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Wed Aug 20 06:51:49 SAST 2014

Full text of the 2013 Budget Speech

Pravin Gordhan | 27 February, 2013 14:47
Finance Minister Pravin Gordhan. File photo.
Image by: SIYABULELA DUBA

Honourable Speaker. I have the honour to present the fourth budget of President Zuma’s administration.

Mr President you said in the State of the Nation address that “we should put

South Africa first. All of us have a patriotic duty and responsibility to build and

promote our country.” You further said “The National Development Plan

provides a perfect vehicle for united action precisely because it has the support

of South Africans across the political and cultural spectrum. Leaders in every

avenue should be ready to rise above sectional interests and with great

maturity, pull together to take this country forward.”

This challenge applies to all sections of our society: business, labour, public

representatives, activists and citizens in every part of the country.

As we pointed out in the 2012 Budget, global economic uncertainty will remain

with us for some time.

South Africa’s economic outlook is improving, but requires that we actively

pursue a different trajectory if we are to address the challenges ahead. 2013 Budget Speech

2

Under your leadership Mr President, we have opened new channels of

communication and built more cohesion among key stakeholders in South

Africa. We have taken many steps to create the conditions for higher levels of

confidence in our economy and society. Now we are ready to implement the

National Development Plan.

South Africans have a rich history of acting together for a better future.

• Thirty years ago, the United Democratic Front brought together people of

goodwill and foresight from all corners of the country. Many points of

view, many differences in approach, were marshalled around a single

cause – building a united and non-racial society. We did the same for the

first democratic elections in 1994 which laid the basis for an enduring

democracy.

• The Reconstruction and Development Programme is the foundation on

which we build. It said:

“It is this collective heritage of struggle, these common yearnings, which

are our greatest strength… At the same time the challenges facing

South Africa are enormous. Only a comprehensive approach to

harnessing the resources of our country can reverse the crisis created

by apartheid. Only an all-round effort to harness the life experience,

skills, energies and aspirations of the people can lay the basis for a new

South Africa.”

The schools, clinics, taps and houses we have built since then are

testimony to the truth of these assertions. The freedom and democracy

we cherish - and the knowledge that these are permanent, inalienable

rights grounded in our basic law – are the foundation on which all South

Africans can make a contribution.

• Looking back on the path we have travelled since 1994, we see the

importance of a long-term perspective on development and change. It is

people acting together for a common vision that connects the past to the

present, and makes a better future possible. 2013 Budget Speech

3

The challenge for us, honourable members, is that people are asking if we can

sustain our “miracle”. They are asking whether we as a nation have the ability,

the will and the wisdom to take another leap forward in reconstructing and

developing South Africa. They are asking whether South Africans can still show

the world how to overcome intractable problems that face the community of

nations. In these trying times, South Africans too ask the question, “can we be

a winning nation?”.

Of course we can!

As Benedict Mongalo, a young man from Johannesburg, writes in his tip: “We

all acknowledge that unemployment, poverty and inequality are the greatest

challenge facing our country… We will not eradicate this problem overnight..

This is like manually moving a mountain and the only way to do it, is to move

one rock aside and the next generation, or next government, will do the same

until this mountain is moved.”

Hope and confidence come from energetic involvement and a willingness to

make a direct contribution to change. The imperatives of change are not just

challenges to government, they confront all of society. A new framework for

development is an opportunity to unite around an inclusive vision, and join

hands in constructing a shared future.

The National Planning Commission has cautioned that our development

objectives will take time and hard work to achieve. Measured year by year,

district by district, there will be advances and there will be setbacks. But in each

five-year term of government we must demonstrate, as we have since 1994,

that we can meet more demanding milestones – more jobs, more enterprises,

more technological innovation, better housing, progress in education and

health.

Working together we all know that we can do better. All of us - citizens,

taxpayers, public servants, teachers, activists, managers, workers – we all have

a shared future, and we have a shared plan to make it work.

The Batswana’s say, “Sedikwa ke ntšwa pedi ga se thata” - working together

we can do more! 2013 Budget Speech

4

Overview of the 2013 Budget

The 2013 Budget is presented in challenging times, but against the background

of a new strategic framework for growth and development. This is a budget in

which there is limited room for expansion, yet there are significant opportunities

for change.

• There are signs of improvement in the world economy, though the

outlook remains troubled.

• South Africa’s economy has continued to grow, but at a slower rate than

projected at the time of the 2012 Budget.

• The 2013 Budget takes the National Development Plan as its point of

departure. The strategic plans of government and the medium-term

expenditure plans will be aligned to realise our objectives.

• Government has taken measures to control growth in spending.

Spending plans have been reduced by R10.4 billion through

reprioritisation, savings and a draw-down on the contingency reserve.

• Government remains committed to a large-scale infrastructure

investment programme.

• Our path of spending and the recovery in revenue will stabilise debt at

just higher than 40 per cent of GDP. The budget deficit will fall from 5.2

per cent of GDP in 2012/13 to 3.1 per cent in 2015/16.

• A review will be initiated this year of our tax policy framework and its role

in supporting the objectives of inclusive growth, employment,

development and fiscal sustainability.

• In the 2013/14 fiscal year, personal income tax relief of R7 billion is

granted. 2013 Budget Speech

5

• A new local government equitable share formula is proposed, providing

a subsidy for free basic services designed to reach 59 per cent of

households.

• Further education and training will continue to be extended and

enhanced.

• And following careful consideration of inputs from various stakeholders,

a revised youth employment incentive will be tabled in the House,

together with a proposed employment incentive for special economic

zones.

• In this budget we continue to invest in education, health, housing, public

transport and social development – components of the social wage

which add up to about 60 per cent of public expenditure.

