Budget Speech 2012
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R700M INJECTION FOR DENEL - Sapa
State-owned arms company Denel will receive a much-needed R700 million injection for its ailing aerostructure wing, Finance Minister Pravin Gordhan announced on Wednesday.
The recapitalisation of Denel Saab Aerostructures (DSA) would take effect in the new financial year (2012/13), he said.
DSA is a designer and manufacturer of complex metallic and composite plane parts for the military and commercial aviation sector.
In a press briefing late last year, Public Enterprises Minister Malusi Gigaba said DSA was the major contributor to Denel's losses, incurring a R237 million loss in 2010/11.
Gigaba tasked newly-appointed group CEO Riaz Saloojee in November with concluding the process of turning around DSA.
Gordhan also announced the allocation of R350 million to mining parastatal Alexkor, which mines diamonds on land and under water in the Alexander Bay area of the Northern Cape.
According to the 2012 Estimates of National Expenditure, tabled by Gordhan on Wednesday, the R350 million "is earmarked for transfer to Alexkor to settle any outstanding unfunded obligations under the Alexkor/Richtersveld community deed of settlement, including the tax obligation of R69.9 million".
Following a 2007 settlement with the Richtersveld community, the company's land mining rights were transferred to the Richtersveld Mining Company (RMC) in March 2011.
RMC and Alexkor formed a joint venture in which Alexkor holds a 51 percent stake.
The document says pumping capital into both Denel and Alexkor will dramatically push up the public enterprises department's spending in the coming financial year.
The department was expected to spend R1.25 billion in 2012/2013, compared to R353.3 million in 2011/2012.
This would drop back down to about R200 million leading up to 2015.
16.7 MILLION ON GRANTS BY 2015 - Sapa
The number of South Africans receiving social grants will swell to 16.7 million over the next three years, according to the 2012/13 Budget, tabled in Parliament on Wednesday.
Spending on social grants will grow from R105 billion in 2012/13, to R122 billion in 2014/15, the 2012 Budget Review shows.
The document notes that "despite limited fiscal resources, government provides a safety net for nearly one-third of the population through the social grant programme... paying for largely free services at public health facilities and no-fee schools for 60 percent of learners".
By the end of last year, nearly 15.3 million people were eligible for social grants, compared to 2.5 million in 1998.
According to the document, the average value of the "social wage" for a family of four in 2012/13 will be about R3,940 a month.
Despite the rapid growth in the number of beneficiaries, however, spending on social grants would decline as a percentage of GDP — from 3.5% in 2011/12, to 3.2% by 2014/15.
This is because there were no major grant increases planned for the next three years, and economic growth was expected to outpace growth in the number of recipients.
The document notes employment is the most effective route out of poverty, and boosting long-term job creation remains an overriding objective of economic policy.
GOVT TO SET UP PROVIDENT FUNDS FOR DOMESTIC, FARM WORKERS - Sapa
The labour department will establish provident funds for domestic and farm workers by March next year, according to budget documents tabled by Finance Minister Pravin Gordhan on Wednesday.
It will also look at a medical aid scheme for the private security sector.
According to the 2012 Estimates of National Expenditure, these objectives are in line with the spending focus over the medium term, which is to protect vulnerable workers in these areas, as well as in the hospitality and forestry sectors.
Other goals were to re-integrate work seekers into the labour market and ensure decent work.
The department would receive R2.1 billion to achieve set goals, up from R1.9 billion in 2011/2012.
An amount of R429 million had been set aside for inspection and enforcement services.
The department aimed to inspect 130,000 workplaces for compliance with labour legislation.
It would also conduct audits and "blitz inspections" in high-risk sectors such as construction and chemicals, to reduce accidents and injuries.
With an unstable labour market, caused by the global economic crisis, workers were vulnerable to abuse from employers.
The department had increased the budget of the Commission for Conciliation, Mediation and Arbitration to accommodate the likely increase in cases.
It had done the same for the Unemployment Insurance Fund, with a focus on implementing poverty alleviation schemes for registered members.
In his budget speech on Wednesday, Gordhan said a wide range of government programmes and policies had come under scrutiny in the past year in respect of job creation.
He said his budget was aimed at supporting job creation through education and skills development.
