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2002
Medium Term Budget
Policy Statement
October 2002
Introduction

2002 MTBPS highlights
– Growth forecasts revised upwards
– Inflation target date extended
– Exchange control changes w.r.t to Africa
– Strong real growth in expenditure
– Continued revenue buoyancy
– Shift in resources towards provincial and local
spheres
– 2003 Budget will prioritise social and household
services, fighting crime, land restitution and
international commitments
National Treasury
2
MTBPS covers...
Chapter 1 - Overview
 Chapter 2 - Macroeconomic overview
 Chapter 3 - Fiscal framework
 Chapter 4 - Taxation
 Chapter 5 - Medium term expenditure
framework
 Chapter 6 - Provincial and local
government finances

National Treasury
3
Growth prospects
SA economy resilient under difficult
circumstances
– Growth projections revised upwards
12
GDP growth
CPIX inflation
10
8
6
4
2
National Treasury
2005
2004
2003
2002
2001
2000
0
1999
per cent change

4
Sectoral GDP Growth
(year-on-year)
8
6
4
0
-2
-4
-6
National Treasury
Mar-02
Nov-00
Jul-00
Mar-00
Nov-99
Jul-99
Mar-99
Nov-98
Jul-98
Mar-98
Nov-97
Jul-97
Mar-97
-10
Nov-01
-8
Jul-01
Primary sector
Secondary sector
Tertiary sector
Mar-01
per cent change
2
5
Domestic demand
•Consumption
•Rising disposable income,
declining debt and tax cuts
8.0% % change qoq s.a.a.r
7.0%
6.0%
Total
HCE
GCE
•Investment
GFCF
•Rising confidence
5.0%
4.0%
•Rising export opportunity
3.0%
2.0%
•Government investment
1.0%
0.0%
•Rising net exports
-1.0%
•Competitive exchange
rate
•Global recovery
National Treasury
6
Balance of Payments
20,000
Current Account
Financial Account
15,000
•Positive BOP supported by…
•Strong current account
performance
rand millions
10,000
5,000
•Particularly strong trade
balance
0
•Positive domestic economic
outlook
-5,000
-10,000
Mar-02
Mar-01
Mar-00
Mar-99
Mar-98
Mar-97
Mar-96
Mar-95
Mar-94
-15,000
National Treasury
•SA increasingly differentiated
among emerging markets
7
CPIX plus targets
12.0
10.0
8.0
6.0
4.0
2.0
0.0
National Treasury
8
National Treasury
Sep-02
May-02
Jan-02
Sep-01
May-01
Jan-01
Sep-00
May-00
Jan-00
Sep-99
14
May-99
16
Jan-99
Sep-98
May-98
Jan-98
per cent change
CPI inflation by expenditure
group (year-on-year)
Very low
Middle
Very High
12
10
8
6
4
2
0
9
Percentage change in
employment
National Treasury
10
Inflation targets



Depreciation, rising oil prices and rising food
prices drive inflation above target.
Monetary policy response 400bp increase in
key interest rates.
Forecast:
–
–
–
–


2002
2003
2004
2005
–
–
–
–
9.6%
7,2%
5,5%
4,9%
Target for 2004: 3 – 6%
3 - 5% target falls away until further notice
National Treasury
11
Exchange control
•
Allowance for new investments in Africa is
increased
from R750 million to R2 billion
•
Expanded use of “top-up” funding for the
financing of new approved expansions of
existing, prior exchange control approved,
foreign direct investments in Africa
National Treasury
12
Macro forecasts
Macroeconomic projections (calendar years): 1999 to 2005
2001
2002
2003
2004
2005
Real GDP grow th
2.2%
2.6%
3.5%
3.7%
3.9%
GDP inflation
Gross dom estic product at
current prices (R billion)
CPI inflation:
7.5%
9.2%
7.4%
5.3%
4.5%
1 214,2
1 325,0
1 439,0
CPIX (Metropolitan and urban areas)
6.6%
9.6%
7.2%
5.5%
4.9%
-0.2%
0.1%
-0.3%
-0.6%
-1.1%
975
1,093
Balance of payments:
Current account balance (% of GDP)
National Treasury
13
Fiscal Framework
R billions
Revenue
as % of GDP
2002/03
273.281
24.3%
2003/04
302.102
24.4%
2004/05
330.338
24.4%
2005/06
358.323
24.4%
Deficit
as % of GDP
18.472
1.6%
27.316
2.2%
28.085
2.1%
29.777
2.0%
Expenditure
as % of GDP
291.753
26.0%
329.418
26.6%
358.424
26.5%
388.100
26.5%
47.236
4.2%
51.463
4.1%
54.599
4.0%
57.853
3.9%
244.517
21.8%
277.955
22.4%
303.825
22.5%
330.247
22.5%
Debt service costs
as % of GDP
Non-interest expenditure
as % of GDP
National Treasury
14
Key MTEF trends
real growth of non-interest expenditure
8
2
21
0
20
-2
2005/06
22
2004/05
4
2003/04
23
2002/03
6
2001/02
24
1998/99
per cent GDP
25