Global situation

There are signs of improvement in the world economy, though the outlook

remains troubled. Growth is still muted in the United States and Japan, and

much of Europe is in recession. Policy interventions by the major central banks

were needed during 2012 to avert new economic and fiscal crises. Yet many

advanced economies contracted during the fourth quarter of 2012 and global

prospects are expected to improve only marginally, from growth of 3.2 per cent

in 2012 to 3.5 per cent in 2013. Emerging markets, particularly China and India,

continue to lead global growth, although at lower rates than before.

High levels of debt are inhibiting progress in many countries. Yet measures to

reduce indebtedness have the effect of holding back growth. Unemployment

remains high in many countries, yet technological progress continues to reduce

demand for labour in many industries. Around the world, inequality is fuelling

discontent.

So there are parallels between the global economic discourse and our own

policy challenges. In seeking a pragmatic balance between recovery and

consolidation, between economic power and social solidarity, between

infrastructure investment and human development, between encouraging 2013 Budget Speech

6

enterprise and regulating markets – we are grappling with issues that confront

many other nations.

South Africa’s economic outlook

South Africa’s economy has continued to grow, but at a slower rate than

projected at the time of the 2012 Budget. GDP growth reached 2.5 per cent in

2012 and is expected to grow at 2.7 per cent in 2013, rising to 3.8 per cent in

2015. Inflation has remained moderate, with consumer prices rising by 5.7 per

cent in 2012 and projected to increase by an average of 5.5 per cent a year

over the period ahead.

However, our trade performance is holding us back. Exports grew by just 1.1

per cent in real terms last year, while imports increased by 7.2 per cent. The

deficit on the current account of the balance of payments was 6.1 per cent of

GDP. This means, in simple terms, that expenditure in the South African

economy exceeded the value of production and income by about R190 billion

last year. This is partly a consequence of the disruption of mining sector activity

and the structural reduction in mineral exports due to lower demand.

Some of the foundations of faster growth are in place. Strong capital investment

by the public sector, the addition of electricity-generating capacity, relatively

stable inflation and low interest rates will support improved growth rates over

the medium term.

But this is not enough. Much more is needed. In particular, a significant

increase in private sector investment and competitiveness is needed in the

wider economy: agriculture, manufacturing, tourism, communications – every

sector has to play its part in expanding trade, investment and job creation.

The National Development Plan: a new trajectory

The NDP, supported by the New Growth Path and other programmes, invites

us to look beyond the constraints of the present to the transformation

imperatives of the next twenty and thirty years.

These imperatives are already apparent in the realities of the social and

economic restructuring that is under way. 2013 Budget Speech

7

• The first reality is our demographic transition – a million young people

leave school every year, and we need a package of reforms that will

improve education, training and work opportunities for young people.

• The second is that we are a rapidly urbanising society. This means we

need to meet urgent demand for housing, municipal services, schools,

clinics, public transport and commercial development, but it is also

means we have an opportunity to build an integrated urban landscape,

with effective partnerships between municipalities, local businesses and

civic associations.

• A third imperative is economic competitiveness. We need to invest in

infrastructure, raise productivity and diversify our economy, to create

jobs and raise living standards.

• Improving the quality of education and training is an essential foundation

of a more productive and inclusive growth path.

• Stronger links with Africa and other emerging economies are needed.

• We have to adapt to a low-carbon economy, including mobilisation of our

renewable energy potential.

• Finally there is the social solidarity challenge that cuts across all of

these, which is to build a more equal and inclusive economy that bridges

our racial and other divides.

These are themes on which the NDP provides clear guidance, not just about

strategic goals and objectives, but also about the practical difficulties and

choices we face.

There are substantial strengths on which to build – a well-established legal

system, secure property rights, an effective tax system, world-class higher

education institutions and science councils, established energy, transport,

water and communications infrastructure networks, expertise and capacity in

many areas - mining, construction, retail, finance, logistics and manufactured

exports – and a sound macroeconomic and fiscal framework. 2013 Budget Speech

8

While building on these strengths, we have to tackle our weaknesses

aggressively. The NDP emphasises key institutional capabilities:

• The need to professionalise the public service and strengthen

accountability,

• Improved management and enforcement systems to fight corruption,

• Reinforcement of the education accountability chain, with lines of

responsibility from state to classroom,

• Improved planning and management of strategic infrastructure projects.

The NDP also highlights the need to lower the cost of living for households, and

to reduce the cost of doing business for small and emerging enterprises.

Let me also reiterate the NDP’s emphasis on uniting South Africans around a

common vision: it proposes a social compact to reduce poverty and inequality,

and raise employment and investment, recognising that progress towards a

more equal society requires shared efforts across the public and private

sectors.

And so the 2013 Budget takes the National Development Plan as its point of

departure.

• It recognises that our medium-term plans are framed in the context of a

long-term vision and strategy.

• It focuses on strengthening growth and employment creation.

• It prioritises improvements in education and expansion of training

opportunities.

• It promotes progress towards a more equal society and an inclusive

growth path. 2013 Budget Speech

9

The fiscal framework and long-term sustainability

National development must be coupled with fiscal sustainability, which ensures

that the progress we make will not be interrupted or reversed. The government

relies on resources derived from the wider economy, and the best way to

generate resources is to grow the economy faster and increase the tax base.

The NDP targets an annual growth rate of more than 5 per cent a year. This

would double the resources available to government in the next two decades.

The present reality is that growth is more modest. The economic turbulence we

experienced in the second half of last year has resulted in a revenue shortfall

amounting to R16.3 billion. The deficit is now estimated to be 5.2 per cent of

GDP in 2012/13. The growth outlook for the next three years has weakened,

and government’s net debt is now expected to stabilise marginally higher than

40 per cent of GDP.

