‘Time is growing… When will our suffering bear fruit? One great thought
can alter the future of the world. One revelation. One dream. But who will dream that
dream? And who will make it real?’
Ben Okri, Infinite Riches.
Introduction
The Budget we table in this Parliament today bears testimony to the fact that as a
nation we dared to dream. That through our tormented past we kept the dream alive. We
understood then as we do now that the fruits of progress come slowly, one harvest a little
richer than the last. Our great thought was freedom, our dream a better life for all. We
dreamt that dream and we have the courage to make it real.
We now face the hope and the excitement of the new century. The last decade has
witnessed a dramatic re-ordering of world affairs. Greater prosperity than ever before,
further advances in democracy, but also greater uncertainty, more dramatic swings in the
fortunes of nations, than we have ever known. So this is a time when the nations of the
world, rich and poor, are searching for a new cohesion, a balance between exuberance and
order, between the dynamism of the market and the constraints of prudent governance. Along
with other nations, we seek to harness the potential of our economy, while investing in a
more just, socially responsible future.
In a world where a decision made in a split second on a screen in a trading floor in
New York can deny a child in Indonesia an education, we have to find new solutions. To
alter the future of the world we have to make people matter, to recognise that prosperity
must be shared if it is to be sustained. As a nation we must actively participate in
shaping this future, for our country and our children, our region and our continent.
The centrepiece of our new democracy is this, its First Parliament. This is the last
budget to be tabled before this Parliament. But the confidence with which we face the new
day is embodied in the fact that this will also be the first budget to be implemented by
our Second Parliament. We have an election before us. But there is work to be done. And so
we table before you a budget that builds on the advances we have made over the past five
years and makes clear our plans for the future.
As the record since 1994 confirms, we have brought about a thorough transformation of
the priorities and spending programmes of government. We now deliver more and better
services to more people. Importantly, we are doing this within an affordable budget
framework. The Budget now embodies the goals and operational strategies of the
Reconstruction and Development Programme. And our macroeconomic framework provides the
discipline needed for sustainable growth and transformation.
This government is delivering a reconstruction and transformation of public services
for sustainable growth and social development. We have had the courage to tackle the
poverty and suffering imposed on our people during the long night of apartheid. Our
suffering is not over. We have not yet conquered poverty and unemployment. But we have
overcome the despair, the fear, the feeling of powerlessness, which was our past. We have
advanced the assault on poverty, inequality and unemployment. It is our measured progress
in building houses, bringing water and electricity to villages, immunising children and
training the unemployed that gives our people hope and confidence in our nation’s
future.
More. For All. For Ever.
Budget reform
Transformation depends on sound policies and institutions. A major overhaul of
financial management and the budget process is in progress. Our mantra has been and will
continue to be reprioritise, reprioritise, reprioritise.
This year for the first time we are publishing a separate review of the national budget
expenditure estimates. The National Expenditure Survey (NES) is a detailed account of
spending and service delivery by national government departments and spending agencies,
complementing the printed Estimate of Expenditure. The Survey looks not just at what
government spends but at what government does. It sets out policies and goals and the
resources that have been allocated to achieve them.
It links departmental expenditure with outputs, enabling us to assess whether spending
trends meet the policy priorities we have set for ourselves as a nation.
The survey includes accessible accounts of the programmes on each vote for which
Parliament appropriates funds. It also includes selected information on the impact of
government spending on women and the redistribution of resources in favour of the poor.
The National Expenditure Survey empowers Parliament and the nation as a whole to
monitor what we deliver with the resources available. It says, here is the value for the
money we spend. As government we want to ensure that more and more of every rand we spend
makes its way to improving the quality of peoples’ lives.
By emphasising the links between spending, service delivery, and outputs the Survey
provides a powerful tool with which to call government to account. We hope that the Survey
will contribute to informed debate about the outputs delivered by government and thereby
promote more effective use of public money.
The 1998 Budget included for the first time three year spending plans – our Medium
Term Expenditure Framework (MTEF). The National Expenditure Survey indicates where policy
changes or spending trends have led to adjustments to last year’s forward estimates.
It also reports on spending outcomes for the past three years, indicates the expected
outcome for this year and sets out the Budget estimates for the next three years.
This is another step forward in our budget reform programme.
The Medium Term Budget Policy Statement which we tabled in Parliament on 2 November
1998 set out the macroeconomic context, fiscal policy goals and the budget framework. It
outlined the division of resources between national, provincial and local government for
the next three years and set out broad medium term expenditure projections. Now in its
second year, the MTEF budget process has added significantly to the responsible
allocations of resources and to improved co-ordination in our evolving intergovernmental
system.
Alongside the Budget we now table the 1999 Budget Review, which elaborates the economic
context, developments in the public finances and our spending and tax proposals. As in the
past our Budget Review is compulsory reading for anyone interested in fiscal policy and
public finances in South Africa.
The Budget in brief
The 1999 Budget reflects both the substantial reprioritisation that has been achieved
since 1994 and government’s expenditure and revenue plans for the next three years.
Our key priorities for the next three years include:
- Investing in people – through better schooling, skills development and access to
health care and social welfare.
- Improved policing, more secure correctional facilities and a streamlined criminal and
civil justice system.
