Medium Term Budget Policy Statement: Presentation to Parliament 28/05/2018 Medium Term Budget Policy Statement: Presentation to Parliament National Treasury 28 October 2009

Adjusted Estimates of National Expenditure 2009 28/05/2018 National Treasury Adjusted Estimates of National Expenditure 2009 Presentation to Parliament 28 October 2009 1

Overview This MTBPS is tabled at an opportune moment: 28/05/2018 Overview This MTBPS is tabled at an opportune moment: An economic crisis and a change of administration provide both the necessity and desire to do things differently Our key short term challenge is to support the economic recovery and direct public spending towards key priorities Our medium and longer term objective is to build a more labour absorbing economy and to transform public service delivery to meet the aspirations of all South Africans 3

What is the MTBPS and where does it fit in? 28/05/2018 What is the MTBPS and where does it fit in? The MTBPS covers Economic assumptions Fiscal framework Spending priorities Division of revenue Changes to conditional grants Mid-term report on spending The MTBPS provides the framework within which each sphere has to then prepare detailed budgets Parliament is afforded the opportunity to recommend changes to the framework and the division of revenue … after taking input from civil society, labour, business 4

Highlights of the 2009 MTBPS Broad themes We must build a more labour absorbing economy… … and the management of the public services must improve Signs of an improvement in the economic environment but the recovery is likely to be slow and gradual GDP is expected to decline by 1.9% this year with growth of 1.5% projected for 2010 Lower revenue and higher public spending raises the deficit Deficit of 7.6% of GDP projected for 2009/10, falling to about 4.2% by 2012/13 Additional spending of about R78 billion allocated to the key priority areas This excludes significant resources identified for re-prioritisation at national and provincial departments 5

The macroeconomic forecast Growth of 1.5% in 2010, rising to 3.2% in 2012 Strong public and private investment growth, recovery in global demand and higher commodity prices 6

GDP growth affected by weak consumer spending and moderate global growth GDP revision driven by Negative employment dynamics High consumer indebtedness and falling disposable incomes Worse than expected impact of the financial crisis on the global economy Reduced wealth effects due to lower asset prices (housing and equities) Weak exports Recovery is supported by Expansionary fiscal and monetary policies Rising commodity prices and improvement in global demand Strong growth in investment by the public sector and state-owned enterprises – real growth of 17% per annum over the MTEF period Spending related to the 2010 FIFA World Cup and tourism and tax income generated from the tournament 7

Global growth outlook The IMF expects world growth to recover to 3.1% in 2010 from -1.1% in 2009 Fiscal and monetary expansion, strong growth in emerging markets (China and India) Risks from weak labour market and persistence of global imbalances IMF growth forecast, by region 8

Commodity prices support the recovery Commodity price changes since January 2009 Gold up by 20%, platinum up by 45%, oil up by 62% 9

Public and private investment supports the recovery Investment by state-owned entities compensates for reduced private sector spending Spending on electricity, gas and water increased by 83% in the first half of 2009 Significant increases also in transport infrastructure, including air, rail and ports Growth boosted by spending related to the 2010 FIFA World Cup Strong investment by public corporations will crowd in private investment Total investment grows by 6% on average over the MTEF period Investment by public corporations 10

Signs of economic recovery in South Africa Components of the Purchasing Managers Index The growth momentum improved across a range of indicators: Leading indicator up 6.8% since March 2009 Strong rise in the PMI in September Manufacturing and mining production increased in the three months to August House prices have increased by 3.1% since June Capital inflows have resumed Consumer indicators levelling out Inflation fell to 6.4% in August Mining, manufacturing & electricity output 11

Supporting the recovery and achieving more rapid growth Boost job creation and productivity by shifting resources to labour intensive services, improving training programmes and basic education and lowering the cost of hiring Promote faster economic growth with large-scale job creation by improving South Africa’s export performance and by promoting and sustaining investment Policies to encourage a recovery must not burden future generations with large public debt, high inflation and interest rates, and low growth Government will maintain prudent growth in spending Monetary policy needs to be strengthened to keep long-term interest rates low Financial market regulation must support macroeconomic stability Encourage foreign direct investment Build a culture of leadership focused on growth, performance standards and accountability 12

Consolidated government revenue Estimated tax revenue for 2009/10 has fallen by R70 billion to R589 billion Tax revenue peaked at 27.7% of GDP in 2007/08 and has since then fallen to 24.5% Revenue will recover strongly in the medium term, but is not expected to reach 2007/08 levels 13

Consolidated government fiscal framework The rise in the budget deficit was driven by a decline in revenue an increase in interest payments and an increase in non-interest spending The recovery in the budget balance will be driven by a recovery in tax revenue with improvements in economic performance a decline in SACU transfer payments a stabilisation in non-interest spending 14

Budget balance and interest costs Deterioration in the budget balance driven mainly by a decline in revenue Government has subsequently accessed additional debt to continue to finance planned and priority non-interest spending Increased debt stock leads to rising interest costs, even as revenue and the budget balance recovers 15

