President Jacob Zuma, Deputy President Kgalema Motlanthe, Cabinet colleagues, MECs for finance, the Governor of the SA Reserve Bank, Ms Gill Marcus, members of the diplomatic corps, distinguished guests, Members of the House and hon Speaker, it is my privilege to introduce the second Budget of President Zuma's administration.
Mr President, you outlined our programme of action in the state of the nation address two weeks ago. Your vision for the future is abundantly clear:
We want to have a country where millions more South Africans have decent employment opportunities, which has a modern infrastructure and vibrant economy and where the quality of life is high.
This Budget, Mr President, reflects the collective determination of the government to address with passion and energy the challenges of creating jobs, reducing poverty, building infrastructure and expanding our economy.
The Budget sets out a financial framework for implementing this vision, a framework that is sound and sustainable. It recognises that building South Africa is a multidecade project that must invigorate our capacity to grow, and must include all South Africans in that growth.
This Budget sets us on a path, hon members, that will be neither easy nor uncontested. Hard work and difficult choices lie ahead, but the journey is certainly under way. We have embarked on the long walk to economic freedom. All South Africans aspire to these freedoms:
. Freedom from poverty; . Freedom from need; . Freedom to exercise our talents and thrive as individuals; and . Freedom to work together as communities, as organised social formations, as business enterprises and, above all, as a proud and forward-looking nation.
What does this Budget offer?
Mr Speaker, the 2011 Budget ensures:
. firstly, that government can intensify activities that make a difference to the lives and prospects of all South Africans; . secondly, that priority programmes required for implementing the New Growth Path are funded; and . thirdly, that macroeconomic stability is maintained, with necessary adjustments to support enterprise and job creation.
In tabling another weighty load of documentation today, our aim is to display transparently how South Africans benefit from government's programmes and policies and how their tax contributions are spent.
On that note, hon members, we can be proud of the announcement that South Africa was once again recently rated as the most transparent of 94 countries when it comes to the availability of Budget information. [Applause.]
This Budget provides for all sectors of South African society. For the poor, the Budget continues to expand spending on housing, rural development, better community services and social assistance grants for the elderly, the disabled and children in need.
For workers, the Budget emphasises job creation and expenditure on the "social wage," including access to health services, education, social security, transport and municipal infrastructure.
For the business sector, the Budget expands investment in modernising our infrastructure and transport logistics, accelerating further education and skills development and supporting research, technology and industrial investment.
For the small business sector, there are targeted financial and enterprise development programmes, and tax relief measures. Of course, we certainly need to do more for small business.
For the youth of our country there is expanded access and financial assistance for further education, and a range of initiatives aimed at expanding job opportunities. All of this, and more, we must do within a sound fiscal framework. We must also recognise that we are taking steps, this year and next, on a long-term growth path, a decades-long transformation and expansion of our social and economic possibilities.
In reflecting on commitments made in last year's Budget, we can point to progress on several fronts:
. Savings have again been identified in low-priority categories of spending, releasing over R30 billion to frontline service delivery allocations. . Support for the Industrial Policy Action Plan is further enhanced. Tax and spending measures are proposed to improve investment and trade performance, enhance science and technology, accelerate job creation, boost small enterprise development, strengthen rural development and provide emerging farmer support. . Education and skills development are bolstered over the period ahead through expanding further education colleges, student financial assistance, and a new school building programme. . Spending on economic and social infrastructure of over R800 billion is projected over the next three years. . A new community-based family health care programme is to be introduced as part of the national health insurance, while work is proceeding on the design and consolidation of our social security arrangements. . At Parliament's request, we are tabling guidelines on long-term fiscal sustainability and debt management.
An opportunity to create hope for young people
Above all, we must ask the question: What are we doing for our youth? Mr Speaker, we live in an extraordinary time in human history - a time of immense transition, of profound risks, but also of great opportunities. We are in the midst of epoch-changing shifts in the global economy as large fast-growing countries, particularly China and India, have become major world producers and consumers. Their weight in world trade, finance and investment and in restructuring the world's industries affects every country, every firm and, indeed, every family.
Fast-growing economies that are raising living standards and creating jobs have one thing in common: They are continually moving into new products and improving the ways of producing the things that they want to sell to others. Adaptation to the disciplines and the productive possibilities of the new global economy opens up new opportunity for improving living standards and expanding employment. However, it also presents great challenges because we have to seize these opportunities and seize them with passion.
We have taken on the responsibility to build a better South Africa. We have taken on the challenge that the legacy of apartheid left us: a legacy of disempowerment, landlessness, inequality of opportunity and outcome, and millions of unemployed young people who cannot see a realistic prospect for a decent life. Confronting these realities is not about blaming the past or denying our own shortcomings. It is about recognising that now is the time to do extraordinary things in dealing with our particular development circumstances. It requires new ideas and bold efforts from all South Africans: government, business, labour, communities and, indeed, every family member.
We must show, across the economy, the game-changing strengths we have shown on big issues before, from creating our democracy in 1994 to hosting the Soccer World Cup last year.
Now we have to ignite the flame of higher inclusive growth and, above all, sustain it. We cannot view the fact that 42% of young people between the ages of 18 and 29 are unemployed as merely a statistic. Young men and women in cities, informal settlements, towns and villages may not have jobs. Nonetheless, they possess the awareness and the ability to learn; they set new fashion trends and inspire us with their music. They have hope, and look to us to give meaning to that hope.
In response, we must take measures to ensure that our young people can look forward to decent work in productive, competitive enterprises. It means that, as government, we will continue to strengthen social expenditure, enabling families to commit to participating in education and community activities, while supporting the old and sick.
Inclusive growth means strenuous efforts to cut back poverty and shrink the inequality that continues to blight us. The South African growth path we envision is not measurable by GDP alone. It must be an inclusive growth, which especially benefits the many South Africans who have been left behind.
Inclusive growth also means addressing the climate change challenges that confront the long-term global outlook. This year South Africa will host the 17th United Nations Conference of the Parties on Climate Change, Cop 17. Our own efforts to green our economy, so to speak, will come under special scrutiny at that time. Mitigation initiatives are not just about reducing the dangers associated with a hotter future, but they also offer significant opportunities to create jobs and reduce costs in our economy.