- Building homes, extending municipal infrastructure and improving living conditions.
- Targeted support for industrial clusters, small business development and strategic trade
linkages.
- Extending electrification, telecommunications networks and clean water and sanitation.
- Targeted poverty relief programmes.
- Implementing our Jobs Summit commitments.
The 1999 Budget provides for expenditure of R216,8 billion or 30,6 per cent of the
Gross Domestic Product (GDP). From this we deduct R48,2 billion for debt service costs,
R750 million of donor financed projects and R1,1 billion as a contingency reserve leaving
R166,7 billion to be shared. The Division of Revenue Bill, which I hereby table, provides
for the resources to be equitably divided between national, provincial and local
government. It also sets out the equitable division of resources between provinces which
is done on the basis of a formula.
Taking into account amounts provinces will later receive for improvements in conditions
of service, the equitable division in 1999 is as follows:
- National government gets R78,7 billion or 47 per cent of the total.
- Provincial governments get R86,3 billion or 52 per cent of the total.
- Local government gets R1,7 billion.
The national share includes R8,8 billion in conditional grants for provinces and local
government, mainly in support of health services.
In line with our priorities, national and provincial government will spend R103,7
billion of the available resources on social services. Social spending now accounts for 61
per cent of non-interest spending.
Spending on police, prisons and justice services amounts to R23,5 billion in 1999. Our
expenditure on crime prevention includes provision for modernisation of policing systems,
upgrading of security at prisons and several initiatives aimed at improving the efficiency
of the courts.
We have also set aside R1 billion for targeted poverty relief programmes in 1999,
giving effect to several Jobs Summit commitments. This rises to R1,2 billion and R1,5
billion in 2000 and 2001.
Fairness and redistribution are also promoted through the tax system. The South African
Revenue Service (SARS) has had considerable success in broadening the tax base and
combating tax evasion. Our tax system is strongly redistributive in its impact.
It is our commitment to lower the overall tax burden, particularly on low and
middle-income working people. In this Budget we again make significant progress in
lowering the income tax burden. We have also continued to raise taxes on tobacco and
alcohol products, contributing in this way to healthy living in this Chamber and
elsewhere.
Total revenue in 1999/00 will be R191,7 billion. This brings the deficit for the
year to R25,1 billion, or 3,5 per cent of GDP – consistent with the medium
term outlook we tabled in November 1998.
Madam Speaker, in preparing the 1999 Budget, our main focus has been to align our
spending and revenue plans with our policy objectives. We can say with confidence that the
objectives of our reconstruction and development programme are deeply embedded in this
Budget which reflects the substantial reprioritisation we have effected over the past five
years. This is our investment in the future of our children and grandchildren. It is this
that gives us hope.
This reprioritisation has been achieved in a context of slow economic growth and
considerable financial uncertainty. We have had to make some changes to our spending
plans, but sound fiscal and financial policies have protected us from more severe
adjustments. The Budget leaves unchanged our allocations to provinces for their core
education, health and welfare functions. Our social and development programmes will
continue to strengthen as growth returns to our economy over the next few years.
Sustainable social development and
globalisation
The global economy has been rocked in the past eighteen months by one financial crisis
after another. Economies that were once fast growing now face recession, increased
unemployment and social deprivation. Globalisation has brought increased uncertainty and
the world appears to be inadequately prepared to deal with the risks and equitably share
the opportunities.
These crises have challenged many accepted paradigms of economic theory and policy.
They have dented confidence in the integration of global markets and have pointed to some
of the shortcomings in the international institutional environment.
More importantly, the global crisis has highlighted that it is the poor and vulnerable
and in particular women and children who bear the greater burden of the pain when economic
institutions fail. In the countries worst affected by financial distress severe cuts in
social spending have occurred, large numbers of people have been pushed into unemployment,
the children of the poor have been taken out of school, primary health care projects have
been stopped. The social consequences of these financial crises have been devastating.
The sudden reversal of capital flows to Asia resulted in recession in many countries in
that region. The Asian melt-down spread rapidly to other parts of the world as investors
panicked and demanded higher and higher premiums for holding emerging market assets. Given
their debt positions many countries (including Russia and Brazil) could not afford their
increased interest costs. What started as financial distress quickly became a deep
economic crisis in many countries, requiring tough and painful adjustments.
We have in the past year actively participated in an international dialogue on dealing
with the crisis and creating more efficient and effective global capital markets, better
able to make rational assessments and differentiate more appropriately between different
countries and the credit risks that they present.
We have emphasised the importance of improved financial regulation domestically and
internationally. We believe that regulation and oversight of all financial institutions
(yes, including hedge funds) is necessary. We want to see increased compliance with
appropriate international standards and not only by the emerging economies, but also by
the major industrial economies where most speculative funds reside unhindered by
regulatory constraints. We will continue to review and update our own financial regulation
and supervision to ensure that it remains state of the art.
Through our participation in various international forums we have repeatedly emphasised
the importance of putting people at the centre of the economic debate. This is the
distinguishing characteristic of our reconstruction and development programme, of our
macroeconomic strategy and our approach to fiscal policy.
