebates and medical scheme contribution credits will be adjusted for inflation, as in previous years. The net effect is that there will be tax relief below about R450 000 a year, while those with higher incomes will pay more in tax.

Honourable Members, an increase in the general fuel levy of 30.5 cents a litre will take effect in April. Following recommendations of the Davis Committee, a more generous tax regime is proposed for businesses with a turnover below R1 million a year. Qualifying businesses with a turnover below R335 000 a year will pay no tax, and the maximum rate is reduced from 6 per cent to 3 per cent. To complement this relief, SARS is establishing small business desks in its revenue offices to assist in complying with tax requirements.

The rates and brackets for transfer duties on the sale of property will be adjusted to provide relief to middle-income households. The new rates eliminate transfer duty on properties below R750 000, while the rate on properties above R2.25 million will increase.

Members of the House are advised that excise duties on alcoholic beverages and tobacco products will again increase:

• the tax on a quart of beer goes up by 15ó cents,

• a bottle of wine will cost 15 cents more,

• a bottle of sparkling wine goes up by 48 cents,

• a bottle of whisky will be R3.77 more;

• a pack of 20 cigarettes goes up by 82 cents.

Amendments are proposed to the diesel refund system which applies in the agriculture, forestry, fishing and mining sectors. Some of these changes will take effect this year and some in 2016.

The net effect of these proposals on 2015/16 tax revenue is an increase of R8.3 billion, which will bring tax revenue for the year to R1 081 billion, or about 10.4 per cent more than 2014/15 tax revenue.

Further tax proposals

I am also proposing a number of tax measures to promote energy efficiency, which will be discussed further with industry, the electricity regulator, Eskom and other interested parties.

The first proposal is a temporary increase in the electricity levy, from 3.5c/kWh to 5.5c/kWh, to assist in demand management. This additional 2c/kWh will be withdrawn when the electricity shortage is over. Secondly, an increase is proposed in the energy-efficiency savings incentive from 45 c/kWh to 95 c/kWh, together with its extension to cogeneration projects. Other measures under consideration include enhancing the accelerated depreciation for solar photovoltaic renewable energy.

In the absence of a carbon tax, the electricity levy serves both to promote energy efficiency and encourage lower greenhouse gas emissions. The introduction of a carbon tax in 2016 will provide an additional tool to deal more sustainably with the current electricity shortage, while lowering the electricity levy. A draft carbon tax bill will be introduced later this year for a further round of public consultation. To ensure that the burden is fairly distributed, steps will be taken to ensure that the electricity levy applies to all users, especially energy-intensive users, while ensuring that there are no double-payments.

Honourable Members, we are also taking further steps to combat financial leakages which deprive our economy of billions of rand through erosion of the tax base, profit shifting and illicit money flows.

This is the advice I received from Durban businessman, Mr Wolfe Braude, who is with us today: “Action has to be taken to close tax evasion loopholes such as transfer pricing, and profit shifting strategies by SA corporates. I ask that South Africa continue its support for the recent G20 decisions in this regard and the implementation of actions in support of transparency and sharing of information. South Africa must similarly stand firm in the SADC against tax havens.” The South African Reserve Bank and the Revenue Service work closely together to

monitor capital flows. This assists in identifying movements of funds for tax reasons. Internationally, there is increasing collaboration between bank regulators and tax authorities, and so progress is being made to reduce both capital leakage and tax evasion. Drawing on advice of the Davis Committee, amendments will be proposed to improve transfer-pricing documentation and revise the rules for controlled foreign companies and the digital economy.

There are two further revenue proposals that I need to explain. They both arise from challenges in respect of earmarked taxes.

The first is a 50 cents a litre increase in the Road Accident Fund levy.

This is a substantial increase from the present levy of R1.04. It is required in order to finance the progress made by the RAF administration in clearing the claims backlog. But it also reflects the unsustainability of the current compensation system, which has accumulated a R98 billion unfunded liability. Legislation to establish the new Road Accident Benefit Scheme will be tabled this year, to provide for affordable and equitable support for those injured in road accidents. Once the legislation has been passed, the levy will be assigned to the new scheme.

The second special revenue proposal is a one-year relief measure in respect of Unemployment Insurance Fund contributions. Unlike the Road Accident Fund, the UIF has an accumulated surplus of over R90 billion. Improved benefits are now being introduced, but it is nonetheless possible to provide temporary relief to both employers and employees. The proposal is that the contribution threshold should be reduced to R1000 a month for the 2015/16 year. This means that employers and employees will each pay R10 a month during the year ahead, putting R15 billion back into the pockets of workers and businesses.

Financial position of public sector institutions

State-owned companies

Honourable Speaker, state-owned companies play a key role in promoting economic growth and social development. Transnet’s freight modernisation programme, for example, has raised the number of trains that run between Johannesburg and Durban to sixty a day, from fewer than 20 a decade ago.

State-owned companies will invest about R360 billion over the next three years, accounting for about 20 per cent of South Africa’s gross capital formation. However, the financial position of some state enterprises is unsatisfactory, undermining their ability to contribute toward development. Recommendations to make our public entities more relevant to South Africa’s developmental needs have been made by the Presidential Review Committee chaired by Ms Ria Phiyega. Reforms are required to ensure that state companies contribute to building a competitive economy and are not an unnecessary drain on the fiscus, and that developmental mandates are appropriately financed and serve the national interest. Private investment and partnerships with state-owned companies are elements of our strategy for strengthening infrastructure investment and improving service delivery. As indicated in last year’s Medium Term Budget Policy Statement, fiscal support to state-owned companies over the period ahead will be financed through offsetting asset sales so that there is no net impact on the budget deficit. The required turnaround in performance and delivery on government priorities will be closely monitored, under the Deputy President’s oversight.

To stabilise Eskom’s financial position, it will apply to the regulator this year for adjustments towards cost-reflective tariffs. In October 2014 we announced a broad package for Eskom, including a capital injection of R23 billion, governance improvements, operational cost containment and additional borrowing and support for required tariff increases. The fiscal allocation of R23 billion will be paid in three installments, with the first transfer to be made by June 2015. A special appropriation bill will be tabled, once the finance has been raised. If further support is deemed necessary, consideration will be given to an equity conversion of government’s subordinated loan to Eskom.

Government has also stepped in to address the financial position of South African Airways. SAA reported a net loss of R2.6 billion in 2013/14, as a result of high operating costs, losses on several international routes and valuation adjustments.

We have made guarantees of R14.4 billion available to SAA, of which the airline has drawn R8.3 billion. Measures to achieve operational efficiencies and restore profitability are now in progress.

Guarantees have also been provided to the South African Post Office, subject to implementation of its turnaround strategy. This involves revised universal service obligations and delivery targets, taking into account the decline in the mail and courier business and the shift to digital communication. Minister Cwele has appointed an administrator to lead SAPO’s turnaround.

Development finance institutions

Honourable Speaker, one of the strengths on which implementation of our National Development Plan rests is the financial health and capacity of our development finance institutions.

At the end of 2013/14, their combined assets amounted to R250 billion, against liabilities of R107 billion. The Development Bank of Southern Africa, the Industrial Development Corporation, the Land Bank and other national DFIs will expand their loan portfolios by about 33 per cent over the next two years, including substantial investments in renewable energy, agriculture, industrial infrastructure and beneficiation projects.

Several initiatives are in progress to strengthen the role of DFIs:

• A review of provincial entities has been initiated, aimed at enhancing their effectiveness and sustainability.

• An organizational review of the Land Bank will be conducted under the leadership of the newly appointed Board and CEO, to enhance its support for emerging farmers and commercial agriculture.

• The DBSA will take the lead in developing South Africa’s municipal debt market in order to accelerate both public and private sector investment in urban renewal.

• The IDC aims to mobilise R100 billion over the next five years to promote faster industrial development, mineral beneficiation and agro-processing. Of special importance is the Land Bank’s collaboration with the Department of Rural Development and Land Reform to bring rural land restitution and redistribution projects to full production. This initiative will build on the Bank’s success in supporting black farmers through its Retail Emerging Markets division, which has financed over 400 projects and created 7 000 employment opportunities to date, without any defaults.

The DBSA will continue to manage the Infrastructure and Investment Programme for South Africa, which is a partnership with the European Commission to strengthen project preparation and co-funding arrangements. It also provides support to the

Independent Power Producer Programme, which will be extended to include new generation capacity from hydro, coal and gas sources to complement Eskom’s baseload energy capacity. Co-generation and demand management initiatives are also being supported.

Honourable Speaker, South Africa signed a treaty last year to give birth to a new multilateral development bank to be based in Shanghai, China. We are excited to be part of this new venture, especially given the leverage South Africa will have on resources that will augment our infrastructure investment programme and those of Sub-Saharan Africa countries. The first regional office of the Bank will be located in South Africa.

Public service pensions

Honourable Members, I am pleased to be able to report that under the capable management of the Public Investment Corporation, the retirement funding assets of public service members and pensioners have grown strongly over the past year. The Government Employees Pension Fund remains well-funded and soundly managed. Pensioners of the GEPF, the Associated Institutions Pension Fund and the

Temporary Employees Pension Fund, as well as recipients of special and military pensions, will receive a 5.8 per cent pension increase with effect from April 2015. We have noted that some civil servants are resigning from GEPF, driven by high levels of indebtedness or incorrect information on the retirement reform process. I want to assure civil servants that the pension reforms currently under consideration will not adversely affect benefits to members of the GEPF.

Financial sector reforms

Honourable Members, I am pleased to confirm that with effect from 1 March 2015, the new tax free-savings accounts will be available. Significant progress has been achieved in relation to retirement reforms, and consultations with NEDLAC will continue. The first draft of default regulations will be issued shortly for public comment. These reforms have one central objective: to maximise the long-term benefits to retirement fund members, so that they can retire comfortably.

Our financial services sector is one of South Africa’s strengths, but as noted in our recent market conduct policy framework document, it needs to do more to treat customers fairly.

The bill establishing two new regulatory authorities, the so-called “twin peaks” reform, will be tabled this year. We have strengthened regulations for banks, and will be doing so this year for insurers, derivatives and hedge funds. We will be taking steps to strengthen the supervision of large financial groups and collective investment schemes, particularly money market funds.

Under its curatorship, African Bank is now generating positive cash flows. We announced a R7 billion backstop last year, but our expectation is that the bank will be stabilised without recourse to taxpayer funds.

In December, the International Monetary Fund released its assessment of the South African financial system. It concluded that our financial system is stable and our regulatory system sound. The report indicates need to strengthen supervision of large financial groups and collective investment schemes, in view of the concentration and interconnectedness of our financial sector.

The problem of excessive household indebtedness remains a serious challenge. Approximately 45 per cent of credit-active consumers have impaired credit records. This results in part from poor market conduct by lenders and financial advisors. We are engaging with the major banks on further steps to be taken to assist overindebted consumers. Government also welcomes initiatives of employers in the private sector who have audited garnishee orders applied to their employees, and have taken steps to identify illegally-issued orders.

Conclusion

Honourable Speaker, this has been a challenging budget to prepare, under difficult economic circumstances. The resources at our disposal are limited. Our economic growth initiatives have to be intensified.

Preparing a budget under difficult circumstances is a reminder that our public services are many and varied, and that we rely on the efforts and good judgement of many thousands of public servants, teachers, health practitioners and law enforcement officers, every day. And our economy comprises a great diversity of enterprises, factories, mines, service centres and shop-floors, welfare organisations, trade unions and industry associations. Our collective future depends on the energy and enterprise of all of us.

The 2015 Budget takes forward our National Development Plan and medium term strategic framework, recognising that the gains of our democracy have to be shared more equally and our economy has to be given greater impetus.

Allow me to thank you, Mister President, Mister Deputy President and all of my Cabinet colleagues, for your guidance and understanding of the challenges before us and the choices for which we have shared responsibility. Honourable Speaker, and Members of the House – these are our budget proposals, and I look forward to further engagement through our committees and the Parliamentary budget process. I am especially grateful to the chairs of the finance and appropriation committees, who have responsibility for steering consideration of the Division of Revenue Bill and the Appropriation Bill, and the revenue bills which will be tabled later in the year.