"At this time last year, funding was allocated to a new Jobs Fund, aimed at supporting innovative public or private sector projects with potential to create sustainable job opportunities," he said.
"The fund began in June, and received over 2500 applications in its first call for proposals."
Gordhan said project allocations of over R1 billion had been committed, and a second round of applications would be announced shortly.
Bad news for beer and spirit drinkers By Angus Macmillan (I-Net Bridge)
Pretoria, Feb 22 (I-Net Bridge) — Bad news for drinkers, especially beer and spirit lovers! So-called "sin taxes" on alcohol are going up by between 6% and 20%, almost enough to drive one to teetotalism.
But this should not really come as a shock to tipplers as Finance Minister Pravin Gordhan has previously warned that tax formulas were under review to bring South Africa more into line with other countries and to assist in the fight against alcohol abuse.
However, Gordhan may have also be taking the advice of Dhiveshan Naicker who offered him the following tip: "Raise the tax on alcohol and cigarettes so that people will stop drinking and smoking too much." Gordhan said this was good advice.
The current targeted total tax burdens (excise duties plus VAT) on alcoholic beverages are 23%, 33% and 43% of the weighted selling price of wine, beer, and spirits respectively. These benchmarks have now been reviewed.
"It is now proposed to retain the current benchmark for wine, but to increase the targeted benchmark tax burdens for beer and spirits to 35% and 48% respectively," the Budget Review document said.
"These increases will be phased in over two years."
This year sees excise duties on sparkling wine rise by 8% to 7.53 rand/litre, unfortified wine by 7.7% to 2.50 rand/litre and fortified wine by 6% to 4.59 rand/litre.
The big rises are malt beer, up by 10% to 59.4 rand per litre of absolute alcohol (not per litre of beer), alcoholic fruit beverages, up by 9.6% to 2.97 rand/litre and spirits, up by a whopping 20% to 111.64 rand per litre of absolute alcohol.
Excise on cigarettes rises 6% to 10.32 rand per packet of 20, cigarette tobacco by 4.9% to 11.05 rand/50grams, pipe tobacco by 8.1% to 3.22 rand/25 grams, and cigars by 5% to 53.05 rand/23 grams.
As was the case last year — and in previous years — traditional beer managed to again escape the excise tax net, maybe a good enough reason to try it out.
The bottom line for drinkers and smokers is this: a packet of 20 cigarettes will cost 58 cents more; a litre of wine will cost 18 cents more; a 340ml can of beer will cost nine cents more; and a 750ml bottle of spirits will cost six rand more.
Budget focus on scarce skills - SAPA
The department of higher education will focus over the next three years on increasing the number of university graduates in scarce-skill areas, according to the 2012/13 Budget tabled in Parliament on Wednesday.
Documents tabled with the budget say the department’s spending focus will be on its University Education Programme, involving mainly transfers to higher education institutions and the National Student Financial Aid Scheme.
"Focusing spending in this way is primarily intended to increase the number of university graduates, particularly in scarce-skill areas, and to provide access to universities and colleges for poor students through the provision of loans and bursaries." Finance Minister Pravin Gordhan told MPs in the National Assembly on Wednesday that spending on education will grow from R207 billion in 2012/13, to R236 billion in 2014/15.
Additional allocations of R18.8 billion over the medium term had been accommodated, including equalisation of learner subsidies for no-fee schools and expanded access to grade R, he said.
Possible VAT increase to fund NHI - SAPA
Ways to find the billions needed for the National Health Insurance (NHI) scheme could include an increase in the VAT rate, a payroll tax on employers, and a surcharge on the taxable income of individuals, Finance Minister Pravin Gordhan said on Wednesday.
The new system would require funding over and above current budget allocations to public health, he told MPs, tabling his 2012/13 Budget in the National Assembly.
"Funding options include an increase in the VAT rate, a payroll tax on employers, a surcharge on the taxable income of individuals, or some combination of the above."It was expected that an extra R6 billion would be needed for the NHI in 2014/15.
An additional R1 billion conditional grant had been allocated over the next three years to cover the cost of NHI pilot projects, which would be established in "selected districts" during this year and 2013.
The grant will serve as an interim funding mechanism. It is likely to last about five years, until a permanent funding stream for the new system — which is to be phased in over 14 years — is established.