10
Main Budget Revenue (% GDP)
per cent real growth
26
2000/01

Real non-interest expenditure growth averages
4,7 per cent per year
Main budget revenue at 24,5 per cent of GDP
1999/00

Total of R79 billion new money + R5,6 billion unallocated
infrastructure money = R84,9 billion over 2002 Baseline
National Treasury
15
Debt and Financing

Debt service costs decline to 3,9 per cent of GDP in
2005/06

Includes provision for assumption of GFECRA losses up to
R28 billion, R7 billion this year

National government debt declines to 37,7 per cent of
GDP by 2005/06

Of which foreign debt declines to 7,1 per cent of GDP by
2005/06
National Treasury
16
Revenue estimates

2001/02 Outcome
– R14,8 billion more than estimated

2002/03 revised estimate increased up by
R8,1 billion:
– Due to higher nominal GDP (inflation)
National Treasury
17
Revenue estimates
R billion
2002/03
Budget
estimate
2002/03
Revised
estimate
2003/04
Medium
Persons and individuals
90,0
92,6
106,1
Companies (Incl. STC)
57,4
58,6
64,6
Other
11,4
11,9
13,0
4,6
5,4
5,9
Value-added tax
66,2
70,0
77,4
Specific excise duties
10,2
10,2
10,6
Other excise duties
Taxes on international trade
and transactions
Total tax revenue
16,5
16,6
17,1
12,4
12,0
13,0
268,5
277,2
307,7
Non-tax revenue and
repayments
5,0
4,3
4,3
Less: SACU payments
8,3
8,3
9,8
Main budget revenue
265,2
273,3
302,1
24,5%
24,3%
24,4%
Taxes on property
Per cent of GDP
National Treasury
18
Implementions of 2002
Budget Proposals

Learnership allowance
– 285 registered learnerships, 15 000 enrolled

Strategic Investment Programme
– 7 applications considered, 5 approved with
total investment of R2 billion, creating 10 573
direct & indirect jobs

Public Benefit Organisations (PBOs)

Business accomodation & subsistence allowances

Companies’ reorganisations
National Treasury
2003 Budget tax proposals

Considering the following tax proposals:
– Moderate personal income tax relief
– Taxation of retirement savings - review with wide
consultations & enactment into law by 2004
– Mineral royalty bill will be introduced in 2003
National Treasury
20
Key MTEF Priorities

Extending social assistance, health and education

Investing in municipal infrastructure and basic services

Expanding capacity in the safety and security sector:
– …with a particular focus on court administration

Higher education restructuring

Accelerating land reform and restitution

Better services to citizens provided by Home Affairs

Growing international role : NEPAD and AU
National Treasury
21
Adjusted Estimates 2002

The 2002 Adjusted Estimates provides
for total adjustments of R8,1 billion
R billions
General Inflation Adjustment
Provinces Unforeseen & Unavoidable
National Unforeseen & Unavoidable
Infrastructure development
Food Security
Total Adjustments