Preparation of the budget is the outcome of inputs and efforts of countless people, in Treasury, in government departments, in provinces and municipalities and in our public entities. I thank you all.

Implementation of the budget, Honourable Speaker, is the collective outcome of the activities of all South Africans: workers and businesses who contribute to economic activity, investors who make growth possible, savers and taxpayers, officials and service providers, protectors, advisors, those who work on our farms, those who care for the young and elderly. It is my privilege to table these proposals for the consideration of all South Africans, and to reaffirm our commitment to work together with all South Africans in pursuing a better future.

Budget Speech 2014

Honourable Speaker

I have the honour to present the fifth and last budget of President Zuma’s first administration.
In just over two months, we will again exercise our most fundamental expression of freedom – our right to vote for a new government.
Political emancipation is just the beginning of our journey towards justice and equality. In exercising the responsibilities that flow from democratic participation, we have the opportunity to create a better future for all. As
Madiba wrote on his prison calendar in 1979, “The purpose of freedom is to create it for others.”

At the outset, I want to thank all South Africans for your support, cooperation and encouragement. Ngiyabonga, ndia livhuwa, enkosi, ke a leboga….
We have achieved much over the past five years, in a very difficult post recession climate. But there is more to do ahead, more to build, more to put right, more to learn, more to implement. We can only do this together.
Fellow South Africans, let me be frank with you – the world economy is still in difficulty, and global institutions are struggling to find their way.
In South Africa, we stabilised our economy after the 2008 crisis. We have achieved a recovery in growth and jobs. Yet we need to do more, together with labour, business and all stakeholders, to lead our economy in a new, bold direction for higher growth, decent work and greater equality.

Mister President, as you said in your reply to the State of the Nation debate:
“Twenty years of freedom and democracy have changed the face of our country. The last five years have further advanced change and a better life for all, especially the poor and the working class.”

An agenda for transformation Our plans for the period ahead are focused on the transformation imperatives that will accelerate growth, create work opportunities and build a more equal society.

This Budget lays the foundation for the structural reforms envisaged over the next term of this Government. It sets out the resource plan for an intensified implementation of our National Development Plan. It is tabled in the knowledge that all South Africans will gain from our economic transformation, just as we all share a new pride and identity in our Constitutional democracy.
So the new economic order we seek cannot just be a pact amongst elites, a coalition amongst stakeholders with vested interests. Nor can it be built on populist slogans or unrealistic promises. Our history tells us that progress has to be built on a vision and strategy shared by leaders and the people – a vision founded on realism and evidence.

We have to work together to radically change our economy. This means working with our major businesses so that they sparkle across the globe. It means working with black entrepreneurs to grow their companies across South Africa and beyond, working with small and large businesses to build value chain linkages that support dynamic export oriented, competitive enterprises. It means bringing those who are marginalised into the mainstream of opportunity and activity. It means a better standard of living for all.
Whether you are employed or unemployed, a young person caring for a family yet still going to school, someone looking for experience in order to move on to a better job, looking for skills or needing further education opportunities, working in a government employment programme or a temporary construction project, whether you are an unskilled worker or a young professional looking for opportunities to develop specialist experience – we can, together, move forward towards a better life for all.

It is time for a bold vision of our future as set out in the National Development Plan. It is time for action and implementation. It is time to move South Africa forward to the next stage of our historic journey to more rapid growth, jobs and development – time to leave behind poverty, joblessness and inequality!

Source: YouTube, Sharenet

Mister Speaker, allow me to summarise the key features of the 2014 Budget.
The economy

The global economic outlook remains unsteady – some advanced economies have returned to growth, others continue to lag. The slowdown in quantitative easing by the Federal Reserve has caused further uncertainty to financial markets, currency volatility and capital outflows from emerging markets.
South Africa’s economy has continued to grow, but more slowly than projected a year ago. We expect growth of 2.7 per cent this year.
A weaker exchange rate is a risk to the inflation outlook, but it supports exporters. Sustained improvements in competitiveness require further investment in infrastructure and a range of microeconomic reforms.
The budget framework

Despite slower economic growth, the 2013/14 budget deficit is projected to be 4 per cent of GDP, lower than projected in
October.
The deficit will narrow to 2.8 per cent of GDP over the medium term, and net debt will stabilise at about 45 per cent of GDP in 2016/17.
Consolidated non-interest spending will amount to R1.1 trillion in 2014/15, growing to R1.3 trillion in 2016/17, increasing by about 2 per cent a year over the medium term.
National government departments are allocated approximately 48 per cent of available funds, provinces 43 per cent and municipalities 9 per cent.
Capital spending is the fastest-growing component of expenditure, and is set to exceed inflation by over 4 per cent a year.
Benefits to households
The Budget provides R9.3 billion in income tax relief to households.
Government will expand its employment programmes over the next three years and continue to support job creation by the private sector.
We will build 216 000 houses and connect 905 000 households to electricity over the MTEF period.
The number of children receiving the child support grant will increase to 11.4 million.
433 schools will be rebuilt.
Support for businesses

Increased support and tax relief for entrepreneurs and small businesses is proposed.
Incentives for industry are strengthened, including funding for special economic zones.
Nearly 500 000 subsistence and small-holder farmers will receive training and financial support.
Financial security

Further steps will be taken to make sure you have a secure income in retirement. Unnecessary costs in the system will be cut.
Global crisis and response
Your administration started out, Mister President, with an economy that, in rugby terms, might be called a “hospital pass”. We experienced a once-in-70-year economic earthquake, the aftershocks of which are not yet over. Today we can report to the South African people, on what we have done in the past five years to respond to this crisis.

We began on a firm footing:

Growth of 5 per cent a year between 2003 and 2008,
A steady expansion in employment, and
A budget surplus for the first time in 50 years.
We were set back by the crisis:

A collapse in commodity prices, sharp declines in international trade and a crisis in financial markets,
The South African economy contracted by 1.5 per cent in 2009, nearly a million jobs were lost, and
Government revenue in 2009/10 fell short of the budget target by R61 billion. We stabilised the economy, and ensured a recovery:
Our response was to implement an aggressive countercyclical fiscal adjustment.
When global trade went into reverse, we took steps to improve competitiveness of businesses within the framework of the Industrial Policy Action Plan. We accelerated infrastructure investment and we expanded financial assistance to businesses in distress.
We expanded the Community Work Programme.
Unemployment insurance and our expanding social grants programme provided increased income support to the most vulnerable.
Our response to the global crisis was founded on a collectively agreed framework for working together – government, business, labour and communities – facilitated by the National Economic Development and Labour Council. And so although the great waves of financial turbulence and the slow growth in developed economies have constrained our economic recovery, we have recorded positive growth since 2010. We have more than recovered the jobs that were lost. And we have initiated a coordinated infrastructure investment programme, organised into seventeen Strategic Integrated Projects to catalyse opportunities in mining, industry, agriculture and services across the country. We have saved this country from the worst!

What is to be done?
Mr President, in 1987 Oliver Tambo said: “South Africa today is a country of immense inequalities. The bedrock of our perspective is our commitment to the establishment of democracy in a South Africa that belongs to all who live in it, black and white. In keeping with this commitment to our people, our policy positions enshrined in the Freedom Charter have been formulated with the fullest participation of our people.”

Fellow South Africans, I can share with you that both as the Government and the ruling party, the ANC, we have reviewed the successes of the past 20 years, understanding our weaknesses and strengths, and reflecting on how best we can lead this country and all of our people to a better, more dynamic future.

Mister Speaker, no one in this house denies that South Africa is a different country from the one this House and the Government inherited in 1994. The facts speak for themselves! We have made immense strides in rebuilding a fragmented society and in opening opportunities to all South Africans. Yet we still have an immense set of tasks and challenges facing us. We cannot just muddle through the next decade. In fulfilling our aspirations in the Freedom Charter, we have a clear and comprehensive vision for South Africa in 2030, a plan for higher growth, decent work and greater equality.

As the first phase of implementing that vision we have a five-year plan and a medium term budget framework, so that step by step we can make a difference in the lives of all South Africans.
On these two foundations, we are able to offer bold and forthright leadership. The next government will set out the details of its plans to deliver on the NDP after it takes office in May.
Let me explain.

The National Development Plan
As I already indicated, this administration has prepared a National Development Plan, drawing on expertise and advice from South Africans of all walks of life. The NDP reflects the priorities underpinning this budget, and prepares the ground for the next phase of our economic and social transformation.

Central to the NDP, Mister Speaker, is our commitment to partnership – to a social compact to reduce poverty and inequality, and raise employment and investment.

To make more rapid progress in creating jobs and reducing poverty, we have to grow our economy at 5 per cent a year or more. To achieve this, and to establish a growth path that is inclusive and rapidly promotes black economic development, a wide range of initiatives are under way:

Accelerated public infrastructure investment,
New spatial plans for cities, improved public transport and upgrading informal settlements,
Support for special economic zones and manufacturing incentives in the Industrial Policy Action Plan,
A tax incentive to encourage youth employment,
Further expansion of public works programmes,
A renewed focus on accountability and quality in education,
Phasing-in of National Health Insurance,
Further investment in renewable energy and support for the transition to a low-carbon economy,
Steps to professionalise the public service and overhaul procurement and supply chain management.
Yet I need to caution that success in implementing these plans depends on discipline, hard work, cooperation and sustained improvements in productivity, both in the public and the private sectors. Our present circumstances oblige us to live and spend modestly and keep a careful balance between social expenditure and support for growth.

And so in framing the 2014 Budget, Mister Speaker, we have reprioritized expenditure within the overall ceiling set in the October Medium Term Budget Policy Statement. The budget deficit will steadily decline over the period ahead.
Mister President, the next administration will inherit sound public finances, a platform for implementation of the NDP and a framework for collaboration with all stakeholders in driving social and economic transformation forward.

Government expenditure programmes
Now let me come to some of the programmes that government will implement to further change the lives of our people.

Government has spent more than R100 billion on employment programmes over the past five years, including municipal and provincial spending. More than 4 million job opportunities were funded over this time. Allocations will continue to grow strongly, and 6 million job opportunities will be created over the next five years.
We have spent R115 billion on higher education over the past five years, including R18.6 billion on the National Student Financial Aid Scheme. Allocations to the NSFAS amount to R19.4 billion over the next three years, and will assist over 500 000 students a year.
We have spent R41 billion on HIV and Aids programmes over the past five years, and R43.5 billion is budgeted over the next three years. We have spent R39 billion on 1 879 hospital and other health facility projects, and R26 billion is allocated over the MTEF period ahead.
Spending on social assistance has risen from R75 billion in 2008/09 to R118 billion this year. The number of grant recipients has increased from 13.1 million in 2009 to 15.8 million today.
Spending on infrastructure amounted to R1 trillion over the past five years and will be R847 billion over the next three years.
Spending on human settlement programmes amounted to R70 billion over the past five years, contributing to 590 000 houses being built. 850 000 households were connected to electricity over this period.
Spending on industrial incentives amounted to R22 billion over the past five years. R21.8 billion is budgeted for the MTEF period ahead. 128 projects have been approved under the Automotive Investment Scheme, and more than 460 companies have benefited from the Clothing and Textiles Competitiveness Programme.
The spending plans contained in the 2014 Budget build on this administration’s progress since 2009. Reprioritisation of resources aims to give greater impetus to programmes with the greatest developmental impact and proven implementation capacity.
The Estimates of National Expenditure provide detailed information on government’s spending plans over the year ahead.

Job creation
Honourable Members, we know that job creation is a central priority of the National Development Plan. Bantu bakuthi masibambisane sakhe amathuba
emisebenzi (Fellow South Africans, let us work together to create opportunities for employment.)
Since the low-point of the 2009 recession, employment has increased by approximately 1.3 million, as recorded in the Quarterly Labour Force Survey.
But unemployment of 24 per cent of the work force is still far too high. And so Tshepo Sechele, a student at the Vaal University of Technology, quite rightly advises that “government should have clear strategies for youth development and employment for the next 5 to 20 years.”

