Budget Speech by Trevor Manuel
12 March 1995
Three years into the life of our young democracy, the political outlook
remains exceedingly positive. A solid foundation has been laid with the
adoption of our deep, modern and widely-respected Constitution. The support
provided by the Reconstruction and Development Programme (RDP) remains
firm. We continue to enjoy a good standing in the global community because
of our ongoing commitment to sustainable peace and development, particularly
on the African continent. Yet, this Government and all South Africans need
to do much more to ensure that our hard-won democracy is translated into
tangible and significant improvements in the lives of all South Africans.
This endeavour demands that all of us, whether within or outside of
government, be equipped with a long-term view and be willing to take appropriate
decisions in the short-term struggle for ongoing transformation. Every
opportunity which presents itself is important. The annual Budget is one
such opportunity. It challenges the Government to exercise choices, not
all of them popular, to construct the environment within which all of our
people will flourish. Of necessity, these choices must reflect both our
immediate priorities and those elements of our longer term vision which
make for durable peace, democracy and rising standards of living.
This was the way we approached the making of the Budget which we present
today. In essence, the Budget reflects the economic policy of Government
through the detailing of financing and expenditure programmes, and it mirrors
the choices between accelerated service delivery, the promotion of economic
growth, job creation and the containment of inflation.
In this Budget we make a substantial allocation to poverty relief; we
invest in people through a significant reprioritisation of expenditures
in favour of social development; we are bold in the further integration
of South Africa into the global economy by the freeing up of exchange controls;
we provide tax relief for those on incomes up to R60 000; we improve
the competitiveness of our financial markets by reducing the marketable
securities tax; and we ensure the stability and integrity of macroeconomic
policy by delivering on our commitment to a 4 per cent deficit.
This Budget tells the story of a government determined to effect deep
transformation and to live within its means. It makes significant investments
in the RDP, mindful of the targets which had been set in the strategy for
Growth, Employment and Redistribution (GEAR). It demonstrates unequivocally
that the success of the RDP is dependent on the successful implementation
of the GEAR. More importantly, it reminds us that we remain firmly on course
to secure a Better Life for All.
I will proceed in four parts:
- I first outline the economic conditions which form the backdrop to
- Part 2 provides a brief outline of the framework for intergovernmental
finances envisaged in the Constitution;
- I will then set out the choices we have made in regard to
- finally, I will discuss the financing of the Budget, tax proposals
and the deficit and borrowing requirements.
Part 1: Economic overview
The RDP and GEAR
The RDP is the embodiment of the commitment of this government to the
elimination of poverty in a rapidly growing economy and in the context
of an open, peaceful and democratic society. For this vision to materialise,
policies must be oriented towards the provision of basic needs, the development
of human resources, and a growing economy capable of creating sustainable
jobs. The success of the RDP is inherently bound by our ability to generate
this developmental and redistributive thrust within a sound fiscal and
To give effect to the RDP in the context of a rapidly globalising and
highly competitive international environment requires a significant change
in the path of economic growth and development. The challenge to Government
is to align economic policy in a way that will ensure an acceleration of
economic growth and a substantial improvement in job creation by the turn
of the century. The policies set out in the GEAR programme are designed
to achieve these objectives.
The GEAR strategy is an economic reform programme directed towards:
- a competitive fast growing economy which creates sufficient jobs for
- a redistribution of income and opportunities in favour of the poor;
- a society capable of ensuring that sound health, education and other
services are available to all; and
- an environment in which homes are safe and places of work are productive.
At the centre of the GEAR strategy is investment and job creation. The
two go hand-in-hand. Growth without job creation does not address the challenges
we face. Job creation is the one area lagging behind the targets we set
ourselves. However, this Budget and the policy stance it embodies will
provide an impetus for both investment and job creation.
So yes, investment is important. Sustainable job creation requires a
steady stream of capital investment. And, in cases such as our own where
savings ratios are low, we need to compete to attract savings from elsewhere
in the world. For all these reasons, it is imperative that we take stock
of the disciplines of the global economy. We need to examine continually
how we integrate into that economy without sacrificing our fundamental
and implacable commitment to social transformation.
Moreover, we live in the information age. Today investors and savers,
wherever they are, have access to a vast array of information from which
to make investment decisions. Quality, transparency and availability of
information is more important now than ever before. As part of the drive
to improve the availability and quality of information. South Africa now
subscribes to the Standardised Data Dissemination Service of the International
Monetary Fund, and the full details of today's Budget will be available
immediately all round the world on the Internet.
The South African economy grew by 3,1 per cent in 1996, making this
the fourth consecutive year of growth. This performance stands in sharp
contrast to the 1980s and early 1990s when growth averaged just 1 per cent
per year. It is also encouraging to note that real income per person is
some 4* per cent above the 1993 level.
Investment in the real economy
Evidence is emerging that structural changes are well underway in the
non-agricultural sectors of the economy and in the manufacturing sector
in particular, reflecting the changes that the GEAR is designed to sustain.
Overall, investment will in due course lead to stronger employment creation,
whilst productivity should continue to rise, keeping unit labour costs
in check. Capacity utilisation is high, inducing private sector led investment
in a number of sectors.
Notwithstanding the recent dip in real gross fixed investment, which
slowed down from 10* per cent growth in 1995 to 7 per cent in 1996, the
ultimate outcome has been an expansion in manufacturing output and manufactured
A closer examination of the manufacturing sub-sectors shows that the
extent of structural change varies. Some manufacturing sectors have registered
a decline in employment while others have shown increases. Significant
investments are also taking place in several industries.
Such changes are essential and need to be accelerated if we are to compete
internationally. In GEAR the strategies set out to do this are:
- continued tariff reform;
- supply-side industrial support measures;
- strategic links between industrial policy and infrastructure development
and provision; and
- the integration of industrial strategy with labour market and institutional
The government sector has also played an important role in capital formation.