And so, in mapping a New Growth Path that will lead to rapid creation of jobs, that will ensure an equitable distribution of benefits, that will reduce inequality, ignite industrial development and transform rural and urban communities, in charting this course, we are mindful of the specific realities of our own circumstances and the changing shape of the global economy.
As Comrade Chris Hani so rightly said: We want to build a nation free from hunger, disease and poverty, free from ignorance, homelessness and humiliation, a country in which there is peace, security and jobs.
[Applause.]
It is time to celebrate and embrace the potential of our unemployed young, knowing that they are our future. How we meet this challenge will shape the quality of life that our children and their children will enjoy in the decades to come.
Economic outlook
Mr Speaker, there are encouraging signs of stronger recovery in the global economy as we enter 2011. But it remains essentially what is now called a two-speed recovery. There is moderate growth in the United States and slower growth in parts of Europe, whereas China and many other emerging economies continue to expand quite rapidly.
The roots of this divergent growth pattern lie in the unbalanced structure of world growth in the years leading up to the financial crisis. World growth came to rely too heavily on countries that exhibited overly high consumption, financed by countries with high savings and large trade surpluses.
The financial crisis and subsequent recession brought painful adjustments. However, the shift in world trade, investment, manufacturing, incomes and consumption is a structural transition that will take many years, as a multipolar world evolves.
Until the turn of the century, developing countries accounted for about 20% of global output. This will increase to 40% by about 2015. So the world is indeed changing and the balance, if you like, is moving eastward and southward.
Developing economies in Africa, Latin America and South Asia will play an increasingly important role in the global economy in coming years as incomes rise and poverty falls.
South Africa's invitation to join the Brazil, Russia, India, China, Bric, economies reflects this broadening of the sources of economic growth. Over the next five years, these economies will account for 36% of world economic growth. We have to construct our own growth and development strategies to propel our economy forward, create jobs and, above all, compete on the global stage.
The New Growth Path outlines our approach to accelerate growth and employment, focusing on several key drivers:
. Continuing and broadening public investment in infrastructure; . Targeting more labour-absorbing activities in the agricultural and mining value chains, manufacturing, construction and services; . Promoting innovation through the "green economy" initiatives, and . Supporting rural development and regional integration.
The latest estimate released yesterday by the Statistician-General is that the domestic economy grew by 2,8% in 2010. Strong commodity prices, low interest rates, and faster global growth have been the main forces behind our economic recovery. Improving household consumption and accelerating investment will support an increase in economic growth over the medium term. Real GDP growth is projected to reach 3,4% in 2011, 4,1% in 2012 and 4,4% in 2013. Steady employment gains - though inadequate - of about 2% a year will raise disposable incomes, supporting household consumption and investment.
Private gross fixed-capital formation - this is investment in our economy - increased in the second and third quarters of 2010, a positive sign and a marked turnaround after five successive quarters of decline. Total investment is expected to grow by 3,9% this year.
The buoyancy of the investment recovery is an important determinant of future economic growth. Real growth in exports is expected to average 6,5% a year over the medium term as commodity exports benefit from strong demand and high prices.
Inflation is forecast to remain within the target range of 3% to 6%, edging towards the upper end of the range in 2013 as the economy strengthens.
However, increasing food and oil prices represent serious risks to the inflation outlook. The price of Brent Crude reached US$107 yesterday. Further increases will put upward pressure on prices more broadly.
The improved terms of trade for South Africa contributed to a better current account deficit for 2010 than was expected a year ago. As it widens from the 3,2% of GDP expected this year to 5% in 2013, we would like it to reflect rapidly rising investment rather than higher consumption.
Macroeconomic stability in an uncertain world
Mr Speaker, the growth and transformation of financial markets in recent decades have seen increased volatility of exchange rates and capital flows. Global commodity markets now account for significant fluctuations in prices for our energy imports, mineral exports, and food supplies.
The macroeconomic environment facing South Africans - through interest rates, exchange rates, inflation, and credit conditions - can be destabilised by those international shocks. Once again, there is a prospect that something that has nothing to do with how we manage our economy can act as a disruptive factor. The macroeconomic policy's task is to provide a stable and predictable economic environment by offsetting such shocks as far as possible.
Our monetary policy, designed to target inflation, has been conducted successfully by the South African Reserve Bank, achieving the current low rate of inflation and interest rates.
Fiscal and monetary policy will continue to work in partnership. Monetary policy, conducted by the Reserve Bank, will continue to be focused on controlling inflation, and we will continue to ensure that fiscal policy is countercyclical within a sustainable long-term framework.
Movements in the exchange rate affect different sectors of the economy in different ways, and present difficulties in macroeconomic policy for many countries. Recognising the impact of rand strength on the manufacturing industry, in particular, we announced measures in October, during the Medium-Term Budget Policy Statement, MTBPS, to moderate the potential effect of capital inflows. . Firstly, we said that foreign exchange regulations were amended to permit greater foreign investment by South African institutions and individuals. . Secondly, we stepped up foreign exchange purchases by the Reserve Bank, and this has helped to moderate upward pressure on the rand.
As a result of these policy adjustments and in line with shifts in investor sentiment globally, the rand depreciated from December 2010 to mid-February 2011 by about 10% on a trade-weighted basis.
During 2010 South Africa received net inflows of R92 billion in liquid foreign capital, which contributed to upward pressure on the exchange rate. However, since December last year, South Africa experienced some reversal in these capital flows. Along with uncertainties and volatility in global financial markets, this contributed to the depreciation of the rand.
Furthermore, the increases in oil and food prices I referred to earlier pose significant risks to the inflation outlook both globally and domestically. Government will continue to assist the Reserve Bank to accumulate foreign exchange reserves when market conditions are favourable and engage in foreign currency swaps to moderate the effect of capital flows on the exchange rate.
In 2010, for example, we spent R53 billion assisting the Reserve Bank and using some of its own resources in order to balance this volatility in the rand.
Overly rapid currency depreciation carries risks to macroeconomic stability, however, and so we expect the Governor of the Reserve Bank to be vigilant in monitoring inflationary pressures and ensuring that monetary policy is effective in meeting our inflation targets. The credibility of monetary policy in achieving our target inflation range, combined with our commitment to fiscal discipline, are important foundations for moderating exchange rate volatility which, in itself, is important for better growth in South Africa.
