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2010 Budget:
Presentation
National Treasury
February 2010
Five key messages of the budget
•
Our country needs a united effort, drawing in business, labour and
community organisations to map out a path to boost growth, raise
employment and reduce poverty
•
Today, we table important elements of a new growth path, including
proposals to raise employment
•
We will carefully and gradually reduce the budget deficit to more
sustainable levels
•
We are not increasing the tax burden this year
•
We are taking firm steps to improve the quality of spending and
reduce corruption
2
Key aspects of a new growth path that
supports faster growth and job creation
•
A concerted effort to reduce joblessness among young people
•
Support for labour-intensive industries through industrial policy
interventions, skills development, public employment programmes
and a rural development strategy
•
Sustaining high levels of public and private investment and raising our
savings level
•
Keeping inflation low, striving for a stable and competitive exchange
rate, and providing a buffer against global volatility
•
Improving the performance and effectiveness of the state, especially
the provision of quality education and training at all levels
•
Reforms to increase inclusion and participation in the labour market,
alongside efforts to improve competition in product markets
•
Raising productivity and competitiveness, opening up the economy to
investment and trade opportunities that can boost exports.
3
The macroeconomic forecast
•
•
Growth projections revised higher to 2.3% in 2010 rising to 3.6% in 2012
Recovery supported by improved global environment, rising investment
spending, government consumption, gradual rise in household spending
Macroeconomic projections, 2006 – 2012
Calendar year
2006
2007
2008
2009
Actual
2010
2011
Estimate
2012
Forecast
Percentage change unless otherwise indicated
Final household consumption
8.3
5.5
2.4
-3.5
0.9
2.6
2.9
Final government consumption
4.9
4.7
4.9
5.7
4.7
4.1
3.6
Gross fixed capital formation
12.1
14.2
11.7
4.0
5.8
7.8
8.7
Gross domestic expenditure
8.6
6.4
3.3
-1.9
3.1
3.5
3.8
Exports
7.5
5.9
2.4
-20.2
3.8
3.9
5.4
Imports
18.3
9.0
1.4
-18.3
6.8
4.9
5.6
Real GDP growth
5.6
5.5
3.7
-1.8
2.3
3.2
3.6
GDP inflation
6.5
8.2
9.2
7.4
6.6
7.3
6.5
1 767
2 017
2 284
2 407
2 626
2 908
3 211
Headline CPI inflation
3.2
6.1
9.9
7.1
5.8
6.1
5.9
Current account balance (% of GDP)
-5.3
-7.2
-7.1
-4.3
-4.9
-5.3
-5.8
GDP at current prices (R billion)
4
Risks to recovery
•
Global risks
– Premature removal of fiscal and monetary policy stimuli
– Impact of high debt burdens on growth and inflation
– Overheating of Chinese economy and lower commodity prices
– Impact of large capital flows to emerging markets on asset prices
and exchange rates
– Lack of reform in global financial system leading to “business as
usual” approach and re-emergence of bubbles
•
Domestic risks
– Slower recovery in employment, credit extension and household
spending
– Impact of increase in electricity prices on growth and inflation
– Low productivity growth and a stronger real exchange rate
constraining competitiveness of exports
5
Improved outlook for global growth
•
The IMF expects world growth to recover to 3.9% in 2010 and 4.3% in 2011
•
Emerging markets grow strongly driven by China, India and Brazil
•