Ours is an integrated strategy that sees the state redirect its spending towards core
public services – education, health, welfare, social infrastructure, an effective
system of justice. It is a strategy that recognises the enormity of the backlogs we
inherited and the needs of our people. But it also recognises that our resources are
limited. Success depends on a sustainable balance between taxes, spending and the
resources we borrow, ensuring that we maximise service delivery within the available
resources.
Our commitment to sound and sustainable economic policies is increasingly recognised as
a strength. One measure of this recognition is that, after thorough review, our investment
grade ratings have been confirmed by two international credit rating agencies.
Integrating the South African economy into the world economy has been a major challenge
in the past four and a half years. We inherited an uncompetitive, inward looking,
protectionist economy. We have since 1994 sought to open up the economy in a measured and
sustainable way.
Recognising the importance of becoming globally competitive, we have discarded
expensive and inefficient export and industrial incentives. In their place we now have a
portfolio of targeted support programmes. These focus on key industrial clusters, the
small business sector and strategic trade negotiations.
We have pursued a responsible path of exchange control reform, abolishing or easing a
plethora of control measures. Ours has been and will continue to be a gradual approach.
This approach appears to have gained support internationally. We expect to be in a
position to announce further relaxation in exchange controls later this year.
Attracting foreign investment remains important to an economy such as ours. As a nation
we do not generate enough savings to finance the levels of investment that we require to
create jobs. We therefore have to attract foreign investment, making our international
relations a key focus of economic policy.
Economic policy and outlook
We have already noted that South Africa did not escape the impact of the international
financial crisis. As in other emerging markets investors withdrew funds from our capital
markets in 1998 putting the rand under pressure. The ensuing financial uncertainty caused
interest rates to increase to very high levels, which dampened confidence. Monetary policy
was under enormous pressure during the past year as the Reserve Bank tried to restore
stability to the currency whilst attracting sufficient foreign investment to finance the
current account deficit.
Hardest hit by the high interest rates have been ordinary working people who have had
to struggle to keep up the payments due on their home loans. The struggle to make ends
meet has been worsened by the fact that many working families were over-indebted when
interest rates started to rise. Also badly affected have been small and medium size
businesses that depend on bank overdrafts and loans to finance themselves.
Of course we are deeply concerned by the effect of the high interest rates on
people’s lives. We are also concerned about their impact on growth and job creation
in our economy. We are often asked how globalisation affects ordinary people’s lives.
For many, the steep rise in interest rates last year was a sharp reminder that there are
both costs and benefits of more open international markets. It also signalled the
importance of improving our saving performance, reducing our reliance on foreign capital
flows.
We expect to see interest rates come down further during the course of this year. This
will help ease the burden, although we know that many people and businesses will take some
time to recover.
In the midst of this and as people struggle to make ends meet too many people have
become hostage to unscrupulous money-lenders. There is a place for the micro-lending
industry. But we will not tolerate the blatant exploitation that appears to be taking
place at the moment. It is illegal to take people’s Identity Documents as collateral,
it is illegal to charge people usurious interest rates and it is bad practice to lend to
the point where a person’s entire wage is consumed by the repayment of the loans.
Moreover, all micro-lenders are subject to normal tax provisions. The Revenue Service will
pay particular attention to this in the coming year.
The Portfolio Committee on Trade and Industry has scheduled hearings on micro lenders.
Based on the outcome of these hearings we will as government take the appropriate steps.
We want to make it very clear that we will not hesitate to prosecute unscrupulous
moneylenders.
The economy slowed down significantly in 1998, and after six years of growth, output
and national income fell in the second half of the year. It is estimated that Gross
Domestic Product (GDP) grew by 0,1 per cent in 1998, well below what was expected
when we tabled the 1998 Budget.
The impact of instability in the global financial markets is registered through the
balance of payments, and in the present crisis was initially felt through the capital
account. From 1994 to mid-1998 a net surplus, peaking at R34,6 billion, was recorded on
the capital account. However, from May 1998 investor sentiment changed leading to an
outflow of R5,4 billion in the third quarter. Conditions stabilised somewhat in the fourth
quarter, when foreign investors were net buyers of bonds and equities.
The current account of the balance of payments is expected to register a deficit of 2
per cent in 1998, compared to 1,5 per cent in 1997. Deteriorating trade conditions
resulted in lower exports, while increases in investment by public corporations
contributed to higher import growth. Exports are expected to increase modestly in 1999 as
international trade recovers and our exporters take advantage of the weaker currency.
Given the slower growth and the weaker currency demand for imports is expected to remained
subdued in 1999. However, capital equipment imports are expected to continue to grow due
to demand from public corporations extending infrastructure investment. For 1999, the
current account deficit is expected to be 1 per cent of GDP.
Gross foreign reserves increased in the first half of 1998 as a result of capital
inflows. After falling from June to November, gross official reserves at the end of
January 1999, were R32,6 billion, enough to cover 2,4 months worth of imports. Net
official reserves were $2,4 billion at the end of January 1999.
Inflation has remained subdued, despite the weakening of the rand last year. After
falling to 6,9 per cent in 1998 – its lowest level in 25 years – consumer price
inflation is expected to fall steadily further in the next three years. This reduction in
inflation safeguards the purchasing power of working people’s wages.
The economy is projected to grow by 1,8 per cent in the 1999 fiscal year and by 3,2 and
3,8 per cent in 2000 and 2001 respectively.