Real fixed investment by public corporations increased by 10 per cent during
1996. In addition there is now an acceleration in RDP projects and other
capital outlays by government departments.
The expansion of infrastructure plays a number of crucial roles including:
- the provision of basic services;
- increasing the level of investment;
- creating opportunities for private-public sector partnerships;
- modernising information technology, telecommunications and transport
capacity so as enhance efficiency and competitiveness; and
- creating potential for further technological innovation which in turn
could enhance the delivery of services and increase participation in economic
In combination, these factors add to new economic activity and thereby
increase substantially the job creation potential of the economy.
However, substantial amounts of capital are required to finance the
scale of infrastructure we need. A new financing strategy based on a dynamic
partnership between government and the private sector is evolving. Government's
role is to act as a catalyst to generate the level of resources required.
Government, development finance institutions and public corporations are
already pooling resources to finance development more creatively.
Supply side measures
The importance that Government attaches to investment is reinforced
by the approach we have adopted in relation to the supply-side measures
introduced to enhance and support trade and industrial development. Tax
incentives were introduced in 1996 and will be available for a period of
three years. A range of other measures aimed at assisting firms to expand
or improve production, productivity, exports and employment are also in
place, including the Technology and Human Resource for Industry Programme
(THRIP), which supports links between industry and tertiary education institutions,
and the Support Programme for Industrial Innovation (SPII), to name but
Combined with the results of a number of cluster studies and the spatial
development initiatives, the supportive environment for investment and
thereby job creation has been significantly strengthened.
The Inter-Governmental Conference held in February set in motion a more
coordinated process between all three levels of government in regard to
infrastructure and investment initiatives. This will facilitate the spatial
development initiatives that will unfold in the course of 1997.
Small and medium-sized enterprises
The promotion of small, medium-sized and micro enterprises is a key
aspect of Government's economic policy. The National Small Business Act
was passed in November 1996, providing for the establishment of Ntsika
Enterprise Promotion Agency and a National Small Business Council, and
for a mechanism to review the impact of training and proposed legislation
on small businesses. In addition, the Khula Enterprise Finance Company
is operational, and has initiated a credit guarantee scheme and a capacity
building project aimed at supporting targeted retail financial intermediaries.
A loans programme will get underway in 1997.
Restructuring State Assets
The opportunities for infrastructure expansion are enormous. The financing
strategy is crucial since government budgetary resources alone are inadequate.
Similarly, the future of state-owned enterprises will depend in part on
the successful enhancement of their access to capital and technology.
For these reasons, Government embarked on the process of restructuring
its enterprises. The National Framework Agreement is an enormous asset
in respect of building a consensus on the approach to each enterprise.
Detailed analysis is being undertaken of all state owned enterprises.
Work has begun on the restructuring of subsidiaries of Transnet and an
enterprise restructuring committee has been formed at Eskom. Enterprises
which should restructure or, in some cases, be wholly sold during this
year include Sun Air, Aventura, and the Airports Company. Significant preparations
should be concluded on Safcol, Alexkor, and Autonet during this year. Final
negotiations are now underway on the sale of 30 per cent of Telkom to a
consortium comprising SBC Communications (USA) and Telekom Malaysia. This
transaction should see a significant injection of foreign capital into
the economy. Improvements in the efficiency, cost-effectiveness and service
orientation are expected.
A National Empowerment Fund (NEF) will be established during this fiscal
year in order to assist in the broadening of the ownership base and thereby
contribute to creating a more equitable distribution of incomes and wealth.
Price stability is an important determinant of economic well-being.
Substantial progress has been made in recent years to bring inflation down.
Consumer price inflation for 1996 was 7,4 per cent, the lowest since 1972.
However, the depreciation of the rand has put some upward pressure on inflation.
Rising prices need to be checked, partly because this is the best way of
ensuring that wages hold their real value. Our international competitiveness
also depends on maintaining an effective counter-inflationary stance.
The stability of the rand throughout 1995 created a false sense of comfort
for both South Africans and foreign investors. High real exchange rates
and a mildly appreciating currency attracted substantial capital flows
during 1995. However, from mid-February 1996 the rand started to fall and
volatility in the foreign exchange markets became the order of the day.
The nominal effective exchange rate fell by 22 per cent between the end
of 1995 and the end of 1996, whilst the real effective exchange rate fell
approximately 16 per cent during the course of the year.
The volatility in the exchange rate throughout 1996 served to remind
us that we are fast integrating into the global economy. Still, it was
not easy to witness such a marked depreciation of the currency.
The GEAR strategy was nevertheless designed to take advantage of the
depreciation to boost exports and simultaneously make progress with tariff
liberalisation. Considerable progress has been made in this regard, and
tariff reform will continue. Although the more competitive rand has helped
put an increasing number of firms on an export-oriented footing, the depreciation
last year went further than was necessary, and provided a cushion to exporters
which could lead to a sense of complacency. In line with GEAR we are considering
compensatory tariff reductions to neutralise these effects.
Balance of payments
One of the positive outcomes of the depreciation of the rand is the
improvement that has taken place in the current account of the balance
of payments. The deficit on the current account fell from 2,1 per cent
of GDP in 1995 to 1,6 per cent in 1996. This was due primarily to the strong
performance of merchandise exports which grew by 12 per cent in volume
and 21* per cent in value. The growth of imports slowed down considerably.
For 1996 as a whole the current account deficit was about R8,5 billion.
However, the volatility in the foreign exchange market and the accompanying
depreciation of the rand resulted in a slowdown in the inflow of capital.
Net capital inflows for 1996 were R3,9 billion, compared to R19,2 billion
Foreign reserves, which had fallen by R4,3 billion in the first three
quarters of 1996, started showing some improvement in the fourth quarter.