In the Medium Term Budget Policy Statement, we noted that if the economic

environment were to deteriorate, government would reassess its revenue and

spending plans to secure South Africa’s fiscal footing. In the circumstances, our

approach involves several elements:

• Additional measures to control spending, reducing real expenditure

growth to an average of 2.3 per cent over the next three years,

compared with 2.9 per cent signalled in October 2012

• A reduction in the budget deficit to 3.1 per cent by 2015/16, a level

consistent with the stabilisation of debt

• Steps to reinforce growth, building on the competitiveness enhancement

programme introduced last year

• Initiation of a tax policy review

• A comprehensive review of expenditure, focusing on both spending

controls and value for money in government programmes and agencies 2013 Budget Speech

10

• Strengthening the capacity of the state to implement our plans and

programmes.

Government is committed to remaining within the expenditure ceiling set out in

the budget. New policy initiatives over the next three years will be financed from

savings, efficiency gains and reprioritisation.

Structural increases in spending require corresponding revenue increases if

they are to be financed sustainably. If we succeed in driving growth towards 5

per cent a year and government revenue doubles in the next 20 years, major

infrastructure projects and new policy initiatives such as national health

insurance and expanded vocational education will be affordable with limited

adjustments to tax policy. But if growth continues along the present trajectory,

substantial spending commitments would require significant adjustments in

revenue and reductions in other areas of spending.

On Parliament’s request, National Treasury has prepared a report that

considers fiscal sustainability from a long-term perspective. The report is

currently being considered within government, after which it will be tabled for

Parliament’s consideration.

Growing the real economy

Growing the economy means expanding business activity. We recognise the

key role that private companies play in our economy.

In the lead-up to the Budget, we engaged with several business leaders on the

investment and development challenges we face. Allow me to share with you

some of their plans, which signal growing confidence in the business outlook,

despite difficult conditions.

• Construction and refurbishment by a company in the hospitality sector

firm of R2.5 billion in the next 18 months and expansion of R3 billion in

the pipeline

• Two telecommunications investments amounting to R14 billion this year 2013 Budget Speech

11

• Capital expenditure of R3.4 billion over the next three years by a rail and

logistics operator

• A R2.5 billion expansion and longer-term plans of R15 billion in mining

projects

• Investment of R1.4 billion this year by a leading retailer, and plans to

open 100 new stores by another

• An expansion of R1.2 billion this year by a food and beverage sector

firm

• Plans for R28.5 billion in long-term infrastructure investment by a leading

industrial company, which will create 10 000 temporary and 4 000

permanent jobs.

In recent times, the world has become a more uncertain place for businesses,

causing some to build cash reserves rather than invest in new or expanding

operations. As government, we wish to encourage businesses to keep investing

in our economy, and seize the opportunities around us. We are therefore

reinforcing several initiatives that support business development:

• The Manufacturing Competitiveness Enhancement Programme (MCEP),

announced in 2012, has received a total of 215 applications with

requests for grants totalling R2.3 billion mainly from the chemicals,

metals and agro-processing sectors. Applications are expected to

increase over the period ahead and funding of R1.5 billion per year has

been provided on the budget of the Department of Trade and Industry.

• The Special Economic Zone (SEZ) Programme, also announced last

year, has received funding to build world class industrial parks. I am in

discussion with Minister Davies on specific tax incentives to enhance this

initiative.

• The Jobs Fund announced in the 2011 Budget has concluded two calls

for proposals. In total, 3 614 applications have been received, and 65 2013 Budget Speech

12

projects approved. Grant funding of R3.3 billion has been approved,

matched by a further R3.1 billion in funding raised by the private sector.

• Small, Medium and Micro Enterprises (SMMEs) play a key role in the

development of the economy and are a significant generator of

employment. Financing of SMMEs has been simplified with the creation

of the Small Enterprise Finance Agency last year. We have been

progressively working to simplify the tax requirements for small business.

The turnover threshold will be increased this year and the graduated rate

structure will be revised.

Regional Integration

Africa is our home, and it is our future. It is a market of over one billion people

and it is growing rapidly.

The National Development Plan acknowledges the global shift of economic

power from West to East, and highlights the rise of Africa.

Indeed, we have already begun to see our trade patterns shift from traditional

partners in Europe and the United States to new markets in Asia and Africa.

Africa now accounts for about 18 per cent of our total exports, and nearly a

quarter of our manufactured exports.

Over the past five years, the South African Reserve Bank has approved nearly

1 000 large investments into 36 African countries. These are mutually

beneficial, as they support development in those countries, and also generate

tax revenue, dividends and jobs both abroad as well as in South Africa. To

further support the private sector in expanding operations in Africa, I will

announce simpler rules that will reduce the time and costs of doing business in

Africa.

A number of measures are proposed to relax cross-border financial regulations

and tax requirements on companies, making it easier for banks and other

financial institutions to invest and operate in other countries. Similar measures

will apply to foreign companies wanting to invest in African countries using

South Africa as their regional headquarters. The outward investment reforms

that apply as part of the Gateway to Africa reforms will also pertain to those 2013 Budget Speech

13

companies seeking to invest in countries outside Africa, including BRIC

countries.

In addition, substantial direct investments in regional development are

underway:

• We are helping to build infrastructure that will create opportunities for

South African companies to expand trade and investment across the

border. The DBSA is accelerating investment into the SADC region. We

are supporting infrastructure projects in multiple countries, particularly in

the key areas of electricity generation and transmission, and in

strengthening road links in the region.

• Investment by the Industrial Development Corporation in 41 projects

across 17 countries totalled R6.2 billion in 2012. The bulk of those

projects are in mining, industrial infrastructure, agro-processing and

tourism.

• As part of its long-term strategy to help secure energy supply for South

Africa and the region, Eskom is considering options for investment in

several regional generation and transmission projects.