Indeed we have such a strategy. It includes:

Stepped up implementation of the expanded public works programme.
Implementation of the Community Work Programme in every municipality by 2017.
Introduction this year of the youth employment tax incentive, which in its first month has recorded 56 000 beneficiaries.
Establishment of special economic zones, industrial incentives, and support for agriculture and labour-intensive sectors.
Ramping-up of skills development and further education and training programmes.
Housing investment, support for small and medium enterprises and the Jobs Fund partnerships with private and public sector development agencies.
Billions of rand have been allocated to these programmes.
And to support those who lose their jobs in difficult times, Minister Oliphant has introduced proposals to extend unemployment benefits from 238 to 365 days, on condition that claimants are actively seeking work.
Social assistance grants
The number of people eligible for grants is due to reach 16.5 million by 2016/17. The recent re-registration of grant recipients and the introduction of a new payment system have lowered the cost of administration. One million invalid beneficiaries were removed from the system. Social grants are meant for those who need them most.
Grant recipients will receive the following increases this year:

The old age and disability grants will increase in April from
R1270 a month to R1350,
The foster care grant will increase from R800 to R830, and
The child support grant will increase from R300 to R310 a month in April, and to R320 in October.
National Health Insurance
This administration has also launched a far-reaching reform to make quality healthcare affordable to all South Africans. The Department of Health’s white paper on NHI and a financing paper by the National Treasury have been completed and will be tabled in Cabinet shortly. The unfolding of NHI is premised on two pillars being put in place. Improvements have to be made in public sector health delivery, and the high cost of private health care has to be reduced. This approach is supported by the World Health Organisation.

NHI pilot districts have been established in every province, supported by funding for NHI as a conditional grant. In addition to hospital and clinic building and refurbishment programmes, R1.2 billion has been allocated for piloting general practitioners’ contracts. An Office of Health Standards Compliance has been established to ensure that public healthcare provision meets the required standards. A new funding framework for the National
Health Laboratory Services and associated research activities has been agreed.
But the improvements to this country’s health system over the past five years are best seen in our rising life expectancy, the reduction in infant, child and maternal mortality and the changed lives of 2.5 million people who now have access to anti-retrovirals. Over the period ahead, enrolment in the HIV treatment programme will expand by about 500 000 a year.

Education
We have also made strides in improving access to education over the past five years.

In 2007, 5 million learners had access to free education; this year the number reached 8.8 million.
Grade R enrolment has increased from 544 000 in 2009 to 779 000 this year.
The national school nutrition programme now feeds 8.7 million children.
The Funza Lushaka bursary scheme supported 3 950 graduates qualifying for placement as teachers in 2013.
Through the National Education Collaboration Trust, government, business, labour and civil society will pool resources and work together to restore schools and improve education outcomes in the period ahead.
The allocation to the National Student Financial Aid Scheme increases from
R5.1 billion last year to R6.6 billion in 2016/17. This will increase the number of FET college bursaries to 292 000 and will assist over 236 000 students to attend university by 2016/17.
As is emphasised in the NDP, improvements in education are critical. Dashen Shivambu from Polokwane was one of many who wrote to me in support of Minister Nzimande’s plans: “I would like you to put more money on the table for Higher Education as more funding is required.” So the 2014 Budget again gives special priority to education.
Infrastructure investment
Mister President, under your leadership of the Presidential Infrastructure Coordination Commission, coordinated by Minister Patel’s department, we are now making progress in overcoming infrastructure backlogs and investing for more inclusive growth and development. Public infrastructure investment will amount to R847 billion over the next three years.

The first unit of the Medupi power station is expected to be completed towards the end of this year.
Transnet has increased capacity on its coal line. Plans are in place to further expand the coal, iron ore and manganese lines.
The Passenger Rail Agency of South Africa refurbished 500 metrorail coaches last year, and its new rolling stock procurement programme will get under way this year.
Spending on social infrastructure – which includes health, education and community facilities – will increase from R30 billion in 2012/13 to R43 billion in 2016/17. Priority will be given to programmes to eradicate school infrastructure backlogs and to refurbish clinics and hospitals.
A programme to rehabilitate 35 dams has been completed, and work is in progress on the country’s five large water transfer schemes.
In 2014/15, a total of R40 billion in infrastructure grants will be transferred to local governments for their water, sanitation, energy and environmental functions.
The private sector is also making an increasing contribution to infrastructure investment. Contracts for 47 renewable energy projects were concluded in 2012 and 2013, many of which are already under construction. These will add 2 460 MW of power capacity, and investment of R70 billion. A further R45 billion in investment will be contracted this year. Unlocking city development and municipal service delivery Our development plans also focus on overcoming the spatial fragmentation of South Africa’s built environment, improved public transport and accelerated investment in human settlements.
An integrated city development grant has been introduced to strengthen long-term city planning and encourage private investment in urban development. It will amount to R814 million over the medium term.
The assignment this year of the human settlements function to metropolitan municipalities is a vital intervention in accelerating housing investment and integrated urban development.
Over the next three years, national government will allocate R105 billion to municipalities for free basic water, sanitation, electricity and refuse removal services.
In rural districts, Minister Nkwinti’s development initiatives are gaining momentum and water supply and sanitation programmes are in progress. R3.9 billion has been allocated to capacity building programmes over the MTEF, targeted at small towns and rural municipalities. Special initiatives include:

R3.7 billion in conditional grants to municipalities,
R857 million for the Municipal Infrastructure Support Agency,
R276 million for the human settlements Upgrading Support Programme in 53 municipalities,
A new grant of R300 million a year to assist metropolitan municipalities in managing the human settlements function, and
A further R180 million as part of the human settlements development grant earmarked for settlement upgrading in mining towns.
Measures to promote economic growth
Mister Speaker, our policy is inclusive growth – in the words of the NDP, to strengthen the “virtuous cycle of growth and development.” Over the medium term, several spending plans and tax measures are aimed at addressing structural economic challenges and promoting the stronger, more inclusive growth envisaged in the NDP:

Manufacturing development incentives are allocated R10.3 billion over the next three years, in addition to tax relief offered through incentive programmes.
The economic competitiveness and support programme will provide R15.2 billion to businesses to upgrade machinery and increase productivity over the MTEF period.
Special economic zones are allocated R3.6 billion to promote value-added exports and generate jobs in economically disadvantaged parts of the country.
In support of the digital broadcast migration programme, R620 million will be allocated in the adjustments appropriation this year, from funds to be surrendered to the National Revenue Fund by Sentech.
Government is developing an agricultural policy action plan to support the NDP’s target of creating one million jobs in agriculture and land reform by 2030. Over R7 billion will be spent on conditional grants to provinces to support about
435 000 subsistence and 54 500 small holder farmers and to improve extension services.
To boost domestic food production and reduce reliance on imports, the Fetsa Tlala initiative aims to bring an additional one million hectares into cultivation by 2019, creating 300 000 jobs.
Meanwhile, the comprehensive agriculture support programme grant, which receives R1.6 billion per year over the medium term, aims to increase farm output, especially for the beneficiaries of land reform.

Small businesses and entrepreneurship
Mister President, you have rightly reminded us that employment creation is mainly the responsibility of the private sector. I have again received many tips on the challenges faced by small and medium-sized businesses. Sharon Bosii, from Pretoria, suggests that government “must offer incentives … to help small businesses.” Sharon, we agree. This budget allocates R6.5 billion over three years to support small and medium enterprises.

We have also accepted two recommendations of the Judge Davis Tax Committee which will ease the compliance burden of small businesses:

The turnover tax regime will be amended to further reduce the tax burden on micro-enterprises.
Consideration is being given to replacing the graduated tax structure for small business corporations with a refundable tax compliance credit.
Amendments will be made to the venture capital company tax regime, and the rules related to access to foreign capital will be eased to enhance support for entrepreneurial development.
Subject to appropriate tax treatment, amendments will be made to the intellectual property rules as part of this reform.
In further support of entrepreneurial development, we propose to provide tax relief to organisations involved in small enterprise development through grantmaking.
As a complementary measure, grants received by small and medium-sized enterprises will be tax exempt, regardless of the source of funds.

Global situation
Mister Speaker, ultimately it is the state of the global economy and the dynamism and agility of the SA economy that shapes inclusive growth, job creation and development.

The global economy, with which SA is connected, is not yet on a path of sustained recovery. In the words of the G20 communique, “ the global economy remains far from achieving strong, sustained and balanced growth”.

Global growth gathered momentum in 2013, led by a recovery in the advanced economies. This recovery is expected to continue into 2014, to an expected 3.9 per cent in 2015.

The recovery in the United States has prompted the US Federal Reserve to taper its quantitative easing programme. We have already seen considerable swings in capital flows in South Africa and other emerging markets. Interest rates are likely to rise. Currencies will be weaker and volatile.

Growth in Europe, which is a major trading partner, remains subdued. Doubts about its banking system remain.
However, China still grows at a dynamic 7.5 per cent and India is expected to record 5.4 per cent this year. Brazil remains flat at 2.3 per cent.
The African continent is expected to grow at around 6 per cent a year over the next two years.

The G20, new global turbulence and emerging markets
The world would be a better place, Mister Speaker, if there were greater understanding of the power of cooperative action. We welcome the constructive tone emerging from the G20 meeting last weekend. We welcome the commitment to increase global output by $2 trillion and to increase jobs.

Nonetheless, we remain concerned about the self-justifying narrative from certain quarters in the developed world – the idea that emerging markets are the “problem”, that they must “get their houses in order” and that global cooperation for a more humane and sustainable future is a project for another day.

These are voices from precisely those places where huge regulatory failures led to the financial earthquake we have experienced. Geo-political gamesmanship is the order of the day, collaboration in addressing global challenges is deferred and global statesmanship is in retreat.
As Africa rises, building democratic institutions, expanding infrastructure and growing trade and employment, the central priority will remain overcoming poverty and inequality through initiatives that shape our own growth path, and partnerships that create our own destiny.

South Africa’s economic outlook
As global economic growth recovers there will be opportunities and risks for our economy. These developments have the potential to increase our exports.
Among our emerging market partners, growth remains strong but demand for mineral products has moderated and is unlikely to pick up soon. The prices of our largest sources of foreign earnings remain depressed.

However, the rand remains an effective shock absorber against global volatility. Recent movements of the currency have been supportive of export
rowth while reducing the country’s reliance on capital inflows.

We must ensure that our fiscal and monetary choices keep inflation low and maintain the recent gains in competitiveness. While we have made significant progress in accumulating reserves, there is scope for further improvement.

This will support the stability of the currency.

We project growth to increase from 2.7 per cent this year, to 3.5 per cent in 2016. Investment is forecast to increase by about 5 per cent a year and the current account deficit will average 5.8 per cent of GDP over the medium term, while consumer price inflation will return to levels within the target band between 2015 and 2016.

Potential domestic risks to the outlook include further delays to the introduction of new infrastructure, particularly additional electricity capacity, higher inflation due to the weakness of the rand, and protracted labour disputes which could depress consumer and business confidence.

Boosting growth
The next phase of growth is about the dynamism and agility of private sector and the synergies created with government. Government will continue to provide an enabling environment for businesses to grow and create employment.

Over the past five years, we supported businesses by relaxing exchange control regulations to support those who wanted to invest in the African continent. We provided tax incentives for manufacturing businesses to expand operations, improve competitiveness and acquire new machinery. We also opened up opportunities for the private sector to build and run our renewable energy plants and introduced the employment tax incentive. The result was an increase in job creation. Now, this effort has to be scaled up to make a bigger impact on growth, jobs and development.

Removing constraints
Over the medium term we will:

Add to electricity supply to improve the balance between available energy and the amounts required by businesses and households to thrive.
Increase investment in economic infrastructure, including rail, water, roads and ports
Pursue the exploration of shale gas to provide an additional energy source for our economy.
Provide business support programmes and special economic zones that encourage industrialisation and improve local competitiveness.
Regulatory improvements
Government has been engaging business on specific steps that can be taken to make it easier to do business in our country. Arising out of that process, we will now streamline regulatory and licensing approvals for environmental impact assessments, water licenses and mining licenses. As announced by President Zuma, Parliament is finalising amendments to give effect to this very positive development which will cut the time it takes to start a mine from application to final approval to under 300 days.