A Budget for sustained social development
The overall objective of government’s fiscal policy continues to be effective and
balanced spending on public services, an efficient tax system, and a moderate level of
borrowing.
Our focus has been on reprioritising expenditure within the Budget. In practical terms
this has meant protecting provincial spending on social services and ensuring steady
improvements in provisions for the justice system.
1998 Budget Outcome
Madam Speaker I have already stated that economic growth for the 1998/99 fiscal year
was much slower than we had expected. However, despite the slower growth, ordinary revenue
increased by 9,6 per cent to R179 billion, exceeding the Budget estimate by R2,3
billion. Including grants and repayments, revenue is expected to be R180 billion.
The revised estimate of national expenditure in 1998/99 is R204,3 billion, a 7,2 per
cent increase on 1997/98. At the time of tabling the Adjustments Estimate we revised our
deficit to 3,9 per cent of GDP. We now estimate that the deficit for 1998/99 will be R24,3
billion or 3,7 per cent of GDP.
Sound fiscal management has been a defining characteristic of provincial finances in
the current fiscal year. The most visible measure of this is that the consolidated
government deficit in 1998/99 (including national and provincial accounts) is expected to
be 3,6 per cent of GDP – down from 5,4 per cent in 1997. The consolidated deficit is
expected to decline to below 3 per cent in 2000. By bringing their spending under control
provinces have created an environment for improved delivery of social services over the
coming years.
Our commitment to improving the lives of all our people finds expression in the fact
that despite an exceedingly tough year for the economy we have protected our commitments
to education, health, social welfare, housing, water provision and poverty relief. We have
maintained these expenditures because they are the core commitments of our social and
economic transformation.
The 1999 Budget framework
The 1999 Budget provides for total expenditure next year of R216,8 billion,
increasing to R247,2 billion in 2001. National budget spending will increase by an
average of 6,6 per cent a year over the next three years. As in 1998, the budget
framework includes an increasing reserve set aside for contingencies.
The 1999 Budget provides for revenue of R191,7 billion, including grants and
recoveries, and thus a budget deficit of R25,1 billion.
The slowdown in economic growth and the impact of high interest rates on debt costs led
us to revise our deficit target for fiscal year 1999. In the Medium Term Budget Policy
Statement in November 1998, we announced that the planned reduction in the deficit to 3
per cent of GDP would be deferred by a year. Consistent with the framework set out in the
1998 Medium Term Budget Policy Statement, our budget deficit will be 3,5 per cent in 1999,
coming down to 3 per cent in 2000 and 2001.
Like any household government cannot spend what it does not have, and increasing the
level of indebtedness will simply make us vulnerable and threaten our transformation
agenda. Already we spend too much on debt service costs. Reducing the overall burden of
debt so as to release more resources for development remains a key objective of
Government.
Our approach to fiscal policy has also contributed positively to lowering inflation,
keeping basic goods affordable and protecting the incomes of the poor.
Poverty relief and job creation
At the Presidential Job Summit we committed ourselves as a nation to a strong programme
of action for job creation. The 1999 Budget includes R1,0 billion for poverty relief
and employment projects, increasing to R1,5 billion in 2001. The "working for
water" programme, community based public works projects, rural infrastructure
investment and development projects managed by non-governmental organisations will all
receive increased allocations from these funds.
In total almost R3 billion on the Budget is linked directly to job creation programmes.
This includes spending on working for water, the municipal infrastructure programme, rural
water supply and sanitation, community-based public works programmes, income-generating
welfare programmes, training for the unemployed and employment services.
Once demutualisation is completed in the latter part of this year the Umsobomvu Fund is
expected to have in the order of R1 billion of capital and will be in a position to start
investing in training and development programmes for young people.
We also applaud the initiative taken by Labour at the Jobs Summit to pledge one
day’s wages to a special fund for job creation and business sectors’ R1 billion
contribution.
Social spending
Recognising a legacy of under-investment in people and past discrimination in social
services, spending on education, health and welfare has increased strongly since 1995.
Education expenditure increased by over 35 per cent between 1995 and 1998. It will grow
from R48,5 billion in 1999 to R54,1 billion in 2001.
Expenditure on health has increased by almost 45 per cent since 1995 and is budgeted to
reach R24 billion in 1999 and R28,3 billion in 2001.
Welfare services and social grants increased by more than 30 per cent over the last
three years and will amount to R19,8 billion in 1999, rising to R21,6 billion in 2001.
Social Infrastructure
Local government is undergoing a dusty rebirth. Towns and cities are becoming
construction sites. Expenditure on housing and water schemes increased by over 25 per cent
a year between 1995 and 1998 and will continue to grow steadily over the next three years.
Improved policing and justice
Spending on prisons and justice has grown by 25 per cent a year since 1995, reflecting
both increases in prisoner numbers and improved prison standards. Expenditure on police
services has grown by over 12 per cent a year since 1995. Combined spending on these
functions has increased to R23,5 billion in 1999 and will rise to R26,4 billion in 2001.
Economic services
Spending on agriculture, industry, transport and communication has grown by between 4,7
and 7,7 per cent a year since 1995. Spending on these economic functions is projected
to grow modestly over the next three years.