Working with our BRICS Partners

Next month, we will host the 5th annual BRICS Summit, which brings together

Brazil, Russia, India, China and South Africa. The Summit will unveil the work

we have been doing with our BRICS partners on the following projects:

• The possible establishment of a BRICS-led bank is intended to mobilise

domestic savings and co-fund infrastructure in developing regions

• The pooling of members’ foreign exchange reserves with the view of

using them to support each other at times of balance of payments or

currency crisis. Collectively, BRICS countries hold reserves totalling

USD 4.5 trillion. 2013 Budget Speech

14

• Work is underway on creating a trade and development insurance risk

pool. The aim is to establish a sustainable and alternative insurance and

reinsurance network for the BRICS countries.

Financing infrastructure investment

The NDP reminds us that “South Africa needs to invest in a strong network of

economic infrastructure designed to support the country’s medium- and longterm economic and social objectives.”

Over the next three years, R827 billion is planned to be spent by the fiscus and

state-owned companies to build infrastructure. The financing for these projects

is in place, and is not affected by the spending cuts in the budget.

The fiscus has allocated just under R430 billion for schools, hospitals, clinics,

dams, water and electricity distribution networks, electrification of over a million

new homes, sanitation schemes, building more courtrooms and prisons, and

improved bus, commuter rail and road links. Most of the spending falls under

provinces and municipalities.

Eskom, Transnet and other State-Owned Companies fund a further R400 billion

of projects. This will be financed both through own resources and additional

borrowing over the next three years, supported by Treasury guarantees.

This will pay for the ongoing building of power generation plants and new

transmission lines, investment in rail, ports and pipelines, large new water

transfer schemes, and various airport upgrades.

Of course, we are well aware that there are parts of government that struggle to

spend their full infrastructure budgets. It is important to bear in mind that

spending programmes have become more ambitious, funding levels have

increased, and pressure to deliver has intensified. Records show that

government’s ability to spend has been steadily rising from year to year. But it

is not yet fast enough.

On this challenge, Willie du Preez expresses concern about whether

infrastructure investment is actually taking place. He suggests: “As a citizen

one should be able to obtain from the treasury website at the end of each 2013 Budget Speech

15

financial year what amount was spent on what infrastructure.” Mr du Preez, you

can already obtain that information from the treasury website, not just every

year, but every month!

Investing in Urban Development

Our urban areas make a vital contribution to the national economy, hosting

factories and offices and many work opportunities, and will always be attractive

to young people seeking a better life. It is little surprise then that the Census

2011 shows that 62 per cent of South Africans are now living in our cities and

towns. And that the population of some municipalities grew by over 50 per cent

between 2001 and 2011.

The challenge we face of highly inefficient, segregated and exclusionary divides

between town and township imposes costs not only on the economy and the

fiscus, but also on families and communities.

A new formula for the local government equitable share will be introduced in

2013/14 that recognises the need to better differentiate assistance to different

municipalities, including those in rural areas. Municipal infrastructure grants will

also be re-aligned, and go hand in hand with more integrated planning of new

developments, so that we can make meaningful strides in overcoming the

spatial inequalities of the past.

Low carbon economy

The Development Plan further calls on government to send a signal to industry

and consumers that we are living in an environmentally stressed world.

And so Government proposes to price carbon by way of a carbon tax at the rate

of R120 per ton of CO2 equivalent, effective from 1 January 2015. To soften

the impact, a tax-free exemption threshold of 60 per cent will be set, with

additional allowances for emissions intensive and trade-exposed industries. An

updated carbon tax policy paper will be published for further consultation by the

end of March 2013. 2013 Budget Speech

16

To ensure that South Africa produces fuel that is more environmentally friendly,

support mechanisms for both biofuel production and the upgrade of oil

refineries to cleaner fuel standards will be introduced.

In addition, government continues to direct spending towards environmental

programmes, such as installing solar water geysers, procuring renewable

energy, low carbon public transport, cleaning up derelict mines, addressing acid

mine drainage, supporting our national parks, and in particular, to saving our

rhino population, who remain under threat.

We are also encouraging the private sector and smaller public entities to be

creative and develop low-carbon projects through the Green Fund. In the first

call for proposals, 590 applications were received. The R800 million that was

previously allocated is to be topped up with an additional R300 million.

The social wage

The NDP recognises that reducing the cost of living is essential for broadening

economic participation and eliminating poverty. Alongside the “economic wage”

earned through work, the “social wage” provided by government is a steadily

rising contribution to the living conditions of working people and their families.

Substantial growth in social spending over the past decade has financed a

threefold increase in the number of people receiving social grants, a doubling in

per capita health spending, construction of 1.5 million free homes and the

provision of free basic education to the poorest 60 per cent of learners. The

impact is evident in improved living standards, expanded access to basic

services and the changing landscape of both urban and rural areas.

The social assistance budget has increased by an average of 11 per cent a

year since 2008/09, in part due to the extension of the child support grant to the

age of 18. Spending on social assistance will rise to R120 billion next year.

• The old age and disability grants will increase in April from R1 200 a

month to R1 260,

• The foster care grant will increase from R770 to R800, and 2013 Budget Speech

17

• The child support grant will increase to R290 in April and R300 a month

in October.

It is also proposed that the old age grant means test should be phased out by

2016, accompanied by offsetting revisions to the secondary and tertiary

rebates. All citizens over a designated age will be eligible for the grant, which

will simplify its administration and address the disincentive to save that arises

from the present means test.

Alongside social assistance, access to health care is a vital element in the

social wage. There has been progress in reducing mortality and improving our

HIV and TB programmes, and an expansion in medical and nurse training

capacity is under way.