At the end of 1996, the country's gross reserves were R16,8 billion, sufficient
to cover about five and a half weeks worth of imports.
The turbulence in the foreign exchange markets put pressure on the domestic
financial markets. In response to tight money market conditions the South
African Reserve Bank increased the bank rate twice during the course of
1996. In April the bank rate increased from 15 to 16 per cent and in November
it increased to 17 per cent. The banks responded by increasing the prime
overdraft rate to 19* per cent and 20* per cent respectively.
The changes in the exchange rate, fears of rising inflation and tight
money market conditions had a marked impact on the trend and volatility
of bond yields. The monthly average yield on long-term government stock
increased from 13,8 per cent in January 1996 to 16,2 per cent in December.
Bond prices for the first two months of this year improved significantly
to around 15 per cent, reflecting the positive change in fundamentals and
Outlook for 1997/98
A review of international economic trends indicates a positive overall
outlook. Output growth in industrial countries is expected to accelerate
marginally to about 2,5 per cent in 1997, with inflation rates remaining
between 2 and 3 per cent. The growth in world trade is expected to expand
quite considerably in 1997.
For emerging markets the story is very positive. Real growth in developing
countries is expected to average about 6 per cent in 1997, with average
inflation declining to around 10 per cent from over 13 per cent in
1996. Growth in several of our SADC neighbours has exceeded 5 per cent
per year and is expected to remain at these levels for 1997, creating a
brisk trading environment.
I expect the South African economy to grow at 2* per cent in 1997.
The manufacturing sector, which should benefit substantially from supply-side
measures, should expand considerably faster than in 1996. The downswing
in merchandise imports and the strong export growth are expected to lead
to a lower current account deficit in 1997 than in 1996. A continuation
of the recovery in capital inflows which has occurred since the beginning
of this year should result in a considerable capital account surplus over
the current balance, resulting in an improvement of our foreign reserve
Average consumer price inflation will be somewhat higher in 1997 than
last year, but the trend is expected to slow down during the course of
the year as a result of a decline in the public sector borrowing requirement
and a contraction in credit growth and money supply.
This is a year of consolidation. We will steer the economy firmly along
the growth path envisaged in our macroeconomic strategy. The medium-term
prospects are positive: a sound macro and fiscal framework has been adopted
and implementation has begun; investment in infrastructure financed through
partnerships between the public and private sectors is set to take off;
and there has been a substantial acceleration in exports across various
sectors of the economy, indicating that our trade and industrial policies
are taking hold.
We are on track for an acceleration in growth and job creation. Improved
coordination of policies, cooperative government and responsible governance
will ensure that attention will be squarely on delivery.
Our analysis shows that countries that have had most success with exchange
control liberalisation are those that have done so as part of a comprehensive
package of macroeconomic reforms. These reforms have often included a strengthening
of the fiscal position, appropriate prudential regulations and requirements,
internationally competitive interest rates and competitive exchange rates.
In the case of industrial countries, capital account liberalisation has
typically followed broad trade reforms. I believe that the conditions are
now right for a significant instalment in the relaxation of exchange controls.
After extensive consultation with the Governor of the South African Reserve
Bank, we feel the time has come to make significant changes.
South African individuals and corporations will in future be allowed
the freedom to transact internationally, as envisaged in the macroeconomic
strategy. The package of exchange control reforms placed before this House
today moves South Africa to a system with a positive rather than a negative
bias and the Exchange Control Regulations will revised to accommodate this
fundamental change in philosophy. The objective is to reach a point where
there is equality of treatment between non-residents and residents in relation
to inflows and outflows of capital.
The position of our balance of payments and the South African Reserve
Bank's involvement in the forward market make it impractical to permit
unlimited transfers of capital at this stage. To give the economy time
to adjust and to avoid unnecessary volatility, certain limits will remain,
but the emphasis will increasingly be on the positive aspects of prudential
financial supervision. The full details of the changes are set out in a
comprehensive press statement released by the Department of Finance and
the South African Reserve Bank. The following are some of the important
features of the package:
- with the exception of discretionary type expenditure such as maintenance
payments whose limits have been substantially revised, most remaining controls
on current account transactions will be abolished;
- travel allowances are increased to an annual allowance of R80 000
per adult and R25 000 per child;
- individuals will be allowed to remit an amount of capital abroad, with
extended limits for the acquisition of fixed property in SADC countries;
will be able to maintain foreign currency denominated deposit accounts
subject to a prescribed ceilings with South African banks; and will be
permitted to retain foreign income earnings in foreign currency accounts;
- corporations wishing to establish new ventures will be permitted to
transfer up to R30 million as a proportion of their investment, or
R50 million in the case of SADC investments;
- South African corporations will be allowed to raise foreign funding
on the strength of their South African balance sheets; and when circumstances
permit, South African corporations will be free to invest abroad a percentage
of their assets (based on audited balance sheets) for portfolio investments;
- institutional investors will in 1997 be allowed to invest up to 3 per
cent of the net inflow of funds during the 1996 calendar year; the definition
of qualifying institutions for asset swaps will be broadened to include
regulated fund managers, as well as to allow unit trusts more flexibility
in applying the current 10 per cent limits;
- the South African Reserve Bank will supervise the implementation of
a dollar/rand futures contract issued in South Africa;
- the non-resident ownership level at which foreign controlled resident
entities become subject to limits on local borrowing will be raised from
25 per cent to 50 per cent; and
- the limits for the completion of forms A and E for the purchase and
sale of foreign exchange will be increased from R2 000 to R40 000.
South African individuals and corporations will have to provide authorised
foreign exchange dealers with a tax reference number and sign a declaration
of good standing in respect of their South African tax obligations before
being permitted to remit funds offshore.
The changes in the exchange control regime announced here are profound.