There is further work in progress on lowering the cost structure of the economy, for example through improved efficiencies in freight logistics.
Minister Carrim has published a new policy on broadband, which will in due course lead to modernisation of our communications capabilities. Severa cities are bringing WiFi connectivity to their environs.

SARS is taking further steps to lower the cost of tax compliance in South Africa.

Africa
Investment into Africa has reached R36 billion a year, in a range of industries. South Africa is the second largest developing country investor on the continent. In 2013, 29 per cent of our exports were destined for Africa. In 2012, 12 per cent of our dividends came from Africa, up from just 2 per cent a decade earlier. Increasing these inflows will be crucial for closing the current account deficit. Foreign assets owned by South African firms are an important source of income, and reduce our vulnerability to future domestic downturns. In addition, 18 large African firms now have debt and equity listings on the JSE.

Today, further steps to simplify trade and investment with Africa are announced. The HoldCo regime for African and offshore operations will be extended to unlisted companies, and the limits for listed companies will be increased. This regime creates a simplified tax and foreign exchange framework for companies that trade with Africa.

South Africa is an important centre for financial services such as fund and asset management. We propose new “Foreign Member Funds”, which will simplify the foreign exposure rules. These funds will support South Africa as a hub for African fund management and provide a domestically regulated channel for investors to obtain foreign exposure.

Promoting Investment
Increased investment in the economy by both the private and public sector is at the heart of creating jobs and growth.
Government is committed to providing policy certainty for domestic and foreign investors. Working together with Minister Davies and the Department of Trade and Industry, a holistic framework for investment is being finalised.

This framework flows from the National Development Plan, which places investment at the centre of our economic growth plan.
We have a number of incentives in place, which have provided substantial benefits to both foreign and domestic investors. Moreover, under the guidance of Minister Davies, a new Promotion and Protection of Investment Bill has been released for public comment. This entrenches the rights of all investors, ensuring that property rights are protected, in line with the Constitution.

The fiscal framework and long-term sustainability
Mister Speaker, in last year’s Medium Term Budget Policy Statement we targeted revenue of 28.6 per cent of GDP, consolidated spending of R1.2 trillion and a deficit of 4.1 per cent in 2014/15.

Since then, the rand has weakened and inflation has picked up. Long-term interest rates have continued to rise moderately, and the Reserve Bank has increased the repo rate by 50 basis points.

These trends reinforce the need to moderate public expenditure, lower the budget deficit and ensure that public sector debt stabilises relative to GDP.
A key pillar of the current framework remains the main budget expenditure ceiling. Non-interest expenditure plans are unchanged over the medium term, resulting in real expenditure growth of about 2 per cent per annum. Within the expenditure envelope, the composition begins to shift from consumption spending towards infrastructure investment. The unallocated contingency reserve amounts to R3 billion, R6 billion and R18 billion over the medium term.

Over the last decade, government spending has doubled in real terms, funding a large expansion of the social wage which now stands at 57 per cent of consolidated expenditure. This progress must be sustained. Our Constitution requires government to devote increasing resources to a rising floor of social and economic rights.

In a period of weak economic growth, the sustainability of the public finances is inevitably tested. Over the last five years government has borrowed more than R1 trillion. Rising global interest rates make it increasingly costly for government to borrow. Lower commodity prices dampen the growth of revenues. A weak rand raises the price of capital goods that government needs for its investment programme, while inflation raises the amount we must pay for goods, services and wages.

Our debt portfolio is well structured, with foreign currency denominated debt limited to about 10 per cent of the total. Our debt markets remain highly liquid and competitive, which means that the impact of short-term swings in capital markets can be absorbed over time. Our first sukuk (Islamic) bond will be launched this year.

Broader public-sector sustainability is supported by large social security fund surpluses, a fully funded government employee pension system, and the improving balance sheets of state-owned companies.

With these pressures in mind, government has adopted a balanced fiscal stance that continues to provide support for the economy, but charts a stronger course towards fiscal consolidation.

Tax policy, savings and small business support
In 1996, Mister Speaker, the RDP White Paper stated that: “the expansion of the South African economy will raise state revenues by expanding the tax base.”

Over the last 20 years we have achieved exactly that. In 1994, tax revenue amounted to R114 billion. Revenue collected next year will exceed one trillion rand. This is nearly a tenfold increase in nominal terms. This was achieved while reducing the tax rate for companies from 40 per cent in 1994 to 28 per cent and the top marginal rate for individuals from 45 per cent in 1995 to 40 per cent.

During this period the contribution of corporate income tax as a proportion to total revenue has nearly doubled.

We have also improved the fairness of the tax system by taxing residents on their worldwide income and taxing capital gains. These changes have brought the South African tax system more in line with international principles and have substantially broadened our tax base.

Despite moderate economic growth, tax revenues have remained buoyant over the past year. In 2013/14, we will collect R899 billion. This is R1 billion more than we projected last February, and R4 billion above the estimate presented at the time of the 2013 Medium Term Budget Policy Statement. For the first time since the recession, corporate income tax revenues will exceed the 2008/09 peak of R165 billion.

The main tax proposals for the 2014 Budget are as follows:

Personal income tax relief amounts to R9.25 billion. About 40 per cent of the relief goes to South Africans earning below R250 000 per year.
An increase in the tax-free lump-sum amount paid out of retirement funds from R315 000 to R500 000 is proposed, benefiting especially lower income members who did not benefit from deductible contributions.
Increases in excise duties on alcoholic beverages and tobacco products are proposed, adding 9 cents to the price of a 340ml can of beer and 68 cents to a packet of 20 cigarettes. Whisky goes up by R4.80 a bottle. These increases take effect immediately.
In recognition of recent increases in the imported cost of fuel, the general fuel levy increase is limited to an inflation-related 12 cents per litre on 2 April 2014, and the road accident fund levy will increase by 8 cents per litre.
Legislation to allow for tax-exempt savings accounts will proceed this year, to encourage household savings.
Complementing this tax reform, a new top-up retail savings bond will be introduced by the Treasury this year, allowing for regular deposits into a government retail bond. It will also be accessible to community savings groups, such as stokvels. Options for introducing a sukuk retail savings bond are also being explored.

The Income Tax Act currently requires philanthropic foundations to distribute 75 per cent of the money they generate within a year. This requirement is unduly restrictive and will be relaxed, while ensuring that accumulated capital is distributed to worthy causes within a reasonable period.

Regulatory and other measures have been put in place to address the environmental consequences of acid mine drainage. To complement current efforts and ensure that the mining sector makes its fair contribution towards continuing acid mine drainage expenses, consultations will be initiated on an appropriate funding mechanism.

Following public consultation, the National Treasury and the Department of Environmental Affairs have agreed that a package of measures is needed to address climate change and to reduce emissions. This will include the proposed carbon tax, environmental regulations, renewable energy projects and other targeted support programmes. To allow for further consultation, implementation of the carbon tax is postponed by a year to 2016.

Reforms to the tax treatment of risk business for long-term insurers are also proposed. Profits from the risk business of a long-term insurer will be taxed in the corporate fund, similar to the way short-term insurers are taxed.

In July last year I appointed a Tax Review Committee, headed by Judge Dennis Davis, with a broad brief to make recommendations for possible reforms.

The Committee’s first recommendations relate to small and medium enterprises. These proposals are taken forward in this Budget. The committee has also started working on base erosion and profit shifting – trends that are under scrutiny internationally. During 2014, work will be undertaken on the impact of the tax system on economic growth and job creation, and aspects of VAT, mining taxes and estate duties.

Tax administration
Mister Speaker, there are still great opportunities for the tax system to work for our people.

In the past five years, the tax register of individuals grew from 5.5 million to over 15 million to include all known economically active individuals. Companies on the tax register now stand at more than 2.3 million. The number of employers registered for pay-as-you-earn is nearly 404 000. In the next fiscal year SARS will implement single registration of taxpayers and traders for the main taxes.

SARS is already working closely with other government agencies to share non-confidential electronic data. Without compromising privacy and confidentiality, this will contribute to reducing identity fraud, lower administration costs and enhance compliance.

New global tax policies are being devised to counter harmful tax practices and treaties are being designed to allow for the automatic exchange of information. SARS currently chairs the 121-country Global Forum for the Exchange of Information for Tax Purposes.

Since the Tax Administration Act came into effect, SARS has recognised 11 bodies to which tax practitioners must belong and 15 000 tax practitioners are now registered with them. Taxpayers are advised to only use tax practitioners that are recognised by SARS.

Over the last two years the Voluntary Disclosure Programme has realized almost R5 billion from income that was not previously declared.

Customs administration
SARS overhauled its customs management system in August 2013. The new system is fully electronic and significantly reduces the administrative burden on importers and exporters while improving our ability to detect high-risk transactions and goods.

Since its introduction, the system has processed goods valued at more than R1.7 trillion. Border management cooperation that started during the 2010 World Cup has deepened. For example, one of the South African ports of entry is being prepared as a pilot for seamless border management, which will lead to enhanced border control and trade facilitation. The one-stop border post at Lebombo will become operational shortly, once the remaining formalities have been concluded.

During 2013 about R1 billion worth of tobacco and cigarettes was seized from 15 non-compliant entities. Twelve criminal cases are being pursued. During the same period, SARS detained 400 containers holding suspected counterfeit clothing, footwear and textiles.

Improving the quality of public services and cutting waste Mister Speaker, this is a Budget in which circumstances dictate that we cannot add resources to the overall spending envelope. The emphasis falls therefore on ensuring that expenditure is allocated efficiently, enhancing management, cutting waste and eliminating corruption.

A series of initiatives are focused on these concerns:

Spending reviews are under way to examine programme performance and value-for-money, conducted by the National Treasury and the Department of Performance Monitoring and Evaluation, and by provincial treasuries.
The Office of the Accountant-General has stepped up efforts to strengthen the financial control environment, and has undertaken 27 forensic reviews over the past 12 months, leading to both criminal investigations and internal disciplinary action.
As part of efforts to combat waste, cost-containment instructions were issued in January 2014. Budgets for consultants, travel, accommodation and venue hire have been curtailed, which will contribute to savings over the next three years.
Forthcoming regulations will strengthen the National Treasury’s oversight of public entities by requiring compliance with reporting requirements for expenditure, revenue, borrowing and performance.
Mister Speaker, I referred in 2012 to an initiative to be undertaken jointly with
Minister Nxesi and his department to review the validity and cost effectiveness of all government property leases. The exercise has exposed several deficiencies:

Accommodation that is unoccupied but being paid for;
Accommodation occupied by non-governmental entities;
Discrepancies between the size of accommodation occupied and what is paid for;
Marked divergences from market rates per square metre;
Procurement through inappropriate non-competitive procedures;
Missing or invalid lease agreements and unsubstantiated payments to landlords.
The intervention also identified a backlog of more than half of the lease portfolio reviewed. As a result of this initiative, DPW now has a turnaround strategy that will enable it to regularise the lease portfolio, while ensuring continuity of services to client departments.

Procurement reforms
The Chief Procurement Office has been established, and has made progress on several fronts:

Development of a standard lease agreement to address defects in government property transactions,
Standardisation of infrastructure procurement processes and documentation,
Creation of an inspectorate to monitor procurement plans and audit tender documents,
Enhanced processing of vendors’ tax clearance certificates to ensure compliance,
Centralised procurement of health equipment, drugs and medicines to effect savings, and
Analysis of the business interests of government employees.
We are also mindful of the importance of government procurement in supporting local industry and black economic development. This requires a database of South African products and black-owned businesses so that the system can foster economic empowerment and dynamically contribute to growth. And further, tougher measures are being considered to enforce the rule that small businesses in particular must be paid within 30 days.