Defence
Defence and intelligence spending fell by 1,8 per cent a year between 1995 and 1998.
Defence spending will grow moderately over the next three years recognising the need to
replace and upgrade ageing capital equipment. The defence procurement programme is to be
spread over a 15-year period. This programme has been linked to a number of industrial
development projects which will boost foreign direct investment and job creation.
Personnel costs
It would be remiss of us not to note our concern at the growth in the public sector
wage bill. Personnel costs increased by 12,2 per cent a year between 1995 and 1998, rising
particularly sharply in 1996. In 1999 personnel costs will account for some 51 per cent of
non-interest spending.
Government’s ability to increase spending on social services and infrastructure is
severely limited by rising personnel costs. We cannot afford rising wage costs, improve on
the quality of services rendered and maintain the current size of the public service. The
further restructuring of the public service in line with the needs and requirements of our
country and our development programme is now urgent.
Overhaul of financial management
Government has initiated a financial management
improvement programme to improve the quality of managers and accountability in the public
sector. It includes the monitoring of expenditure on a monthly basis, improving financial
reporting, appointing qualified personnel, training financial managers, and improving
software systems. Underlying all these reforms will be the coming Public Financial
Management Bill.
Capital spending
Although capital budgets remain modest they are
projected to increase. Moreover, they reflect increased partnerships between government
and the private sector. These partnerships are extremely valuable since they allow us to
tap private sector savings to fund infrastructure, they also open up many opportunities
for small and medium-sized business and can add significantly to job creation over the
medium term.
Delivery of RDP commitments
Madam Speaker, we stated earlier that the Budget now
embodies the RDP. Let me now illustrate why we say this.
Providing safe drinking water to
millions of South Africans
Since 1994 the Department of Water Affairs and
Forestry has brought 25 litres of potable water per person to over three million
people and has created 100 000 jobs every year. Over 55 per cent of these jobs went
to women and more than 25 per cent to work-seekers between 16 and 25 years. There are
1 025 projects which are underway, expected to serve 4,9 million people. Sanitation
services will be provided to another 50 000 households by the end of 1999.
Working for Water
Over 900 projects have been implemented creating
some 40 000 jobs in 1998 under the Working for Water programme, curtailing the spread
of alien plants in water catchment areas. Over half of the jobs on this programme go to
women.
Providing access to land
Land reform is gathering momentum. By the end of
1998, 3 623 households had regained their rights to land. Under the land
redistribution programme 179 088 hectares of land had been transferred to
33 366 households.
Extending learning opportunities to all
Educational enrolment has increased by over 1,5 million since 1994, while the
average number of learners per teacher has decreased from 40 to 34. Improved grade 12
examination results in 1998 signal a turnaround in school performance. Key initiatives are
in progress to improve management in schools and strengthen learning and teaching skills.
In support of access to higher education, Government funds a National Student Financial
Aid Scheme and targets assistance at development and redress in universities and
technikons.
Skills development
Developing skills is a responsibility Government shares with its social partners.
Agreement has been reached on the way forward. Preliminary organisational work is underway
for the creation of education and training authorities and introduction of learnerships as
part of a joint strategy for extending improved learning opportunities to all.
The introduction of the skills development levy-grant scheme in April 2000 will yield
an estimated R1 billion for training and development in 2000 rising to R2 billion in
2001. Eighty per cent of receipts will go to sector education and training authorities
nominated by employers, while 20 per cent will go to a National Skills Fund.
This is a key initiative in strengthening learning and productivity throughout the South
African economy.
Welfare programmes and social grants
The provincial Welfare departments distribute grants of approximately R16 billion to
nearly 3 million beneficiaries of which two-thirds are old age pensioners. About
two-thirds of the recipients are women.
Government also channels subsidies of over R1,5 billion a year to about
1 400 non-governmental organisations, focused on developmental welfare services,
support for the unemployed and meeting the needs of women and children.
A new social grant was introduced in April 1998. The grant of R100 per month is
targeted at the poorest 30 per cent of children under the age of seven. It is given to the
primary care-givers and contributes to the strengthening of the social safety net.
Addressing the housing backlog
The housing subsidy scheme launched in 1994 has contributed to the building of 629 449
houses. Approximately 936 754 subsidies have been approved since 1994. Nearly 40 per
cent of all approved subsidies were registered to women. The housing programme is
redressing decades of discrimination and the pain and suffering of millions of South
Africans who were cruelly dislocated by the forced removals of apartheid. The housing
programme is about more than just a basic house or a serviced site. The programme assists
people to build and develop their own homes, investing in property they can pass on to
their children. Through this security of tenure we empower people.
Primary school nutrition programme
The primary school nutrition programme reaches approximately 5 million children in poor
communities, contributing to their nourishment, enhancing learning capacity and creating
many employment opportunities.
Improved access to health care
Primary health care services are largely provided at
no charge. Government has built 638 clinics over the last four years, introduced a
cost-effective essential drugs list and conducted successful immunisation campaigns and
AIDS awareness programmes. The progressive restructuring of our health services is
enhancing access to affordable care to all our people, while preserving the research and
teaching capacity for which our medical community is justly famed.
