2. Pre-Budget Presentation: Leftward Liaisons Presented by: Dawie Roodt 6 February 2008

4. 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

5. Intro

6. To Stay or Not to Stay...?? Source: Documented Migration Publication, StatsSA

7. To Stay or Not to Stay...?? UKAustraliaCanadaSouth Africa Average Destination of Emigrates (%) 33%15%3% Eco Indicators Real Eco Growth (GDP, Q3) 2.4%4.3%2.9%4.7% Inflation (CPI, avg. 2008)2.1%3.2%1.9%7.2% Currency p US$£0.51$1.14CAN$1.02R7.10 Marginal Tax Rate40%48.5%29%40% Socio Indicators Life Expectancy at birth79.080.980.343.0 Adult Literacy rate (>15yr,%) 99.0 82.4 UN HDI Rank16 th – 0.8534 th – 0.9613 rd - 0.962121 th – 0.674 Murders p capita, rank (100 000) 46 th – 1.443 th – 1.544 th – 1.492 nd – 49.6 Sources: Economic Indicators, Economist. UN HDI 2007/2008, 7 th UN Survey of Crime Trends 1998 – 2000

8. A Quick Eish ’ kom Calculation Vision: "Together building the powerbase for sustainable growth and development."

9. Load Shedding: The 3 Hour Effect Average GDP per day: GDP, 2007 (current): R1,973.4bn Workdays: 240 GDP per day: R8.3bn Average GDP per sector: Allocate equal weights to GDP sectors: (3 out of 24) –Loss per day: R1.1bn (13.3%) Average GDP loss per sector: Allocate weights to GDP sectors: –Finance, real estate and business services (3 out of 8) –Mining and quarrying (3 out of 24),etc. –Loss per day: R1.9bn (22.8%)

10. Potential Job Losses Case Study: +/- 400 000 employees in Mining Sector Mining production at 90% electricity – Lose 15% - 20% 1% loss in production = 1% reduction in workforce Thus, potential reduction in mining workforce: 60 000 – 80 000 jobs lost Source: Thousands face job chop at GFI, 31 Jan 2008, Fin24

11. GDP Loss: Base Case Scenario Revised Growth Estimate: 4.6% to 3.0% Loss in real terms: R19.76bn Potential Tax Revenue loss: R5.9bn

12. Extra Load Shed on Consumers

13. ‘Alternative Energy’ Cost - Generator FacilityGenerator Size (KVA) Capital Cost p KVA Total Capital Cost (excl. installation) House10 KVAR1250 – R5000 R12 500 – R50 000 Small/Medium Business 60 – 80 KVA R1400 – R3000 R84 000 – R240 000 Supermarket/ Butchery 130 – 140 KVA R1300 – R2500 R169 000 – R350 000 Source: Efficient Research

14. ‘Demand Side Management’ Efficient Lighting Roll-Out Programme –Compact fluorescent light fittings (CFL’s) Solar Water Heating Programme –Government subsidise 20% – 30% –Cost R7 000 – R20 000 (R25 000) per geyser Fuel Switching –Liquefied Petroleum Gas used in cooking BULL!

15. Economic Overview: The Grazing Ground

16. 200620072008 M3 (end of year)23.1%23.7%19.8% PSCE (adj. end of year)27.6%22.2%18.3% CPIX (average)4.6%6.5%7.3% Prime (end of year)12.5%14.5% Current Account: Nom-R111.0bn-R138.2bn-R144.2bn Current Account: GDP-6.4%-7.0%-6.5% R/$ (end of year)7.046.847.61 GDP (full year)5.4%5.1%3.6% Economic Overview

17. Credit Demand Source: SARB and own calculations

18. Household debt to disposable income Source: SARB and own calculations 44.5% 50.2% 56.9% 59.4%

19. Savings to disposable income of households Source: SARB and own calculations 9.2% 5.4% 2.6% 0.5%

20. Is Tax Crowding Out Savings..? Crowding Out ? Income Tax Revenue from Companies and Individuals vs Private Sector Savings

