2. Presented by: Dawie Roodt 23 January 2007 Time for Real Tax Cuts

3. Chairman and Chief Economist Efficient Group 81 Dely Road Hazelwood 0081 Tel: (012) 460-9580 Cell: 082 456 0204 Email: dawie@efgroup.co.za Dawie Roodt

4. Economic Overview

5. 20062007 Prime (full year)12.5% M3 (end of year)22.8%15.1% PSCE (adj. end of year)26.1%18.8% CPIX (average)4.6% Current Account: GDP-6.4%-4.9% R/$ (end of year)6.987.04 GDP (full year)5.0% Economic Overview

6. Background

8. Gold Trevor’s reign!

9. Background

11. …Contributed to

12. Inflation

13. Capital Expenditure

14. GDP at Market Prises

15. Consumption Expenditure by Households

16. Summary  Increase Revenue  Decrease Expenditure  Boast Supply  Increase consumption expenditure  Saving (government vs households)

17. FISCAL 2006/07…

18. Revenue

19. Contribution to Fiscus

20. 2006/07 in Review: Revenue R bn Budget ’06MTBPS ’06ExpectedDiff. (%) Income Tax245.8269.9272.626.8 (10.9%) Individual132.5138.8139.87.3 (5.5%) Company95.2115.9116.721.5 (22.6%) STC13.912.9*13.2-0.6 (-4.3%) Other4.32.4*3.0-1.3 (-30.2%) VAT131.2132.9134.43.2 (2.4%) Excise Duty16.6 17.00.4 (2.4%) Fuel Levy21.8 21.1-0.7 (-3.2%) Other49.140.645.1-4.7 (9.6%) Total446.4466.6473.326.9 (6.0%) * Estimated

21. Tax Table 2006/07Efficient 2007/08 Taxable Inc (R)Rates of TaxTaxable Inc (R)Rates of Tax 0 – 100 00018%0 – 110 00018% 100 001 – 160 000R18 000 + 25%110 001 – 170 000R19 800 + 25% 160 001 – 220 000R33 000 + 30%170 001 – 230 000R34 800 + 30% 220 001 – 300 000R51 000 + 35%230 001 – 315 000R52 800 + 35% 300 001 – 400 000R79 000 + 38%315 001 – 420 000R82 550 + 38% 400 001 –R117 000 + 40%420 001 –R122 450 + 40% Rebates Primary7 200Primary7 632 Tax Threshold Below 6540 000Below 6542 400

22. Effect of Adjustment Income2006/07 Tax2007/08 TaxDifference R100kR10 800R10 368R432 (4.0%) R150kR23 300R22 168R1 132 (4.8%) R200kR37 800R36 168R1 632 (4.3%) R300kR71 800R69 668R2 132 (2.9%) R400kR109 800R107 218R2 582 (2.3%) R500kR149 800R146 818R2 982 (1.9%)

23. Quick Calculation  1995: Revenue (22.5% GDP)  2005: GDP (fiscal): R1,417bn  22.5% of GDP = Revenue (2005): R319bn  Actual Revenue: R347bn  Difference: R28bn Where is the tax cuts?

24. Expenditure

25. Spending Priorities

26. 2006/07 in Review: Expenditure R bn Budget ’06MTBPS ’06ExpectedDiff. (%) Voted Amounts263.1*252.8265.72.6 Central Gov.34.935.70.8 Fin. & Admin.18.119.61.5 Social Services90.695.54.9 Justice & Protect.73.471.8-1.6 Eco. & Infrastruc.43.143.20.1 State Debt Cost52.052.648.5-3.5 Transfer Provinces150.8 0.0 Other6.87.06.80.1 Total472.7474.2471.9-0.8 * Includes: Contingency Reserve (R3.1bn)

27. Main Expenditure trends  More for Education and Health  Services delivery to get more and more  Capital spending World Cup Housing  Let’s hope; safety and security - World Cup Higher revenue helps spending higher – danger!!

28. Close-up on South Africa (2004) Total population (000)47 208 Annual population growth rate (%)1.1 Population 0-14 years(%)33 Rural population (%)41 Total fertility rate (births per woman)2.8 Infant mortality rate (1,000)53 Life expectancy at birth (years)46 HIV rate (%) in adults (15-49 years)15.6 Poverty (% of pop. on less than $2 a day)34 GDP per capita (PPP) US$10 346 GDP growth rate (%)1.9 Total debt service as a % of GNI2.8 Children of primary school-age who are out-of-school (%)7 Source: Unesco and World Bank Development Indicators

29. Education

30. Education expenditure comparison (2002-2004 as available) Source: Human Development Report, 2006 (undp.org) South Africa Equatorial Guinea Lesotho

31. Adult Literacy Rate (2004) Source: Human Development Report, 2006 (undp.org) South Africa Mali Estonia

32. Pass Rate of SCE and Matriculation Exemption Source: HSRC

33. Pass Rate of SCE and Education Spending Source: HSRC

34. Learners Presenting For Standard and Higher Grade Exams SubjectYearSGHGHG as % Tot Accounting 20021001994121629.1 20031066213954827.1 Biology 20022006089846832.9 20031994328681330.3 English (Second language) 20022240836253494.2 20031853535596595.1 Mathematics 20022262953551813.6 20032231563599413.9 Physical Science 20021030445104733.1 20031001665221534.3 Source: HSRC

35. Case Study: Flow of Pupils from Grade 1(1991) to Grade 12 (2002) Source: HSRC Note: Repeaters and drop outs not indicated 1 207 066 learners 486 786 learners Home Schooling?