Municipal infrastructure projects
Over 2 000 projects have been approved under the consolidated municipal
infrastructure programme, of which 1 650 have been completed. An estimated
15 579 person-years of employment have been created and 105 083 people have
gained access to accredited training opportunities. A total of 1 965 black-owned
small and medium-sized businesses were given business opportunities through the programme.
Industrial promotion initiatives
Initiatives to encourage investment, promote business development and create jobs
include incentives for investment in manufacturing, support for technical and marketing
capacity development and co-ordination of several major spatial investment projects and
industrial cluster reviews. The Industrial Development Corporation facilitated
manufacturing investment of R5,6 billion over 1997/98, raising export earning capacity by
about R8,0 billion.
Small business development
Support for small business is rapidly gathering momentum. Khula Finance committed
R88 million in credit guarantees and approved R57 million in loans in 1997/98,
reaching 35 200 beneficiaries through 21 retail financial intermediaries. Ntsika
Enterprise Promotion Agency continues to extend non-financial support to the small
business sector in the form of training, technology and market information.
Madam Speaker, the gains we have made are palpable in people’s lives.
For those millions of people who had been denied water, electricity, housing,
education, primary health care, there have been significant changes.
We cannot afford the cynicism of pretending that the progress we have made has not
materially improved people’s lives. These programmes have opened up opportunities
that simply did not exist in the past. Water, electricity and telecommunications are
preconditions for a vibrant micro and small business sector. They empower people and by
doing so build hope. In particular they empower women by removing the crushing burden of
fetching water and carrying wood. They improve the living environment and by so doing
reduce the incidence of disease. They allow children to be children, to play and to focus
on schoolwork rather than be encumbered by adult chores.
By enunciating these achievements we are not saying that there is nothing left to do,
or that we have done everything well. We recognise that we are only at the dawn of our new
day. Ahead of us are many exciting and some daunting challenges. We are determined to
succeed and we will tolerate neither complacency nor cynicism. As a nation we have rolled
up our sleeves and started the momentous job of transforming our country and our economy
and we can not afford to allow anything to get in the way. We want our children and
grandchildren to bask in the glow of the afternoon sun. The dream is just too important.
Our focus will increasingly be on reprioritisation within votes. The budget process is
now more focused on efficiency and delivery. Departments will be asked to define more
carefully and precisely what they will deliver with the resources which they have been
allocated. We know that we can deliver more and better quality services within the
resources available to us. Our focus will be on better value for money. By publishing the
National Expenditure Survey we invite Parliament and our people to monitor our
performance.
More. For All. For Ever.
Provincial finances
Madam Speaker, 1998/99 has been a remarkable year for provincial fiscal management. The
evolution of the intergovernmental fiscal system envisaged in the Constitution has been a
steep learning curve for government. Following several years of strong spending growth,
large budget overruns in provinces in 1997/98 resulted in provincial deficits totalling
approximately one per cent of GDP.
Most provinces began the 1998 fiscal year with some debt overhang either in the form of
bank overdrafts or in unpaid bills. The national government intervened in two provinces,
the Eastern Cape and KwaZulu-Natal, in early 1998 in terms of Section 100 (1)(a) of the
Constitution.
The intervention included transfers totalling R1,5 billion. These transfers were
subject to rather stringent conditionalities, which were set out in the agreements signed
between the Minister of Finance and the Premiers of the Eastern Cape and KwaZulu-Natal
respectively and gazetted in the National Government Gazette.
Both provinces have made a remarkable recovery, improving their financial management
and complying fully with the terms and conditions of the agreements. Indeed both these
provinces will run in-year surpluses in 1998/99. These surpluses will be used to pay off
debts. It is important to recognise the sterling work of the MEC’s for Finance in
each of these provinces. Theirs were daunting tasks and they deserve our admiration for
bringing a difficult situation under control and for the steps that they have taken to
strengthen their treasuries and financial management systems.
Moreover, the improvements in provincial financial management are not limited to these
two provinces. Most provinces have made significant progress, introducing tighter control
measures to curb unwarranted expenditure. All provinces now use an early warning system to
manage their expenditure and effectively prevent over-expenditure. In several provinces
anti-fraud units have been established and investigations launched.
Provincial treasuries have also had considerable success in transforming the budgeting
and planning process. When we introduced medium-term budgeting we did it at both national
and provincial level simultaneously. It was always going to be an ambitious project, but
we did it and it is beginning to bear fruit. The budgets that provinces will be tabling
over the next fortnight are now more realistic and based on better information. They carry
a stronger measure of political accountability than before.
The 1998/99 Adjustments Estimate provided an additional R1 billion for provinces. A
condition for this additional allocation was that provinces design a debt repayment
schedule for reducing their debt overhang within a three to five year period. All
provinces are reserving funds on their 1999 budgets to deal with the accumulated debt and
interest costs. Collectively provinces will show a surplus of about R600 million for
1998/99. This is indeed a remarkable turn-around.
Tax proposals
Madam Speaker, the redistribution of resources and the creation of an environment
conducive to growth and job creation is not dependent solely on the expenditure side of
the Budget. In the past four years we have made significant changes in tax policy. These
range from eliminating gender discrimination in the tax law, reforms to fringe benefits
taxation, significant changes to tax rates for individuals and corporates, and reforms in
customs and excise duties, to name a few.
We have recognised that reforming tax policy presupposes upgrading tax administration.