21. Inflation Inflation bracket Source: StatsSA and own calculations 14.6% 10.0% 5.3%

22. Interest rates

23. GDP at Market Prices Source: StatsSA and own calculations

24. Fiscal Policy

25. Background Gold Dissaving

26. Budget Sustainability Source: Fiscal Policy, 2007 MTBPS Main Budget and Structural Budget Balances, 2000/01 – 2010/11

27. FISCAL 2007/08 …

28. Revenue: Fiscal 2007/08

29. Contribution to Fiscus

30. Registered Income Tax Payers IndividualsCompaniesTrustsTotal Registered Taxpayers 5.0 million1.7 million300 0007 million Source: Fin24, Sep 2007

31. Redistribution Rand In : Rand Out Ratio2007/08 Family 1* – very poor 8.61 Family 2 – poor, 1 tax payer 1.41 Family 3 – middle class, 2 tax payers, Low investments 0.53 Family 4 – upper middle class, 2 tax payers, medium investments 0.23 Family 5 – Affluent 0.02 *Average family consists of 4 people, aggregates taken per capita Source: Efficient Research

32. Individual Tax Rate, per Country (2006) Source: worldwide-tax.com South Africa Russia Denmark Average: 35.4% Median: 36.0% USA Ireland

33. Company Tax Rate, per Country (2006) Source: worldwide-tax.com South Africa Bulgaria Egypt Average: 26.6% Median: 29.0% Ireland USA South Africa + STC (’06) South Africa + STC (’07)

34. VAT Rate, per Country (2006) Source: worldwide-tax.com Average: 16.7% Median: 18.0%

35. 2007/08 in Review: Revenue R bnBudget ’07MTBPS ’07ExpectedDiff. (%) Income Tax312.2327.3329.116.9 (5.4%) Individual155.3167.0166.911.6 (7.4%) Company138.5140.1143.65.1 (3.7%) STC16.018.018.32.3 (14.4%) Other2.32.20.3-2.0 (-86.9%) VAT155.1147.0150.0-5.1 (-3.3%) Excise Duty17.818.517.90.1 (0.5%) Fuel Levy23.923.224.30.4 (1.7%) Other54.057.453.4-0.5 (-1.0%) Total544.6553.2556.211.5 (2.1%)

36. Expenditure: Fiscal 2007/08

37. Spending Priorities Social Spending

38. 2007/08 in Review: Expenditure R bnBudget ’07MTBPS ’07ExpectedDiff. (%) Voted Amounts299.2*313.3305.26.0 (2.1%) Central Gov.40.842.540.6-0.2 (-0.5%) Fin. & Admin.21.721.921.1-0.6 (-2.7%) Social Services102.7105.4104.41.7 (1.7%) Justice & Protect.79.981.780.90.9 (1.1%) Eco. & Infrastruc.54.061.759.55.4 (10.1%) State Debt Cost52.9 52.8-0.1 (0.2%) Transfer Provinces171.3172.9172.81.6 (0.9%) Other7.58.37.80.3 (4.0%) Total533.8540.4539.96.1 (1.2%) * Includes: Contingency Reserve (R3.0bn)

39. Expenditure Analysis: Money Well Spend?

40. Health

41. Public Expenditure on Health Comparison (2003-04) Source: Human Development Report, 2006 (undp.org) South Africa (‘04&’06) Myanmar Iceland Average: 3.5 Median: 3.0 Cuba Malawi South Africa (’07)

42. Core Health Care Indicators Health Care IndicatorNumber (2004)Density per 1,000 SA vs. (Sample average) Physicians34,8290.77 (1.45) Nurses184,4594.08 (3.45) Dentists5,9950.13 (0.32) Pharmacists12,5210.28 (0.35) Community health workers 14,3060.32 (0.98) Health management and support workers 22,8590.51 (1.84) Source: World Health Statistics 2007, WHO (www.who.int)