3,4
2,3
1,4
0,7
0,4
8,1
The net increase in spending is R3,8 billion after
in-year savings, contingency reserve, etc.
National Treasury
22
Division of revenue
• Additional R84,9 billion over the 2003 MTEF
• Inflation adjustment of R27,8 billion
• New policy priorities receive R57,1 billion
Adjustments to main budget expenditure, 2002/03–2005/06
2002/03
2003/04
2004/05
2005/06
Inflation
3,400
7,970
9,540
10,290
Personnel
1,885
3,714
5,042
5,527
512
1,811
1,828
1,937
General
1,003
2,445
2,671
2,825
Policy Adjustm ents
4,711
13,099
19,157
24,838
National
2,257
4,905
6,948
8,622
Provincial
2,317
6,744
10,209
13,804
Local
137
1,450
2,000
2,412
Total
8,111
21,069
28,697
35,128
R m illion
Social Security
National Treasury
23
Division of revenue
Consolidated shares of national revenue and growth by sphere
Per cent
2002/03
Revised
2003/04
2004/05
2005/06
Medium term estim ates
National allocation
40.4%
39.5%
39.3%
39.0%
Provincial allocation
56.0%
56.2%
56.4%
56.6%
50.5%
50.7%
50.9%
51.2%
5.5%
5.5%
5.5%
5.4%
3.6%
4.3%
4.3%
4.4%
100.0%
100.0%
100.0%
100.0%
of which
Equitable Share
Conditional Grants
Local government allocation
Total to be shared
2003 MTEF will result in a moderate reallocation of
resources towards provinces and local government
National Treasury
24
Key spending areas

Social Services
– Additional funding of R11,5 Billion in 2003/04 and R15,6 Billion in
2004/05 (3,7 per cent average real increase)
– Additional funds target
 Health personnel, medicines, hospital buildings and
equipment, fighting HIV/Aids
 Learner support material and ECD
 Restructuring of higher education, Research & Development

Protection Services
– Additional funding of R3 Billion in 2003/04 and R3,5 billion in
2004/05 (2,4 per cent average real increase)
– Additional funds target
 Expansion of sector policing strategy
 Court administration
 New design prisons in outer year
National Treasury
25
Key spending areas

Economic services and infrastructure
– Additional funding of R2,9 Billion in 2003/04 and R3,8 billion in
2004/05 (2,2 % real average increase)
– Targeted towards


Land restitution and reform, national electrification

Basic infrastructure services,
Administration
– Additional funding of R2,4 billion in 2003/04 and R4,2 billion in
2004/05 (6,1 per cent real average increase)
– Targeted towards

HANIS system in Home Affairs, SARS transformation

Elections in 2004 and 2005, New African missions
National Treasury
26
Provincial budget priorities

Health infrastructure (both human and capital)

HIV/Aids programmes
– Lifeskills, home-based care, prevention of mother-to-child
transmission, gradual expansion of treatment regimes currently
under investigation

Early childhood education

Enhanced delivery of learner support materials

Reducing classroom backlogs

Increasing income support to the poor

Improving the social grant payment system

Investing in provincial roads & other infrastructure
National Treasury
27
Provincial allocations
R million
Total provincial allocation
Equitable share
Conditional grants
2002/03
Revised
2003/04
2004/05
2005/06
Medium term estimates
136,922
155,122
169,084
182,319
123,457
140,006
152,723
164,847
13,465
15,116
16,361
17,473
4,005
11,540
15,634
19,532
497
738
1,087
1,282
4,502
12,278
16,721
20,814
Changes to baseline
Equitable share
Conditional grants
Total changes to baseline
National Treasury
28
Local budget priorities

Further extension of free basic services

Accelerated roll-out of household service
infrastructure

Strengthening redemarcated municipalities

Capacity building

Expanding labour-based infrastructure
programmes

Investing in URS and ISRDS nodes
National Treasury
29
Local government
allocations
2002/03
R million
Total local government allocation
Equitable share and related
Infrastructure
Capacity building and related
Changes to baseline
Equitable share and related
Infrastructure
Capacity building and related
Total changes to baseline
8,818
4,874
3,397
548
123
115
–
238
National Treasury
2003/04
2004/05
2005/06
Medium term estimates
11,856
13,041
14,115
7,120
7,896
8,713
4,059
4,420
4,640
677
724
761
1,322
200
100
1,621
1,617
470
100
2,187
1,910
600
100
2,610
30