1. A time of crisis, a window of opportunity
Budget 2009
A time of crisis,
a window of opportunity

2. Macroeconomic environment
Sharp deterioration in global economic outlook
WEO revised five times in last ten months
Our growth forecasts have been revised downwards steadily
Major areas of concern
Export volumes
Fall in manufacturing
Private investment slowing
This is a difficult period ahead, but we can be confident of the choices we have made
Changing GDP forecasts due to changing global environment

3. Global economic crisis is unprecedented
Consistent downgrades to GDP forecasts since April last year.
Sharp decline in global industrial production, exports and consumer spending.
Unprecedented interventions by governments to prevent prolonged recession.
GDP growth forecasts,
Source: IMF World Economic Outlook Update, January 2009

4. Impact on South Africa
SA affected through falling commodity prices, lower exports, reduced capital flows, higher risk appetite, correction in asset prices.
Sound banking system provides some protection from global contagion.
Countercyclical fiscal and monetary policies can support demand.
World GDP growth and SA growth
Source: IMF and National Treasury forecasts for South Africa.

5. Sharp decline in commodity prices and in manufacturing production
Oil price plunged 69% since peak of US$145/bbl in July 2008.
Platinum price is down 57% from peak.
Gold protected by safe-haven status keeping bullion price high.
Flexible exchange rate has been a shock-absorber for lower prices
Manufacturing production fell in the 2nd half of 2008
Commodity prices relative to long-run average since 1980
Manufacturing production

6. SA macroeconomic forecasts: 2009-2011
Falling consumption and exports and slowdown in private investment in 2009.
Weak domestic demand and lower dividend payments reduce CAD in 2009.
Headline CPI inflation within target range by mid-2009.
Modest recovery in GDP growth from 2010.

7. Public finance under pressure
Revenue under-collection of R14 billion expected this year
For 2009/10
Revenue number revised down by R50 billion
Expenditure pressures abound (spending rises by R57 billion above baseline)
Pressure from Eskom, personnel costs, social grants extension, bus subsidies, SOEs,
So budget balance changes to deficit of R95.6 billion
Risks to the revenue forecast
Company taxes may fall further
VAT receipts declining

8. Forecast drivers Lower GDP forecast is driven by
Weak consumption growth
Lower demand for exports impacts on mining and manufacturing
Slow down in private investment
Lower commodity prices
Reduced wealth due to lower asset prices, both housing and equities
Overall growth will be supported by
Government consumption and public sector investments remain strong
Falling inflation and easing monetary policy eases burden on households
Weaker real exchange rate improves export competitiveness and reduces import demand.
2010 World Cup
Risks to GDP growth are probably on the downside
A global economic recovery might not happen for two to three years
Commodity prices could fall further, impacting on revenues
Global trade could collapse
The world could go into as deep depression, in which zero growth for us would be realistic 8

9. Crafting South Africa’s response to the crisis
Drawing on ongoing work of the Presidential task team comprising business, organised labour and government, 5 principles have guides our actions
Protect the poor
Sustain employment growth and expand training opportunities
Accelerate public sector infrastructure spending to enhance our future capacity
Take the required steps to enhance competitiveness and to broaden opportunities
Maintain sustainable public finances

10. Budget Framework
Real growth in expenditure (excluding transfers to Eskom) will average 5.1% per cent over the MTEF
Budget deficit rises to 3.8% next year, before falling to 1.9% as revenue recovers 10

11. Public sector borrowing requirement
Worsening budget balance is a result of:
Downward revision of revenue estimates
Upward revision of debt service costs
Guatrain loan of R4.2 billion
R60 billion loan to Eskom 11

12. Government debt
Government debt is set to rise over the MTEF to maintain government infrastructure spending.
Government debt 12

13. Main tax proposals: 2009/10 Individuals: Businesses:
Personal income tax relief for individuals amounting to R13.6 billion
Adjustments to the tax-free interest income thresholds (savings)
Businesses:
Delay the implementation of the mineral and royalties to 1 March 2010
Incentives for investments in energy-efficient technologies
Favourable tax treatment of income from reduction of green house gasses
Other Environmental Fiscal Reforms:
Reforms to the motor vehicle ad valorem excise duties
Implementation of the electricity levy announced in Budget 2008
The taxation of energy-intensive light bulbs
Indirect taxes:
Increases in the Road Accident Fund (RAF) and general fuel levies
Tax-sharing arrangements with municipalities
Increases in excise duties on alcoholic beverages and tobacco products
An increase in the international air passenger departure tax.

14. Key spending proposals
Total additions to 2008 Budget forward estimates amount to R161 billion, including
R50 billion (of the R60 billion) loan to Eskom
R25 billion more for the provincial equitable share
R13.2 billion for social grants and grant administration
R4.1 billion for EPWP phase 2
R4 billion for school nutrition
R5.4 billion for reforms to the criminal justice sector, including integrated fingerprint and DNA databases, more police and courts capacity
R4.1 billion more for provincial infrastructure: schools, clinics, hospitals, roads
R4.3 billion for municipal infrastructure and R1 billion more for bulk water schemes
R3.7 billion for more for housing
R6.4 billion additional for transport infrastructure, roads, rail and bus systems
R1.6 billion for industrial development
R1.8 billion for rural development and land reform/restitution
Note that these figures are additions to baseline

15. Division of revenue
Of additional R161 billion, national receives R99 bn (incl. R50 bn for Eskom), provinces R47.8 bn and municipalities R11.3 bn
Provincial equitable share transfers R24.8 billion
Education: No-fee schools policy to 60% and reducing teacher-learner ratio
Health: maternal and child mortality; and TB
Early childhood development programmes
Municipal equitable share transfers R2.7 billion
To extend free basic services
Sharing of general fuel levy
Metros to get 23% of fuel levy as a replacement for the RSC levies

16. Western Cape Inherited Debt Relief Bill, 2009
The Bill would authorise R912 million of inherited debts of the former Cape Provincial Administration and the former House of Representatives.
The debts relate to pre-1994 unauthorised expenditure, as well as unauthorised expenditure up to 1995/96, incurred when new provincial structures in the Western Cape, Eastern Cape, Northern Cape, and North West province we established.
There are no cash flow implications for the national government or the Western Cape province. The Bill provides authorisation of the debts, which will allow for appropriate journal entries to be made between the relevant consolidated accounts.