Higher growth supports commodity prices and SA’s terms of trade
•
Risks from weak labour market and growing debt burdens in developed countries
IMF growth forecast, by region
IMF growth forecast
7
2010
2011
5
4
3
ric
a
ts
2011
World
3.9
4.3
US
2.7
2.4
Euro area
1.0
1.6
UK
1.3
2.7
Japan
1.7
2.2
China
10.0
9.7
India
7.7
7.8
South Africa
2.3
3.2
Su
b-
Sa
ha
ra
n
Af
m
ar
ke
on
ec
d
nc
e
Ad
va
Em
er
gin
g
or
ld
om
ies
2
W
Percentage change
6
2010
6
Signs of economic recovery in South Africa
aa
Total PMI
PMI-Expected business conditions
PMI - Inventories
30
20
10
20
09
20
08
20
07
20
06
Mining, manufacturing & electricity output
120
Mining output
Manufacturing output
110
Electricity output
100
90
80
09
20
08
20
07
20
06
20
05
20
04
20
03
20
02
20
01
70
20
– 89 000 jobs created in the fourth
quarter
40
20
05
– Manufacturing capacity utilisation
above 80% in the fourth quarter
– House prices are rising
50
20
– PMI rose to 53.6 in January 2010
– New car sales up 15.4% y-o-y in
January 2010
60
00
– Improvement in manufacturing and
mining output
70
20
– The leading indicator up 14.6%
between March and November 2009
80
Diffusion index (seasonally adjusted)
A range of indicators point to
recovery:
Index 2005=100 (three months moving average)
•
Components of the Purchasing Managers Index
7
Infrastructure investment supports the
recovery
•
Capacity expansion in electricity is a major driver of investment
–
–
•
Spending on electricity, gas and water increased by 74% in the first nine months of
2009
Spending also increased significantly in the transport sector
Investment by public corporations grows at an average rate of 17% a year over
MTEF and private investment recovers gradually
Contribution to overall investment growth
2007
General government
2.9
Public corporations
4.0
Private enterprises
7.2
Total
14.2
2008
2.1
5.7
3.9
11.7
2009*
0.9
7.4
-4.3
4.0
2010*
1.5
4.4
0.0
5.8
2011*
0.9
4.7
2.1
7.8
2012*
0.9
5.1
2.7
8.7
* National Treasury projections
8
Addressing the employment challenge
•
Employment growth is likely to be weak in the short-term
•
The economy must grow faster and raise the absorptive capacity
•
The employment challenge demands a comprehensive policy framework
•
Improving education is a key priority in the long-term
•
Our approach to employment creation includes:
–
Measures to encourage industries and services that have significant jobs
potential
–
Stepped up implementation of the expanded public works programme
–
Investment in further education and skills development
–
Encouragement of small business development and entrepreneurship
–
A new focus on promoting youth employment
9
Employment scenarios
Scenario planning – 2010-2019
•
Moderate recovery will create about 1 million jobs in the next 5 years
•
The economy must grow faster and labour absorption need to be higher
•
If growth averages 6% over 2015-19 then employment will be 1.3 million higher
than if the economy grows at 3.5%.
Employment scenarios, 2010 - 2019
Growth (%)
2010 – 2014
Change in employment
(thousands)
2015 – 2019
Unemployment
rate (%)
2010 – 2014
2015 – 2019
2014
2019
Scenario A
3.2
3.5
1 085
1 274
22.6
19.8
Scenario B
3.4
4.0
1 147
1 470
22.2
18.5
Scenario C
3.5
4.5
1 189
1 667
22.0
17.2
Scenario D
3.7
6.0
1 251
2 266
21.7
13.8
1. The scenarios project growth of 1% per year for the working age population and hold the labour force participation rate
constant at 55%.