43. Public Health Expenditure (2003) vs. Physicians 2004) Source: Human Development Report, 2006 (undp.org)

44. Eddjucation

45. Education expenditure comparison (2002-2004 as available) Source: Human Development Report, 2006 (undp.org) South Africa (’06 & ’07) Equatorial Guinea Lesotho Average: 4.7 Zimbabwe

46. The Reading Literacy of Fourth Grade Students Source: US Department of Education, PIRLS 2006 HighIntermediateLowNone Russian Federation(565) United States (541) Macedonia (439) South Africa (302)

47. Breakdown: Population Education Source: Community Survey 2007, StatsSA

48. SC HG Maths & Science Passes Source: Dep of Education, Education Statistics in SA at a glance, SC Examination Results, 2006

49. Enrolment for SC HG Maths and Science as % of SC enrolment Source: Dep. of Education, Education Statistics in SA at a glance, SC Examination Results, 2006 13.3% 9 %

50. Government Targets for SC HG Maths passes vs Actual passes  Achieved  Targets Sources: Dep. of Education, Statistics in SA at a glance, 1999 – 2005; Senior Certificate Examination Results, 2006.

51. Pass Rates for SC, SC HG Maths & Science Source: Dep of Education, Education Statistics in SA at a glance, SC Examination Results, 2006 53% HG Maths Passes – 4.8% 43% HG Science Passes – 5.7%

52. Senior Certificate Mathematics Results (2006) 11% 81% Source: Department of Education, Senior Certificate Examination Results, 2006 71% 16%

53. Time Spent by Teachers on Different Activities Source: Educator workload in SA, Pretoria: Human Sciences Research Council, 2006 85% – Optimal Time Allocation

54. Alternative Solutions…? SETA: –5 Seta’s researched in 3 Sectors –Key Findings: Only 2% of employees benefit SETA’s themselves define ‘scarce’ skills with their capacity to address the priorities Demands to provide foundational education vs occupational skills ‘Second Education’ instead of skills development Source: Centre for Development and Enterprise

55. Leftward Proposals

56. Social Security and Welfare

57. Changes to Social Grants Grant Type (R)200320062007% Change 2003-2007 Old Age Grant70082087024.3% Disability Grant70082087024.3% War Veterans Grant71883889024.0% Foster Care Grant50059062024.0% Care Dependency Grant (disabled) 70082087024.3% Child Support160190200 (14)25.0% Grant in Aid (full-time attendance) 15019020033.3% Source: 2007 Budget

58. Social Grants Beneficiary Numbers Grant Type (‘000) 200320062007 (projected) % Change 2003-2007 Old Age Grant2,0222,1442,1868.1% Disability Grant9531,3191,43750.8% War Veterans Grant432-50.0% Foster Care Grant138313381176.1% Care Dependency Grant (disabled) 589410479.3% Child Support2,6307,0457,879199.6% Total5,80810,91811,991106.5% Source: 2007 Budget

59. Correlation? Household Expenditure vs Social Grants

60. Summary  Social grant beneficiaries doubled between 2003 to 2007  Child support recipients tripled between 2003 to 2007  Child Support grant age doubled from 7 (1998) to 14 (2007)  Constant sharp rise as percentage of economy (%GDP)  2007: 11,9m recipients (25.0% of SA population) Important social responsibility; however rising by alarming rate…!

61. Accountability Spilling the Milk…?

62. Qualified Audit Opinions: Department2005-062004-052003-042002-032001-022000-01 Independent Complaints Directorate ✓ Land Affairs ✓✓ Transport ✓✓ Labour ✓✓✓ Justice ✓✓✓✓ Parliament ✓✓✓ Health ✓✓✓✓ Defense ✓✓✓✓ Correctional Services ✓✓✓✓✓ Water Affairs & Forestry ✓✓✓✓✓ Home Affairs ✓✓✓✓✓✓ Source: General Report of the Auditor General on Audit Outcomes for the Financial Year 2005-06