Fiscal sustainability Revenue growth supported the expansion of non-interest spending since 2002/03 A sharp decline in revenue since 2008/09 has meant income is now insufficient to cover non-interest spending, as well as interest payments on debt Over the MTEF a stabilisation of non-interest payments and recovery in revenue supports a return to a primary budget balance of -1% of GDP ( from -5% in 2009/10) By 2012/13, however, revenue is still insufficient to cover interest payments 16

Net loan debt outlook Net loan debt increases from about 23 per cent of GDP in 2008/09 to 41.1 per cent of GDP by 2012/13 This is a driving factor in the increase in interest payments from 2.3 per cent of GDP in 2008/09 to 3.2 per cent in 2012/13 17

Public sector infrastructure spending Public sector infrastructure contribute strongly to growth and development R872 billion will be spent over the MTEF period The increase is mainly driven by changes to non-financial public enterprises build programmes 18

Public sector borrowing requirement General government borrowing requirement driven by main budget balance and deficits at local government Increased expenditure plans by non-financial public enterprises increases PSBR over MTEF from Budget estimates (7.5% in 2009/10; 6.5% in 2010/11 and 5.3% in 2011/12) 19

Changes to exchange controls Aim of the reforms: to reduce the costs of doing business in SA and to help facilitate trade and investment Increase current outward FDI application limit from R50 million to R500 million Allow SA corporates to invest in SADC through offshore intermediaries Do away with the 180 + 30 day rule for the conversion of foreign currency amounts held on-shore Removal of the exchange control restriction on local borrowing by non-residents for funding inward FDI Retain controls for funding portfolio investment, property investments to curb excessive speculation Certain limits on individuals are also raised Foreign capital allowance raised to R4 million 20

Spending priorities over the medium term South Africa is in a recession and revenue shortfalls are substantial Public spending is unlikely to grow as rapidly as it has over the past decade Priorities set out in the 2009 Medium Term Strategic Framework include Supporting employment creation initiatives Comprehensive rural development linked to land and agrarian reform Enhancing the quality of education and skills development Improving the quality of health care Intensifying the fight against crime Government also plans to continue investing in the built environment and infrastructure over the medium term to promote access to basic services and to support quick economic recovery 21

Finding savings and increasing efficiency Total net government savings of R14.5 billion at national level and R12.6 billion at provincial level have been identified Savings add to resources available for new priorities over the MTEF Steps to achieve further savings include: Reducing spending on non-core spending items Rationalising public entities and agencies to save money and improve accountability Reviewing public spending to weed out poorly performing programmes and ineffective policies Reforming procurement systems to reduce corruption and obtain better value for money Changing the culture of the public service to reduce waste and extravagant spending A ministerial task team on cost-cutting is reviewing a range of programmes, agencies and public entities A separate ministerial task team has been established to review the operations and finances of state-owned enterprises 22

Division of revenue The 2010 MTEF makes an additional R78 billion available for allocation to key government priorities (excluding identified savings) Of the additional resources: 36% goes to national government To accommodate increased social grant beneficiaries, public employment programmes, a step up in funding for rural development and targeted funding to law-enforcement agencies 51% goes to provincial government To accommodate higher personnel costs and for spending on education, health and housing 13% goes to local government To compensate for the rising costs of providing free basic services and to sustain spending on infrastructure 23

Key funding items Employment creation Implementation of the second phase of the expanded public works programme Supporting business and industry to help them create jobs Education Implementation of the new occupation-specific dispensation for teachers Provision of workbooks to children in poor schools Step up of funding to 500 schools through the Dinaledi schools initiative Expansion of the national school nutrition programme to cover learners in the poorest 60 per cent of secondary schools Additional resources for science laboratories, textbooks and training of teachers Increasing funding for school infrastructure Health Additional funding to accommodate higher number of patients on Aids treatment Support for a mass vaccination campaign to reduce incidence of measles Laying the foundation for a national health insurance system Implementation of the new occupation-specific dispensation for doctors and other health professionals Introduction of a new quality assurance system to monitor standards and improve performance 24

Key spending items continued Comprehensive rural development strategy Promoting food security and the viability of small farms Step up of funding to ensure that the beneficiaries of land restitution and land reform are properly skilled and equipped to make productive use of their land Piloting rural-based poverty alleviating projects Fighting crime Increasing the number of public defenders, family advocates, family councilors, sexual offences court intermediaries and court clerks Boosting the number of investigators and police personnel Enhancing community participation in law enforcement Built environment Increasing the integrated housing and human settlements grant Significant contributions to municipal infrastructure grant to accelerate the roll out of basic municipal infrastructure Additional funding to assist municipalities deal with increased bulk electricity charges and sustain the provision of free basic services ─ water, sanitation and electricity More funds for the neighborhood development partnership grant 25

Thank you