10
Youth unemployment is the priority
•
Young people tend to be unemployed for a long time before finding a job leaving
them vulnerable to future unemployment and lower wages
•
A wage subsidy will create an incentive to hire young and inexperienced workers
•
The aim is to raise youth employment by 500 000 by 2013
•
A discussion document with further details will be tabled by the end of March
50
48.2
40
28.5
30
24.3
20
13.5
10
er
ag
e
Av
35
+
25
-3
4
0
18
-2
4
unemployment rate (per cent)
60
Age group
11
Consolidated government fiscal framework
•
•
•
•
Countercyclical fiscal policy has enabled continued spending on strategic
priorities as weak economic activity has reduced revenue
Government has increased debt to sustain spending
Over the MTEF, the consolidated government deficit is projected to recover from
7.3% of GDP in 2009/10 to 4.1% by 2012/13
Lower deficit due to increased revenue as economy recovers and slower growth
in non-interest spending
Budget 2010: Consolidated Government Budget Framework
2007/08
2008/09
R million / per cent
Revenue
2009/10
2010/11
Estimate
2011/12
Projections
2012/13
627 669
689 671
657 552
738 404
827 742
922 278
30.2%
29.7%
26.8%
27.3%
27.9%
28.0%
593 269
713 890
835 324
906 964
977 361
1 058 622
per cent GDP
28.5%
30.8%
34.1%
33.6%
32.9%
32.1%
Budget balance
34 400
- 24 219
- 177 773
- 168 560
- 149 619
- 136 344
per cent GDP
1.7%
-1.0%
-7.3%
-6.2%
-5.0%
-4.1%
per cent GDP
Expenditure
12
Debt and interest costs
•
•
•
National net loan debt is forecast to increase from 22.7% in 2008/09 to 39.8% of
GDP by 2012/13
Interest costs are the fastest growing area of spending over the MTEF and rise to
3.2% of GDP by 2012/13
To support fiscal sustainability, government will need to reduce borrowing and
debt as the economy recovers
If revenue does not recover sufficiently, tax rates will need to be adjusted and the
tax base broadened, and growth in expenditure moderated further
Real growth in areas of expenditure, 2005/06 – 2012/13
18
Debt service costs
Compensation of employees
Transfers to households
Capital
Other current spend
15
12
Average real growth
•
9
6
3
0
-3
-6
Average 2005/06 - 2008/09
Average 2009/10 - 2012/13
13
Fiscal sustainability – the primary balance
Non-interest expenditure
32
Budget revenue
30
28
26
24
22
3
/1
12
20
2
/1
11
20
1
/1
10
20
0
/1
09
20
9
/0
08
20
8
/0
07
20
7
/0
06
20
6
/0
05
20
5
/0
04
20
4
/0
03
20
3
20
/0
•
02
•
20
•
Non-interest spending rose strongly during the economic boom supported by
robust revenue growth
Revenues are currently insufficient to cover non-interest spending and interest
payments, but will rise as economy recovers
In addition, real growth in non-interest spending moderates to only 1% on average
over the MTEF to stabilise debt
This reduces the primary balance from -5% of GDP in 2009/10 to -1% in 2012/13
Per cent of GDP
•
14
Fiscal sustainability – debt
•
45
40
Percentage of GDP
30
25
20
15
10
5
/19
18
20
/16
20
15
/13
12
20
/10
09
20
/07
06
20
20
03
/01
/04
0
Forecasts indicate the debt ratio will
peak between 43% and 48% of GDP
in 2015/16, before gradually declining
over the longer term
As the economy recovers
government will act to reduce
borrowing and pay down debt
35
00
•
The shortfall between revenue and
expenditure has been financed by
debt leading to higher debt-service
costs over the MTEF
50
20
•
Countercyclical fiscal stance enabled
government to meet its expenditure
commitments during the recession
Possible debt outcomes, % of GDP, 2015/2016
35
30
Probability (per cent)
•
Long-term forecast of national government debt,
% of GDP
25
20
15
10
5
0
Less than
33%
33 - 38%
38 - 43%
43 - 48%
48 - 53%
Debt to GDP, 2015/16
53 - 58%
More than
58%15
Fiscal sustainability – how does SA compare?