63. Additional Facts All departments qualified in 2004-05 also received a qualified audit opinion in 2005-06. 78% of all issues are in respect of only five departments, namely: Correctional Services (21 issues ) Home Affairs (13 issues) Defence (10 issues) Independent Complaints Directorate (8 issues) Water Affairs and Forestry (7 issues) Only four departments received clean audit reports – 12% –Public Enterprise –Public Services Commission –Presidency –Trade and Industry

64. Spilling the Beans… Corruption: Number of Alleged Corruption Cases Received Percentage of Total FeedbackPercentage Feedback 112549%35932% Financial Disclosure: Number of sms members Number of forms received Number of forms outstanding % Received 36192025159456% Source: 2007 State of the Public Service Report, PSC National Departments

65. Vacancies in National Departments Average Vacancy (National and Provincial): Senior Management Vacancies: 35% 200620052004 24.3%23.4%25.1%

66. Unqualified Reports for Public Entities 76% Public Entities Unqualified Primary Areas of Public Entity Qualifications: Income and Receivables – 26% Asset Management – 25% Non-Personnel Expenditure - 14% Source: General Report of the Auditor General on Audit Outcomes for the Financial Year 2005-06

67. Public Sentiment: State Service Delivery Delivery Area20062007Change Transparency and Accountability 67%39%-28% Reducing the Crime Rate54%33%-21% Narrowing the Income Gap65%45%-20% Fighting Corruption63%43%-20% Retaining Skilled People48%28%-20% Educational Needs78%65%-13% Improving Basic Health Services 73%64%-10% Reducing Unemployment40%32%-8% Welfare Payments85%80%-5% Source: SA Reconciliation Barometer Survey Report 2007, IJR

68. Public Confidence in Institutions Institution20062007Change National Government73%63%-10% Political Parties48%37%-10% Provincial Government66%57%-9% Presidency77%68%-9% Parliament69%62%-8% Local Government50%43%-7% Legal Systems61%55%-6% Big Companies65%60%-6% Constitutional Court66%61%-5% Religious Institutions70%69%-1% Source: SA Reconciliation Barometer Survey Report 2007, IJR

69. Capital Expenditure

70. First Picture of Cape Town’s New Stadium:

71. Capital Expenditure Institute Time Horizon Planned Capital Expenditure (Rbn) Sasol201362.0 Eskom2017204.0 World Cup 2010: Gautrain Acsa Stadiums 2010 2011 2010 25.5 20.0 8.4 Transnet (Rail, Ports, Pipelines) 201278.0 State (National Budget) 2009372.0

72. Funding

73. State’s Cash Coffer

74. 2007/08: Funding R bnBudget ’07ExpectedDiff. Extraordinary1.21.10.1 TB’s5.75.60.1 Bonds-9.0-9.9-0.9 Foreign Loans-2.6-4.2-1.7 Use of balances-5.7-8.3-2.5 Total Funding-10.7-16.2-5.5

75. Summing Up: Fiscal 2007/08

76. Summary 2007/08 R bnBudget ’07MTBPS ’07ExpectedDifference Revenue544.6553.2556.211.5 Expenditure533.9542.4539.96.1 (Deficit)/Surplus10.710.816.2-5.5 % of GDP0.6%0.7%0.8%

77. Budget 2008 How Far can the Cash Cow be Pushed…?

78. 2007 Budget Highlights: Finance:  2006/07 fiscal year to report first surplus in SA’s history  2007/08 surplus budgeted for is 0.6% of GDP Individuals:  Pit brackets adjustment  Primary rebate up to R7,740  Donation tax annual exemption to R100k  Donation to PBO’s to 10%  Estate Duty exemption up to R3.5m  Interest on dividends to R18k (R26 for 65+)

79. 2007 Budget Highlights: Companies:  Dividend Tax (from 1 October):  STC reduced to 10%  STC to be replace by dividend tax  Threshold for FDI outside Africa lowered to 25% Other:  Retirement fund tax scrap  RAF and Fuel levies up by 5c each  Wage subsidy and social security tax reform  Commercial buildings write-off over 20 years