"Achieving an appropriate balance in the funding of national health insurance is necessary to ensure that the tax structure remains supportive of economic growth, job creation and savings," Gordhan said.
The new system would provide "equitable health coverage for all South Africans".
According to the Budget Review document, tabled by Gordhan on Wednesday, the aim of the pilot sites is to start laying a foundation for the scheme, including skilled managers and a re-engineering of primary health care.
"Integrated teams of specialists — obstetricians, gynaecologists, family physicians, anaesthetists, midwives and nurses — will provide clinical services at this level.
"In particular, pregnant women and women who have recently given birth, as well as children, are expected to benefit from the greater involvement of specialists at primary level."Strengthening public hospitals is a key component of national health insurance.
Five hospitals will be prioritised in the first phase of a public-private partnership programme for improving health facilities: These are Chris Hani Baragwanath, George Mukhari Hospital, Limpopo Academic Hospital, King Edward VIII Hospital and Nelson Mandela Academic Hospital. Implementation will begin once feasibility studies have been completed and plans approved.
As national health insurance progresses, the public sector will need to recruit more doctors and nurses, and expand contracting with selected general practitioners, the Budget Review says.
Similar arrangements, for example with private pharmacies or for trauma services, will be phased in over time.
South Africa to introduce carbon tax - REUTERS
CAPE TOWN, Feb 22 (Reuters) — South Africa is looking to introduce a carbon tax next year to reduce harmful greenhouse gas emissions, although nearly two-thirds of emissions will be tax-exempt until 2020 to lessen the impact on industry, the treasury said on Wednesday.
In its 2012/13 budget, the treasury proposed a 60% tax-free threshold on annual emissions for all sectors, including electricity, petroleum, iron, steel and aluminium.
All but electricity, where state-owned power utility Eskom dominates, would be able to claim additional relief of at least 10%.
Companies have said a carbon tax that places too heavy a burden on the key energy, mining and manufacturing sectors — already under pressure due to rising power and wage costs — will hit profits and wider economic growth.
"To minimize adverse impacts on industry competitiveness and effectively manage the transition to a low-carbon economy, temporary thresholds are proposed ... which an exemption from the carbon tax will be granted," the budget said.
It proposed a carbon tax of 120 rand per ton of CO2e (carbon dioxide equivalent) for emissions above the thresholds. The levy would come into effect in 2013/14, and increase by 10% a year until 2020.
The treasury said the draft policy would be published later this year.
Africa’s largest economy is also the continent’s biggest polluter and is one of the 20 biggest emitters of greenhouse gases worldwide.
Nearly all of South Africa’s power is generated by state-utility Eskom's coal-fired plants, making it impossible for companies to choose less carbon-heavy electricity.
South Africa is investing heavily to diversify away from coal but it may take decades before a significant portion of its energy comes from clean sources.
(Reporting by Wendell Roelf, editing by Agnieszka Flak and Ed Stoddard)
Good news for small business owners - SAPA
Finance Minister Pravin Gordhan had tax-relieving good news for small business owners in his 2012/13 Budget, tabled in the National Assembly on Wednesday.
Gordhan said the tax-free threshold for small businesses would be increased to R63,556 in the coming year, while the 10 percent tax rate would be reduced to seven percent.
The threshold to which this tax rate applied would be increased to R350,000.
"For taxable income above R350,000, the normal 28 percent corporate rate applies," Gordhan said.
From March, qualifying micro-businesses -- those within the R1 million turnover limit -- would be able to pay turnover tax, VAT and employees' tax twice a year.
This meant that the number of returns and payments a year would be reduced from about 18 to just two, Gordhan said.
Gordhan proposes various TAX changes - SAPA
Finance Minister Pravin Gordhan has proposed personal income tax relief of R9.5 billion for 2012/13, as well as a number of other tax proposals.
Tabling his budget in the National Assembly on Wednesday, Gordhan said that as from March 1, a tax credit for contributions to medical schemes would be introduced at a rate of R230 a month for the first two beneficiaries and R154 each for additional beneficiaries.
Taxpayers 65 years and older and people with disabilities would be included in the second phase of this reform, which would be implemented in 2014.
"These reforms will significantly improve the fairness of the personal income tax system," he said.