Indebtedness, savings and retirement reform
Mister Speaker, this administration has recognised the need to protect and improve the financial wellbeing of households, to make them less vulnerable to a sudden loss of income in bad times. We recognise that households must be encouraged to invest in their future, including investment in homes or productive assets, and saving for retirement or business purposes.

South Africa has made good progress towards achieving the NDP’s goal of 90 per cent access to financial services by 2030. Some 79 per cent of adult South Africans were using regulated financial services in 2013.

Many more households have access to affordable credit, which is of great benefit when used productively, but bad when used to fund excessive consumption.

Government is concerned about the level of over-indebtedness of households. Cabinet has therefore approved a number of measures to assist such households to reduce their debt burden, and to stamp out abusive and fraudulent activities of reckless lenders and unscrupulous debt collectors.
Working jointly with the Ministers of Trade and Industry and Justice, we will shortly commence actions against abusive and unsustainable practices.
With regard to retirement, there will be further reforms over the period ahead. Legislation has already been passed by Parliament to improve governance over pension and provident funds, and to align the rules and tax treatment of pension and provident funds, while at the same time protecting vested rights.

We still seek improved coverage and preservation of retirement funds, and lower costs in the system. We are currently consulting within NEDLAC on measures to cover the 6 million employed South Africans who do not enjoy access to an employer-sponsored retirement plan. We intend to move progressively towards a mandatory system of retirement for all employed workers.

Agreement has been reached with the Association of Savings and Investment of South Africa on a way forward to reduce the level of charges for retirement savings products. Draft regulatory reforms will be published shortly.

Conclusion
Mister President, since 1994, there has been substantial progress in transforming the lives of citizens:

The average income of South Africans has increased by over 30 per cent, and will continue to rise in the years ahead.
More than 5.9 million jobs have been created since 1996.
Near-universal school enrolment and the steady increase in average years of education for both men and women have improved the life prospects of millions of South Africans.
Access to basic services has grown rapidly across the country.
More people than ever have access to housing, education and services.
Black participation in the economy has expanded and there has been a transformation of the middle class.
These are considerable achievements. But they are not enough. There are still fault-lines that run deep in the social fabric of our communities and tendencies in the political landscape.

Black economic participation remains incomplete. The economy must provide many more opportunities and the state and the private a lot more support to enterprises and entrepreneurs.

The structure of the economy also needs to transform in order to meet the demands of a 21st century global economy and a fast evolving continent.
In some instances, governance has been weak, corruption has taken hold, and service delivery has faltered. Puso e utlwa dillo tsa maAfrika Borwa! Ons het gehoor! Korrupsie moet gestop word! MaAfrika Borwa deserves better. Re tlile go tokafatsa ditirelo tsa puso. We have heard your pleas! And we will improve our service delivery mechanisms.

Mister President, in your State of the Nation address you observed that the community protests are a sign that our people want government to quicken the pace of delivery of housing, water, and sanitation.

More must be done to improve management and accountability at all levels of government.
The labour relations environment needs more stability.
The high indebtedness of many vulnerable workers must be addressed.
Going forward, these challenges give us focus. We know what must be changed to meet the expectations of all South Africans. Service delivery must be enhanced and supported by the necessary infrastructure. Public servants must be accountable, and effective. Government is committed to tackling these issues in a transparent manner, with a view to building a more rapid and inclusive growth path.
Mister Speaker,
On his inauguration as South Africa’s first democratic President, Nelson Mandela said, “Let there be work, bread, water and salt for all”.
This year, five hundred thousand South Africans will celebrate their twentieth birthday. These are the first of our sons and daughters to have breathed only the clean air of a new nation. These children of our freedom mark the progress we have made. In their diversity; in their dynamism and their enthusiasm; in their non-racialism and in the determination with which they demand the rights of free citizens; in their optimism and fearlessness; in all this they represent the hope that millions struggled for, and for which so manympaid the ultimate price. They are a generation whose future is brighter than their parents could have dreamed. They are better educated, better nourished, stronger and more resilient.

But they also bear the burden of the challenges we have yet to resolve. Too many will struggle to find work. Too many live in poverty and want. Like their parents they can see the fault-lines that still divide our society. They can see the gap between rich and poor.

For their future, we have an obligation to begin a new and far-reaching phase of our democratic transition; a phase that calls for bold and decisive steps to place the economy on a qualitatively different path to eliminate poverty and unemployment, create sustainable livelihoods and substantially reduce inequality.

The National Development Plan lays the foundation for fundamental transformation. It is a platform on which we need to mobilise our youth, and bring together all South African citizens. Each of us has a part to play. Each of us has an obligation to meet.

Mr President, thank you for your leadership and for the opportunity to serve government and the people of South Africa. Mr Deputy President, Thank you for your guidance and support.

My colleagues in the Ministers’ Committee on the Budget have provided invaluable counsel and make courageous decision in advising Cabinet on our budget priorities. Thank you!

My appreciation to Cabinet colleagues who collectively own this budget and the programmes that they implement. Deputy Minister Nene has been an invaluable partner in managing huge responsibilities during a challenging term of office; thank you for your invaluable role.

Governor Marcus and the Deputy Governors of the Reserve Bank have wisely steered monetary policy in a volatile environment.

Our thanks and appreciation also go to:

The Provincial MEC’s and Municipal mayors who collectively spend 50 per cent of a trillion rand!
Director-General Lungisa Fuzile and Mrs Fuzile for his dedication to public service, his frank and wise advise, and for continuality to build a very capable Treasury for future generations.
Senior managers and staff of the National Treasury who have risen to the challenges of a post-recession South Africa and remain committed to excellence in the Public Service.
The acting Commissioner of SARS, Mr Ivan Pillay, whose leadership and solid commitment to institutional building has served SA well.
The senior management and staff of SARS who keep millions of taxpayers happy with their service, and a few others compliant with the law!
The Finance and Fiscal Commission, NEDLAC and its constituencies, for their contributions and constructive engagement with the Treasury.
The Chairpersons, Boards, CEO’s and staff of the DBSA, Land Bank, PIC, Financial Services Board, Financial Intelligence Centre and the Government Pension Administration Agency for their excellent work.
The Honourable Mr Mufamadi and Mr de Beer, who chair the Standing and Select Committees of Finance, and, the Honourable Mr Sogoni and Mr Chaane who chair the Appropriation Committees, for their pivotal role in holding us to account and providing a forum in Parliament for vibrant public participation.
Mr Dondo Mogajane, Ministry staff and advisors whose diligence, professionalism and hard work are invaluable.
My family for their constant caring and support and their passion for building a better South Africa for all.
I also thank all members of this house and the Presiding Officers of Parliament for their cooperation and support. Once again, I must convey my gratitude to South Africans for all walks of life, and many friends of South Africa abroad, for the goodwill and encouragement.

Honourable Speaker, I hereby table before the House this afternoon:
1. The Budget Speech
2. The Budget Review 2014
3. The Division of Revenue Bill tabled in terms of section 10(1) of the Intergovernmental Fiscal Relations Act, 1997 (Act No 97 of 1997);
4. The Appropriation Bill, and
5. The Estimates of National Expenditure. Honourable Speaker, I table this budget in the hope that as a nation we will be able to rise above our sectional interest, and, as you said Mr President, prevail with greater maturity, pull together and take this country forward.

I want to leave with the words of Yusuf Dadoo, another great South African leader and unifier, who once said: “The hour has struck for serious and hard work. The time has come when on this policy we must go forward. That is the only policy which at the present moment can meet the dangers which face us in this country… We have the strength and power in our hands if we act rightly. It may entail suffering and sacrifice and plenty of hard work… In the present circumstances, either we hang together or we hang separately. That is the question before South Africa.”

I thank you.

Budget Speech 2013

Minister of Finance Pravin Gordhan

I have the honour to present the fourth budget of President Zuma’s administration.

Mr President you said in the State of the Nation address that “we should put South Africa first. All of us have a patriotic duty and responsibility to build and promote our country.”

You further said “The National Development Plan provides a perfect vehicle for united action precisely because it has the support of South Africans across the political and cultural spectrum. Leaders in every avenue should be ready to rise above sectional interests and with great maturity, pull together to take this country forward.”

This challenge applies to all sections of our society: business, labour, public representatives, activists and citizens in every part of the country.

As we pointed out in the 2012 Budget, global economic uncertainty will remain with us for some time. South Africa’s economic outlook is improving, but requires that we actively pursue a different trajectory if we are to address the challenges ahead.

Under your leadership Mr President, we have opened new channels of communication and built more cohesion among key stakeholders in South Africa. We have taken many steps to create the conditions for higher levels of confidence in our economy and society. Now we are ready to implement the National Development Plan.

South Africans have a rich history of acting together for a better future.

• Thirty years ago, the United Democratic Front brought together people of goodwill and foresight from all corners of the country. Many points of view, many differences in approach, were marshalled around a single cause – building a united and non-racial society. We did the same for the first democratic elections in 1994 which laid the basis for an enduring democracy.

• The Reconstruction and Development Programme is the foundation on which we build. It said:

“It is this collective heritage of struggle, these common yearnings, which are our greatest strength… At the same time the challenges facing South Africa are enormous. Only a comprehensive approach to harnessing the resources of our country can reverse the crisis created by apartheid. Only an all-round effort to harness the life experience, skills, energies and aspirations of the people can lay the basis for a new South Africa.”

The schools, clinics, taps and houses we have built since then are testimony to the truth of these assertions. The freedom and democracy we cherish – and the knowledge that these are permanent, inalienable rights grounded in our basic law – are the foundation on which all South Africans can make a contribution.

• Looking back on the path we have travelled since 1994, we see the importance of a long-term perspective on development and change. It is people acting together for a common vision that connects the past to the present, and makes a better future possible.

The challenge for us, honourable members, is that people are asking if we can sustain our “miracle”. They are asking whether we as a nation have the ability, the will and the wisdom to take another leap forward in reconstructing and developing South Africa. They are asking whether South Africans can still show the world how to overcome intractable problems that face the community of nations. In these trying times, South Africans too ask the question, “can we be a winning nation?”.

Of course we can!

As Benedict Mongalo, a young man from Johannesburg, writes in his tip: “We all acknowledge that unemployment, poverty and inequality are the greatest challenge facing our country… We will not eradicate this problem overnight.. This is like manually moving a mountain and the only way to do it, is to move one rock aside and the next generation, or next government, will do the same until this mountain is moved.”

Hope and confidence come from energetic involvement and a willingness to make a direct contribution to change. The imperatives of change are not just challenges to government, they confront all of society. A new framework for development is an opportunity to unite around an inclusive vision, and join hands in constructing a shared future.

The National Planning Commission has cautioned that our development objectives will take time and hard work to achieve. Measured year by year, district by district, there will be advances and there will be setbacks. But in each five-year term of government we must demonstrate, as we have since 1994, that we can meet more demanding milestones – more jobs, more enterprises, more technological innovation, better housing, progress in education and health.

Working together we all know that we can do better. All of us – citizens, taxpayers, public servants, teachers, activists, managers, workers – we all have a shared future, and we have a shared plan to make it work.

The Batswana’s say, “Sedikwa ke ntšwa pedi ga se thata” -working together we can do more!

Overview of the 2013 Budget

The 2013 Budget is presented in challenging times, but against the background of a new strategic framework for growth and development. This is a budget in which there is limited room for expansion, yet there are significant opportunities for change.

• There are signs of improvement in the world economy, though the outlook remains troubled.

• South Africa’s economy has continued to grow, but at a slower rate than projected at the time of the 2012 Budget.

• The 2013 Budget takes the National Development Plan as its point of departure. The strategic plans of government and the medium-term expenditure plans will be aligned to realise our objectives.

• Government has taken measures to control growth in spending. Spending plans have been reduced by R10.4 billion through reprioritisation, savings and a draw-down on the contingency reserve.

• Government remains committed to a large-scale infrastructure investment programme.

• Our path of spending and the recovery in revenue will stabilise debt at just higher than 40 per cent of GDP. The budget deficit will fall from 5.2 per cent of GDP in 2012/13 to 3.1 per cent in 2015/16.

• A review will be initiated this year of our tax policy framework and its role in supporting the objectives of inclusive growth, employment, development and fiscal sustainability.

