Budget%202003%20%20Development%20as%20freedom

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Budget 2003 Development as freedom

• An
  overview...

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Overview of 2003 Budget

• Economic and fiscal outlook
• SA economy resilient in face of global slowdown
• Inflation coming down, target range by 2004
• Expansionary fiscal stance continues
• Personal income tax relief
• Budge deficit of 2,4 of GDP
• This budget focuses on
• Fighting poverty and vulnerability
• Continued focus on infrastructure
• Broadening of social security net
• Strengthening health and education
• Expansion of municipal services
• 4,5 a year real non-interest expenditure growth
  over MTEF

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Macroeconomic outlook

• GDP growth in 2002 of 3 rising to 3,3 in 2003,
  and 4 by 2005
• Global economic picture uncertain
• War in Iraq and high oil prices
• Slowdown in OECD growth
• Domestic demand and investment spending strong
• Declining household debt
• Formal sector employment turning around
• Healthy current account balance
• Declining inflation in 2003 and 2004

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GDP growth and CPIX
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Investment
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Household debt to disposable income
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Inflation coming down

• CPIX averaged 10 in 2002,
• down from its peak in November
• Downward pressure on food prices
• White maize futures down from over R2 100 to
  R940 this week
• Unit labour cost growth still moderate
• CPIX set to fall into target range by 2004

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Food CPIX
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Balance of payments

• Small current account surplus projected for 2002
• Shift back to moderate deficit over MTEF period,
  rising to about 1,6 by 2005
• Positive capital inflows in 2002 of R21,4 bn
• Trade performance driving healthy balance of
  payments

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Financial and current account
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Positive data on employment

• Labour Force Survey indicates turnaround in
  formal employment
• Growth evident in mining, services
• Unemployment is still our biggest challenge
• Initiatives aimed at raising employment
• Community-based labour works programmes
• Learnerships and skills development
• SMME development

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Employment turning
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Employment turning
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Macroeconomic forecasts

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Fiscal policy

• Deficit widened to 2,4 next year
• Real growth in non-interest spending of 4,5 a
  year over MTEF period
• Debt service costs decline from 4,2 in 2002/03
  to 3,8 by 2005/06
• Debt projected to drop to 36,8 by 2005/06
• Buoyant tax revenue provides for Personal Income
  Tax relief of R13,3 billion
• Capital spending by general government strongly
  up

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Key indicators of fiscal policy
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National budget framework
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Government debt 19802006
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Borrowing Requirement 2003/04
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Summary of tax proposals

• Personal income tax relief of R13,3 billion
• Threshold rises to R30 000
• Interest exemption raised to R10 000
• Retirement Fund Tax reduced from 25 to 18
• Tax allowances for investment in inner city areas
• Several business stimulus measures
• Transfer duties reduced further
• Excise duties on vehicles reduced and eliminated
  on computers
• Inflation-related adjustment to excises on
  alcohol and tobacco products

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Personal Income Tax Relief

• Below age 65 threshold from R27 000 to R30
  000
• Above 65 Threshold raised from R42 640 to R47
  222
• Maintain progressivity relief across entire
  income spectrum
• Distribution of tax relief
• 56 to income groups earning less than R150 000
• 23 to those earning between R150k and R250k
• 21 goes to those earning over R250k

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Taxation of retirement savings

• Currently under review - reform scheduled for
  2004
• Interim measure - reduction in rate of Retirement
  Fund Tax from 25 to 18
• Estimated cost of R1,85 billion

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Tax-driven support for growth

• Accelerated depreciation allowances for Urban
  Development Zones
• Accelerated depreciation regime for manufacturing
  assets becomes permanent
• Tax relief for reinvestment of business assets
• Accelerated write-off for research development
• Double deduction for first R20 000 of start-up
  expenses
• Turnover limit for SMMEs qualifying for 15 rate
  increased to R5 million

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Tax treatment arising from amnesty

• An exchange control amnesty is provided for,
  aiming to allow people to repatriate money
  illegitimately taken out of the country and to
  expand the tax base
• In return for amnesty for violations occurring
  before 28 Feb 2002, a one time 5 charge on asset
  repatriated at 10 charge for assets held
  offshore