•
Countries with high levels of debt tend to grow more slowly
•
Several countries are facing the real threat of default, making international
markets particularly nervous about sovereign debt accumulation
•
A credible strategy to reduce debt over the medium term supports fiscal
sustainability and reduces pressure on South Africa’s credit rating
Selected forecasts, real growth and average government debt to GDP, 2009 – 2014
Greece
UK
Portugal
Spain
Ireland
Brazil
Turkey
SA
Thailand
Chile
4
3
2
Average real GDP growth, 2009 - 2014
1
0
0
20
40
60
80
100
120
Average government debt to GDP, 2009 - 2014
140
16
Public sector infrastructure spending
•
Public sector spending on infrastructure remains strong over the MTEF helping to
raise South Africa’s future growth potential
•
R846 billion will be spent over the MTEF period
–
Non-financial public enterprises to spend R454 billion (53.7% of total spend)
–
Provinces and municipalities continue to be significant drivers of infrastructure spending
due to capacity expansion in transport, housing, water & sanitation, hospital
revitalisation and social infrastructure
Public sector infrastructure expenditure and estimates, 2006/07 – 2012/13
2008/09
R million
Consolidated government
Percentage of GDP
General government
Percentage of GDP
Non-financial public enterprises
Percentage of GDP
Total
2009/10
2010/11
2011/12
2012/13
48 606
Revised
estimate
58 426
63 645
72 812
80 310
2.1%
2.4%
2.4%
2.5%
2.4%
93 125
109 657
114 889
134 650
142 447
4.0%
103 322
4.5%
125 504
4.3%
147 025
4.5%
148 665
4.3%
157 970
4.5%
5.1%
5.4%
5.0%
4.8%
196 447
235 161
261 914
283 315
300 417
Outcome
Medium-term estimates
17
Main tax proposals: 2010/11
•
•
•
•
•
Individuals:
– Personal income tax relief amounting to R6.5 billion
– Higher monthly cap for medical scheme contributions
– Tax-free interest income threshold raised
– Reforms to travel allowances take effect from 1 March 2010
Businesses:
– Further closure of tax loopholes
– Promotion of South Africa as gateway into Africa by relaxing rules governing
corporate headquarters
Reduced interest charges and penalties for voluntary disclosures by noncomplaint of taxpayers
Environmental fiscal reforms:
– CO2 motor vehicle emission tax simplified and delayed until 1 Sep 2010
– Carbon tax discussion document to be released for comment by mid 2010
Increases in excise duties and fuel taxes:
– Road Accident Fund (RAF) and general fuel levy, including a levy to
contribute towards the construction of a new pipeline
– Excise duties on alcoholic beverages and tobacco products
18
Proposals on exchange control reforms
Banks
• Implementation of the macro-prudential limit on banks
• Foreign exposure limit will be 25% of total liabilities
• The previous limit of 40% of liabilities was never implemented, the downward
adjustment is due to developments in global financial markets
Institutional investors
• Updating Regulation 28 – technical amendments to allow investments in new
products and align with excon foreign investment limits
• Private equity funds to obtain upfront approvals for up to a year for
investments in Africa
Exchange Control Modernisation
• National Treasury to release a discussion document on modernisation of
exchange control legislation and approach towards inward and outward
investments
19
Social security and health care financing
•
The child support grant will be gradually extended to recipients’ 18th birthday
while eligibility for the state old age pension will fall to 60 for men, the same
age as for women
•
Almost 14 million people now receive grants. Expenditure on grants is
expected to be R85 billion this year; this equates to 3.5% of GDP
•
The Unemployment Insurance Fund coped well with a sharp rise in the number
of claimants
•
Cabinet has approved the proposed transformation of the RAF into a no-fault
road accident benefit scheme to improve the quality of benefits and reduce the
leakage of funds to lawyers, minor claims and lengthy disputes
•
The inter-Ministerial committee continues to work on social security reform,
retirement industry reform, and proposals for National Health Insurance
20
Government spending and saving
•
•
•
•
Spending growth moderates from 17.2%between 2006/07-2009/10 to 8.2%
between 2009/10-2010/13
Fiscal framework makes R86.7 billion available over MTEF plus savings of
R25.6 billion that are added for reallocation to priorities = R112.2 billion
Increased savings due to:
– Decrease in spending on non-core goods and services, rescheduled
expenditure, lower overseas payments, reduced transfers to certain public
entities, improved financial management, reduced expenditure on