• In the 2013/14 fiscal year, personal income tax relief of R7 billion is granted.

• A new local government equitable share formula is proposed, providing a subsidy for free basic services designed to reach 59 per cent of households.

• Further education and training will continue to be extended and enhanced.

• And following careful consideration of inputs from various stakeholders, a revised youth employment incentive will be tabled in the House, together with a proposed employment incentive for special economic zones.

• In this budget we continue to invest in education, health, housing, public transport and social development – components of the social wage which add up to about 60 per cent of public expenditure.

Global situation

There are signs of improvement in the world economy, though the outlook remains troubled. Growth is still muted in the United States and Japan, and much of Europe is in recession. Policy interventions by the major central banks were needed during 2012 to avert new economic and fiscal crises. Yet many advanced economies contracted during the fourth quarter of 2012 and global prospects are expected to improve only marginally, from growth of 3.2 per cent in 2012 to 3.5 per cent in 2013. Emerging markets, particularly China and India, continue to lead global growth, although at lower rates than before.

High levels of debt are inhibiting progress in many countries. Yet measures to reduce indebtedness have the effect of holding back growth. Unemployment remains high in many countries, yet technological progress continues to reduce demand for labour in many industries. Around the world, inequality is fuelling discontent.

So there are parallels between the global economic discourse and our own policy challenges. In seeking a pragmatic balance between recovery and consolidation, between economic power and social solidarity, between infrastructure investment and human development, between encouraging enterprise and regulating markets – we are grappling with issues that confront many other nations.

South Africa’s economic outlook

South Africa’s economy has continued to grow, but at a slower rate than projected at the time of the 2012 Budget. GDP growth reached 2.5 per cent in 2012 and is expected to grow at 2.7 per cent in 2013, rising to 3.8 per cent in 2015. Inflation has remained moderate, with consumer prices rising by 5.7 per cent in 2012 and projected to increase by an average of 5.5 per cent a year over the period ahead.

However, our trade performance is holding us back. Exports grew by just 1.1 per cent in real terms last year, while imports increased by 7.2 per cent. The deficit on the current account of the balance of payments was 6.1 per cent of GDP. This means, in simple terms, that expenditure in the South African economy exceeded the value of production and income by about R190 billion last year. This is partly a consequence of the disruption of mining sector activity and the structural reduction in mineral exports due to lower demand.

Some of the foundations of faster growth are in place. Strong capital investment by the public sector, the addition of electricity-generating capacity, relatively stable inflation and low interest rates will support improved growth rates over the medium term.

But this is not enough. Much more is needed. In particular, a significant increase in private sector investment and competitiveness is needed in the wider economy: agriculture, manufacturing, tourism, communications – every sector has to play its part in expanding trade, investment and job creation.

The National Development Plan: a new trajectory

The NDP, supported by the New Growth Path and other programmes, invites us to look beyond the constraints of the present to the transformation imperatives of the next twenty and thirty years.

These imperatives are already apparent in the realities of the social and economic restructuring that is under way.

• The first reality is our demographic transition – a million young people leave school every year, and we need a package of reforms that will improve education, training and work opportunities for young people.

• The second is that we are a rapidly urbanising society. This means we need to meet urgent demand for housing, municipal services, schools, clinics, public transport and commercial development, but it is also means we have an opportunity to build an integrated urban landscape, with effective partnerships between municipalities, local businesses and civic associations.

• A third imperative is economic competitiveness. We need to invest in infrastructure, raise productivity and diversify our economy, to create jobs and raise living standards.

• Improving the quality of education and training is an essential foundation of a more productive and inclusive growth path.

• Stronger links with Africa and other emerging economies are needed.

• We have to adapt to a low-carbon economy, including mobilisation of our renewable energy potential.

• Finally there is the social solidarity challenge that cuts across all of these, which is to build a more equal and inclusive economy that bridges our racial and other divides.

These are themes on which the NDP provides clear guidance, not just about strategic goals and objectives, but also about the practical difficulties and choices we face.

There are substantial strengths on which to build – a well-established legal system, secure property rights, an effective tax system, world-class higher education institutions and science councils, established energy, transport, water and communications infrastructure networks, expertise and capacity in many areas – mining, construction, retail, finance, logistics and manufactured exports – and a sound macroeconomic and fiscal framework.

While building on these strengths, we have to tackle our weaknesses aggressively. The NDP emphasises key institutional capabilities:

• The need to professionalise the public service and strengthen accountability,

• Improved management and enforcement systems to fight corruption,

• Reinforcement of the education accountability chain, with lines of responsibility from state to classroom,

• Improved planning and management of strategic infrastructure projects.

The NDP also highlights the need to lower the cost of living for households, and to reduce the cost of doing business for small and emerging enterprises.

Let me also reiterate the NDP’s emphasis on uniting South Africans around a common vision: it proposes a social compact to reduce poverty and inequality, and raise employment and investment, recognising that progress towards a more equal society requires shared efforts across the public and private sectors.

And so the 2013 Budget takes the National Development Plan as its point of departure.

• It recognises that our medium-term plans are framed in the context of a long-term vision and strategy.

• It focuses on strengthening growth and employment creation.

• It prioritises improvements in education and expansion of training opportunities.

• It promotes progress towards a more equal society and an inclusive growth path.

The fiscal framework and long-term sustainability

National development must be coupled with fiscal sustainability, which ensures that the progress we make will not be interrupted or reversed. The government relies on resources derived from the wider economy, and the best way to generate resources is to grow the economy faster and increase the tax base. The NDP targets an annual growth rate of more than 5 per cent a year. This would double the resources available to government in the next two decades.

The present reality is that growth is more modest. The economic turbulence we experienced in the second half of last year has resulted in a revenue shortfall amounting to R16.3 billion. The deficit is now estimated to be 5.2 per cent of GDP in 2012/13. The growth outlook for the next three years has weakened, and government’s net debt is now expected to stabilise marginally higher than 40 per cent of GDP.

In the Medium Term Budget Policy Statement, we noted that if the economic environment were to deteriorate, government would reassess its revenue and spending plans to secure South Africa’s fiscal footing. In the circumstances, our approach involves several elements:

• Additional measures to control spending, reducing real expenditure growth to an average of 2.3 per cent over the next three years, compared with 2.9 per cent signalled in October 2012

• A reduction in the budget deficit to 3.1 per cent by 2015/16, a level consistent with the stabilisation of debt

• Steps to reinforce growth, building on the competitiveness enhancement programme introduced last year

• Initiation of a tax policy review

• A comprehensive review of expenditure, focusing on both spending controls and value for money in government programmes and agencies

• Strengthening the capacity of the state to implement our plans and programmes.

Government is committed to remaining within the expenditure ceiling set out in the budget. New policy initiatives over the next three years will be financed from savings, efficiency gains and reprioritisation.

Structural increases in spending require corresponding revenue increases if they are to be financed sustainably. If we succeed in driving growth towards 5 per cent a year and government revenue doubles in the next 20 years, major infrastructure projects and new policy initiatives such as national health insurance and expanded vocational education will be affordable with limited adjustments to tax policy. But if growth continues along the present trajectory, substantial spending commitments would require significant adjustments in revenue and reductions in other areas of spending.

On Parliament’s request, National Treasury has prepared a report that considers fiscal sustainability from a long-term perspective. The report is currently being considered within government, after which it will be tabled for Parliament’s consideration.

Growing the real economy

Growing the economy means expanding business activity. We recognise the key role that private companies play in our economy.

In the lead-up to the Budget, we engaged with several business leaders on the investment and development challenges we face. Allow me to share with you some of their plans, which signal growing confidence in the business outlook, despite difficult conditions.

• Construction and refurbishment by a company in the hospitality sector firm of R2.5 billion in the next 18 months and expansion of R3 billion in the pipeline

• Two telecommunications investments amounting to R14 billion this year

• Capital expenditure of R3.4 billion over the next three years by a rail and logistics operator

• A R2.5 billion expansion and longer-term plans of R15 billion in mining projects

• Investment of R1.4 billion this year by a leading retailer, and plans to open 100 new stores by another

• An expansion of R1.2 billion this year by a food and beverage sector firm

• Plans for R28.5 billion in long-term infrastructure investment by a leading industrial company, which will create 10 000 temporary and 4 000 permanent jobs.

In recent times, the world has become a more uncertain place for businesses, causing some to build cash reserves rather than invest in new or expanding operations. As government, we wish to encourage businesses to keep investing in our economy, and seize the opportunities around us. We are therefore reinforcing several initiatives that support business development:

• The Manufacturing Competitiveness Enhancement Programme (MCEP), announced in 2012, has received a total of 215 applications with requests for grants totalling R2.3 billion mainly from the chemicals, metals and agro-processing sectors. Applications are expected to increase over the period ahead and funding of R1.5 billion per year has been provided on the budget of the Department of Trade and Industry.

• The Special Economic Zone (SEZ) Programme, also announced last year, has received funding to build world class industrial parks. I am in discussion with Minister Davies on specific tax incentives to enhance this initiative.

• The Jobs Fund announced in the 2011 Budget has concluded two calls for proposals. In total, 3 614 applications have been received, and 65 projects approved. Grant funding of R3.3 billion has been approved, matched by a further R3.1 billion in funding raised by the private sector.

• Small, Medium and Micro Enterprises (SMMEs) play a key role in the development of the economy and are a significant generator of employment. Financing of SMMEs has been simplified with the creation of the Small Enterprise Finance Agency last year. We have been progressively working to simplify the tax requirements for small business. The turnover threshold will be increased this year and the graduated rate structure will be revised.

Regional Integration

Africa is our home, and it is our future. It is a market of over one billion people and it is growing rapidly. The National Development Plan acknowledges the global shift of economic power from West to East, and highlights the rise of Africa.

Indeed, we have already begun to see our trade patterns shift from traditional partners in Europe and the United States to new markets in Asia and Africa. Africa now accounts for about 18 per cent of our total exports, and nearly a quarter of our manufactured exports.

Over the past five years, the South African Reserve Bank has approved nearly 1 000 large investments into 36 African countries. These are mutually beneficial, as they support development in those countries, and also generate tax revenue, dividends and jobs both abroad as well as in South Africa. To further support the private sector in expanding operations in Africa, I will announce simpler rules that will reduce the time and costs of doing business in Africa.

A number of measures are proposed to relax cross-border financial regulations and tax requirements on companies, making it easier for banks and other financial institutions to invest and operate in other countries. Similar measures will apply to foreign companies wanting to invest in African countries using South Africa as their regional headquarters. The outward investment reforms that apply as part of the Gateway to Africa reforms will also pertain to those companies seeking to invest in countries outside Africa, including BRIC countries.

In addition, substantial direct investments in regional development are underway:

• We are helping to build infrastructure that will create opportunities for South African companies to expand trade and investment across the border. The DBSA is accelerating investment into the SADC region. We are supporting infrastructure projects in multiple countries, particularly in the key areas of electricity generation and transmission, and in strengthening road links in the region.

• Investment by the Industrial Development Corporation in 41 projects across 17 countries totalled R6.2 billion in 2012. The bulk of those projects are in mining, industrial infrastructure, agro-processing and tourism.

• As part of its long-term strategy to help secure energy supply for South Africa and the region, Eskom is considering options for investment in several regional generation and transmission projects.

Working with our BRICS Partners

Next month, we will host the 5th annual BRICS Summit, which brings together Brazil, Russia, India, China and South Africa. The Summit will unveil the work we have been doing with our BRICS partners on the following projects:

• The possible establishment of a BRICS-led bank is intended to mobilise domestic savings and co-fund infrastructure in developing regions

• The pooling of members’ foreign exchange reserves with the view of using them to support each other at times of balance of payments or currency crisis. Collectively, BRICS countries hold reserves totalling USD 4.5 trillion.

• Work is underway on creating a trade and development insurance risk pool. The aim is to establish a sustainable and alternative insurance and reinsurance network for the BRICS countries.

Financing infrastructure investment

The NDP reminds us that “South Africa needs to invest in a strong network of economic infrastructure designed to support the country’s medium- and long-term economic and social objectives.”