We move now to an environment in which South Africans can make ordinary
transactions abroad freely, while the constraints which remain on large
movements of capital will increasingly give way to procedural and prudential
Although GDP growth has slowed somewhat in 1996 and 1997, the transformation
which our economy requires to strengthen its underlying potential for growth
and a more just distribution of incomes and opportunities is now well underway.
Gross domestic fixed investment remains robust and the planned infrastructure
developments provide a strong basis for improvements in gross domestic
fixed investment. The depreciation of the rand has begun to have the desired
effect, increasing exports and enhancing competitiveness; capital inflows
have started improving; and responsible macroeconomic policies have ensured
that inflation has been kept in check. It is against this background that
the further relaxation of exchange controls has taken place.
Part 2: The budget and the Constitution
Three spheres of government: national, provincial
The Constitution of the Republic of South Africa was adopted in December
1996 and took effect on 3 February 1997. It provides the framework within
which budgetary and fiscal policies are formulated and sets out the competences
of national, provincial and local government. It also describes the framework
for intergovernmental finances and requires that by January 1998 these
be embodied in appropriate legislation.
Although the new Constitution has been adopted, the lengthy budget cycle
means that the 1997/98 budget was prepared under the authority of the interim
Constitution. The 1997/98 budget process nonetheless represents an important
step in implementing the framework of intergovernmental finances envisaged
by both the interim and the new Constitution.
At the heart of the new national-provincial budget process is the Budget
Council. It is a cooperative decision-making body consisting of the nine
MEC's of Finance, the Minister and Deputy Minister of Finance, and senior
officials from the Departments of Finance and State Expenditure, and the
provincial Treasuries. The Financial and Fiscal Commission (FFC) attends
as an observer. The Budget Council recommends to Cabinet the shares that
each province should receive after taking into account national priorities
and the proposals of the FFC.
Based on a considered appraisal of the Constitution's precepts regarding
the equitable sharing of revenue, the FFC recommended a formula for the
allocation of revenue to provinces, to be phased in over a six-year period.
In its recommendations, the FFC noted the difficulty of defining clearly
the meaning of 'equitable share' as required by the Constitution, particularly
when taking account of the developmental needs of the provinces and local
authorities, their fiscal capacity and efficiency, past inequities and
the affordability of service standards, while balancing these with the
national interest. The whole area of revenue sharing requires more work
and will receive priority attention this year.
The recommendations of the FFC were considered by the Budget Council
in its deliberations, but they were not /98 budget, it alaccepted in full.
It relied on a different approach for the purposes of the 1997/98 Budget,
particularly concerning the division of the revenues between the national
government and the provinces. The Budget Council accepted that the first
charge against revenue is government debt costs. For the 1997so agreed
that improvements in the conditions of service, the carry-through costs
of social pensions and RDP commitments and an allocation to the housing
programme would be set aside, to be deducted from revenue before the division
was made between the provinces and national government. The Budget Council
recommended that the remaining 1997/98 revenues be divided between the
national and provincial levels in the same ratio that applied in the 1996/97
budget. To allocate the basic amount available for provinces (excluding
the amounts set aside), the Budget Council relied on a percentage distribution
calculated by the FFC.
Based on these recommendations, the national budget allocates a global
amount to each province which then has the responsibility of developing
its own budget within the constraints of an agreed framework. Important
planning and budgeting tasks are now devolved to the provinces, which are
charged with providing many of the country's crucial public services either
exclusively or concurrently with another sphere of government.
There are also significant changes in progress at the local government
level. Municipal budgets for 1996/97 total over R45 billion, or approximately
7,5 per cent of GDP. Of this, R11,5 billion is on capital expenditure.
Unlike provinces, however, local governments have a substantial tax base.
Own revenues account for over 90 per cent of their income. Although the
Constitution protects their equitable share of revenue and there are substantial
flows of funds from the national and provincial levels to local government,
the services which municipalities provide are mainly self-financing.
Some concern has been expressed over the state of local government finances.
On balance, local government has run a consolidated deficit of about 0,2
per cent of GDP in recent years, consequently adding little to the gross
public sector borrowing requirement. Municipalities are not allowed to
run operational deficits.
However, there are problems which need to be dealt with. The first is
the problem of non-payment. The total amount of outstanding debts to local
authorities at the end of October 1996 stood at 25 per cent of annual income
from rates and service charges. This is clearly unsustainable and unacceptable.
It is neither right nor fair that on average only 69 per cent of residents
pay on a regular basis. A democratic South Africa cannot afford a culture
of non-payment. For their part, municipalities must also exercise better
financial management through improved administration including the implementation
of proper credit control systems.
Part 3: The 1997/98 expenditure
The policy choices which government makes are reflected in its expenditures.
For this reason the evaluation of expenditure proposals is at the heart
of the budgetary process. The assessment of expenditures has to take place
within the framework of social, developmental and economic priorities identified
by government and has to take account of the macroeconomic environment.
This assessment depends on the quality and integrity of the information
available. Several reform initiatives aimed at improving the effectiveness
of fiscal planning as an instrument of governance have been initiated.
These include the development of a medium term expenditure framework and
a forward-looking approach to fiscal planning which will assist with the
reprioritisation of expenditure and ensure a better fit between policy
and rands spent; legislative reforms as set out in the Constitution; changes
to accounting methods; improvements in the government's data base so as
to improve expenditure planning; and improvements in budget documentation.
To this end the Departments of Finance and State Expenditure will publish
a White Paper on budget reform during the course of 1997.
As part of the constant drive to improve governance and ensure the efficiency
and effectiveness of spending, government as the single largest purchaser
in the country, has embarked on a thorough review of its procurement policies.
I will shortly be releasing a Green Paper on Public Procurement Reform.
These institutional reforms are wide reaching and will entrench a culture
of governance and delivery. It is against this backdrop that expenditure
decisions were taken this year.
