1. 1National Treasury Budget 2003 Development as freedom An overview...

2. 2National Treasury Overview of 2003 Budget Economic and fiscal outlook: –SA economy resilient in face of global slowdown –Inflation coming down, target range by 2004 –Expansionary fiscal stance continues –Personal income tax relief –Budge deficit of 2,4% of GDP This budget focuses on: –Fighting poverty and vulnerability –Continued focus on infrastructure –Broadening of social security net –Strengthening health and education –Expansion of municipal services 4,5% a year real non-interest expenditure growth over MTEF

3. 3National Treasury Macroeconomic outlook GDP growth in 2002 of 3% rising to 3,3% in 2003, and 4% by 2005 Global economic picture uncertain –War in Iraq and high oil prices –Slowdown in OECD growth Domestic demand and investment spending strong Declining household debt Formal sector employment turning around Healthy current account balance Declining inflation in 2003 and 2004

4. 4National Treasury GDP growth and CPIX

5. 5National Treasury Investment

6. 6National Treasury Household debt to disposable income

7. 7National Treasury Inflation coming down CPIX averaged 10% in 2002, – down from its peak in November Downward pressure on food prices –White maize futures down from over R2 100 to R940 this week Unit labour cost growth still moderate CPIX set to fall into target range by 2004

8. 8National Treasury Food CPIX

9. 9National Treasury Balance of payments Small current account surplus projected for 2002 Shift back to moderate deficit over MTEF period, rising to about 1,6% by 2005 Positive capital inflows in 2002 of R21,4 bn Trade performance driving healthy balance of payments

10. 10National Treasury Financial and current account

11. 11National Treasury Positive data on employment Labour Force Survey indicates turnaround in formal employment Growth evident in mining, services Unemployment is still our biggest challenge Initiatives aimed at raising employment –Community-based labour works programmes –Learnerships and skills development –SMME development

12. 12National Treasury Employment … turning Employment Productivity Remuneration per worker

13. 13National Treasury Employment … turning

14. 14National Treasury Macroeconomic forecasts

15. 15National Treasury Fiscal policy Deficit widened to 2,4% next year Real growth in non-interest spending of 4,5% a year over MTEF period Debt service costs decline from 4,2% in 2002/03 to 3,8% by 2005/06 Debt projected to drop to 36,8% by 2005/06 Buoyant tax revenue provides for Personal Income Tax relief of R13,3 billion Capital spending by general government strongly up

16. 16National Treasury Key indicators of fiscal policy

17. 17National Treasury National budget framework

18. 18National Treasury Government debt 1980–2006

19. 19National Treasury Borrowing Requirement 2003/04

20. 20National Treasury Summary of tax proposals Personal income tax relief of R13,3 billion –Threshold rises to R30 000 Interest exemption raised to R10 000 Retirement Fund Tax reduced from 25% to 18% Tax allowances for investment in inner city areas Several business stimulus measures Transfer duties reduced further Excise duties on vehicles reduced and eliminated on computers Inflation-related adjustment to excises on alcohol and tobacco products

21. 21National Treasury Personal Income Tax Relief Below age 65: threshold from R27 000 to R30 000 Above 65: Threshold raised from R42 640 to R47 222 Maintain progressivity & relief across entire income spectrum Distribution of tax relief –56% to income groups earning less than R150 000 –23% to those earning between R150k and R250k –21% goes to those earning over R250k

22. 22National Treasury Taxation of retirement savings Currently under review - reform scheduled for 2004 Interim measure - reduction in rate of Retirement Fund Tax from 25% to 18% Estimated cost of R1,85 billion

23. 23National Treasury Tax-driven support for growth  Accelerated depreciation allowances for Urban Development Zones  Accelerated depreciation regime for manufacturing assets becomes permanent  Tax relief for reinvestment of business assets  Accelerated write-off for research & development  Double deduction for first R20 000 of start-up expenses  Turnover limit for SMMEs qualifying for 15% rate increased to R5 million

24. 24National Treasury Tax treatment arising from amnesty An exchange control amnesty is provided for, aiming to allow people to repatriate money illegitimately taken out of the country and to expand the tax base In return for amnesty for violations occurring before 28 Feb 2002, a one time 5% charge on asset repatriated & at 10% charge for assets held offshore