Over the next three years, R827 billion is planned to be spent by the fiscus and state-owned companies to build infrastructure. The financing for these projects is in place, and is not affected by the spending cuts in the budget.

The fiscus has allocated just under R430 billion for schools, hospitals, clinics, dams, water and electricity distribution networks, electrification of over a million new homes, sanitation schemes, building more courtrooms and prisons, and improved bus, commuter rail and road links. Most of the spending falls under provinces and municipalities.

Eskom, Transnet and other State-Owned Companies fund a further R400 billion of projects. This will be financed both through own resources and additional borrowing over the next three years, supported by Treasury guarantees.

This will pay for the ongoing building of power generation plants and new transmission lines, investment in rail, ports and pipelines, large new water transfer schemes, and various airport upgrades.

Of course, we are well aware that there are parts of government that struggle to spend their full infrastructure budgets. It is important to bear in mind that spending programmes have become more ambitious, funding levels have increased, and pressure to deliver has intensified. Records show that government’s ability to spend has been steadily rising from year to year. But it is not yet fast enough.

On this challenge, Willie du Preez expresses concern about whether infrastructure investment is actually taking place. He suggests: “As a citizen one should be able to obtain from the treasury website at the end of each financial year what amount was spent on what infrastructure.” Mr du Preez, you can already obtain that information from the treasury website, not just every year, but every month!

Investing in Urban Development

Our urban areas make a vital contribution to the national economy, hosting factories and offices and many work opportunities, and will always be attractive to young people seeking a better life. It is little surprise then that the Census 2011 shows that 62 per cent of South Africans are now living in our cities and towns. And that the population of some municipalities grew by over 50 per cent between 2001 and 2011.

The challenge we face of highly inefficient, segregated and exclusionary divides between town and township imposes costs not only on the economy and the fiscus, but also on families and communities.

A new formula for the local government equitable share will be introduced in 2013/14 that recognises the need to better differentiate assistance to different municipalities, including those in rural areas. Municipal infrastructure grants will also be re-aligned, and go hand in hand with more integrated planning of new developments, so that we can make meaningful strides in overcoming the spatial inequalities of the past.

Low carbon economy

The Development Plan further calls on government to send a signal to industry and consumers that we are living in an environmentally stressed world.

And so Government proposes to price carbon by way of a carbon tax at the rate of R120 per ton of CO2 equivalent, effective from 1 January 2015. To soften the impact, a tax-free exemption threshold of 60 per cent will be set, with additional allowances for emissions intensive and trade-exposed industries. An updated carbon tax policy paper will be published for further consultation by the end of March 2013.

To ensure that South Africa produces fuel that is more environmentally friendly, support mechanisms for both biofuel production and the upgrade of oil refineries to cleaner fuel standards will be introduced.

In addition, government continues to direct spending towards environmental programmes, such as installing solar water geysers, procuring renewable energy, low carbon public transport, cleaning up derelict mines, addressing acid mine drainage, supporting our national parks, and in particular, to saving our rhino population, who remain under threat.

We are also encouraging the private sector and smaller public entities to be creative and develop low-carbon projects through the Green Fund. In the first call for proposals, 590 applications were received. The R800 million that was previously allocated is to be topped up with an additional R300 million.

The social wage

The NDP recognises that reducing the cost of living is essential for broadening economic participation and eliminating poverty. Alongside the “economic wage” earned through work, the “social wage” provided by government is a steadily rising contribution to the living conditions of working people and their families.

Substantial growth in social spending over the past decade has financed a threefold increase in the number of people receiving social grants, a doubling in per capita health spending, construction of 1.5 million free homes and the provision of free basic education to the poorest 60 per cent of learners. The impact is evident in improved living standards, expanded access to basic services and the changing landscape of both urban and rural areas.

The social assistance budget has increased by an average of 11 per cent a year since 2008/09, in part due to the extension of the child support grant to the age of 18. Spending on social assistance will rise to R120 billion next year.

• The old age and disability grants will increase in April from R1 200 a month to R1 260,

• The foster care grant will increase from R770 to R800, and

• The child support grant will increase to R290 in April and R300 a month in October.

It is also proposed that the old age grant means test should be phased out by 2016, accompanied by offsetting revisions to the secondary and tertiary rebates. All citizens over a designated age will be eligible for the grant, which will simplify its administration and address the disincentive to save that arises from the present means test.

Alongside social assistance, access to health care is a vital element in the social wage. There has been progress in reducing mortality and improving our HIV and TB programmes, and an expansion in medical and nurse training capacity is under way.

Pilot national health insurance projects have been initiated this year in ten districts, and will include improvements to health facilities, contracting with general practitioners and financial management reforms. A new conditional grant is introduced this year to enable the national Department of Health to play a greater role in coordinating these reforms.

The initial phase of NHI development will not place new revenue demands on the fiscus. Over the longer term, however, it is anticipated that a tax increase will be needed. The National Treasury is working with the Department of Health to examine the funding arrangements and system reforms required for NHI. A discussion paper inviting public comment on various options will be published this year.

Government’s contribution to housing and basic municipal services is a substantial component of the social wage. The budget for housing and community amenities has increased by over 16 per cent a year since 2008.

Progress continues to be made in extending access to housing, electricity, water, sanitation and refuse removal services. The main contribution of the national budget to the financing of household amenities is the local government equitable share. A new equitable share formula is proposed in this Budget, which will provide a subsidy of R275 for every household with a monthly income less than R2 300, or about 59 per cent of all households.

We also recognise that many businesses provide their employees with housing assistance or home loans. However, the current fringe benefit tax is unduly burdensome in cases where an employer transfers a house to a low-income worker at a price below market value. Tax relief is proposed to address this difficulty.

The social wage complements employment earnings and contributes to a more equitable and inclusive economic growth path. National health insurance and further steps in social security reform will also reinforce social solidarity and the decent work agenda.

Social spending, however, is not a substitute for job creation.

One of our most pressing development challenges is to expand work opportunities for young people. There has been extensive debate on how this should be done. The answer is that a wide range of measures are needed, including further education, training, public employment opportunities and support for job creation in the private sector.

To complement existing programmes, a tax incentive aimed at sharing the costs of employing young work-seekers will be tabled for consideration by Parliament. It will help young people enter the labour market to gain valuable experience and access career opportunities. A similar incentive is proposed for eligible workers of all ages within special economic zones.

Financial services and retirement reform

In last year’s Budget, I indicated the need for South African households to save more. I am now able to announce the following proposals, for consultation before we introduce the necessary legislation later this year:

• Tax-preferred savings and investment accounts will be introduced in 2015.

• Retirement funds will be required to identify appropriate preservation funds for exiting members, who will be encouraged to preserve when changing jobs.

• Retirement funds will be required to guide their members through the process of converting savings into a regular income after retirement, and to choose or establish default annuity products that meet appropriate principles and standards. More competition will be promoted by allowing providers other than life offices to sell living annuities.

• The tax treatment of pension, provident and retirement annuity funds will be simplified and harmonized.

• Governance reforms of retirement funds will also be implemented, with measures in place to ensure trustees of retirement funds are trained once they have been appointed. I intend to call up a conference of all trustees this year to take this process forward.

We are also considering how to encourage all employers to provide appropriate retirement mechanisms for their employees, as part of the broader social security reforms. In implementing these reforms, the vested rights of current members of retirement funds will be protected.

Let me take this opportunity, to confirm that the Government Employees Pension Fund has remained fully funded despite the turmoil in financial markets in recent years. A 6 per cent increase in civil service pensions will be effected in April this year.

Credit

There has been rapid growth in unsecured credit in recent years. The share of new mortgage lending has fallen rapidly, and is now less than or almost equal to both new vehicle credit and new personal loans. We will engage with the banking sector to explore how to increase the level and share of new mortgage loans. Small business financing must also be supported to a far greater extent than is being done.

We are concerned by the abuse of emolument attachment orders that has left many workers without money to live on after they have serviced their debts every month. We are in discussion with the National Credit Regulator, the Department of Justice and banks, to ensure that the lending market remedies its behaviour. In the meanwhile, all employers, including the public sector, can play a role and assist their workers to manage their finances and to interrogate all emolument attachment or garnishee orders to ensure that they have been properly issued. I also call on the various law societies to take action against members who abuse the system.

Tax policy

Allow me to turn now to the revenue proposals.

We find ourselves in a challenging period, with revenues lower than expected by R16.3 billion compared with estimates at the time of the 2012 budget. This is predominantly due to weak economic growth during the second half of 2012, mining sector disruptions and lower commodity prices. Tax revenues are expected to improve over the medium-term in line with higher economic growth and the stabilization of key commodity prices.

Over the past decade, we have steadily broadened the tax base, both through policy reforms and improved revenue administration. This has made substantial tax relief possible, contributing both to household disposable income and a lower cost of doing business.

The main tax proposals for 2013 are as follows:

• Personal income tax relief of R7 billion, together with adjustments to the medical tax credit and other monetary thresholds, amounting to about R350 million.

• Reforms to the tax treatment of contributions to retirement savings.

• An employment incentive through the tax system for first-time job seekers.

• Further tax relief for small businesses, including an increase in the monetary tax thresholds applicable for small business corporations.

• An overall increase of 23 cents per litre in fuel levies in April, which includes 8 cents per litre in the road accident fund levy.

• Increases in excise duties on alcohol and tobacco products of between 5.7 and 10 per cent, and

• Introduction of the carbon tax in 2015, together with the phasing-out of the electricity levy.

A tax review will be initiated this year to assess our tax policy framework and its role in supporting the objectives of inclusive growth, employment, development and fiscal sustainability, amongst other things.

The Budget Review outlines various measures proposed to protect the tax base and limit the scope for tax leakage and avoidance. The taxation of trusts will come under review to control abuse; modifications are proposed to the tax treatment of employment share schemes and disability or income-protection policies; outstanding difficulties in the distinction between debt and equity will be addressed; and it is proposed that foreign businesses which sell e-books, music and other digital goods and services should be required to register as VAT vendors, in line with regulations which have been adopted by the European Union and other jurisdictions.

Tax administration

Millions of honest taxpayers in our country continue to sustain our growth and development agenda. To them we owe a debt of gratitude and, more importantly, a commitment to spend that money wisely, efficiently and effectively. We thank you!

Tax avoidance

We also owe it to our taxpayers to ensure they are not carrying the burden of those who benefit from our country’s infrastructure and resources without paying their fair share of the costs.

Around the world, taxpayers and their governments are challenging large multinational companies that pay little or no tax in the countries in which they operate. Meeting in Moscow earlier this month, finance ministers of the G20 countries were united in supporting an overhaul of international company tax rules to address this issue. The South African Revenue Service is currently engaging with companies that have their base of operations in SA but appear to have shifted a large proportion of their profits to low tax jurisdictions where only a few people are employed. This is unacceptable!

SARS is also pursuing schemes identified under the revised general anti-avoidance rules following several years’ painstaking work tracing transactions through multiple jurisdictions and entities. These benefits typically accrue to advisors and pre-existing shareholders, rather than new shareholders who were introduced as the ostensible beneficiaries of the transactions.

Voluntary disclosure

A temporary voluntary disclosure programme was implemented under legislation enacted in 2010 which allowed taxpayers in default to regularise their tax affairs. More than 18 000 taxpayers made use of the programme and tax of more than R3 billion has so far been collected as a result of the programme.

From 1 October 2012, a permanent voluntary disclosure programme became effective as part of the Tax Administration Act (2011). Some 700 taxpayers have already come forward. Tax of more than R200 million will be collected before the end of March 2013.

Non-compliance

SARS is also targeting other areas of non-compliance, including recipients of government expenditure who are not up to date with their taxes. By working closely with Treasury and interfacing with the government payment system, SARS has identified companies who have received payments but have not declared their full income. They are being audited, and others will follow.

This intervention will be further underpinned by the reform of the Tax Clearance Certificate process which I announced in October.

In the near future, SARS will introduce a Single Registration process in which companies are able to register once-off in a simple manner for all tax types and Customs activities.