Changes in the volume and direction of capital flows may be significant over the year ahead, and are largely beyond our control or influence. We will allow the actions announced in the MTBPS to have their full effect and continue to monitor capital flows.
Other countries also experienced high capital inflows in 2010. Several, including Brazil, South Korea, and Thailand, introduced tax or regulatory measures to deter those investment flows and currency speculation. We have examined these options and their impact, and will continue to monitor the adjustments made in other countries, while recognising that circumstances vary from country to country.
National Treasury is very cognisant of the risk of financial instability and currency volatility that can arise from large capital movements. If necessary, appropriate steps to moderate these effects will be taken together with the Reserve Bank.
Transformation of the financial sector
Mr President, you pointed out in your state of the nation address that our financial sector proved to be remarkably resilient in the face of the recent financial crisis and the global economic meltdown. In line with global developments, there are further steps to be taken to enhance the regulatory framework and improve financial services. The proposed reforms include a shift to a "twin peak" system of financial regulation, with market conduct under the Financial Services Board, and prudential regulation in the Reserve Bank. An interagency financial stability oversight committee will be formed, and a council of financial regulators. A policy discussion paper sets out the new framework for how the financial sector could better serve South Africa.
Among the issues to be addressed are the findings of Judge Jali's inquiry into competition in banking - findings that are echoed by many people's complaints that bank charges are high and opaque. A senior citizen, Mr Bill Nobile, wrote to me last week:
We do not fully understand the complexity of the payment systems for credit and other cards but there does appear to be considerable leeway in reducing costs to the customer, including the elderly.
[Applause.]
I have met with the chief executives of our banks to take up this issue, and I believe it is time to put in place measures that will ensure that banking charges are fairly set, are transparent and do not create undue hardship. [Applause.]
As part of the work of modernising and harmonising our investment framework, Treasury is releasing two further discussion papers, one on the regulation of foreign direct investment, and another on the prudential framework for institutional investors. We look forward to consultation with stakeholders on these issues over the coming months.
The fiscal framework
South Africa adopted a countercyclical fiscal stance two years ago, ahead of the crisis. We entered the recent recession with a healthy fiscal position - we have to thank Minister Manuel for that - and a comparatively low level of debt. This allowed us to maintain government spending despite a sharp deterioration in revenue.
Government spending continues to grow over the next three years, though at a slower rate than in the recent past. Since the MTBPS last year, several additional spending allocations have been made. They include a provision to respond to the damage caused by last year's floods.
The impact of slightly slower growth in revenue and the additional expenditures as a result caused a deficit for the next year of 0,7% of GDP higher than we projected in October. The trend remains downwards, however, with a deficit of 3,8% of GDP expected in 2013-14. This reduction in the deficit over the next three years is consistent with stabilising the growth in our debt and the conduct of a countercyclical fiscal policy. National government net debt is set to rise from R526 billion at the end of 2008-09 to over R1,3 trillion in 2013-14. I don't know how many noughts those are!
Mr Speaker, to ensure that our spending on schools, hospitals and roads is not crowded out by an ever-rising interest burden, government debt needs to be managed sustainably. We don't want an unmanageable increase in expenditure, nor do we want the severe austerity measures some Western countries have had to adopt.
In view of these considerations, Parliament asked the National Treasury to investigate how we might reinforce long-term sustainability of our public finances. For the further consideration of Parliament, we will be proposing a set of fiscal guidelines, informed by three principles:
. The first is a countercyclical fiscal stance, to counteract variations over the business cycle. What this simply means is that there will always be times when growth is good and revenue is good and there will be times when growth is not so good and revenue is poor. We need to save in the good times and spend in the bad times. And how we manage these cycles as they go on is the crucial challenge that this countercyclical fiscal policy will allow us to meet. . The second is long-term debt sustainability, to ensure that financing costs do not crowd out expenditure on public services. By this we mean we can borrow, but we must make sure that the interest that we pay on our debt does not become so huge that we do not have enough money to spend on housing, welfare, education and other priorities in South Africa. . The third is intergenerational equity, so that our children's wellbeing is not compromised by short-term interests. It is easy to borrow now, but future generations will have to pay for that borrowing. So we need some balance. [Applause.]
Developing fiscal and budgetary guidelines will strengthen parliamentary oversight, encourage transparency and enhance accountability.
Division of revenue
Mr Speaker, in respect of the Division of Revenue, our Constitution sets out criteria for the sharing of nationally-raised revenue between national departments, provinces and municipalities. Proposals for this division are set out in the Division of Revenue Bill that is in this pack.
Total expenditure from the National Revenue Fund of R889 billion is provided for in 2011-12, which is 9,8% more than the revised estimate of the current financial year.
. Firstly, debt service costs will amount to R77 billion, rising to R104 billion in 2013-14. Though our overall debt burden remains moderate, the size of the budget deficit at present results in debt service costs rising faster than any other category of spending over the period ahead. . Secondly, in keeping with established practice, the budget framework includes an unallocated contingency reserve of R4 billion this year. This allows for unforeseeable and unavoidable spending requirements next year, and future policy priorities over the medium term. . Thirdly, this leaves R808 billion to be allocated between national, provincial and local government in 2011-12. Minister Sisulu, only R808 billion. [Laughter.] National departments are allocated 47% of the total, provinces 44% and municipalities just under 9%. Remember that municipalities are also supposed to generate their own revenue. National transfers to local government have increased substantially, and will amount to over R70 billion in budgetary assistance and infrastructure grants in 2011-12.
Revisions to baseline, savings and reprioritisation
Mr Speaker, the proposed Medium-Term Expenditure Framework, MTEF, has been structured to enable government's policy priorities to be implemented in accordance with delivery agreements signed with the President.
The 2011 Budget makes available R94 billion in addition to baseline allocations over the next three years. Savings of R30 billion were identified, of which R21 billion was reprioritised within departmental baselines to meet existing commitments.
In order to accommodate additional funding for the National Student Finance Aid Scheme, NSFAS, all departments were required to effect unprecedented spending cuts of 0,3%, amounting to R6 billion, which went to Minister Nzimande. [Applause.] I thought he would smile a little bit more, but he wants more! [Laughter.]