National budget expenditure for 1997/98
The estimated level of national government expenditure for 1997/98 is
R186,747 billion. This includes the Printed Estimate of Expenditure, several
supplementary amounts and standing appropriations. This represents an increase
of 6,1 per cent on the revised expenditure level for 1996/97 and is equal
to 30 per cent of expected GDP.
In line with the goals of the RDP and GEAR, the analysis of expenditure
which follows shows a clear shift in priorities towards poverty relief,
social development and crime prevention.
Investing in poverty relief
The legacy of apartheid is most stark when we consider the abject poverty
which characterises the lives of a substantial portion of our population.
It is well understood that growth and job creation are critical elements
in redistributing income and reducing poverty. The quality and availability
of educational opportunities are also key components in the battle against
poverty. Supplementary proposals, which will be included in the Second
Print and the Adjustments Estimate when they come before Parliament later
in the financial year, provide poverty relief in several ways:
- We are setting aside R300 million for community based poverty relief
programmes. In allocating these resources special attention will be given
to programmes that target poverty relief in rural areas and that benefit
- There will be an increase of R1 billion in provision for social security.
This means that the grant for elderly persons without other means will
increase from R430 to R470 per month, from 1 July 1997, which is a
9,3 per cent increase.
- Cabinet has now approved the main recommendation of the Lund Committee
Report on Child and Family Support for a flat-rate child support benefit,
to replace the existing maintenance grant over a period of years. R75 million
has been set aside for this.
Investing in social development to build a better
life for all
The 1997/98 Printed Estimate provides for transfers to provinces totalling
R80,4 billion. Together with supplementary amounts and improvements
in conditions of service which will be distributed at a later stage, provinces
will receive about R84 billion, or 57 per cent of the budget, excluding
interest on government debt.
Provincial expenditure is strongly concentrated on education, health
and welfare services. Calculated on a consolidated basis, these social
functions will take up 55 per cent of non-interest spending by the national
and provincial governments in 1997/98.
Expenditure on education will account for 21,3 per cent of total government
expenditure and 6,5 per cent of GDP. These proportions are high by international
comparison - 5,4 per cent of GDP in industrialised and 3,9 per cent in
developing countries - signalling the high priority which the Government
attaches to investing in our children's future.
In 1997/98 a total of R5,431 billion will be provided for universities
and technikons, including an increase in general subsidy formula allocations
of 12 per cent and R200 million for the National Student Financial
Aid Scheme. An additional R100 million is to be made available from donor
funding. The average funding level of higher education institutions will
be 65,6 per cent. In addition, the Government will be increasing expenditure
on adult education from R6,5 million in 1996/97 to R13,1 million in
Government as a whole will be spending 3,3 per cent of GDP on health
(10,7 per cent of total budgeted expenditure). Although this is below the
level of public expenditure on health in industrialised countries (5,6
per cent of GDP) it is well above the average for developing countries
which is a mere 0,9 per cent.
Substantial positive changes have taken place in the health sector.
Primary health services are now free of charge at the point of delivery.
During 1996 a clinic building and upgrading programme was initiated and
a total of 102 new clinics were built or are in the process of being built.
Provincial health departments plan to build a further 272 new clinics and
upgrade 326 in 1997. The majority of these are in under-privileged areas.
Focus areas for the national department in 1997 will include immunisation
campaigns against polio and measles; and expanded programmes to combat
the HIV epidemic and tuberculosis.
The White Paper for Social Welfare Services was tabled in Parliament
on 19 February 1997. The document provides clear directives for a
national developmental welfare strategy.
The fourteen different pension systems of the former welfare departments
have now been amalgamated into a single integrated data system. Fraud in
social pensions denies benefits to people whose survival depends on these
payments. A comparison of records with the Population Register resulted
in the suspension of 46 682 beneficiaries and a saving of R241 million
per year. Further investigations are in progress and strong action will
be taken against these criminals.
Investing in infrastructure and job creation
The housing allocation for 1997/98 is just over R4 billion. Last year
the housing vote was less than half this amount, after substantial underspending
in 1995/96. Housing delivery is now accelerating and it is expected that
more than 190 000 houses will be built in the subsidy band during
the new financial year.
The Commission on the Restitution of Land Rights is currently processing
in excess of 11 000 claims. The Department's budget includes an amount
of R418 million for land restitution, redistribution and tenure. Land reform
remains an important part of our development strategy and the Department
has done substantial work in putting in place the legislative framework
required for land reform and development facilitation.
Under the auspices of the Ministry of Public Works, a fresh approach
to the procurement of construction services has greatly improved opportunities
for emerging contractors and there is progress in promoting job creation
on infrastructure projects. At grass-roots level the Community Based Public
Works Programme is active. Of the R250 million allocated to this project
from the RDP fund in 1994/95, R150 million was transferred to the provinces,
which implemented 391 projects creating a substantial number of jobs, particularly
for women. The remainder of the funding was used to fund an array of projects
which together employed some 97 000 people, 13 per cent of whom are
in sustainable jobs.
The 1997/98 budget includes a total of R4,368 billion for the carry
through costs of RDP projects. Since the reprioritisation of expenditure
is well underway, RDP spending has been incorporated into the budgets of
departments. The amount of R4,4 billion includes:
- R680 million for free health care;
- R500 million for the primary school nutrition programme;
- R500 million for the community water supply and sanitation programme;
- R350 million for bulk infrastructure for housing;
- R300 million for land redistribution;
- R245 million for urban renewal;
- R200 million for the Maputo corridor and other spatial development
- R100 million for peace initiatives in KwaZulu-Natal.