Reform of the tax treatment of contributions to retirement funds was also envisaged, to take effect in 2014.
To encourage voluntary savings, consideration was being given to introducing tax-exempt short- and medium-term savings products.
"The proposal is that individuals should be permitted to save up to R30,000 a year, with a lifetime limit of R500,000, in registered savings or investment products that would be free of tax on interest, dividends, or capital gains."
The current tax-free interest income thresholds would be reviewed and possibly phased out as part of this reform.
Gordhan said the secondary tax on companies would be terminated on March 31, and a withholding tax on dividends implemented on April 1.
This would align South Africa's tax treatment of dividends with that in most other countries. Pension funds would benefit from this transition as they would receive tax-free dividends.
The dividend tax would be introduced at 15 percent.
On capital gains tax (CGT), he said that to reduce the scope for tax arbitrage and broaden the tax base further, the CGT inclusion rate for individuals and special trusts would be increased, with effect from March 1, from 25 percent to 33.3 percent; and for companies and other trusts, from 50 percent to 66.6 percent.
To mitigate the impact on middle-income earners, the various exclusion thresholds were increased.
The tax-free threshold for small businesses was increased to R63,556; the 10 percent rate reduced to seven percent; and, the threshold up to which this rate applied increased to R350,000.
For taxable income above R350,000, the normal 28 percent corporate rate applied.
With effect from next month, qualifying micro-businesses (within the R1 million turnover limit) would be able to pay turnover tax, VAT and employees' tax twice a year.
This meant the number of returns and payments a year would be reduced from about 18 to just two.
Measures to improve the corporate tax environment included further steps to limit excessive debt financing; phased-in amendments to the mark-to-market taxation of foreign currency and other financial instruments; and, alignment of the governance and tax treatment of property loan stock entities with the present treatment of regulated property unit trusts.
Tax relief was also proposed for housing developers and employers who provided housing below R300,000 a unit, he said.
The levy on electricity generated from non-renewable sources would increase by one cent per kWh from July 1, and would replace the current funding mechanism for energy efficiency initiatives such as the solar water geyser programme.
The general fuel levy on petrol and diesel would be increased by 20 cents with effect from April 4, and the Road Accident Fund levy would increase by eight cents, to 88 cents a litre.
With effect from October this year, an ad valorem excise duty at a rate of seven percent would apply to small aeroplanes and helicopters with a mass below 5000kg.
A duty of 10 percent would apply to motorboats and sailboats longer than 10 metres.
Levies to push up fuel price - SAPA
The general fuel levy will increase by 20 cents a litre of petrol and diesel from April 4, Finance Minister Pravin Gordhan announced in his new budget on Wednesday.
An increase in the Road Accident Fund levy would add a further eight cents to the price of a litre of fuel, he said.
The levy on electricity generated from non-renewable sources would increase by one cent a kilowatt hour on April 4. This levy would replace the current funding mechanism for energy-efficient initiatives such as the solar water geyser programme.
Gordhan said the electricity levy would likely have little overall impact on tariffs.
Government to train farmers - SAPA
The government will train more than 2000 small farmers over the next year in cost effective farming methods, according to documents tabled with the 2012/13 Budget in Parliament on Wednesday.
The Estimates of National Expenditure says the farmers will also be advised, by the department of rural development and land reform on which crops to plant.
"Improve access to affordable and diverse food by training 2,120 farmers in cost effective farming methods and advising them on the different types of crops that can be planted efficiently in different areas by 2013," the document states.
Spend it or lose it - SAPA
Government departments and municipalities not spending their allocated funding will risk losing the allocations, and the relevant officials will be held liable, Finance Minister Pravin Gordhan warned on Wednesday.
"We are aware of several weaknesses in the state's infrastructure capacity," he told MPs in the National Assembly while tabling the 2012/13 Budget.
In the past, spending had lagged behind plans, Gordhan said.
"Our estimate is that in 2010/11, R178 billion was spent out of a planned R260 billion, or just 68 percent.
"We have to do better than that -- state enterprises, municipalities, and government departments all need to improve their planning and management of capital projects."
In addition to long delays, significant cost over-runs in infrastructure projects had also been experienced.