I want to place on record our appreciation to Cabinet colleagues and departmental accounting officers for their co-operation in this unprecedented exercise.
Part of this revision to baseline allocations is the carry-through cost of the 2010 wage agreement, which requires an additional R39,4 billion for remuneration of employees over the MTEF period. The Public Service salary bill has doubled over the past five years, from R156 billion to R314 billion. This constitutes just under 40% of consolidated noninterest expenditure.
Consolidated government expenditure
Members of the House will know that the spending plans of national government departments, public entities and social security funds are set out in considerable detail in the Estimates of National Expenditure. Estimates of consolidated government expenditure for the period ahead are set out in chapter 8 of the Budget Review.
Consolidated expenditure is projected to increase from R897 billion in 201- 12 to R1,2 trillion - we are all growing up! - in 2013-14, with noninterest spending on public services growing by an average of 8% a year.
What are we spending the money on?
Creating jobs
Firstly, creating jobs. As you have emphasised, Mr President, our aim is to put development first, and not dependence on welfare. As isiXhosa-speaking people say: Masizenzele. Let's do it ourselves. [Laughter.] [Applause.] I was thinking of someone who would say that we should not do it ourselves. [Laughter.]
The Budget therefore proposes a range of measures to accelerate employment creation over the period ahead:
. As announced by the President, R9 billion has been set aside over the next three years for a jobs fund to co-finance innovative public- and private-sector employment projects. . Further Education and Training colleges are allocated R14 billion in the period ahead and student financial assistance will be stepped up. . Over R20 billion goes to Sector Education and Training Authorities, Setas, and R5 billion to the National Skills Fund, which have key responsibilities for training work seekers. . The Expanded Public Works Programme is allocated R73 billion over the next three years, including community-based projects, environmental and social programmes and maintenance of roads and infrastructure. . Tax incentives have been renewed for manufacturing investment of R20 billion, with a focus on job-creation potential. . Investment will be increased in housing, residential infrastructure and services. . Small enterprise development initiatives will be strengthened, including a focus on employment activation by the National Youth Development Agency, NYDA. [Applause.] . Initiatives are under way to promote rural employment, and provide stepped-up support for agricultural producers. . Funding is allocated for renewable energy, environmental protection and green economy initiatives. . As promised last year, details of a R5 billion youth employment subsidy are set out in a discussion paper, for further consideration in this House and at the National Economic Development and Labour Council, Nedlac.
Now, if we add all of these, we have approximately R150 billion to spend both on job creation and on skills-related activities over the next three years.
We must offer young work seekers real hope, where at present there is despair. We need to do things differently, as the President often urges us. We need to have the courage to pilot new approaches and build new partnerships, promoting innovation throughout our economy.
Improving the quality of education
Education takes up the largest share of government spending - 21% of noninterest allocations - and receives the largest share of additional allocations.
. An amount of R8,3 billion over the MTEF period is added for schools infrastructure. A programme to address backlogs in school facilities over a three-year period will be administered by Minister Motshekga's department. . Just under R1 billion is added for the Funza Lushaka teacher bursaries and bursaries for postgraduate students in natural sciences. . R9,5 billion is provided for expanding Further Education and Training colleges and skills development. Including adjustments for the remuneration of teachers, a total of R24,3 billion will be added to education and skills spending over the next three years, which rises from R190 billion next year to R215 billion in 2013-14.
Ministers Nzimande and Motshekga exercise stewardship over this moeney, Mr Speaker, over the largest network of service providers in our economy, and over the most important programme of investment in future growth and distribution.
Enhancing health services
Several further steps in implementing Minister Motsoaledi's ten-point plan for reform of the health services are accommodated in this Budget. Total spending on public health services has increased strongly over the past three years to R113 billion projected for the next year.
In addition to provision for higher personnel expenditure over the period ahead, over R8 billion is added to specific health service interventions, laying the foundations for the National Health Insurance. This includes, amongst other things:
. R1,2 billion to introduce family health care teams; . money to improve the quality in health facilities, medical equipment and hospital systems; . improvement in the district-based maternal and child health services; . a new office of standards compliance to inspect and certify hospitals; . funding for the Department of Health to lead the necessary institutional and management reforms; . revitalising health infrastructure, including a new infrastructure grant for provinces; and . expanding capacity to train medical doctors and nurses.
Let me emphasise that one of the things that Minister Motsoaledi and I are quite anxious about is that, as far as tertiary hospitals and the new medical training facilities are concerned, if we are to deliver them with efficiency, it is important that they are co-ordinated at a national level.
Total expenditure on the comprehensive HIV/Aids conditional grant will amount to R26,9 billion over the MTEF period, based on an increase in the number of people on treatment from 1,2 million this year to 2,6 million people by 2013-14.
The phasing in of the national health insurance will require substantial reforms to address imbalances across the public and private sectors and expand health professional training. The financial and organisational implications of these reforms are being jointly addressed by the Department of Health and the Treasury.
Making communities safer
Additional resources, Minister Mthethwa, are also allocated to the Safety and Security cluster led by you and Ministers Radebe, Cwele and Mapisa- Nqakula for the period ahead.
A total of R12,8 billion goes to the departments of Police, Justice and Constitutional Development, Correctional Services and the Independent Complaints Directorate. The Budget provides R2,1 billion for an increase in Police personnel to 202 260 in 2013-14, from about 190 000 at present. They have really done their calculations well!
An additional R670 million is allocated for the upgrade of information technology, and R490 million is for the construction of courts, including the High Courts in Nelspruit and Polokwane. [Applause.] That must be people from Polokwane applauding. [Laughter.]
Total expenditure on public order and safety functions will amount to R91 billion next year.
Defence
On Minister Sisulu's Defence Vote, further allocations are made for assistance in safeguarding the country's borders, and to upgrade and maintain border facilities and equipment.
Additional funding of R1,3 billion will bring total expenditure on Defence and State Security to R38,4 billion next year.
