2005%20Budget

1
2005 Budget

• Growth, development and equity

Presentation to Parliament 24 February 2005
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Overview of the 2005 Budget

• Programme of Action cares for its people,
  socially just choices, and committed to service
  delivery
• Supporting economic growth and opportunities
• Strong increases in non-interest expenditure
  within a framework that is sustainable
• Tax relief to encourage economic opportunities

3
Major socio-economic challenges

• Reducing poverty through social wage
• Dependence giving way to self-reliance
• Halving unemployment rate by 2014
• particularly among youth
• Countering vulnerability
• Narrowing inequalities
• Developing skills
• HIV and Aids
• Bridging two economies divide

4
Budget for a season of hope

• Sustaining higher growth
• Economy growing faster
• but to sustain this higher growth, we need
• Rising infrastructure investment
• Lowering the cost of doing business, especially
  for small business
• Producing more skilled people
• Improving the quality of public services,
  especially to the poor.

• Advancing social development
• Higher growth to invest in people
• Means-tested social grants
• Clean water and electricity
• Quality education, health and municipal services
• Community housing
• Reduce crime and insecurity

• Equity and redistribution
• To bridge the divide between rich and poor
• Pro-poor budget reflects spending shift towards
  the poor
• Extension of social wage to poor households
• Broad-based black economic empowerment
• Transport linkages between cities and townships,
  rural and urban
• Renewed investment in small, emerging farmers

5
Economic overview

• Growth breaking 3 4 barrier
• Inflation to remain within the target over the
  MTEF
• Buoyant demand and investment supports rising
  production
• Economy adjusting well to strong currency
  mining and manufacturing resilient
• Steady financial flows reflect robust external
  financing
• Sustainable current account

6
Global economic overview

• Buoyant global growth in 2004, but slowed in
  second half due to high oil prices
• USA and Asia main drivers of recovery
• Commodity price boom lifts mineral prices (gold
  price reached 16-year highs)
• Inflation increases in the USA and China cause
  central banks to increase rates
• Growth to slow in 2005 but likely to pickup if
  oil prices recede

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Strong global growth
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Healthy capital flows

• Balance of payments supported by positive capital
  inflows R60,4 billion
• Current account deficit estimated at 2,3 of GDP
  
• Gross reserves rose to US15,1 billion at
  end-January
• Strong rand supported low inflation environment

9
Low inflation and interest rates
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Robust domestic demand and investment
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Broad based growth
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Medium term outlook
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Macroeconomic forecasts
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Fiscal policy

• 2004/05 deficit estimate 2,3 of GDP
• Expansionary stance from 2001 continues
• Strong real growth in non-interest spending,
  averaging 5,5 a year
• Stable tax burden around 24,1 of GDP
• Debt service costs decline from 3,5 of GDP in
  2004/05 to 3,2 in 2007/08
• Deficit of 3,1 in 2005/06 declining to 2,7 by
  2007/08
• Significant surpluses in social security funds

15
Debt service costs as per cent of GDP
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Fiscal framework
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2005/06 Funding Strategy

• Net borrowing requirement of R53,4 billion
• Domestic short-term loans, net R5 billion
• Broader range of treasury bills
• Domestic long-term loans, net R25,8 billion
• New fixed income and floating rate bonds
• Continued issuance of retail bonds
• Net foreign issuance of R12 billion
• Capital market issuance, equivalent of US1,5
  billion
• Arms procurement loans, equivalent of US0,8
  billion
• Cash balances run down by R10,6 billion

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Fiscal indicators
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Debt to GDP
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Tax policy overview

• Since 1995 tax policy emphasises
• tax base broadening
• rate reductions
• removing unwarranted tax incentives
• Highlights of the tax reform agenda
• Introduction of capital gains tax
• Converting to residence-based income tax system
• Overall tax relief since 95/96 approx R78 billion

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Implementation of 2003 2004 tax proposals

• Amnesty levies of R2,4 billion
• Amnesty 43 000 applications with R65 billion of
  foreign assets declared
• Retirement fund tax discussion paper to be
  released
• 2nd draft of Mineral Royalty Bill available for
  public comment during first half of 2005
• 9 inner cities qualify for Urban Development Zone
  tax incentives - 7 more under review
• 2005 tax law amendments for FIFA World Cup
  commitments