"So we shall step up the quality of planning, costing, and project management, so that infrastructure is delivered on time, and on budget."
This meant that government departments and municipalities that did not spend, or that under-spent or misspent their allocated funding, would be at risk of losing the allocations.
The relevant officials would also be held liable for such misdemeanours. National Treasury would be pro-actively monitoring the spending of grants to ensure value for money, adherence to Expanded Public Works Programme (EPWP) targets, and implementation of operational and maintenance programmes.
Several measures were in place to improve infrastructure project implementation and build management capacity, Gordhan said.
Among other things, within state-owned entities, development finance institutions and the private sector, considerable capacity was already mobilised in project planning and management.
The Infrastructure Development Improvement Programme assisted national and provincial departments, focused largely on education and health projects and support for provincial public works departments.
The Construction Industry Development Board had played a key role in developing standards and procedures for government tenders.
A new Cities Support Programme would get under way this year, initially in eight metropolitan authorities, focused on improved spatial planning, public transport systems, and management of infrastructure utilities.
The Municipal Infrastructure Support Agency would also be established this year, focused on rural municipalities that lacked planning capacity.
Technical assistance to municipalities was also provided through the neighbourhood development programme, which supported over 220 projects aimed at catalysing business investment in township partnership projects.
The infrastructure skills development grant supported 150 graduate interns in engineering and spatial planning in 2011/12, and would be extended to a further 43 municipalities over the period ahead.
Special attention would be given to the procurement processes for major infrastructure projects, to ensure both value for money and development of local suppliers and support industries.
Gordhan said training and mentoring programmes had a critical role to play in addressing capacity constraints of departments and municipalities.
"But professionalism, hard work, and commitment to value for money are preconditions for successful project delivery.
"There can be no compromise on the basic principles of sound financial management in ensuring that resources are mobilised efficiently to serve our people.
"A capable state focused on delivery requires a passionate and patriotic public service -- without those few individuals whose only desire is to profit from the state," he said.
Focus on Business Incentive Schemes - SAPA
About 60 percent of the trade and industry department's budget will be spent on incentive schemes to stimulate economic growth, according to documents tabled by Finance Minister Pravin Gordhan with his budget on Wednesday.
The industrial development incentives would support investment, competitiveness, employment creation and equity.
The manufacturing sector would gain the most, receiving R3.5 billion of the total R5.4 billion set aside for incentive administration for 2012/2013.
This would be good news for qualifying local automotive manufacturers, as well as companies expanding production facilities and small-to-medium enterprises starting or expanding manufacturing operations.
The budget sets aside about R9 billion for trade and industry for the 2012/13 financial year.
This was up from R6.8 billion this year.
According to the 2012 Estimates of National Expenditure, R1.3 billion has been set aside for developing infrastructure to increase the export of value-added commodities.
This money would be pumped into South Africa's largest industrial development zone (IDZ) -- Coega, near Port Elizabeth -- as well as the IDZs in East London and Richard's Bay.
A total of R150 million had been allocated up tol 2015 to upgrade the National Metrology Institute of SA.
Budget sets out new procurement checks - Sapa
Finance Minister Pravin Gordhan on Wednesday announced new measures to fight waste and corruption in state procurement, notably a review of all property leases.
"The minister of public works and I have agreed to undertake a joint review of the validity and cost effectiveness of all government property leases," he said, delivering his 2012/13 Budget in the National Assembly.
The announcement follows last year's police headquarters lease scandal and national government's intervention in Limpopo, Gauteng and Free State.
Gordhan said one of the lessons learnt from placing several provincial departments under administration was the need to clean up tender systems.
"We need stricter oversight of supply chain management processes."
Gordhan said National Treasury would draft a price referencing system to make it easier to detect tenders that exceeded acceptable levels.
It would also appoint a chief procurement officer to monitor tender processes across all levels of government.
Following President Jacob Zuma's pledge in his state-of-the-nation address that there will be strict vetting of all procurement officers, Gordhan said there would be a review of the skills requirement for people in those positions.
Finally, the tax clearance system will be strengthened to bar fraudsters from doing business with the State.
The former head of the Special Investigations Unit, Willie Hofmeyr, estimated last year that corruption cost the state up to R20 billion a year.
Speech starts Pravin opens the 2012 Budget Speech.