Economic development and industrial promotion
Additional allocations in support of industrial and economic development over the period ahead include:
. R600 million for enterprise investment incentives; . R735 million for the Competition Commission and other economic regulatory agencies; . R250 million to the Industrial Development Corporation to support agroprocessing businesses; . R120 million for the National Tooling Initiatives, so all of us can learn to be carpenters; . R282 million for the micro-finance Apex Fund; and . R55 million for Khula Enterprises to pilot a new approach to small business lending.
Under the guidance of Minister Davies, about R10 billion will be spent on the Industrial Policy Action Plan investment promotion over the MTEF period, including the automotive production and development programme, clothing and textile production incentives, the film and television production incentive and support for small manufacturing and tourism enterprises. The word "incentive" means that we are giving money away.
Small businesses are an important source of jobs. Businesses that employ fewer than 50 workers account for 68% of private sector employment.
We need to get our small business sector growing and growing fast. Allow me to share just a few inspiring examples from small business entrepreneurs in South Africa: . Mr Kosi is a young man with a passion for building skills in his community, Willowvale. He has set up a small ICT training centre where he has trained more than 120 people in IT skills. . Mr Norman Mpedi is an ex-MK combatant who, after being forced to live off the bush in Angola, discovered the umviyo fruit and has grown this into the thriving juice-making Nguni Juice. [Interjections.] That's what it is called. So here is an ex-combatant who one would think would not do this kind of thing and he has shown what entrepreneurship and creativity can do. . Our third example is that of Antonio Pooe who started Exactech Fraud Solutions in 2007 as a small one-person business operating out of his home. He has since grown it into a company with offices in Johannesburg, Cape Town and Durban and now employs 24 people.
Let's congratulate them. [Applause.]
These are but a few examples of the thousands of small and micro businesses which have taken root and fill a vital space in our economy. In many instances they have been supported by financing from both the private sector and programmes of the Department of Trade and Industry.
Rural development and agriculture
These are crucial areas in our economy. Under Ministers Joemat-Pettersson and Nkwinti government's land reform and agricultural development programmes are focused on rural job creation and poverty reduction, while expanding agricultural production and improving food security.
Additional allocations amounting to R2,2 billion go to these functions, including a further R400 million for the comprehensive agricultural support programme and the Land-Care Programme grant and funding to enable a further 5 000 recruits into the National Rural Youth Services corps.
Including provincial allocations for agricultural support, a total of R19 billion will be spent on rural development and agriculture in 2011-12.
Transport
Minister Ndebele, I have no money for tolls right now. [Laughter.] Additional allocations of R10,3 billion are made over the MTEF for transport infrastructure and services on Minister Ndebele's Vote.
. This includes R3,8 billion for maintenance of the coal haulage road network, financed from the increased levy on electricity collected from Eskom. . An additional R1,5 billion goes to provinces for road maintenance and weighbridges, as part of a new conditional grant for roads infrastructure, so that we don't complain about potholes any more. . Funds are also stepped up for the Passenger Rail Agency of South Africa, for replacing signalling infrastructure and refurbishing rail coaches. . A further R2,5 billion goes to municipalities for public transport systems and infrastructure improvement.
Consolidated government transport spending will amount to R66 billion next year.
Environmental protection and adapting to climate change
As I mentioned earlier, this is also a crucial task. Funding amounting to R800 million has been set aside over the next three years for "green economy" initiatives, including those recently announced by Minister Patel. Specific allocations will be made in the Adjustments Budget.
Additional allocations for research into energy-efficiency technologies are proposed - Minister Peters will be happy with that - while provision is also made for efforts to prevent wildlife trafficking and improved air quality, waste disposal and coastline management. A total of R2,2 billion is allocated for environmental employment programmes over the medium-term period and funding is provided on Minister Molewa's Vote for hosting the Conference on Climate Change, Cop 17, in November this year. Total spending on the Integrated National Electrification Programme will increase to R3,2 billion in 2013-14.
Housing and community amenities Mr Speaker, recent research published by the Development Policy Research Unit confirms that significant progress has been made in the delivery of housing, water, sanitation and electricity, as the President mentioned in his speech. . The proportion of poor households living in formal dwellings has increased from 47% in 1994 to 66%; . Households with piped water have increased from 28% to 53%; . Those with electricity for lighting from 20% to 75%; and . Those with flush or chemical sanitation from 18% to 37%. Additional allocations to Minister Sexwale's Vote for human settlements upgrading and municipal services amount to R4,9 billion over this period.
Two new grants to provinces and municipalities are proposed under Minister Shiceka's oversight to respond more rapidly to disasters.
A further R3,6 billion is added for water infrastructure and services, including funding for the acid water drainage threat associated with abandoned underground mines. A report on this by a team of experts has been approved by Cabinet, and Minister Molewa is taking the lead in consulting with industry on a shared and co-ordinated response to the challenge.
Government aims to upgrade 400 000 homes in informal settlements by 2014. A new urban settlements development grant contributes R21,8 billion over the next three years for these projects.
Total spending on the housing, water and community amenities social wage will amount to R122 billion in 2011-12.
Social protection
The social protection budget is another substantial part of the social wage in South Africa. This practical expression of a caring society amounts to R147 billion in 2011-12, and provides income support to poor households and has been extended over the past decade, mainly through the phased extension of the child support grant to older children.
At present, close to 15 million fellow citizens receive social grants on Minister Dlamini's Vote, equivalent to more than a quarter of the population. Thirty-eight per cent of social grant payments go to pensioners, 35% to children in poor households, and 19% to the disabled. With effect from April this year: . The monthly state old-age grant and the disability and care dependency grants will rise by R60 a month to R1 140; [Applause.] . ... and here's a plus ... . for pensioners over the age of 75, the old-age grant will rise by a further R20 a month to R1 160; [Applause.] . Foster care grants will increase by R30 to R740; . The child support grant will increase from R250 to R260 in April, and to R270 in October. [Applause.] . Revisions are also proposed to the means test thresholds, which will benefit households with modest incomes that reduce their grant entitlements.
Social protection also includes unemployment insurance, occupational injury compensation and the Road Accident Fund. Proposals are now well advanced for alignment and consolidation of these social security arrangements, together with the introduction of a mandatory basic retirement savings plan. Over R9 billion a year is currently spent in administering our fragmented social security system. An integrated and better co-ordinated social security system will offer better protection to vulnerable households, at a lower administrative cost, and lay a foundation for future generations.