administration
Major savings amounts are:
– Defence and Military Veterans, R4.5 billion (A400M military aircraft contract
cancelled)
– Correctional Services, R4.5 billion (rescheduled prison building plans)
– Transport, R3.4 billion (including deferred public transport infrastructure
projects where planning and design have been delayed)
– International Relations and Cooperation, R1.5 billion (revised foreign costs
and deferred construction of the Pan African Parliament building)
– Social Development, R1.2 billion (rationalised social grant payments system)
21
Service delivery and outcomes
•
Government is shifting to target outcomes in order to increase efficiency and
improve performance to support inclusive development
•
The focus on departmental outputs and activities has not resulted in the required
step-change in service delivery
•
5 priorities in 2009 MTSF are unpacked into 12 measurable outcomes
•
Over the next three years, expenditure is channeled towards 5 + 2 priority areas:
–
–
–
–
–
Improving the quality of education
Upgrading health care
Promoting public safety
Supporting rural development
Creating decent jobs
– Building sustainable human settlements
– Encouraging efficient local government
22
Outcome targets and spending plans
•
•
Improve the quality of education and training
– R14.3 billion more for workbooks, annual national assessments, attracting
and retaining quality teachers, resources for FET colleges, increasing
university subsidies and supporting NASFAS, to:
• Improve grades 3, 6 and 9 literacy and numeracy scores from less than
38% to 60%
• Increase Bachelor’s degree qualifiers from 107 000 to 175 000
• Increase mathematics passes from 136 184 to 250 000
• Increase science passes from 148 678 to 171 600
• Increase university, technikon and artisan trade test pass rates from 42%
to 50%-70%
Upgrade health care to increase life expectancy
– R12.4 billion extra for Aids and TB treatments, to combat measles and polio,
and attract and retain quality health professionals, to:
• Decrease child deaths from 69-91 to 30-35 per 1 000 live births
• Increase life expectancy from 47-51 to 55 years
• Decrease HIV prevalence among 15-24 year olds from 10.7% to 5.2%
• Increase number of Aids patients on treatment from 700 000 to 2 million
23
• Increase successful TB treatment from 65% to 85% of total cases
Outcome targets and spending plans
•
•
Build a safe country
– R1 billion more to fight organised crime, appoint more public defenders,
family advocates, family counsellors, sexual offences court officers, court
clerks and to recruit additional personnel in detective services, crime
intelligence and visible policing, to:
 Increase contact crime detection rate from 52.5% to 57.5%
 Increase trio crime detection rate from 13.8% to 34%
 Decrease court case backlogs from 37 459 to 22 100 cases
 Increase the percentage of contact/trio crimes reported by victims/the
public from 48.9% to 60%
 Raise Corruption Perception Index Ranking from 160 to within the top 40
countries
Develop equitable and sustainable rural communities
– R2.4 billion extra for comprehensive rural development programme and the
Land Bank, to:
 Increase number of commercial farm holders from 780 000 to 800 000
 Increase percentage of small farmers producing for sale from 4.1% to
10%
24
Outcome targets and spending plans
•
•
Build a more inclusive economy, create jobs and develop network infrastructure
– R10.8 billion extra for the second phase of EPWP, National Roads Agency
(coal haulage road network) and construction of fuel pipeline, to:
 Increase labour absorption rate from 43 to 45%
 Increase GDP per capita from R46 907 to R57 618
 Achieve GDP growth average of 5% (2010-2014)
 Decrease level of income inequality, lowering Gini coefficient from 0.66 to
0.59
 Increase the share of national income going to the poorest 40% of the
population
Ensure sustainable human settlements
– R1 billion more to integrated housing and human settlements development
grant, to:
 Decrease number of households with inadequate shelter from 1.1 million
to 600 000
 Increase number of new affordable rental units from 5 000 to 20 000 a
year
 Increase number of households with access to basic sanitation from 69
to 100%
– R1.2 billion on rural on-site water and sanitation
25
Conclusion
•
Summary of the 5 key messages of the budget
• Raise economic growth and employment, and reduce poverty
• Proposals to raise employment, with a focus on the youth
• Reducing the budget deficit to more sustainable levels
• No tax increase in the tax burden
• Improving the quality of government spending
26