The Municipal Infrastructure Programme
The objectives of job creation are also captured in other expenditures
in this Budget. One of the most impressive developmental and job creation
programmes is the Municipal Infrastructure Programme which provides R1,4
billion for local construction works and currently involves some 1 089
projects. It is estimated that by the end of this year some 242 000
people will have been employed through this programme. In addition, over
94 000 people will have received training.
Water and sanitation
Good progress continues to be made in the area of water provision to
communities. The projects in place at the end of 1996 will deliver water
to 6,4 million people, and 100 000 people will get adequate sanitation.
The fourth RDP programme, which is expected to serve a further 2,1 million
people at a cost of R650 million has recently been announced.
The National Water Conservation Campaign has continued to raise consciousness
about the value of water resources. The "Working for Water Programme"
is a successful public works programme, employing and training almost 7 000
previously unemployed women and men to eradicate invasive vegetation from
water catchments and thereby generate water resources.
Expenditure on the promotion of industrial development and the stimulation
of research and technology development in industry increases from R454
million in 1996/97 to R604,6 million in 1997/98. Two new supply-side measures
are to be introduced in 1997 - the Competitiveness Fund and a Sectoral
Partnership Facility - which will enable individual firms and organisations
to draw on consultant advice in advancing competitiveness. A new Short
Term Export Finance Guarantee Scheme for small and medium-sized firms has
also been introduced.
Investing in a safer society
A safe and peaceful society is essential for democracy and economic
development. Significant steps to reduce crime have been taken with the
implementation of the National Crime Prevention Strategy. A brief analysis
of the expenditures on protection services which include defence, police,
prisons and justice shows a substantial reprioritisation away from defence.
Spending on defence in 1997/98 will account for 1,6 per cent of GDP,
compared to 4,5 per cent in 1989/90. The South African National Defence
force needs to be commended for the substantial restructuring which it
has undertaken and for the seriousness with which it has approached the
Government's efforts to reprioritise spending in favour of social development.
The major initiatives which have been undertaken by the SANDF include the
White Paper on Defence which was approved by Parliament in May 1996 and
the Defence Review process which is currently underway. The SANDF has also
played an important role in the National Crime Prevention Strategy, deploying
some 50 companies for border protection and the maintenance of law and
order in cooperation with the South African Police Service.
The National Crime Prevention Strategy
The first set of projects aimed at making the criminal justice system
work better have now begun. The National Crime Prevention Strategy will
cost R902 million and will run for three years. An amount of R406 million
has been made available in this year's budget for the programme.
Police, Justice and Correctional Services
Expenditure on Police, Justice and Correctional Services will increase
by about 15 per cent once improvements in conditions of service are taken
into account. This provides a clear indication of the seriousness with
which Government is approaching the issue of crime. It is also important
to note that in all these departments, and more particularly in the Police
Service, a substantial programme aimed at improving the management of resources
is underway, including extensive training initiatives. The work, assistance
and support provided by the Business Against Crime Project has had a marked
impact on the management of the Police Service and Government is in full
support of this new partnership.
Public Service Restructuring
A comprehensive programme for right-sizing the civil service is currently
being undertaken by the Department of Public Service and Administration.
As part of this exercise a voluntary severance package was introduced on
1 May 1996 to facilitate departmental and provincial reorganisation. The
right-sizing process and a three year conditions of service adjustments
package were agreed to in the Public Service Bargaining Council. This agreement
includes, amongst other measures, the adoption of a new grading system
comprising a rationalised and simplified public service remuneration structure.
The implementation of the second phase of the agreement entails a full
year cost of promotions and improvements in the conditions of service of
R6,5 billion. Since these increases only come into effect in July 1997,
R4,875 billion is provided to cover nine months of this fiscal year.
The selected expenditure set out above highlights the significant reprioritisation
which has taken place. After setting aside R39 billion for interest on
government debt, nearly 60 per cent of national and provincial government
spending goes to the social services.
- R40 billion for education;
- R20 billion for health services;
- R18 billion for social security and welfare;
- R4 billion for housing.
A total of R30 billion is allocated to our protection agencies. R19
billion is spent on building the economy and supply side measures. This
amount includes road construction, water projects, support for agriculture
and the new supply side programmes for industrial promotion. In addition,
departmental budgets contain several new initiatives which have exciting
job creation possibilities, including the municipal infrastructure programme;
the community water supply programme; and the land restitution and redistribution
programme. RDP initiatives are now included in departmental votes, ensuring
that resources allocated to the numerous activities initiated over the
last three years are realistically programmed in relation to delivery capacity.
Part 4: Revenue
Government's vision encompasses the internationally accepted principles
of taxation: tax neutrality, equity, certainty and simplicity. Our vision
is informed by the fact that our tax regime must enhance our competitiveness
internationally and that it must be structurally cohesive which means that,
amongst other things, we have to broaden our tax base and eliminate damaging
tax arbitrage opportunities. Key to our vision is our ability to have in
place a tax administration which is efficient, effective and able to maximise
the collection of revenues due to the State.
As part of the implementation of this vision and following from the
recommendations of the Katz Commission, the Inland Revenue and Customs
and Excise branches of the Finance Department were amalgamated into one
revenue collection authority, the South African Revenue Service (SARS).
Cabinet has now approved the granting of administrative autonomy to
SARS. Legislation giving effect to this will be tabled during the second
quarter of this year. Building on the progress made this past year, I am
able to include an amount of R2,5 billion in the revenue proposals presented
today which will arise from improved collections and receipt of arrear
The Income Tax Act
The simplification of the Income Tax Act is an important part of our
vision. This year the Ministry of Finance will embark on a project to consolidate
and simplify the Income Tax Act in a manner that ensures that the contents
are easily understandable by all South Africans.
The scope of the project is far-reaching and it is envisaged that it
will take several years to complete. The project will serve as a training
ground for young tax lawyers and accountants who will be appointed to help
with the task of rewriting the Act.