That's all the spending. Now, where's the money going to come from?
Revenue estimates and tax proposals
Let me turn, Mr Speaker, to the revenue required for these spending plans. Members of the House have been very patient, and may be thinking of the need for liquid refreshment, and the cost thereof! I will say something about that in a moment. But first let me report on the revenue side.
Revenue outcomes and tax expenditures
I am pleased to report that tax revenue has recovered during 2010-11. The revised estimate is R672 billion, or 12,3% higher than last year.
Personal income tax has increased strongly, as have VAT receipts and customs duties. However, corporate income tax revenue has remained below projections, indicating the effect of the 2009 recession on company profits and maybe something else.
Total budget revenue, including provincial receipts, and income of social security funds and public entities, is R755 billion, or 13,6 % above the 2009-10 estimate.
This Budget Review includes, for the first time, a tax expenditure statement. This is a summary of potential tax revenues foregone as a result of various tax incentives. The purpose of the statement is to make transparent those fiscal incentives or indirect subsidies that lie behind the headline revenue and spending numbers. The initial estimate puts the value of tax expenditures - that's money that we give away in one form or another - at R78 billion a year.
We are also publishing the latest edition of the annual Tax Statistics, which provides the most detailed view to date of our tax base and revenue contributions and helps to complete the overall picture of the budget system.
Tax proposals - individuals, trusts and non-business entities Mr Speaker, revisions to the personal income tax brackets and rebates are proposed, which represent relief for individuals to the extent of R8,1 billion. These adjustments compensate virtually only for the effects of inflation for the coming year and the balance of the fiscal drag effect that could not be accommodated last year.
From March 2011: . Tax will be payable only on income above R59 750 for taxpayers below age 65, and R93 150 for those 65 years and older. . A third rebate of R2 000 per year is proposed, increasing the tax threshold for taxpayers aged 75 and older to R104 261. In other words, the over-75s get an additional tax break. . An increase in the annual tax free interest income to R22 800 for individuals below 65 years is proposed, and to R33 000 for individuals 65 years and over. The Treasury is exploring the possibility of incentivised savings schemes for housing and for education as alternatives to this exemption. . The tax free lump sum benefit upon retirement will increase from R300 000 to R315 000.
As in past years, inflation-related increases will be made to the monthly thresholds for tax-deductible contributions to medical schemes. These deductions and those for qualifying out-of-pocket medical expenses will be converted into tax credits with effect from March 2012. A tax credit is more equitable since it provides for an equal benefit to all taxpayers regardless of their income. Right now, it is the wealthier people who benefit.
Changes to the tax treatment and administration of contributions to retirement funds are also proposed. These will simplify administration and improve the fairness of the system. There will be extensive consultation on this matter. The proposals include the treatment of employer contributions as a fringe benefit, limits on tax deductible contributions and the alignment of the tax treatment of provident and pension funds.
Some of the ideas are that from March 2012, an employer's contribution will be treated as a taxable fringe benefit, and employees will be allowed to deduct possibly up to 22,5% of taxable income for contributions to approved retirement funds. It was proposed that a maximum of R200 000 a year will be deductible. With a view to protecting workers' savings, it is proposed that the one-third lump-sum withdrawal limit applicable to pension and retirement annuity funds should also apply to provident funds.
What is happening here is that people, when they get into a bit of difficulty or need, withdraw all of their savings and, at the end of their working life don't have much on which to depend. So, these are some of the proposals that will be looked at.
The following capital gains exclusion amounts will be increased from 1 March 2011:
. For individuals and special trusts, from R17 500 to R20 000; . On death, from R120 000 to R200 000; . On disposal of a small business when a person is 55 years or older, from R750 000 to R900 000.
The annual trading income exemption for public benefit organisations will increase from R150 000 to R200 000, and for recreational clubs from R100 000 to R120 000.
Withholding tax on gambling winnings
Mr Speaker, we have decided to become a bit innovative this year and impose a withholding tax on gambling winnings. Last year we indicated that the taxation of gambling winnings would come under review. With effect from April 2012, all winnings above R25 000, including pay-outs from the National Lottery, will be subject to a final 15% withholding tax. This is in line with practice in a number of other countries, such as the United States, where that tax is 30%. [Applause.] We hope it will assist in discouraging excessive gambling. [Interjections.]
Order, hon members!
Of course, if you want to contribute to the fiscus, please do go and gamble so that we can get that 15%! [Laughter.] Despite the obvious merits of this argument, I expect vigorous debate during the parliamentary process, just not today, please!
National health insurance
Proposals are under review for a national health insurance system, as part of the broader restructuring and enhancement of health services. There will be substantial cost implications. We will consider and consult - let me repeat; we will consider and consult - on options for meeting the funding requirements, including a payroll tax payable by employers, an increase in the VAT rate and a surcharge on individuals' taxable income.
Now let me repeat before you all get anxious about this. These are all options. We will have to consider the pros and the cons of each of these options. We do require more money to get this scheme going but ultimately it will benefit all South Africans. The question is: Where do we get it from and what is the best form in which to do it?
The fiscal and financial implications of health system reform, and alternative revenue sources, will be examined in the year ahead.
Tax proposals - businesses
For businesses, the following is proposed:
. As indicated in previous years, a dividends tax will take effect on 1 April 2012, replacing the secondary tax on companies. . Dividend schemes that undermine the tax base will be closed by treating the dividends at issue as ordinary revenue. These include dividend cessions, where taxpayers effectively purchase tax free dividends without any stake in the underlying shares. . Government introduced the concept of a venture capital company into the Income Tax Act in 2009, but the response to it was poor. The approach will be refined so as to facilitate greater access to equity finance by small and medium businesses and junior mining companies. . From March 2011, the turnover tax for micro businesses with an annual turnover up to R1 million will be adjusted so that tax will be payable only if turnover exceeds R150 000 a year. In other words, below that, you pay no tax. The rate structure will also be reviewed. . Also, from 1 March 2012, micro businesses that register for VAT will no longer be barred from registering for turnover tax. . The learnership tax incentive, designed to support youth employment, will expire in September 2011. Government proposes to extend this for a further five years, but subject to an analysis of its effectiveness with all stakeholders. The take-up until now has been low. . A youth employment subsidy is proposed. Subject to completion of consultations, it will take the form of a tax credit costing R5 billion over three years to be administered by the South African Revenue Service through the PAYE system. This is subject to further consultations. . To support the objectives of the Industrial Policy Action Plan and the New Growth Path, certain investments qualify for tax relief. Consideration will be given to expanding such incentives for labour intensive projects in industrial development zones.