Pilot national health insurance projects have been initiated this year in ten

districts, and will include improvements to health facilities, contracting with

general practitioners and financial management reforms. A new conditional

grant is introduced this year to enable the national Department of Health to play

a greater role in coordinating these reforms.

The initial phase of NHI development will not place new revenue demands on

the fiscus. Over the longer term, however, it is anticipated that a tax increase

will be needed. The National Treasury is working with the Department of Health

to examine the funding arrangements and system reforms required for NHI. A

discussion paper inviting public comment on various options will be published

this year.

Government’s contribution to housing and basic municipal services is a

substantial component of the social wage. The budget for housing and

community amenities has increased by over 16 per cent a year since 2008.

Progress continues to be made in extending access to housing, electricity,

water, sanitation and refuse removal services. The main contribution of the

national budget to the financing of household amenities is the local government

equitable share. A new equitable share formula is proposed in this Budget,

which will provide a subsidy of R275 for every household with a monthly

income less than R2 300, or about 59 per cent of all households. 2013 Budget Speech

18

We also recognise that many businesses provide their employees with housing

assistance or home loans. However, the current fringe benefit tax is unduly

burdensome in cases where an employer transfers a house to a low-income

worker at a price below market value. Tax relief is proposed to address this

difficulty.

The social wage complements employment earnings and contributes to a more

equitable and inclusive economic growth path. National health insurance and

further steps in social security reform will also reinforce social solidarity and the

decent work agenda.

Social spending, however, is not a substitute for job creation.

One of our most pressing development challenges is to expand work

opportunities for young people. There has been extensive debate on how this

should be done. The answer is that a wide range of measures are needed,

including further education, training, public employment opportunities and

support for job creation in the private sector.

To complement existing programmes, a tax incentive aimed at sharing the

costs of employing young work-seekers will be tabled for consideration by

Parliament. It will help young people enter the labour market to gain valuable

experience and access career opportunities. A similar incentive is proposed for

eligible workers of all ages within special economic zones.

Financial services and retirement reform

In last year’s Budget, I indicated the need for South African households to save

more. I am now able to announce the following proposals, for consultation

before we introduce the necessary legislation later this year:

• Tax-preferred savings and investment accounts will be introduced in

2015.

• Retirement funds will be required to identify appropriate preservation

funds for exiting members, who will be encouraged to preserve when

changing jobs. 2013 Budget Speech

19

• Retirement funds will be required to guide their members through the

process of converting savings into a regular income after retirement, and

to choose or establish default annuity products that meet appropriate

principles and standards. More competition will be promoted by allowing

providers other than life offices to sell living annuities.

• The tax treatment of pension, provident and retirement annuity funds will

be simplified and harmonized.

• Governance reforms of retirement funds will also be implemented, with

measures in place to ensure trustees of retirement funds are trained

once they have been appointed. I intend to call up a conference of all

trustees this year to take this process forward.

We are also considering how to encourage all employers to provide appropriate

retirement mechanisms for their employees, as part of the broader social

security reforms. In implementing these reforms, the vested rights of current

members of retirement funds will be protected.

Let me take this opportunity, to confirm that the Government Employees

Pension Fund has remained fully funded despite the turmoil in financial markets

in recent years. A 6 per cent increase in civil service pensions will be effected in

April this year.

Credit

There has been rapid growth in unsecured credit in recent years. The share of

new mortgage lending has fallen rapidly, and is now less than or almost equal

to both new vehicle credit and new personal loans. We will engage with the

banking sector to explore how to increase the level and share of new mortgage

loans. Small business financing must also be supported to a far greater extent

than is being done.

We are concerned by the abuse of emolument attachment orders that has left

many workers without money to live on after they have serviced their debts

every month. We are in discussion with the National Credit Regulator, the

Department of Justice and banks, to ensure that the lending market remedies

its behaviour. In the meanwhile, all employers, including the public sector, can 2013 Budget Speech

20

play a role and assist their workers to manage their finances and to interrogate

all emolument attachment or garnishee orders to ensure that they have been

properly issued. I also call on the various law societies to take action against

members who abuse the system.

Tax policy

Allow me to turn now to the revenue proposals.

We find ourselves in a challenging period, with revenues lower than expected

by R16.3 billion compared with estimates at the time of the 2012 budget. This is

predominantly due to weak economic growth during the second half of 2012,

mining sector disruptions and lower commodity prices. Tax revenues are

expected to improve over the medium-term in line with higher economic growth

and the stabilization of key commodity prices.

Over the past decade, we have steadily broadened the tax base, both through

policy reforms and improved revenue administration. This has made substantial

tax relief possible, contributing both to household disposable income and a

lower cost of doing business.

The main tax proposals for 2013 are as follows:

• Personal income tax relief of R7 billion, together with adjustments to the

medical tax credit and other monetary thresholds, amounting to about

R350 million.

• Reforms to the tax treatment of contributions to retirement savings.

• An employment incentive through the tax system for first-time job

seekers.

• Further tax relief for small businesses, including an increase in the

monetary tax thresholds applicable for small business corporations.

• An overall increase of 23 cents per litre in fuel levies in April, which

includes 8 cents per litre in the road accident fund levy. 2013 Budget Speech

21

• Increases in excise duties on alcohol and tobacco products of between

5.7 and 10 per cent, and

• Introduction of the carbon tax in 2015, together with the phasing-out of

the electricity levy.

A tax review will be initiated this year to assess our tax policy framework and its

role in supporting the objectives of inclusive growth, employment, development

and fiscal sustainability, amongst other things.

The Budget Review outlines various measures proposed to protect the tax base

and limit the scope for tax leakage and avoidance. The taxation of trusts will

come under review to control abuse; modifications are proposed to the tax

treatment of employment share schemes and disability or income-protection

policies; outstanding difficulties in the distinction between debt and equity will

be addressed; and it is proposed that foreign businesses which sell e-books,

music and other digital goods and services should be required to register as

VAT vendors, in line with regulations which have been adopted by the

European Union and other jurisdictions.