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Indirect Taxes

• Excises duties
• Alcoholic beverages 10 11
• Tobacco taxes raised by an average 11
• Air passenger departure tax revised upwards
• General fuel levy up by average of 4,3 cents for
  petrol and 4 cents for diesel. RAF levy up by 3
  cents a litre
• Inflation adjustment of ad valorem excise duty
  formula for motor vehicles reduces excise charge
  car prices costing R243 million
• Ad valorem excise duty on computers repealed at
  cost of R572 million

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Medium term expenditure framework

• Budget gives priority to
• Reducing poverty and vulnerability
• Extending the social security net
• Reinforcing the fight against HIV/Aids
• Providing free basic services
• Increasing infrastructure spending
• Accelerating land restitution
• Higher education and skills development
• Strengthening the fight against crime
• NEPAD and peace support operations

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Division of revenue

• Total additions to baseline of R105,4 billion
• 2003 Budget shifts resources towards provinces
  and local governments
• Adjustments include provision for higher
  inflation
• 6,1 annual average real growth in transfers to
  provinces
• 12,2 growth in local government transfers

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Division of additional amounts
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Main policy additions
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Recent Budget Reforms

• Measurable objectives for each programme
• section 27.4 of PFMA
• quantifiable results within MTEF period
• Shifts focus to outputs and their impact
• ENE introduces reporting on recent outputs
• New expenditure table on infrastructure reporting

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Addressing Poverty and vulnerability

• Improving social services
• Child Support Grant extended up to a childs 14th
  birthday
• Improving quality of provincial health and
  education services
• Reinforcement of enhanced response to HIV/Aids
• Infrastructure investment3
• Extension of free basic services and municipal
  infrastructure
• Emphasis on broadening access to water and
  electric3ity services
• Investment in skills
• Increased learnerships in private and public
  sector
• Renewal of further education system
• Replenishment of National Student Financial Aid
  Scheme
• Employment creation through community development
  projects

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Reinforcing security and crime prevention

• Increased efficiencies in courts administration
• Budget supports improved case management
• Automated Fingerprint Identification System
  introduced
• Strengthening Sector Policing strategy
• Five thousand more police in outer year
• Modernisation of vehicle fleet
• Correctional Services
• Focus on rehabilitation
• Four new prisons - building to commence in 2003
• Modernisation of intelligence services
• New Intelligence Academy
• Modernisation of communications technology

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Promoting NEPAD and multilateral cooperation

• Support for NEPAD and African Union
• Establishment of NEPAD secretariat
• Regional development through African Renaissance
  Fund
• Peace support operations in Africa
• Continued support for operations in DRC and
  Burundi
• Foreign missions in Africa to be increased
• Phased establishment of 16 new missions
• Promotion of regional integration through SACU
  agreement

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Spending by function
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Provincial priorities for 2003

• Social Development
• Further expansion of the social security net
  (CSG)
• Real increases in values of social security
  grants
• Education
• Increasing spending on non-personnel non-capital,
  especially LSM, ECD, classroom backlogs
• Health
• Attracting personnel with scarce skills
• Further bolstering HIV/Aids programmes
• Refurbishing health infrastructure
• Increasing spending on INP
• Stepping up spending on medicines and other
  critical supplies taking
• Step-up support for other functions, esp.roads

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Transfers to provinces

• National transfer to provinces
• Equitable share rises from R123 bn in 2002/03, to
  R142 bn in 2003/04 and to R168 bn in 2005/06
• Conditional grants which are R13 bn in 2002/03,
  R17 bn in 2003/04 and R24 bn in 2005/06
• Increase in conditional grants largely due to
  introduction of child support extension grant
  which rises from R1,1bn in 2003/04 to R6,4bn in
  2005/06
• Transfers to provinces grow by 6,1 a year in
  real terms

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Summary of transfers Provincial revenue
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Local government priorities

• Extending provision of free basic services
• R4,1bn extra over the MTEF (incl. R1,4bn for
  electricity)
• Investing in municipal infrastructure
• R1,8 billion more, including R1bn for
  labour-based programmes
• infrastructure grants to be consolidated in
  future
• Reinforcing financial management reforms
• R300m set aside for this purpose

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Transfers to local government