Indirect taxes
. The transfer duty exemption threshold will be increased from R500 000 to R600 000. . Excise duties on alcoholic beverages will be increased by between 4,5% and 10,3% - an increase of 6,4 cents ... [Interjections.] ... wait a minute, this is the part you need to consider before you go and have a drink... for a 340ml can of beer, 13,5 cents per bottle of wine, or R2,86 for a bottle of spirits - now, Mr President, I must get this one right - izinyembezi zika-Queen. [Queen's tears.] It comes from his territory. [Laughter.] . Taxes on tobacco products will increase between 6% and 10,2%; it will be 80 cents more for a packet of cigarettes. [Applause.] . Currently there is an ad valorem excise tax on motor vehicles. The rate increases as the price of the vehicle increases. These rates will remain unchanged below a purchase price of R900 000. For vehicles above R900 000, the tax rate will increase to a maximum of 25%, from 20% at present. [Applause.] . The general fuel levy will increase by 10 cents a litre on both petrol and diesel on 6 April 2011. . The Road Accident Fund levy will be increased by 8 cents to 80 cents a litre. . Increases will take effect on 1 October 2011 in the air passenger departure tax on flights to international destinations. . The levy on electricity generated from nonrenewable and nuclear energy sources will increase by 0,5c/kWh to 2,5c/kWh from April 2011. The increase should not impact on electricity tariffs, as it has already been taken into account in the National Energy Regulator's approved tariff structure.
Tax administration
Mr Speaker, allow me to pay tribute again to the continued support that all of us received from millions of honest taxpayers. Can we applaud them, please? [Applause.] Their contributions are reflected in the recovery of tax revenue this year. We have been able to expand spending where other nations have been forced into austerity adjustments. Even those who have not contributed fully to date have begun to come forward to take advantage of the Reserve Bank and Sars' voluntary disclosure programmes. Others who wish to do so have until the end of October this year to join the 1 200 applicants so far.
Administrative reforms will continue to focus on ensuring that all those who earn an income through employment or other economic activity pay what is due to the fiscus.
This year, Sars will turn its attention to enhancements to the business tax process, including corporate income tax, VAT and the enhanced turnover tax for emerging businesses. As with personal income tax, a prerequisite for these improvements is an accurate picture of all business entities no matter their size or tax liability. Sars, in partnership with other state institutions, will make significant improvements to the business registration process this year, including conducting a door-to-door drive in all sectors of our economy to complete the picture.
Tax and customs evasion remains a serious threat. Working together, the Police, the prosecuting authority, the Financial Intelligence Centre and Sars ensured that more than 200 taxpayers were convicted of fraud and tax evasion during the last six months alone.
Recently, customs officers with the support of the police impounded nearly 3 000 illegally imported second-hand vehicles, two significant tobacco smuggling rings have been snuffed out ... [Laughter.] ... and a tobacco manufacturer has been shut down in the past month. We are also, in conjunction with the tobacco industry, investigating a new method of marking and authenticating legal cigarettes with a counterfeit-proof digital system to replace the current diamond mark.
Mr Speaker, the sector most visibly affected by the illicit economy in recent years has been the clothing and textile industry, resulting in significant loss of jobs in local manufacturing plants. In the coming months a multidisciplinary task team comprising representatives of the manufacturing, importing and retail industries and a range of public sector stakeholders, will begin interventions across the entire value chain to clamp down on illicit clothing and textile imports.
Measures to combat fraud and corruption
Mr Speaker, public procurement plays a significant part in the economy and is central to government services. However, citizens and taxpayers do not get full value for money, as we have said repeatedly, because this is an area vulnerable to waste and corruption. This compromises the integrity of governance and frustrates the pace of service delivery.
Alongside the work of the competition authorities in addressing supplier collusion and tender-rigging, a strong procurement framework is critical to boosting jobs and service delivery. The first round of measures announced in October will come into effect this year:
. Government departments will be required to establish rigorous demand management procedures, including submission of advance tender programmes for the next financial year to the relevant Treasury authority. This will be so throughout government. . Limits will be prescribed for variation orders, to restrict significant changes to procurement orders and bring our system in line with international standards. . Companies bidding for tenders will be required to disclose the identity of all directors ... [Interjections.] [Applause.] ... to determine whether any of the directors are government officials and to establish whether they are tax compliant.
There are currently 53 investigations involving procurement irregularities - there are many more irregularities - involving contracts worth about R3 billion. Minister Radebe recently reported that 65 people linked to some of these investigations have been arrested and brought before the courts. More than R250 million has been seized by the state.
Sars is investigating another nine cases of tender fraud, with a total value of approximately R1,7 billion. Sars has also increased its analytical capacity with the aim of ensuring that vendors winning state contracts satisfy their tax obligations fully. As at the end of January 2011 Sars had identified some 13 000 vendors who have won state contracts and who owe taxes amounting to over R1 billion.
Mr Speaker, as we have said, we have a shared responsibility to prevent corruption and we call on all citizens to blow the whistle on corruption and to report any procurement irregularities to the relevant authorities. [Applause.]
In this regard, we welcome the announcement from Business Leadership South Africa that it intends to name and shame or expel members who offer or accept bribes, or break laws while doing business. Let's applaud their gesture. [Applause.]
Equally important is the call of this government to its managers to ensure that our communities and our taxpayers get full value for their money. Poor delivery and stealing from the fiscus are never acceptable. Senior managers of our institutions and municipalities are expected to work actively to improve their procurement processes and oversight.