Without solid administration, tax law and tax reform cannot be given practical effect. It
is for this reason that we have focused on enhancing the operational effectiveness of the
South African Revenue Service.
Our efforts in this regard are beginning to pay off. Between October 1997 and December
1998, SARS evaluated 760 600 unregistered income tax, VAT and PAYE cases, of which 181 000
proved eligible for registration. This exercise is aimed at broadening the tax base but it
goes well beyond it. It ensures that we all pay our taxes so that the tax burden is shared
fairly and equitably between all citizens, both private and corporate. There are still too
many free-riders in the system. These people limit our scope to move more quickly with tax
reform and the easing of the tax burden. Tax compliance is not optional, it is law and as
we have demonstrated in the past twelve months, we intend showing no mercy to those who
take it upon themselves to break the law.
Our objective is to cultivate a culture of compliance. We are making headway in this
regard. Our base broadening exercise has also involved changing the adversarial
relationship between the tax collector and the taxpayer. We believe that SARS is making
progress in this regard by being visible, accessible and fair in its dealings with all
taxpayers.
1998/99 Revenue Outcome
The revised estimate for 1998/99 is R178,9 billion which is R2,3 billion higher
than the original Budget estimate of R176,6 billion and 27,4 per cent of GDP. The higher
than expected tax revenue is attributable to a number of factors including the broadening
of the tax base, improvements in tax administration, and structural shifts in the
distribution of earnings.
First Print Estimate of Revenue
Before taking into account the tax changes proposed for 1999/2000, total ordinary
revenue is estimated to be R193,8 billion.
The tax proposals we place before Parliament today reduce ordinary revenue to R190,3
billion which is 26,9 per cent of GDP.
The main tax proposals are as follows:
Personal Income Tax
Since 1995 we have worked consistently to provide tax relief to ordinary working
people. We have restructured the tax brackets by reducing them from ten to six, and
reduced tax rates. We have also taken measures to tax the use of fringe benefits on a more
realistic basis as they erode the tax base and create distortions between cash
remuneration and other forms of compensation.
Put simply, this means that between 1995 and 1998 we have provided R10,5 billion worth
of tax relief to working people. By no stretch of the imagination can this be considered
insignificant.
Madam Speaker, this year we have been able to go further. After compensating for
inflation we are cutting taxes in real terms. The good news is that:
- The primary rebate is increased from R3 515 to R3 710. In other words, we increase the
tax threshold in line with projected inflation. Anyone below the age of 65 earning R19 526
a year or less pays no income tax.
- In addition to the primary rebate, individuals over 65 get a secondary rebate. This is
increased from R2 660 to R2 775. A person over the age of 65 receiving an income of less
than R33 717 a year pays no income tax.
Tax brackets have been restructured and tax rates have come down. For the income
bracket of:
- R46 000 to R50 000, the rate is reduced from 39 per cent to 30 percent.
- R50 000 to R60 000, the rate is reduced from 39 per cent to 35 per cent.
- R60 000 to R70 000, the rate is reduced from 43 per cent to 40 per cent.
In practical terms this means that a person under the age of 65 and earning R35 000 a
year will pay R415 a year less in tax. For a person earning R55 000 a year the savings
will be R975.
Lessening the tax burden on ordinary working people is a key objective of government.
They benefit most from the changes we make today, with over half of the relief going to
people with incomes of less than R70 000 a year.
However, all tax-payers will experience some relief. We have again this year sought to
protect taxpayers from the effects of inflation on income. Typically what happens is that
when wages increase in response to inflation, individuals get pushed into a higher tax
bracket, even though in real terms their incomes have not changed. This is known as fiscal
drag or bracket creep.
Madam Speaker, these changes represent a substantial step in our on-going programme of
tax reform. These changes will cost the government R4,85 billion in lost revenue. In other
words we are putting R4,85 billion in the pockets of working people.
This brings the total tax relief granted by this government since 1995 to over R15
billion. We believe that this is an achievement we can justly be proud of.
Company tax
Sustainable growth and job creation require that we strive to make our economy more
competitive and that we create an environment where small and medium sized businesses can
develop and thrive. We have examined our corporate tax structure and have decided to make
changes to company tax rates. The tax rate applicable to undistributed profits of
companies is to be reduced from 35 per cent to 30 per cent. Corresponding adjustments will
also be made to the rates applicable to gold mines and branch structures of foreign
companies operating in South Africa.
We believe this reform measure will enhance investment and job creation in two
important ways.
Firstly, they will make South Africa significantly more attractive to domestic and
foreign investors. The international trend in recent years has been to reduce tax rates on
companies. Secondly, the reduction in company tax will translate into significant cash
flow benefits for small and medium sized companies which will enhance their ability to
play a leading role in job creation and economic development.
By making a concerted effort to reduce the nominal company tax rate, we are also
signalling that we will over time eliminate tax concessions. And so the deadline for
specific tax concessions in respect of accelerated depreciation allowances or tax holiday
schemes will not be extended when they expire on 30 September 1999. The revenue loss
associated with these changes is R2,5 billion.
Transfer duty
The rate structure and exemption levels in respect of transfer duties on the
acquisition of fixed property have also adjusted to encourage home ownership, especially
for lower income earners. The cost to the fiscus of this measure is R60 million.