Tax administration

Millions of honest taxpayers in our country continue to sustain our growth and

development agenda. To them we owe a debt of gratitude and, more

importantly, a commitment to spend that money wisely, efficiently and

effectively. We thank you!

Tax avoidance

We also owe it to our taxpayers to ensure they are not carrying the burden of

those who benefit from our country’s infrastructure and resources without

paying their fair share of the costs.

Around the world, taxpayers and their governments are challenging large

multinational companies that pay little or no tax in the countries in which they

operate. Meeting in Moscow earlier this month, finance ministers of the G20

countries were united in supporting an overhaul of international company tax 2013 Budget Speech

22

rules to address this issue. The South African Revenue Service is currently

engaging with companies that have their base of operations in SA but appear to

have shifted a large proportion of their profits to low tax jurisdictions where only

a few people are employed. This is unacceptable!

SARS is also pursuing schemes identified under the revised general antiavoidance rules following several years’ painstaking work tracing transactions

through multiple jurisdictions and entities. These benefits typically accrue to

advisors and pre-existing shareholders, rather than new shareholders who

were introduced as the ostensible beneficiaries of the transactions.

Voluntary disclosure

A temporary voluntary disclosure programme was implemented under

legislation enacted in 2010 which allowed taxpayers in default to regularise

their tax affairs. More than 18 000 taxpayers made use of the programme and

tax of more than R3 billion has so far been collected as a result of the

programme.

From 1 October 2012, a permanent voluntary disclosure programme became

effective as part of the Tax Administration Act (2011). Some 700 taxpayers

have already come forward. Tax of more than R200 million will be collected

before the end of March 2013.

Non-compliance

SARS is also targeting other areas of non-compliance, including recipients of

government expenditure who are not up to date with their taxes. By working

closely with Treasury and interfacing with the government payment system,

SARS has identified companies who have received payments but have not

declared their full income. They are being audited, and others will follow.

This intervention will be further underpinned by the reform of the Tax Clearance

Certificate process which I announced in October.

In the near future, SARS will introduce a Single Registration process in which

companies are able to register once-off in a simple manner for all tax types and

Customs activities. 2013 Budget Speech

23

On this, we can perhaps consider adding the suggestion by Amanda Hayes,

who runs a small business in Cape Town. She proposes that a single database

of suppliers to government be created out of all the companies that apply to

SARS for tax clearance certificates. In addition to reducing the burden on small

businesses, Amanda says this database will help reduce corruption because of

the tighter national oversight over companies who are registered.

Medium-term expenditure framework and division of revenue

I have indicated many of the specific programmes and activities of government

that contribute to our growth and social development objectives. Allow me to

summarise the framework within which these allocations are made.

The 2013 Budget provides for continued real growth in spending to support

service delivery, and to expand investment in infrastructure. It will also

accommodate the costs of the three-year public service wage agreement

signed last year.

In the past, we have been able to add substantially to medium term spending

plans during the Budget, but this year is different. Money has been taken away

from programmes that are not performing or are not aligned to government’s

core priorities and given to programmes that are delivering as planned.

The main appropriation provides for R1 055 billion in expenditure next year,

rising to R1 226 billion in 2015/16. Debt-service costs will come to R100 billion

next year, and R4 billion is set aside as a contingency reserve. This leaves

R951 billion to be divided between the national, provincial and local spheres.

National departments are allocated 47.6 per cent of available funds in 2013/14.

Provinces are allocated 43.5 per cent, mainly for education, health and social

welfare. Local government receives 8.9 per cent, primarily for providing basic

services to low-income households.

Allocations from the contingency reserve will be made later in the year, mainly

for unforeseeable and unavoidable expenditure. Work is in progress to

determine funding requirements for reconstruction and rehabilitation following

flood damage in Western Cape, KwaZulu-Natal, Limpopo and Mpumalanga. An

allocation will also be made in the adjustments appropriation for the Dinaledi 2013 Budget Speech

24

schools connectivity programme and other broadband infrastructure projects,

subject to finalisation of implementation plans.

The equitable division of revenue between provinces and municipalities takes

into account the 2011 Census, which shows substantial shifts in the distribution

and age structure of the population since 2001. The changes to provincial and

municipal allocations will be phased in to avoid disruption of services.

Allocations to provinces and municipalities

The provincial equitable share amounts to R338 billion in 2013/14, and

conditional grants to provinces will total R77 billion. Additional allocations have

been made to increase employment of social workers and to provide additional

support to non-governmental organisations which provide critical welfare

services. There is additional funding for teachers in the poorest 20 per cent of

schools and grade R classes, and for community library services. Provinces are

also funded for an expansion in HIV and Aids programmes and an improved TB

diagnosis system.

Infrastructure transfers to provinces have increased sharply in recent years,

growing from R4.8 billion in 2005/06 to R39.7 billion in 2012/13. To improve the

quality of spending, the application process for infrastructure grants is being

revised: provinces will be required to submit building plans two years ahead of

implementation and will only receive allocations if plans meet certain

benchmarks.

A total of R85 billion is allocated for transfer to municipalities in 2013/14, rising

to R101 billion in 2015/16. Additional allocations are made for municipal water

infrastructure, public transport and integrated city development.

Consolidated government expenditure

There is considerable detail in the Budget Review and the Estimates of

National Expenditure on government spending plans and service delivery

targets. I will highlight just a few key points.

Consolidated government expenditure is budgeted to increase by 8.1 per cent a

year, from R1.1 trillion in 2012/13 to R1.3 trillion in 2015/16. 2013 Budget Speech

25

Job creation and labour

Allocations for employment programmes increase by 13.5 per cent a year over

the next three years.