Infrastructure investment, city planning and development finance
Public sector infrastructure spending Mr Speaker, government and state-owned enterprises will spend more than R800 billion over the next three years on new power stations, road networks, dams and water supply pipelines, rail and port facilities, schools, hospitals and government buildings. This builds on the steady progress made over the past decade, which saw the contribution of government and public enterprises to gross fixed capital formation rise from 4% of GDP in 2000 to 8,6% in 2009. These are long-term investments in the future of our country, and in the capacity of the economy to grow and create jobs for generations to come.
Major projects under way include, as you know:
. the Medupi Power Station; . the Transnet multiproduct pipeline; and . the freeway improvement scheme.
These investments are largely financed through borrowing, with costs recovered from future electricity consumers and road users.
As part of a long-term strategy for modernising public transport in metropolitan areas, the Passenger Rail Agency of South Africa is embarking on an 18-year programme to replace its coach and locomotive fleet at an estimated cost of R86 billion.
While infrastructure spending in the lead-up to the Soccer World Cup assisted in moderating the impact of the recession on South Africa, there has been an apparent deterioration in government construction spending over the past year.
The challenge of intensifying infrastructure spending over the period ahead will require attention to planning, budgeting and contract management in national and provincial departments and municipalities.
Planning and financing cities for inclusive growth
It is time for special initiatives to accelerate growth and development in South Africa's cities, which have immense potential for inclusive growth and are home to many millions of poor people. The public finance challenge is to balance investment in expanding urban capacity while also providing key public services - electricity, refuse removal and public transport, amongst others.
An efficient and cost-effective public transport system is crucial because the majority of our people live too far from where work opportunities are.
In addition, through better land use management, we need to deliver integrated human settlements that break from the apartheid past. [Applause.]
A start is made in this Budget, in the allocation of funds directly to cities to upgrade informal settlements. Minister Sexwale will implement the accreditation of municipalities that have demonstrated their capacity to manage the low-income housing subsidy system. The public transport function, including the management of rail, has been delegated by Minister Ndebele to metropolitan municipalities in terms of the National Land Transport Act.
These are steps that create direct responsibilities for city councils, and open up opportunities for accelerating investment and change in the urban landscape and how cities promote their local economic development.
Conclusion
Mr Speaker, in conclusion, I extend my sincere appreciation to the President and Deputy President for their unwavering support and wise counsel. Keeping our country on a steady course through the Great Recession, as it is now called, has been a challenging task for all of us and the support of the Presidency has been both indispensable and inspirational. Let us applaud them, please. [Applause.]
I would like to thank my Cabinet colleagues for their support. The Budget is our collective statement. Your positive and encouraging contributions have been most helpful. Thank you very much. [Applause.]
The members of the Ministers' Committee on the Budget have shouldered an immense responsibility to restructure and reform our fiscal system and make bold recommendations to Cabinet. Theirs has been an excellent and enduring team effort. [Applause.]
Our thanks to my colleague, Deputy Minister Nene, who has offered wise insights and shared many responsibilities. He forms an invaluable part of a maturing Ministry. [Applause.]
Thanks also go to the MECs for finance, who play a vital role in managing over 40% of our national Budget.
Our collective thanks go to:
. Governor Gill Marcus and the staff of the South African Reserve Bank for their marvellous co-operation and assistance; [Applause.] . Commissioner Oupa Magashula and the South African Revenue Service. We hope they have produced the revenue we need by 31 March. [Applause.] . Jabu Moleketi, chair of the DBSA, and CEO Paul Baloyi, for their efforts; [Applause.] . the Financial and Fiscal Commission and its acting chair Bongani Khumalo; [Applause.] . Nedlac, its managing director, Herbert Mkhize, and representatives of the business, labour and community constituencies; [Applause.] . the hon Thaba Mufamadi and hon Charel de Beer, who chair the Standing and Select Committees on Finance respectively and to the two chairs of the Appropriations committees, the hon Eliot Sogoni and hon Teboho Chaane, whose work starts now. [Applause.] . the Director-General of the National Treasury, Lesetja Kganyago - who is now becoming a veteran - and the National Treasury team, who continue to surpass their own high standards and remain wonderful examples of loyal and professional public servants, and who are an invaluable asset to our democratic state; [Applause.] . the staff of the Ministry, who make life easier for me; and . to my family for their support and sacrifices so that I may serve our country.
Once again, my sincere appreciation to the wide range of South Africans who continuously provide positive feedback and ideas on how government could work better and differently.
Fellow South Africans, the President has stated very clearly that job creation is our number one priority. This Budget outlines what government's capabilities and finances can do to support the delivery of jobs. Now it is time for all of us to say "making South Africa work begins with you and me".
Giving every South African the dignity of a job, the security of an income, the prospect of training, the support to launch new businesses, the confidence to be an entrepreneur and the sheer passion and optimism to break the shackles of unemployment, is the best legacy this generation can leave for the next.
The world is full of opportunities. Ours is the task of transforming these opportunities into real, tangible outcomes which all of our people can experience and call their own.
I want to quote Mandisa Motha-Ngumla, who sent in a wise tip:
Government must teach its people to fish, not be suppliers of fish. The latter is not sustainable The government pond will never be able to supply more fish in 20 years than it is doing now to the ever-growing masses of people of this country. Let's work to reduce dependency and give back dignity that was eroded by our past.
[Applause.]
We repeat what we said last year: With jobs comes dignity; with dignity comes participation; and from participation emerges prosperity for all.
Mr Speaker, I have pleasure in tabling the Budget Review of 2011, the Division of Revenue Bill, and the Appropriation Bill for this House to consider.
Finally, let us be inspired by Madiba, who said:
In judging our progress as individuals we tend to concentrate on external factors, such as one's social position, influence and popularity, wealth and standard of education ... It is perfectly understandable if many people exert themselves mainly to achieve all these. But internal factors may be even more crucial ... honesty, sincerity, simplicity, humility, pure generosity, absence of vanity, readiness to serve others - qualities which are within easy reach of every soul.
Thank you. [Applause.]
Order! Hon members, distinguished guests, on your behalf I wish to thank the hon Minister of Finance.
Hon Speaker, hon President, hon Deputy President, hon Minister of Finance, distinguished guests, I move:
That, notwithstanding the relevant provisions of the Rules on Money Bills, the fiscal framework, revenue proposals as well as the Minister of Finance's speech be referred to the Standing Committee on Finance for consideration and report.
Agreed to.