1. 2005 MTBPS: Quite Conservative... What Happens to the Extra Cash?
Nazmeera Moola Economist Merrill Lynch (South Africa) (27)
28 October 2005
2005 MTBPS: Quite Conservative... What Happens to the Extra Cash?
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Refer to important disclosures on page 38.
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2. Strong Government Finances
Far More Controlled Deficit
SA Government Deficit to GDP
From a peak of 10% of GDP in the early 1990’s, the deficit has come in sharply.
Source: National Treasury

3. Strong Government Finances
Very Healthy Debt Levels
SA Government Debt to GDP
In many were concerned about a debt trap developing in South Africa. That is obviously not a concern any more.
Source: National Treasury

4. Strong Government Finances
Less Money Directed at Interest Payments
Debt Servicing to Total Expenditure & GDP
In 1999/ % of govt expenditure was directed at interest payments. This has since fallen to 12.5%.
Source: National Treasury

5. Strong Government Finances
Helped by Strong Economic Performance in 2005/06
National Budget Revenue for 2005/06 Fiscal Year
Difference
Feb Budget
Revised
ZARbn %
Taxes on income & profits
205.8
225.4
19.6
9.5%
Individuals
116.9
125.2
8.3
7.1%
Companies
68.7
79.1
10.4
15.1%
STC
8.7
10.2
1.5
17.2%
VAT
106.0
115.0
9.0
8.5%
Export & Import Duties
13.2
16.3
3.1
23.5%
Far stronger than expected revenue growth supported by robust economic growth.
Source: National Treasury

6. Strong Government Finances
The Treasury has Done a Great Job!
Reigned in Unnecessary Spending Greater checks and balances have been put in place to ensure that less money is wasted.
Contributed Greatly to the Structural Decline in Interest Rates A more conservative fiscus has helped the structural decline in interest rates. The 10-year bond yield averaged 15% between 1990 and In the last two years they have averaged 10%.
Spending is More Evenly Distributed Where previously the bulk of government spending was directed at a small portion of the SA population, it is now more evenly distributed.

7. Increased Spending to Boost Growth
Higher Social Welfare Grants
Increase in Social Welfare Grant Payments, in ZARbn & yoy%
Social Welfare Grant payments have grown strongly in the last 5 years.
Source: National Treasury

8. Increased Spending to Boost Growth
Increased Commitment to Infrastructure Spending
Government Infrastructure Spending in ZARbn
Transport accounts for 15% of GDP in SA. In developed countries, the average is 9%.
Source: National Treasury

9. BUT Budget Still Conservative
Deficit Projections have Fallen Sharply
Budget Deficit to GDP
Government Borrowing to GDP
Source: National Treasury
Source: National Treasury
The budget deficit fell sharply from February’s projection of 3.1% of GDP to 1.0%. As a result government borrowing will slow dramatically.

10. Conservative Budget Focus on Spending Efficiently
Education Expenditure as % of GDP
South Africa does not have a lack of cash. It has a lack of ability to spend!
Source: National Treasury & World Bank

11. What to do with the Excess Revenue?
Time to Lower Tax Rates?
Corporate Tax Rates
South African corporate tax rates are high in an emerging markets context – especially when you add in STC!
Source: Heritage Foundation

12. Time for a Combination
Infrastructure & Social Spending + Lower Corporate Taxes
Lower the Cost of Doing Business The infrastructure programme is geared at this. But we need to add to this by lowering corporate taxes and simplifying business regulation. It is currently extremely onerous.
Promote Job Creation Only by promoting business development, will job creation be promoted. One vital, non-budgetary element, is the de-regulation of the labour market.
We still need a Catch-Net The social spending is necessary. But job creation is more important in the long run.

13. Important Disclosures