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2005 Budget tax proposals (1)

• Total tax relief of R10,9 billion
• PIT threshold adjustments R6,8 billion
• Raising interest exemption thresholds R15 000
  R22 000
• Increase thresholds of transfer duty on fixed
  property 0 up to R190 000
• Corporate tax rate down from 30 to 29 - R2
  billion revenue cost
• 2006 introduction of a tonnage tax regime to
  stimulate shipping industry
• Removal of financial transaction taxes (stamp
  duty) on all bank debit entries
• Abolish Regional Service Council levies on 30
  June 2006

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2005 Budget tax proposals (2)

• Small business proposals
• New benefits for personal services sector firms
  with minimum of 4 employees
• Turnover limit increased to R6 million
• Graduated rate structure with 0 for first R35
  000 of taxable income, 10 up to R250 000 and 29
  thereafter
• Enhanced depreciation of 503020 for all
  depreciable assets, retain 100 for manufacturing
  assets

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2005 Budget tax proposals (3)

• Further small business proposals
• Filing VAT returns every 4 months cash flow
  benefit
• Exempting businesses from Skills Development Levy
  with payroll limit of up to R500 000/year
• Simplify registration processes annual tax
  returns for PBOs
• Administrative measures to support small
  businesses

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Key MTEF priorities

• Finalising land restitution claims
• Increasing salaries for police and teachers
• New direction in housing delivery
• Improved public transport
• Taxi recapitalisation back on track
• Focus on road infrastructure
• Improving grant administration
• Re-invigorate FET colleges
• Support for NSFAS

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Additional allocations

• Main spending changes over next 3 yrs
• R6 billion to finalise rural land restitution
• R2 billion for new direction in housing
• R1,7 billion for municipal infrastructure
• R3 billion for public transport and transport
  infrastructure
• R6,9 billion for teachers
• R4,2 billion for police
• R1 billion for FET, R776 for NSFAS

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Key spending changes

• Admin services
• Enhance capacity to monitor service delivery
• Consolidate African Agenda ? PAP, peacekeeping
• Improve business processes in Home Affairs
• Management framework for state property
• Payment of rates on state properties
• Social services
• Shift of social grant funding
• Establishment of Social Security Grant Agency
• Recapitalisation of FET colleges
• Increased support to NSFAS
• Additional funds for teachers, principals,
  support staff and incentives to retain teachers

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Key spending changes

• Protection services
• Additional personnel in Correctional Services
• Peace keeping support in Africa
• Improvement in court facilities and court
  management
• Attention to scarce skills pay progression in
  SAPS
• Economic services
• Finalise land restitution
• Establish MAFISA and support for AgriBEE
• Taxi recapitalisation back on track
• Upgrading of national roads
• Passenger rail infrastructure
• New technology at SABC
• National Empowerment Fund projects

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Division of revenue
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Provincial priorities

• Comprehensive HIV and Aids prevention and
  treatment plans
• Providing for social security expansion
• Non-personnel inputs into education
• Post-settlement support for farmers
• Infrastructure investment
• special focus on labour-intensive projects
• Hospital revitalisation programme
• Provinces receive R43,5 billion extra over MTEF

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Provincial finances

• Provincial equitable share formula
• Broad ranging review of formula undertaken 2 new
  components added to original 4 (education,
  health, institutional and basic)
• New poverty component to make the formula
  redistributive (measures stance of education and
  health policies, welfare services)
• New economic activity component to take into
  account revenue raising capacity of provinces

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Local government priorities

• Increasing basic service provision
• Step up in infrastructure spending
• Rolling out free basic services
• Municipal financial management reforms
• Local government receives R3,9 billion extra
• R2,2 billion for equitable share
• R1,7 billion for infrastructure

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Local government finances

• Accelerate the roll out of free basic services to
  households
• Strengthening municipal infrastructure delivery
  (including the eradication of the bucket
  sanitation system)
• Building in-house capacity in municipalities