Transcript Budget Office and Public Finance

Budget 2002
A brief overview...
National Treasury
1
Overview of 2002 Budget
• Economic and fiscal outlook:
– Growth recovery over years ahead
– Healthy balance of payments and fiscal trends
– Rand depreciation to boost trade
• Robust revenue performance allows tax relief
• Strong spending growth over next 3 years
–
–
–
–
continued focus on infrastructure
broadening of social security net
reinforcing fight against crime
partnering municipalities in extending services
• Moderate rise in deficit
– debt service ratio continues to fall
National Treasury
2
Macroeconomic outlook
• Global economic slowdown more severe than
initially thought
– Sept 11
– Drastic slowdown in US growth, but seems to have
reached bottom
– Growth in Euroland still slowing
– Japan still deeply depressed
• Recovery expected in 2nd half of 2002
• SA will benefit from global upturn due to:
– Robust export sector
– Competitive terms of trade
– Greater appetite for emerging markets as risk aversion
declines
National Treasury
3
SA growth consistently positive
• GDP growth of 2,7% a year between
1994 and 2000
– Excl. 1998, average growth 3,1%
• Strong export performance
• Strong growth in company earnings
– 2000
19%
– 2001
13% (1st 3 quarters)
• GDP growth of 2,3% expected in 2002, rising
to 3,3% in 2003
National Treasury
4
SA adjusted well to slowdown
• Export diversification continues
• Rand depreciation leads to expenditure
switching in favour of domestic products
• External balance stable and strong
– Underpinned by strong trade performance and equity
inflows
• NOFP reduced from $4,8 bn to $2,9 bn
• Competitiveness of the economy improved
National Treasury
5
Exports to benefit from
depreciation
30 000
15
T rade balance
3 per. Mov. Avg. (Merchandise exports)
3 per. Mov. Avg. (Merchandise imports)
10
10 000
5
0
0
Jul-01
Mar-01
Nov-00
Jul-00
Mar-00
Nov-99
Jul-99
Mar-99
Nov-98
Jul-98
Mar-98
Nov-97
Jul-97
Mar-97
Jul-96
Mar-96
Nov-96
National Treasury
Nov-95
-15
Jul-95
-30 000
Mar-95
-10
Nov-94
-20 000
Jul-94
-5
Mar-94
-10 000
6
percentage change
rand millions
20 000
Inflation remains under control
• Productivity still rising faster than
remuneration
• Unit labour cost growth moderate
• Domestic producer prices (excl. food
moderate in 2001)
• Administered prices weakening
National Treasury
7
CPIX and food
National Treasury
8
Productivity gains drive
increases in real remuneration
140
Real private sector remuneration
130
Real remuneration
index, 1995=100
120
Labour productivity
110
100
90
80
70
19
80
19
81
19
82
19
83
19
84
19
85
19
86
19
87
19
88
19
89
19
90
19
91
19
92
19
93
19
94
19
95
19
96
19
97
19
98
19
99
20
00
20
01
60
National Treasury
9
Solid basis for future growth
• Global recovery expected in 2002
• Fiscal stance stimulatory
• Tax cuts to boost household consumption
spending
• Capital flows to emerging markets
expected to resume
• Increased capital formation in both general
government and parastatals
National Treasury
10
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-9
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D 8
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D 9
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-9
M 9
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-0
Ju 0
nSe 00
p0
D 0
ec
-0
M 0
a
M
per cent change
Household consumption to
benefit from tax cuts
10
8
6
4
2
0
-2
HCE
-4
National Treasury
Disposable income of
households
-6
11
Growth in real GDP and
CPIX, 1996-2004
5
9
4.5
Real G DP
8
C P IX
4
7
3.5
p er cen t
6
3
5
2.5
4
2
3
1.5
2
1
1
0.5
0
0
1995
1996
1997
1998
1999
2000
2001
2002
2003
2004
•
GDP is estimated to have grown by 2,2 per cent in 2001
•
The cyclical strengthening will continue in 2002 with GDP rising by
2,3 per cent and by 3,3 and 3,6 per cent in 2003 and 2004, respectively
National Treasury
12