25. 25National Treasury Indirect Taxes Excises duties: –Alcoholic beverages: 10 – 11% –Tobacco taxes raised by an average 11% Air passenger departure tax revised upwards General fuel levy up by average of 4,3 cents for petrol and 4 cents for diesel. RAF levy up by 3 cents a litre Inflation adjustment of ad valorem excise duty formula for motor vehicles reduces excise charge & car prices costing R243 million Ad valorem excise duty on computers repealed at cost of R572 million

26. 26National Treasury Medium term expenditure framework Budget gives priority to: –Reducing poverty and vulnerability –Extending the social security net –Reinforcing the fight against HIV/Aids –Providing free basic services –Increasing infrastructure spending –Accelerating land restitution –Higher education and skills development –Strengthening the fight against crime –NEPAD and peace support operations

27. 27National Treasury Division of revenue Total additions to baseline of R105,4 billion 2003 Budget shifts resources towards provinces and local governments Adjustments include provision for higher inflation 6,1% annual average real growth in transfers to provinces 12,2% growth in local government transfers

28. 28National Treasury Division of additional amounts

29. 29National Treasury Main policy additions

30. 30National Treasury Recent Budget Reforms Measurable objectives for each programme –section 27.4 of PFMA –quantifiable results within MTEF period –Shifts focus to outputs and their impact ENE introduces reporting on recent outputs New expenditure table on infrastructure reporting

31. 31National Treasury Addressing Poverty and vulnerability Improving social services –Child Support Grant extended up to a child’s 14 th birthday –Improving quality of provincial health and education services –Reinforcement of enhanced response to HIV/Aids Infrastructure investment3 –Extension of free basic services and municipal infrastructure –Emphasis on broadening access to water and electric3ity services Investment in skills –Increased learnerships in private and public sector –Renewal of further education system –Replenishment of National Student Financial Aid Scheme –Employment creation through community development projects

32. 32National Treasury Reinforcing security and crime prevention Increased efficiencies in courts administration –Budget supports improved case management –Automated Fingerprint Identification System introduced Strengthening Sector Policing strategy –Five thousand more police in outer year –Modernisation of vehicle fleet Correctional Services –Focus on rehabilitation –Four new prisons - building to commence in 2003 Modernisation of intelligence services –New Intelligence Academy –Modernisation of communications technology

33. 33National Treasury Promoting NEPAD and multilateral cooperation Support for NEPAD and African Union – Establishment of NEPAD secretariat –Regional development through African Renaissance Fund Peace support operations in Africa –Continued support for operations in DRC and Burundi Foreign missions in Africa to be increased –Phased establishment of 16 new missions Promotion of regional integration through SACU agreement

34. 34National Treasury Spending by function

35. 35National Treasury Provincial priorities for 2003 Social Development –Further expansion of the social security net (CSG) –Real increases in values of social security grants Education –Increasing spending on non-personnel non-capital, especially LSM, ECD, classroom backlogs Health –Attracting personnel with scarce skills –Further bolstering HIV/Aids programmes –Refurbishing health infrastructure –Increasing spending on INP –Stepping up spending on medicines and other critical supplies taking Step-up support for other functions, esp.roads

36. 36National Treasury Transfers to provinces National transfer to provinces: –Equitable share rises from R123 bn in 2002/03, to R142 bn in 2003/04 and to R168 bn in 2005/06 –Conditional grants which are R13 bn in 2002/03, R17 bn in 2003/04 and R24 bn in 2005/06 Increase in conditional grants largely due to introduction of child support extension grant which rises from R1,1bn in 2003/04 to R6,4bn in 2005/06 –Transfers to provinces grow by 6,1% a year in real terms

37. 37National Treasury Summary of transfers & Provincial revenue

38. 38National Treasury Local government priorities Extending provision of free basic services –R4,1bn extra over the MTEF (incl. R1,4bn for electricity) Investing in municipal infrastructure –R1,8 billion more, including R1bn for labour- based programmes infrastructure grants to be consolidated in future Reinforcing financial management reforms –R300m set aside for this purpose

39. 39National Treasury Transfers to local government