There will be higher funding for employment projects of non-governmental

organisations and for Working for Fisheries. The expanded public works

programme aims to support 684 800 fulltime equivalent jobs in 2013/14.

Additional allocations are also made for the sheltered employment factories of

the Department of Labour, and to support the work of the Commission for

Conciliation, Mediation and Arbitration.

Health and social protection

Consolidated spending on health and social protection is R268 billion in

2013/14.

Health infrastructure remains a priority. In 2012, a total of 1 967 health facilities

and 49 nursing colleges were in different stages of planning, construction and

refurbishment.

Substantial improvements in the social assistance payments system are in

progress, providing easier access by recipients to their grants. The cost of

social grants payments has been reduced from R32 to R16 per disbursement.

Education, sport and culture

Spending on education, sport and culture will amount to R233 billion in

2013/14. Over the period ahead, the basic education sector will focus on

improving numeracy and literacy, expanding enrolment in grade R and reducing

school infrastructure backlogs. Together with the broader education

infrastructure grant, R23.9 billion is available to provincial education

departments for infrastructure over the next three years.

R700 million has been allocated over the MTEF period for the technical

secondary schools recapitalisation grant. This will finance construction and 2013 Budget Speech

26

refurbishment of 259 workshops and training of over 1 500 technology

teachers.

Transfers to higher education institutions increase from R20.4 billion in 2012/13

to R24.6 billion in 2015/16. The total number of students enrolled in higher

education institutions is expected to increase from 910 000 currently to 990 000

in 2015. Funding has been allocated for the construction of new universities in

the Northern Cape and Mpumalanga to commence this year.

Economic services

Expenditure on economic services in 2013/14 will amount to R48 billion,

including R5.3 billion for the manufacturing competiveness enhancement

programme and R2.9 billion for special economic zones.

Additional allocations include R450 million over three years to the Economic

Development Department for the Small Enterprise Finance Agency. The

Department of Agriculture, Forestry and Fisheries will continue its support for

smallholder farmers. Additional funding goes to the Department of Mineral

Resources to support beneficiation and rehabilitate derelict and ownerless

mines.

The allocation to the Department of Science and Technology includes R2 billion

to support the Square Kilometre Array project.

Transport, energy and communications

Expenditure on transport, energy and communications will amount to

R89 billion next year.

The allocation to the Department of Transport increases from R42.3 billion next

year to R53.4 billion in 2015/16, reflecting increased allocations to the

Passenger Rail Agency for its rolling stock procurement programme and further

investment in the national road network. Additional funding goes to integrated

public transport networks in urban areas, and for provincial road maintenance.

The integrated national electrification grant is allocated additional funding to

increase the number of new electricity connections by 645 000 over the next 2013 Budget Speech

27

three years. The solar water geyser programme will be continued until 2015/16

and Sentech will receive R599 million over the medium term for the migration

from analogue to digital terrestrial television.

Local government, community amenities and housing

Local government, community amenities and housing are allocated R132 billion

in 2013/14. The largest increases go to bulk water, water treatment and water

distribution projects, and allocations to the local government equitable share.

R4.3 billion is allocated to a new grant to be administered by the Department of

Water Affairs, providing for water treatment, distribution, demand management

and support for rural municipalities. The Municipal Infrastructure Support

Agency of the Department for Cooperative Governance receives R820 million

to provide technical assistance to rural and low-capacity municipalities.

Funding for improving human settlements will grow from R26.2 billion to

R30.5 billion over the next three years, including R1.1 billion to support the

informal settlement upgrading programme in mining towns. Social housing

receives an additional allocation of R685 million.

General public services

The general public services function is allocated R57 billion in 2013/14. This

includes the SARS budget of R9.5 billion, which is just over 1 per cent of

revenue to be collected.

The Department of Public Works reprioritised R464 million over the mediumterm to fund its turnaround strategy, which focuses on lease and property

management portfolios. The Public Service Commission receives R71.4 million

to combat corruption and address grievances.

Over the MTEF period, the Department of Home Affairs will spend R1 billion on

its information systems modernisation programme, which has already led to

substantial reductions in the time required to produce official documents. 2013 Budget Speech

28

The allocations for defence, public order and safety amount to R154 billion in

2013/14.

Provision is made for peace-keeping operations in the Central African Republic,

where 400 defence force personnel have been deployed.

The Department of Police has reprioritised R2.5 billion over the MTEF to

improve detective and forensic capability. The Department of Justice and

Constitutional Development receives R1.2 billion for the criminal justice sector

revamp and modernisation programme. There is increased funding allocated to

the National Prosecuting Authority for the Thuthuzela Care Centres. The Public

Protector of South Africa receives funding to increase its investigative capacity

and additional funds are also made to Legal Aid South Africa and the South

African Human Rights Commission.

Procurement and combating corruption

Last year I said to this House that we will continually endeavour to increase the

value which government receives for the money it spends.

Let me be frank. This is a difficult task with too many points of resistance!

However, we have registered some progress. In the present system,

procurement transactions take place at too many localities and the contracts

are short term. Consequently there are hundreds of thousands of transactions

from a multitude of centres. There is very little visibility of all these transactions.

While our ablest civil servants have had great difficulty in optimising

procurement, it has yielded rich pickings for those who seek to exploit it. There

are also too many people who have a stake in keeping the system the way it is.

Our solutions, hitherto, have not matched the size and complexity of the

challenge. As much as I want, I cannot simply wave a magic wand to make

these problems disappear. This is going to take a special effort from all of us in

Government, assisted by people in business and broader society. And it will

take time. But we are determined to make progress.