80. Possible Changes to Taxes The Milk Machine…

81. Efficient ’ s Possible, Likely, Probable New Tax Table 2007/082008/09 Taxable Inc (R)Rates of TaxTaxable Inc (R)Rates of Tax 0 – 112 50018%0 – 125 00018% 112 501 – 180 000R20 250 + 25%125 001 – 220 000R22 500 + 25% 180 001 – 250 000R37 125 + 30%220 001 – 300 000R46 250 + 30% 250 001 – 350 000R58 125 + 35%300 001 – 400 000R70 250 + 35% 350 001 – 450 000R93 125 + 38%400 001 – 500 000R105 250 + 38% 450 001 –R131 125 + 40%500 001 –R143 250 + 40% Rebates Primary7 740Primary8 280 Tax Threshold Below 6543 000Below 6546 000

82. Effect of Adjustment Income2007/08 Tax2008/09 TaxDifference R100kR10 260R9 720R540 (5.3%) R150kR21 885R20 470R1 415 (6.5%) R200kR35 385R32 970R2 415 (6.8%) R300kR67 885R61 970R5 915 (8.7%) R400kR104 385R96 970R7 415 (7.1%) R500kR143 385R134 970R8 415 (5.9%)

83. Income Tax: Companies TypeTax RatePossible changes Companies29%Down 1% Small Business Corporations (SMEs) R0 – R43 0000%Bracket adjustment (threshold to R46k) R43 001 – R300 00010%Bracket adjustment R300 001 & above29%Bracket adjustment Employment Companies34% Foreign Resident Companies in SA34% STC to Dividend base10% (1 Oct 07)More clarity on dividend tax

84. Possible Other  Tax breaks for science and research  Transfer duties - threshold higher  Donations tax - currently R100k of property donated exempt  Further adjustments on deductions for medical aid contributions  Mining Royalties? (Mines shocked from both sides)  Sin taxes to be upped (as usual)  Threshold for foreign direct investment (FDI) – lowered from 50% to 25%.  Fuel levy – as if fuel price not high enough!

85. Environmental Structures  Depreciation on environmental capital structure (dams, tanks) currently allowed  Announcement surrounding costs related to solar water geysers?  Die Geyser-kombers?

86. Taxes: A Wish List Tax CategoryWish VATHigher STCLower/Scrap Company taxLower PIT (Mid/high income)Lower Transfer dutyAbolish Customs DutiesLower/Scrap Small comp. VAT returnsLower frequency/Higher threshold Flat tax rate22%

87. Expenditure The Milky Way…

88. Expenditure Trends  2009 – Election Year!  Surge in Social Spending  More for Education and Health (good!)  Service delivery to get more and more  Capital spending  World Cup  Housing  Eish’kom?  Let’s hope; safety and security - World Cup Higher revenue helps spending higher – danger!!

89. Changes to Social Grants Grant Type (R)20062007Expected Old Age Grant820870950 Disability Grant820870950 War Veterans Grant838890950 Foster Care Grant590620650 Care Dependency Grant (disabled) 820870950 Child Support190200 (14)220 (age?) Grant in Aid (full-time attendance) 190200220 Source: 2007 Budget

90. Social Security and Retirement Reform State Old Age Pension (SOAP) –introduced for all citizens upon reaching a certain age Government Sponsored Retirement Fund: –Mandatory National Retirement fund –Industries with own funds can opt out of the GSRF –Fund will be a Defined Benefit –Earning Ceiling for contributors: R75 000 p/a –Contribution rate: 10-12% of pre-tax earnings –Wage subsidy paid to employers for employees earning below the tax threshold.

91. Summary 2008/09 MTBPSBudget ‘07EfficientDifference Revenue615.9591.2612.421.2 Expenditure590.2594.2597.53.3 Deficit/Surplus25.7-3.014.917.9 % of GDP0.5%0.6%0.5%

92. www.efgroup.co.za