Macroeconomic forecasts
2001
2002
2003
2004
2.7%
2.5%
2.8%
3.1%
Capital formation
3.2%
4.5%
5.5%
7.1%
Gross domestic product
2.2%
2.3%
3.3%
3.6%
6.6%
6.9%
5.8%
4.7%
0.0%
-0.5%
-0.5%
-0.7%
Real grow th
Household consumption
Consumer price inflation (CPIX)
Balance of Payments current
account (% of GDP)
National Treasury
13
Fiscal framework
• 2001/02 outcome
– Additional R15 billion in revenue
– Spending R4,3 billion over 2001 Budget
– Deficit of 1,4%
• 2002/03 Budget
– Revenue base for estimates revised upwards
– Debt services costs decline from 4,8% of
GDP in 2001/02 to 4,1% by 2004/05
– Deficit up to 2,1% in 2002/03
– Real growth in non-interest spending of 4,1%
National Treasury
14
National budget framework
R billion
2001/02
National Revenue Fund
Revenue
248.4
Expenditure
262.6
Main budget deficit
14.1
% of GDP
1.4
RDP Fund & foreign technical cooperation
Receipts
1.0
Social security funds
Revenue
8.6
Expenditure
8.2
Consolidated national budget
Revenue
257.4
% of GDP
26.0
Expenditure
270.7
Deficit
13.3
% of GDP
1.3
GDP
990.0
National Treasury
2002/03
2003/04
2004/05
265.2
287.9
22.7
2.1
288.7
311.2
22.5
1.9
313.2
334.6
21.4
1.7
0.8
0.8
0.8
9.6
9.1
10.0
9.6
10.3
10.2
275.2
25.4
297.4
22.1
2.0
1,082.8
299.2
25.4
321.4
22.2
1.9
1,178.9
324.1
25.4
345.4
21.2
1.7
1,277.5
15
Fiscal consolidation yields
higher real spending
National Treasury
16
Infrastructure
Infrastructure expenditure
– Capital expenditure across three spheres rises 11,7 per cent a
year between 1998/99 and 2004/05.
– PPP infrastructure expenditure rises three-fold over MTEF
– Non-financial public enterprise investment rises to R25 billion
in 2004/05
New infrastructure budgeting process
¯
¯
¯
¯
–
National Treasury
Strengthened evaluation criteria and decision processes
Enhanced joint decision making across spheres of government
Greater coordination with the budget process
More effective oversight of infrastructure priorities
Simple and accessible monitoring, evaluation and reporting
procedures
17
Tax policy issues
• Strong revenue performance for 2001/02
due to:
– Robust corporate tax growth and STC receipts
– Mainly from the resource-based exporters
• Revenue estimates revised upwards over
2001 Budget
• Income tax reforms to support
consumption and investment growth
National Treasury
18
Revenue summary
2001/02
Revised
R billion
Taxes on income and profits
2002/03
2003/04
2004/05
Medium -term estim ates
estim ate
149.6
155.7
171.5
187.7
Skills levy
2.8
3.0
3.2
3.4
Taxes on property
4.5
4.6
5.1
5.5
84.3
92.8
99.1
106.4
Taxes on trade
9.2
10.6
10.9
11.1
Stamp duties and fees
1.9
1.8
2.2
2.3
252.2
268.5
291.9
316.4
Non-tax current revenue
4.3
4.9
5.5
6.0
Capital revenue
0.0
0.0
0.0
0.0
Recoveries of loans
0.1
0.1
0.1
0.1
–
–
–
–
-8.2
-8.3
-8.8
-9.3
Main budget revenue
248.4
265.2
288.7
313.2
Per cent of GDP
25.1%
24.5%
24.5%
24.5%
Gross domestic product
990.0
Domestic taxes on goods
Total tax revenue
Grants
Less: SACU payments
National Treasury
1,082.8
1,178.9
1,277.5
19
Key changes - individuals
• R15 billion PIT relief
• Interest and dividend income exemption
• Transfer duty – R300 million
• Taxation of deemed foreign income
• Taxation of trusts
• Amendment of monetary thresholds and
miscellaneous PIT provisions
National Treasury
20
Key features – companies
• Accelerated depreciation for new manufacturing
assets
• Tax relief for small business
• Taxation of trusts – flat 40% rate
• Further tax reform:
– Taxation of retirement industry
– Taxation of banking sector
National Treasury
21
Key features – indirect tax
• Excises duties:
– Alcoholic beverages: 8 – 10%
– Tobacco: 10,7% - 43,7%
•
•
•
•
•
•
•
Air passenger tax: no change
General fuel levy: no change (RAF: 2c a litre)
Extend diesel fuel tax concession
Fuel tax regime for environmentally friendly fuel
Remove Lloyd’s tax
MST/ UST on warrant repurchases
Stamp duties