36. Pupils-Teacher Ratio in Primary Education (Newest data available) Source: UNESCO South Africa Central African Republic Libya Weighted Average: 27.1

37. Home Schooling  1999: Between 6 000-10 000 parents giving home schooling  2001: 15 000 parents  Reason : “Quality of education in public schools is low” “Implementation of outcome based education” “Marks ‘adjusted’ for better results“  Research conclusions: Gr.4 pupils in home schooling perform better than above average pupils in public schools Source: Tydskrif vir Geestenswetenskappe, Beeld 30 November 2006

38. Health

39. Public Expenditure on Health comparison (2003-04) Source: Human Development Report, 2006 (undp.org) South Africa Myanmar Iceland

40. Health Spending as %GDP Source: Various Budgets

41. Life Expectancy at Birth (years) most recent 2000-05 Source: Human Development Report, 2006 (undp.org) South Africa Swaziland Japan

42. Number of HIV positive and cumulative HIV deaths Source: Centre for Actuarial Research and South African Medical Research Council, 2004

43. Estimated HIV prevalence amongst antenatal clinic attendees, by age Age group (years) 2000 prevalence % 2001 prevalence % 2002 prevalence % 2003 prevalence % 2004 prevalence % 2005 prevalence % <2016.115.414.815.816.115.9 20-2429.128.429.130.330.830.6 25-2930.631.434.535.438.539.5 30-3423.325.629.530.934.436.4 35-3915.819.319.823.424.528.0 40+11.09.817.215.817.519.8 Source: Avert international AIDS charity

44. Defence and Police

45. Protection Services Spending as %GDP Source: Various Budgets and own calculation

46. Reported Crime Figures for the financial years 1994/95 to 2002/03 Source: Institute for Security Studies (issafrica.org)

47. Fast Crime and Policing Facts:  Change in different crimes 1994-2003: Rape and attempted Rape: 17.2% Murder: -17.0% Robbery with aggravating circumstances: 49.7%  Policing Expenditure % GDP: 2.0% (1994), 1.8% (2003) % budget expenditure: 6.7% (1994), 7.9% (2003), 7.8% (2007 est) Source: Institute for Security Studies (issafrica.org) / own calculations

48. Police (per capita) by country (2000) Source: United Nations Office on Drugs and Crime, Centre for International Crime Prevention South Africa Costa Rica Montserrat

49. Defence Spending Highest Defence Exp.% of GDP North Korea9.5 Oman9.0 Eritrea9.0 Myanmar8.9 Saudi Arabia8.5 Israel8.1 Jordan7.7 Kuwait7.6 Syria7.6 South Africa4.4

50. Funding

51. 2006/07 in Review: Funding R bn Budget ’06ExpectedDiff. Extraordinary1.7-0.2-1.9 TB’s5.82.4-3.4 Bonds8.74.1-4.6 Foreign Loans2.43.0-0.6 Use of balances7.8-10.518.2 Total Funding26.4-1.3-27.7

52. Summary 2005/06 R bn Budget ’06MTBPS ’06ExpectedDifference Revenue446.4466.6473.326.9 Expenditure472.7474.2471.9-0.8 Deficit/Surplus-26.4-7.61.327.7 % of GDP-1.5%-0.4%0.1%

53. Expansion vs. Contraction  Deficit:  Changes in deficit – Contr.  Level – Contr.  Debt  Changes in Debt – Contr.  Level – Contr.  Mix of expenditure and revenue – Very Exp.

54. Redistribution Rand In : Rand Out Ratio2006/07 32 22216.96 74 0003.45 115 0001.45 155 0000.73 195 0000.49 270 0000.29 1 000 0000.05

55. Wish List Tax CategoryWish VATHigher STCScrap Company taxLower PIT (Mid/high income)Lower Customs DutiesLower/Scrap Sin Tax? Exchange controlsScrap

56. 4% of African area 23% of African GDP 21.2% of African Exports

57. GDP Source: UN

58. Mistakes made in Africa  Private Property Rights  Regulated Prices  Idolise Leaders  Marketing Boards  Nepotism  Incompetence  Corruption  Poor Fiscal Discipline  Poor Monetary Policy  Unrealistic Projects ??????????

59. Asset Allocation

60. Local Equities, 2006 Economic Sector MCEAAJSE Sector Mining and Quarrying32%35%Mining, Platinum, Gold, Coal Finance, prop and bus. serv30%25% Banks, Insurance, Life Ass, Media & Pht, IT, Property, Support Serv Manufacturing12% Auto, Basic Ind, Beverages, Chem, Elect, IT Hard, Pharm & Bio, Steel & Other Personal Service6%5% Cyc Serv, Health, Leisure Ent, Non-cyc Serv, Person Care Transport, storage and comm.6%8%Telecomm, Transport Trade, hotels and restaurants6%4% Cyc Cons, Food & Drug, Gen Retail, House Goods, Non-cyc Cons Electricity, gas and water4%3%Oil & Gas Agri, Forestry and Fishing3%2%Food Prod Construction2%6%Const & Build 100%