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

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

3. 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

4. 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

5. 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

6. 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

7. 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

8. 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

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

10. 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

11. 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

12. 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

13. 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

14. 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

15. 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

16. 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

17. 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

18. 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

19. 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

20. 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 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

21. 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

22. 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

23. 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

24. 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

25. 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

26. Thank you