National Treasury
22
PIT rates and brackets
Personal income tax rate and bracket adjustments
2001/02
2002/03
Taxable incom e (R)
Rates of tax
Taxable incom e (R)
Rates of tax
0 – 38 000
18% of each R1
0 – 40 000
18% of each R1
38 001 – 55 000
R6 840 + 26%
40 001 – 80 000
R7 200 + 25%
55 001 – 80 000
R11 260 + 32%
80 001 – 110 000
R17 200 + 30%
80 001 – 100 000
R19 260 + 37%
110 001 – 170 000
R26 200 + 35%
100 001 – 215 000
R26 660 + 40%
170 001 – 240 000
R47 200 + 38%
215 001 and above
R72 660 + 42%
240 001 and above
R73 800 + 40%
Rebates
Rebates
Primary
R4 140
Primary
R4 860
Secondary
R3 000
Secondary
R3 000
Tax threshold
Below age 65
National Treasury
Tax threshold
R23 000
Below age 65
R27 000
23
900
600
300
120
80
60
45
Under 65
Over 65
30
100
90
80
70
60
50
40
30
20
10
0
27
Per cent reduction
Nominal PIT rate reductions
Taxable income (R'000)
National Treasury
24
Developments in debt
management
• Ratings upgrade by Moody’s up one notch to Baa2
• RSA’s Yen 60 billion wins IFR deal of the year award
• Public Sector Borrowers’ Forum established to
effectively coordinate public sector borrowing
• Liquidity enhanced - Bond turnover reaches R10.7 tn
• Telkom IPO to take place in 2002/03
National Treasury
25
Shift to active debt management
• Consolidated illiquid bonds through switch auctions
into five liquid bonds across the curve
• Issued CPI-linked bond (R197) in the 2023 maturity
• Eurobond issue in the 2008 maturity
• Introduction of STRIPS
• Switches & Buy backs yield R700 million saving p.a
• Foreign borrowing contributes to reducing NOFP
National Treasury
26
Borrowing Requirement 2002/03
Borrowing Requirement
Budget deficit
Extraordinary receipts
Extraordinary payments
Net borrowing requirement
Financing
Net domestic short term loans
Net domestic long term loans
Net foreign loans
Total financing
National Treasury
R million
22 692
-12 000
1 571
12 263
4 000
-10 960
16 275
12 263
27
Key financing plans
• R12 Billion Restructuring proceeds expected
• New CPI bond in 2008 Maturity Area
• New Floating rate bond in 2007 maturity area
• Move to single price (Dutch Auction) approach
• US$ 1 billion equivalent foreign borrowing
• Cash buy-back of bonds up to R3 billion
• Switch Auction to continue
National Treasury
28
Spending priorities over the
MTEF
• Increased political oversight over budget process
• Priorities over the next three years:
– Infrastructure
• With emphasis on urban renewal and rural development
– Addressing poverty and vulnerability
• Child support grant extended to an additional 1,2 million children
• Spending on HIV/AIDS exceeds R1 billion/year over the MT
– Partnerships with municipalities:
• Improved access to affordable basic services
– Fight against crime
• 16 000 more police
National Treasury
29
Main new allocations
• Local government gets additional R1,6 bn in
2002/03 and R2,4 bn in 2003/04
• Provinces get R5,3 bn and R7,0 bn above baseline
– Social grant increases cost about R2,2 billion more next
year
• Police to get R5,2 bn more over three years to hire
16 000 additional police
• Defence gets R3,9 bn over 3 years for currency
depreciation
• Enhanced HIV/Aids programme: Additional
R4,1 bn over 3 years
National Treasury
30
Additional allocations
• R13,4 billion in 2002/03 and R17,9 billion in
2003/04
• Positive real growth in all three spheres:
– National R6,6 and R8,5 billion
– Provincial R5,3 and R7 billion
– Local R1,6 and R2,4billion
• National share includes restructuring SA Post
Office, UIF, currency depreciation and fight
against crime
• Provincial priorities - social security grants,
education, capital investment and maintenance
• Infrastructure and capacity building at local
government level
National Treasury
31
Spending by function
2001/02
2002/03
2003/04
2004/05 2001/02–
2003/04
Revised
R billion
Protection Services
Medium -term estim ates
Ave.