On this, we can perhaps consider adding the suggestion by Amanda Hayes, who runs a small business in Cape Town. She proposes that a single database of suppliers to government be created out of all the companies that apply to SARS for tax clearance certificates. In addition to reducing the burden on small businesses, Amanda says this database will help reduce corruption because of the tighter national oversight over companies who are registered.

Medium-term expenditure framework and division of revenue

I have indicated many of the specific programmes and activities of government that contribute to our growth and social development objectives. Allow me to summarise the framework within which these allocations are made.

The 2013 Budget provides for continued real growth in spending to support service delivery, and to expand investment in infrastructure. It will also accommodate the costs of the three-year public service wage agreement signed last year.

In the past, we have been able to add substantially to medium term spending plans during the Budget, but this year is different. Money has been taken away from programmes that are not performing or are not aligned to government’s core priorities and given to programmes that are delivering as planned.

The main appropriation provides for R1 055 billion in expenditure next year, rising to R1 226 billion in 2015/16. Debt-service costs will come to R100 billion next year, and R4 billion is set aside as a contingency reserve. This leaves R951 billion to be divided between the national, provincial and local spheres.

National departments are allocated 47.6 per cent of available funds in 2013/14. Provinces are allocated 43.5 per cent, mainly for education, health and social welfare. Local government receives 8.9 per cent, primarily for providing basic services to low-income households.

Allocations from the contingency reserve will be made later in the year, mainly for unforeseeable and unavoidable expenditure. Work is in progress to determine funding requirements for reconstruction and rehabilitation following flood damage in Western Cape, KwaZulu-Natal, Limpopo and Mpumalanga. An allocation will also be made in the adjustments appropriation for the Dinaledi schools connectivity programme and other broadband infrastructure projects, subject to finalisation of implementation plans.

The equitable division of revenue between provinces and municipalities takes into account the 2011 Census, which shows substantial shifts in the distribution and age structure of the population since 2001. The changes to provincial and municipal allocations will be phased in to avoid disruption of services.

Allocations to provinces and municipalities

The provincial equitable share amounts to R338 billion in 2013/14, and conditional grants to provinces will total R77 billion. Additional allocations have been made to increase employment of social workers and to provide additional support to non-governmental organisations which provide critical welfare services.

There is additional funding for teachers in the poorest 20 per cent of schools and grade R classes, and for community library services. Provinces are also funded for an expansion in HIV and Aids programmes and an improved TB diagnosis system.

Infrastructure transfers to provinces have increased sharply in recent years, growing from R4.8 billion in 2005/06 to R39.7 billion in 2012/13. To improve the quality of spending, the application process for infrastructure grants is being revised: provinces will be required to submit building plans two years ahead of implementation and will only receive allocations if plans meet certain benchmarks.

A total of R85 billion is allocated for transfer to municipalities in 2013/14, rising to R101 billion in 2015/16. Additional allocations are made for municipal water infrastructure, public transport and integrated city development.

Consolidated government expenditure

There is considerable detail in the Budget Review and the Estimates of National Expenditure on government spending plans and service delivery targets. I will highlight just a few key points.

Consolidated government expenditure is budgeted to increase by 8.1 per cent a year, from R1.1 trillion in 2012/13 to R1.3 trillion in 2015/16.

Job creation and labour

Allocations for employment programmes increase by 13.5 per cent a year over the next three years.

There will be higher funding for employment projects of non-governmental organisations and for Working for Fisheries. The expanded public works programme aims to support 684 800 fulltime equivalent jobs in 2013/14.

Additional allocations are also made for the sheltered employment factories of the Department of Labour, and to support the work of the Commission for Conciliation, Mediation and Arbitration.

Health and social protection

Consolidated spending on health and social protection is R268 billion in 2013/14.

Health infrastructure remains a priority. In 2012, a total of 1 967 health facilities and 49 nursing colleges were in different stages of planning, construction and refurbishment.

Substantial improvements in the social assistance payments system are in progress, providing easier access by recipients to their grants. The cost of social grants payments has been reduced from R32 to R16 per disbursement.

Education, sport and culture

Spending on education, sport and culture will amount to R233 billion in 2013/14. Over the period ahead, the basic education sector will focus on improving numeracy and literacy, expanding enrolment in grade R and reducing school infrastructure backlogs. Together with the broader education infrastructure grant, R23.9 billion is available to provincial education departments for infrastructure over the next three years.

R700 million has been allocated over the MTEF period for the technical secondary schools recapitalisation grant. This will finance construction and refurbishment of 259 workshops and training of over 1 500 technology teachers.

Transfers to higher education institutions increase from R20.4 billion in 2012/13 to R24.6 billion in 2015/16. The total number of students enrolled in higher education institutions is expected to increase from 910 000 currently to 990 000 in 2015. Funding has been allocated for the construction of new universities in the Northern Cape and Mpumalanga to commence this year.

Economic services

Expenditure on economic services in 2013/14 will amount to R48 billion, including R5.3 billion for the manufacturing competiveness enhancement programme and R2.9 billion for special economic zones.

Additional allocations include R450 million over three years to the Economic Development Department for the Small Enterprise Finance Agency. The Department of Agriculture, Forestry and Fisheries will continue its support for smallholder farmers. Additional funding goes to the Department of Mineral Resources to support beneficiation and rehabilitate derelict and ownerless mines.

The allocation to the Department of Science and Technology includes R2 billion to support the Square Kilometre Array project.

Transport, energy and communications

Expenditure on transport, energy and communications will amount to R89 billion next year.

The allocation to the Department of Transport increases from R42.3 billion next year to R53.4 billion in 2015/16, reflecting increased allocations to the Passenger Rail Agency for its rolling stock procurement programme and further investment in the national road network. Additional funding goes to integrated public transport networks in urban areas, and for provincial road maintenance.

The integrated national electrification grant is allocated additional funding to increase the number of new electricity connections by 645 000 over the next three years. The solar water geyser programme will be continued until 2015/16 and Sentech will receive R599 million over the medium term for the migration from analogue to digital terrestrial television.

Local government, community amenities and housing

Local government, community amenities and housing are allocated R132 billion in 2013/14. The largest increases go to bulk water, water treatment and water distribution projects, and allocations to the local government equitable share.

R4.3 billion is allocated to a new grant to be administered by the Department of Water Affairs, providing for water treatment, distribution, demand management and support for rural municipalities. The Municipal Infrastructure Support Agency of the Department for Cooperative Governance receives R820 million to provide technical assistance to rural and low-capacity municipalities.

Funding for improving human settlements will grow from R26.2 billion to R30.5 billion over the next three years, including R1.1 billion to support the informal settlement upgrading programme in mining towns. Social housing receives an additional allocation of R685 million.

General public services

The general public services function is allocated R57 billion in 2013/14. This includes the SARS budget of R9.5 billion, which is just over 1 per cent of revenue to be collected.

The Department of Public Works reprioritised R464 million over the medium-term to fund its turnaround strategy, which focuses on lease and property management portfolios. The Public Service Commission receives R71.4 million to combat corruption and address grievances.

Over the MTEF period, the Department of Home Affairs will spend R1 billion on its information systems modernisation programme, which has already led to substantial reductions in the time required to produce official documents.

Defense, public order and safety

The allocations for defense, public order and safety amount to R154 billion in 2013/14.

Provision is made for peace-keeping operations in the Central African Republic, where 400 defense force personnel have been deployed.

The Department of Police has reprioritised R2.5 billion over the MTEF to improve detective and forensic capability. The Department of Justice and Constitutional Development receives R1.2 billion for the criminal justice sector revamp and modernisation programme. There is increased funding allocated to the National Prosecuting Authority for the Thuthuzela Care Centres. The Public Protector of South Africa receives funding to increase its investigative capacity and additional funds are also made to Legal Aid South Africa and the South African Human Rights Commission.

Procurement and combating corruption

Last year I said to this House that we would continually endeavour to increase the value which government receives for the money it spends.

Let me be frank. This is a difficult task with too many points of resistance! However, we have registered some progress. In the present system, procurement transactions take place at too many localities and the contracts are short term. Consequently there are hundreds of thousands of transactions from a multitude of centres. There is very little visibility of all these transactions. While our ablest civil servants have had great difficulty in optimising procurement, it has yielded rich pickings for those who seek to exploit it. There are also too many people who have a stake in keeping the system the way it is. Our solutions, hitherto, have not matched the size and complexity of the challenge. As much as I want, I cannot simply wave a magic wand to make these problems disappear. This is going to take a special effort from all of us in Government, assisted by people in business and broader society. And it will take time. But we are determined to make progress.

The process for setting up the Chief Procurement Office in the National Treasury has begun in earnest and I shall soon be able to announce the name of a Chief Procurement Officer. A project team seconded from state agencies and the private sector has identified four main streams of work, involving immediate remedial actions, improving the current system, standardising the procurement of critical items across all government and the long-term modernisation of the entire system.

Among the first initiatives of the CPO will be to enhance the existing system of price referencing. This will set fair value prices for certain goods and services. Secondly, it will pilot procurement transformation programmes in the Departments of Health and Public Works, nationally and in the provinces.

National Treasury is currently scrutinising 76 business entities with contracts worth R8.4 billion which we believe have infringed the procurement rules, while SARS is currently auditing more than 300 business entities and scrutinising another 700 entities. The value of these contracts is estimated at over R10 billion. So far 216 cases have been finalised resulting in assessments amounting to over R480 million being raised. The Financial Intelligence Centre has referred over R6.5 billion for investigation linked to corrupt activities.

I fully support Minister Sisulu’s call for appropriate curbs on officials doing business with government. I will complement her initiative by aligning the Public Finance Management Act with the provisions of the Public Service Act.

Worldwide, special measures are being taken to oversee the accounts of what have become known as “politically exposed persons” – public representatives and senior officials. I have asked that the FIC should explore how we might bring South Africa into line with these international anti-corruption and anti-money laundering standards.

Taxpayers, and indeed all South Africans are understandably impatient for tangible change. A recurring theme in the tips sent to me for this Budget was to ensure value for money. Peter Maibelo, aged 24, from Pretoria, summed it up as follows: “Minister I won’t be fancy with words or complicated ideas … my advice for a healthy and sustainable fiscus is to brutally eradicate corruption, then we will be honoured to pay taxes.”

Mr Maibelo, I couldn’t agree more. Rooting out corruption requires collective effort from all of us.

Conclusion

My sincere appreciation goes to President Zuma and Deputy President Motlanthe for their guidance and support.

My appreciation also goes to Colleagues of the Ministers’ Committee on the Budget, for their continuous and vigorous engagement with the challenges that face us, and their bold and steadfast advice to Cabinet.

I wish to thank my Cabinet colleagues who collectively own this budget. Their support and understanding for tough measures is highly appreciated.

A heartfelt thank you to Deputy Minister Nene, whose vigilant participation and sound advice is invaluable to me.

My thanks to the MECs of Finance, who play a critical role as guardians of 43 per cent of our spending….

The key pillars of this Budget are:

• Global growth is improving, though uncertainty remains.

• South Africa’s economy must grow faster and more inclusively.

• Future growth is also dependent on private-sector investment in the economy.

• The National Development Plan will be implemented by government and budgets will be aligned to it.

• Government continues to invest significantly in infrastructure

• We are taking additional steps to create opportunities for young people.

• Reduced revenue results in less spending in the years ahead unless the economy grows.

• There are new opportunities to be seized in Africa and other emerging markets.

• We have committed to reviewing and assessing our tax policy framework and its role in supporting the objectives of inclusive growth, employment, development and fiscal sustainability.

• A new local government formula benefits rural municipalities.

Honourable Speaker, I table this budget in the hope that as a nation we will be able to rise above our sectional interest, and, as you said Mr President, prevail with greater maturity, pull together and take this country forward.

We have said that South Africa is changing. Let us work together to ensure that really, tomorrow, will be better than today.

In conclusion, let me remind this House of what former President Nelson Mandela said: “What counts in life is not the mere fact that we have lived. It is what difference we have made to the lives of others that will determine the significance of the life we lead…”