Declaration of Good Standing
I highlighted earlier that democracy brings with it rights, obligations,
and responsibilities. As a Government one of our obligations to the people
of this country is to ensure equity and fairness in the tax system.
However, our ability to do this is severely hampered by the culture
of non-payment and evasion that has come to characterise our tax system.
Non-payers and tax-evaders are punishing those with honesty and integrity.
Moreover, they stand in the way of significant tax reform and relief.
The Government will more vigorously enforce the tax legislation. We
shall actively pursue anyone who breaks the law.
It is fair that only those South Africans whose tax affairs are in order
should be allowed to participate and benefit from the economic policies
we are introducing. To this end we have decided that any South African
be they a natural person or a corporate who wants to tender and participate
in any form of contract to provide goods and services to government, or
who wishes to access any of the supply-side financial assistance opportunities,
or other Government initiatives must be a registered taxpayer and must
sign a declaration that their tax affairs are in order.
The provision of tax numbers and a declaration of good standing will
also be required from individuals or corporates wanting to avail themselves
of foreign currency.
As a Government we believe that the time has come to stop the rot, to
ensure that those who pay their taxes are not unfairly prejudiced and do
not have to carry the burden for those who do not pay. Part of governance
is to ensure that government does not contract with anyone who is abusing
the system through non-payment or evasion.
The final tax relief programme
With a view to broadening the tax base and addressing the problem of
non-payment of tax, the Government offered a final tax, interest, penalty
and additional tax relief programme to certain categories of persons in
1996/97. Following the approval of the legislation by Parliament, the period
to apply for relief started on 1 November 1996 and ended on 28 February
The programme was extensive, covering both registered and unregistered
persons. In the case of unregistered persons, no taxes were levied for
the tax years before 1 March 1994. For registered tax payers, interest
and penalties owing for the periods before 1 March 1994 were written
off if certain conditions were met.
I come now to this year's revenue proposals.
Total revenue from ordinary taxes is estimated at R161,976 billion which
equals 26 per cent of GDP.
Tax rates for individuals
One of the commitments that the Government has made to the people of
this country is to ensure that the tax system is fair and equitable. As
it is currently structured the burden of taxation falls disproportionately
on individuals. Of great concern to us is the fact that those most seriously
affected are people on low to middle incomes. Our longer term strategy
is to meet the objectives set out in the Third Interim Report of the Katz
- to reduce the gradation of the marginal rate schedule;
- to reduce the number of marginal rate brackets;
- to raise the tax threshold; and
- to adjust for inflation.
In this Budget we take some steps in meeting these objectives. The good
news for individuals is as follows:
- the primary rebate is increased from R2 660 to R3 215;
- the effects of inflation have been reduced for all tax payers and eliminated
for those with taxable incomes less than R30 000;
- one tax bracket has been created for those on taxable incomes up to
- the marginal tax rate applicable to taxpayers with taxable incomes
falling in the range from R40 000 to R45 000 has been reduced
from 41 per cent to 32 per cent;
- the number of income brackets is reduced from 8 to 7.
By way of example a person under the age of 65 earning R20 000
will now pay R255 less tax per year. Similarly a person earning R60 000
will pay R805 less tax per year.
This package will cost the Government R2,8 billion in lost taxes, with
60 per cent of this relief going to low and lower middle income earners.
Another way of looking at it is to say that these measures put R2,8 billion
into the pockets of families who need it.
Standard Income Tax on Employees (SITE)
Currently a person whose income does not exceed R50 000 per year
does not have to submit a tax return. This reduces the administrative burden
for both the employee and the South African Revenue Service. The limit
will be increased from R50 000 to R60 000 as from 1 March
1997, relieving many thousands of taxpayers of the burden of submitting
It was never the intention that fringe benefits should be used to structure
salary packages in such a way that they create a bias against cash remuneration.
The widespread abuse of fringe benefits also results in a substantial loss
of revenue to the government and creates inefficiencies in remuneration.
The following measures will be introduced to deal with this problem.
(i) Company Cars
The fringe benefit arising from the private use of a company car is
taxed at a value equal to 1,2 per cent per month of the cost of the car.
For example the private use of a company car costing R100 000 has
a monthly taxable value of R1 200. This value is considerably less
than the value of the benefit based on the actual cost of purchasing and
running such a car. With effect from 1 July 1997 this percentage will
be increased to 1,8 per cent.
In addition, with effect from 1 July 1997 the value to be placed
on any second or subsequent vehicle is to be increased from the current
level of 2 per cent to 4 per cent.
It is estimated that this measure will yield an increase in tax revenue
of R150 million.
(ii) Travelling allowances
Travelling allowances are also widely used in the structuring of salary
packages. At present where a taxpayer does not keep accurate records of
distances travelled and the total kilometres travelled for business and
private purposes do not exceed 32 000 kms, a distance of 12 000
kms is deemed to be travelled for private purposes. To bring the tax treatment
of this benefit in line with that of company cars, the deemed private kilometres
will be increased to 14 000 as from 1 March 1997. The taxable
portion for PAYE purposes will be increased from 35 per cent to 40 per
cent with effect from 1 July 1997.
This measure will yield a cash flow advantage of R170 million for 1997/98.
Another area where there has been widespread abuse is in the provisions
relating to the determination of the taxable value of residential accommodation
provided to employees by an employer or by a connected person in relation
to the employer. As from 1 March 1997 where residential accommodation
provided as a benefit to the employee is not owned by the employer, or
where the employee has an interest in the accommodation in question, such
an employee will be taxed on an amount equivalent to the rentals paid and
other expenditures incurred by the employer in order to provide such accommodation.
The definition of the employee's interest in the accommodation will also
be extended to include any connected person in relation to such employees.
The percentages which are applied to the formula for determining the taxable
value of the housing benefit will be increased by one percentage point
as from 1 March 1997.