The process for setting up the Chief Procurement Office in the National

Treasury has begun in earnest and I shall soon be able to announce the name

of a Chief Procurement Officer. A project team seconded from state agencies

and the private sector has identified four main streams of work, involving

immediate remedial actions, improving the current system, standardising the

Defence, public order and safety 2013 Budget Speech

29

procurement of critical items across all government and the long-term

modernisation of the entire system.

Among the first initiatives of the CPO will be to enhance the existing system of

price referencing. This will set fair value prices for certain goods and services.

Secondly, it will pilot procurement transformation programmes in the

Departments of Health and Public Works, nationally and in the provinces.

National Treasury is currently scrutinising 76 business entities with contracts

worth R8.4 billion which we believe have infringed the procurement rules, while

SARS is currently auditing more than 300 business entities and scrutinising

another 700 entities. The value of these contracts is estimated at over

R10 billion. So far 216 cases have been finalised resulting in assessments

amounting to over R480 million being raised. The Financial Intelligence Centre

has referred over R6.5 billion for investigation linked to corrupt activities.

I fully support Minister Sisulu’s call for appropriate curbs on officials doing

business with government. I will complement her initiative by aligning the Public

Finance Management Act with the provisions of the Public Service Act.

Worldwide, special measures are being taken to oversee the accounts of what

have become known as “politically exposed persons” – public representatives

and senior officials. I have asked that the FIC should explore how we might

bring South Africa into line with these international anti-corruption and antimoney laundering standards.

Taxpayers, and indeed all South Africans are understandably impatient for

tangible change. A recurring theme in the tips sent to me for this Budget was to

ensure value for money. Peter Maibelo, aged 24, from Pretoria, summed it up

as follows: “Minister I won't be fancy with words or complicated ideas … my

advice for a healthy and sustainable fiscus is to brutally eradicate corruption,

then we will be honoured to pay taxes.”

Mr Maibelo, I couldn’t agree more. Rooting out corruption requires collective

effort from all of us. 2013 Budget Speech

30

Conclusion

My sincere appreciation goes to President Zuma and Deputy President

Motlanthe for their guidance and support.

My appreciation also goes to Colleagues of the Ministers’ Committee on the

Budget, for their continuous and vigorous engagement with the challenges that

face us, and their bold and steadfast advice to Cabinet.

I wish to thank my Cabinet colleagues who collectively own this budget. Their

support and understanding for tough measures is highly appreciated.

A heartfelt thank you to Deputy Minister Nene, whose vigilant participation and

sound advice is invaluable to me.

My thanks to the MECs of Finance, who play a critical role as guardians of

43 per cent of our spending.

Our appreciation also goes to:

• Governor Gill Marcus and the Deputy Governor of the South African

Reserve Bank, for their constructive management of monetary policy,

• Commissioner Oupa Magashula and the staff of the South African

Revenue Service for their diligent contribution to fiscal stability – I hope

better times return for them soon!

• The Financial and Fiscal Commission and its acting Chairperson, for

their contributions,

• Mr Jabu Moleketi, Chair of the DBSA and its new CEO, Mr Patrick

Dlamini, who are positioning the DBSA to make a greater contribution to

infrastructure development,

• The Chair of the Land Bank, Mr Ngubane, and CEO Mr Phakamani

Hadebe, for their illustrious service to the bank, 2013 Budget Speech

31

• The leadership of the Public Investment Corporation, the Financial

Services Board, the Financial Intelligence Centre and the Government

Pension Administration Agency,

• The managing director of NEDLAC, Mr Alistair Smith, and the

constituency representatives for their engagements with the Treasury,

• The Honourable Thaba Mufamadi and Charel de Beer, who chair the

Standing and Select Committees on Finance respectively, and the

chairpersons of the the Appropriations Committees, the Honourable

Elliot Sogoni and Tebogo Chaane, who ensure that Parliament remains

a vibrant forum for engagement, accountability and public participation,

• Director-General Lungisa Fuzile (and Mrs Fuzile) for his professionalism,

frankness and profound commitment to building credible institutions and

advancing government’s objectives,

• The management team and staff of the National Treasury, whose

extraordinary contributions and caring for a better South Africa enhance

our country’s standing in international fora,

• My Chief of Staff, Dondo Mogajane, and the Ministry staff for their

enthusiastic support,

• My very supportive family who make my contributions possible.

And finally, I must express sincere gratitude to South Africans from all parts of

the country who offer words of encouragement – as well as critiques and

concerns! This is what keeps us accountable and drives us to constantly

improve.

The key pillars of this Budget are:

• Global growth is improving, though uncertainty remains.

• South Africa’s economy must grow faster and more inclusively. 2013 Budget Speech

32

• Future growth is also dependent on private-sector investment in the

economy.

• The National Development Plan will be implemented by government and

budgets will be aligned to it.

• Government continues to invest significantly in infrastructure

• We are taking additional steps to create opportunities for young people.

• Reduced revenue results in less spending in the years ahead unless the

economy grows.

• There are new opportunities to be seized in Africa and other emerging

markets.

• We have committed to reviewing and assessing our tax policy framework

and its role in supporting the objectives of inclusive growth, employment,

development and fiscal sustainability.

• A new local government formula benefits rural municipalities.

Honourable Speaker, I table this budget in the hope that as a nation we will be

able to rise above our sectional interest, and, as you said Mr President, prevail

with greater maturity, pull together and take this country forward.

We have said that South Africa is changing. Let us work together to ensure that

really, tomorrow, will be better than today.

In conclusion, let me remind this House of what former President Nelson

Mandela said: “What counts in life is not the mere fact that we have lived. It is

what difference we have made to the lives of others that will determine the

significance of the life we lead…”

I thank you

See the Budget Speech with tables on the Treasury website

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