estim ate
grow th %
47
52
56
59
8%
130
145
156
166
9%
Education
55
60
65
68
7%
Health
32
34
38
41
9%
Welfare (incl. social security)
34
41
43
46
10%
27
32
33
35
9%
–
–
–
–
21
23
26
28
10%
224
252
271
288
9%
48
48
50
52
3%
–
4
5
9
272
303
326
350
Social Services
of which
Econom ic Services
General governm ent services
and unallocated expenditure
Allocated expenditure
Interest
Unallocated
Consolidated expenditure
National Treasury
9%
32
Spending trends
• Non interest spending goes up 4,1% a year in real
terms
• Balanced growth in all sectors over MTEF,
particularly in social services, protection services
and general government
• Interest on debt (as % of consolidated expenditure)
declining from 17,5% to 15,7% in 2002/03
• Personnel share of consolidated spending is
expected to stabilise on 42,2%
• Capital spending expected to grow at an average of
18,1% over the MTEF
National Treasury
33
Division of Revenue
• Strong growth in transfers to provinces (7,9%
a year) and local government (18,3% a year)
over the MTEF
• Priority pro-poor programmes:
– Early childhood education programme
– Bolster health system against the impact of HIV/Aids
– Higher social grants and increased take-up of child
support grant
– Social and economic infrastructure
– Extension of basic municipal services
National Treasury
34
Division of Revenue
2001/02
R billion
National allocation
Revised
2002/03
2003/04
2004/05
Medium-term estimates
87.3
96.1
103.3
109.9
121.2
107.5
13.7
6.6
2.6
3.9
215.1
132.4
119.5
13.0
8.6
3.9
4.7
237.1
142.8
128.5
14.4
10.2
5.0
5.2
256.4
152.4
137.1
15.3
10.9
5.5
5.4
273.1
National
40.6%
40.5%
40.3%
40.2%
Provinces
56.4%
55.8%
55.7%
55.8%
3.0%
3.6%
4.0%
4.0%
Provincial allocation
Equitable share
Conditional grants
Local government allocation
Equitable share
Conditional grants
Allocated expenditure
Percentage shares
Local government
National Treasury
35
Addressing Local Government
Challenges
•
•
•
•
•
•
Establishment of new municipalities
Restructuring service delivery
Delivery of free basic services
Expanding infrastructure
Co-ordination of capacity building
Financial management reforms based on
Municipal Finance Management Bill
National Treasury
36
Nat transfers to Local Government
• Rising rapidly by 18,3% from R6,5 bn in
2001/02 to R10,8 bn in 2004/05
– Increases by R1,1 bn. R1,8 bn and R2,3 bn over
MTEF
– Forms over 10% of LG finances
– Smaller municipalities receive larger share
– Include transfers to category C municipalities
– Municipal infrastructure development, especially
in poor nodes identified in ISRDS and URP
National Treasury
37
Local government transfers
R million
2001/02
2002/03
2003/04
2004/05
Equitable share & related
3,856
4,752
5,798
6,229
Capital
2,241
3,282
3,859
4,000
456
548
577
624
6,552
8,581
10,234
10,854
Capacity building & restructuring
Total transfers to local government
National Treasury
38
Conclusion
• 2002 Budget supports poverty alleviation
and growth
• Strong real growth in spending
• Especially on social grants, infrastructure, local
govt. and fighting crime
• Large tax cuts for all
• R15 billion PIT relief
• Solid base for future economic growth laid
• Increased competitiveness and rising productivity
National Treasury
39