Excise duties
Madam Speaker, let me now turn to the tax increases,
beginning with the famous sin taxes. In accordance with health policy, duty on cigarettes
has once again been increased to bring the total tax to 50 per cent of the current retail
price. This means another 41 cents on a pack of 20.
In the interests of fairness it is proposed that the same tax incidence of 50 per cent
be applied to other tobacco products. This requires some significant once-off adjustments
in the excise levels on these products. Cigarette tobacco goes up by 76 cents for 50g.
Pipe tobacco goes up by R1,56 per 100g. Duty on cigars goes up by R7,33 per 23g.
It is estimated that these tobacco tax proposals will yield an additional R495 million
in 1999.
Excise duties on beer go up by 4,6 cents a litre or 1,6 cents per 340ml can.
Unfortified wine goes up by 3,8 cents a litre or 2,5 cents per 750ml bottle. Ciders
increase by 8 cents a litre or 2,7 cents per 340ml can. Spirits go up by 75,5 cents per
litre or 56,6 cents per 750ml bottle.
The good news is that excise duties on soft drinks have been cut by 19 per cent.
These adjustments are expected to yield R123 million in 1999.
Fuel levy
The fuel levy is increased on leaded and unleaded petrol by 4 cents a litre with effect
from 1 April 1999. There is no tax increase on diesel, which will benefit commercial road
users. This is expected to yield R472 million.
Madam Speaker, these are our key tax proposals. Taken together they constitute a major
step forward in our strategy to create a tax system that is fair, efficient, contributes
positively to sustainable growth and development and yields sufficient revenue for
government to finance its expenditure commitments.
Conclusion
Madam Speaker, if we allow ourselves to rise above the din we will recognise that we
have travelled a long distance in five short years. The record shows that we have brought
about a thorough transformation of the priorities and spending programmes of government.
The Budget now fully expresses the goals and strategies of the Reconstruction and
Development Programme.
As we look back over the road traversed, we should all, with pride, declare that our
collective achievements are indeed significant. But this is not the time for complacency.
In this Budget we build on our experience of the past five years and aim to do more,
better.
Although sound economic and fiscal policies have protected us from more severe
international pressure the economy has slowed down and we have not been able to grow
public spending as much we would have liked. However, in line with the commitments we have
made to our people, we have protected spending on education, health and welfare.
Taking forward our nation’s economic and social development programmes we
emphasise improved service delivery and value for money. For the first time this year we
publish a detailed review of national government expenditure estimates. The National
Expenditure Survey looks not just at what government spends but what we spend it on. It
builds on our programme of budget reform and it empowers Parliament and our people to
track our performance. Our people correctly expect that we shall do all in our power to
provide a better life for all. To this end we must retain both a vigilance and a
diligence.
This budget, which I am privileged to place before you, is a strong statement of the
collective responsibility from cabinet. To prepare cabinet to take the appropriate
decisions, we have had the active involvement of a number of ministers who make up the
Ministers Committee on the Budget.
I would like to express sincerest gratitude to all those who contributed so selflessly
to the compiling of this Budget:
- President Mandela who has been a tower of strength and support. His interest in the
Budget, his checking to ensure policy consistency and his mere presence, has played an
important part in nurturing and energising the team who worked on this budget.
- Deputy President Mbeki and to all Cabinet colleagues, especially members of the
Ministers’ Committee on the Budget, for patience, understanding, engagement, tireless
support and defence.
- Deputy Minister Gill Marcus who shared energetically in my load.
- "Team Finance" comprised of the nine provincial Executive Committee Members
for Finance who battled through this difficult year with us and who have each proven their
mettle.
- Those support structures whose contributions have assisted us in shaping what we offer
here today –
- The South African Reserve Bank and especially Governor Chris Stals, who today is here
celebrating his active involvement with the last budget of his tenure; and to Mr Tito
Mboweni, the Governor-Designate, good luck!
- The Financial and Fiscal Commission, and to Mr Murphy Morobe, in particular.
- Professor Michael Katz and the Tax Commission.
- NEDLAC, and particularly the Public Finance and Monetary Chamber.
- Mr Sipho Mpahlwa and Mr Sintle Fenyane, and their respective committees. Our
interactions with Parliament have strengthened our performance considerably this year.
- The leadership and staff of the three departments which are so centrally involved in
budget-making:
- Mr Trevor van Heerden, Commissioner for the Revenue Service and the staff of SARS who
have exceeded this year’s revenue targets and have again committed themselves to
further improvements in the efficiency of collections.
- Mr Cassim Gassiep the Director General of State Expenditure and his team for a job well
done.
- Ms Maria Ramos, the Director General of Finance and her able team in the Budget Office
and in Asset and Liability Management who have worked tirelessly to produce what we have
here today.
- My immediate family and the extended family, which is what the team in the Ministry have
become.
Finally, to each one of you, both in this Chamber and at home, for your patience in
listening to us this afternoon.
Madam Speaker, the day ahead is filled with hope and opportunity. In the words of
Amilcar Cabral: ‘We must preserve for our children the best that we have learned;
they are the flower of our struggle.
’More. For All. For Ever. This is our goal.
Last Revised:
Tuesday, October 09, 2007
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