This measure will yield an additional R50 million.
(iv) Holiday accommodation
The value for fringe benefit tax purposes to be placed on holiday accommodation
provided by an employer to an employee, is the cost incurred by the employer
for the hiring of the accommodation. In any other case the employee is
currently taxed at the value of R35 per person per day. As from 1 March
1997 this value is to be increased to R100 per person per day.
Retirement Fund Industry
Following the recommendations of the Katz Commission in its Third Interim
Report, a tax at the rate of 17 per cent was imposed on the gross interest
and rental income of retirement funds with effect from the 1996/97 fiscal
year. This tax is expected to yield R2,4 billion in 1996/97.
Government does not intend to introduce any major changes to the present
structure or rate. We will wait for the proposals emanating from the National
Retirement Consultative Forum. There are, however, some aspects that require
In the case of investments made by funds in unit trust schemes with
property shares, such funds receive dividends which are derived from property
companies. Since these dividends are effectively a distribution of rental
income received by the property companies and having regard for the fact
that such dividends are distributed before taxation, the taxation of rental
income is effectively being shifted to the unit holders.
At present such dividends received by funds are neither subject to normal
tax nor tax on retirement funds in the hands of the fund. Given that such
dividends effectively represent rental income, they will be subject to
the tax on retirement funds with effect from 1 March 1997.
In addition, where a fund lends interest-bearing instruments to a borrower
payments by the borrower to the lender for compensation for the loss of
interest and use of the instruments will be deemed to be interest and will
be subject to the tax on retirement funds as from 1 March 1997.
These two measures are expected to yield an additional R200 million.
(i) Equal tax treatment for members of public and private funds
In terms of present tax rules lump sum benefits payable to members of
retirement schemes established by law or for the benefit of local authorities
(public sector funds) are not taxable. However, members of private sector
funds are liable for tax on lump sum benefits.
Both the Katz Commission and the National Retirement Consultative Forum
have recommended that there should be equal treatment of lump sum benefits
received by members of public and private sector funds.
Equality between public and private sector funds of the tax treatment
of lump sum payments is to be introduced from 1 March 1998 subject
to the protection of vested rights.
(ii) Deferred compensation
We are extremely concerned about the practice of using some medical
savings schemes and other types of salary sacrifice schemes to reduce the
taxable income of a person.
The South African Revenue Service is aware of a number of schemes of
this nature and holds the view that interest credited to a savings scheme
of this nature is taxable in the hands of the member. We are also investigating
these schemes to determine the tax treatment of contributions to such funds
as well as the repayment and withdrawal from such schemes.
Marketable securities tax
As part of our commitment to improving the competitiveness of the investment
environment the Government has decided to reduce further the rate of marketable
securities tax and stamp duty on share transactions. The rate will be reduced
from 0,5 per cent to 0,25 per cent as from 1 April 1997.
We are also concerned with the extent to which the exemption from stamp
duty in terms of Item 15(3)(nA) of schedule 1 of the Stamp Duties Act,
1968, in respect of arbitrage transactions is being abused. With effect
from 1 July 1997, the relevant exemption from the Stamp Duties Act
will be deleted with the consequence that the exemption contained in the
Marketable Securities Tax Act in relation to the purchase of shares by
persons who are not ordinary residents in the Republic, will also be deleted.
We are making provision for a loss of revenue amounting to R125 million.
However, it is interesting to note that in 1996/97, these levies were reduced
from 1 per cent to 0,5 per cent and although we budgeted to collect R200
million, our revised estimate is R390 million.
As we all know, excise duties are in the main specific levies per unit
of volume, rather than ad valorem taxes on value and it is therefore appropriate
that we consider these duties annually. The adjustments made reflect trends
in prices and incomes and Government's broader policy objectives.
Substantial increases in the excise duties on tobacco products are again
proposed. The rate of duty on tobacco will increase by 52 per cent, bringing
the tax, including VAT, to 50 per cent of the average retail price. Smokers
will have to pay an extra 27 cents per 10 cigarettes. Pipe tobacco will
cost an extra R2,49 per kilogram.
The news for drinkers is equally sobering. Some of the highlights are:
beer goes up by 8,15 cents per litre or about 3 cents per 340ml can; sorghum
beer increases by 2 cents per litre and sorghum flour by 5,5 cents per
kilogram; unfortified wine increases by about 8 cents per 750 ml bottle;
mineral water and soft drinks go up by 1,2 cents per litre; cane spirits
will increase by about 66 cents per 750ml bottle, and similar increases
apply to whisky, brandy and gin.
(i) Ad valorem customs and excise duties
The current ad valorem duties range between 6 and 37,5 per cent before
VAT. The abolition of these duties was recommended by the Margo Commission
and the Katz Commission has also indicated its unease. However, for revenue
reasons we are at present unable to justify the abolition of these duties.
But we are also aware of the perverse effects that exceedingly high rates
of duty have on behaviour. In many cases, the high rates of duty have provided
an incentive for tax evasion, often through illicit trade or smuggling
and consequently losses of tax revenues. More damaging for the overall
economy is the fact that firms operating within the law and in good faith
find it impossible to operate in an environment where they are constantly
undercut by those operating outside the law. This inevitably leads to job
It is against this background that we have decided to lower the existing
rates of 37,5 per cent and 32,5 per cent to 15 per cent. As far as motor
cycles are concerned, the rates will be lowered from 32,5 per cent and
17,5 per cent (which applies to cycles with a cylinder capacity of less
than 800cm3 ) to 15 per cent and 7,5 per cent respectively.
We have budgeted for a loss of revenue of R150 million. However, we
believe that these measures significantly reduce the incentive for smuggling,
which would mean that losses would be partially offset by improved collections.
The relaxation of exchange controls announced in this Budget has tax
implications. Although the Katz Commission has addressed this matter in
the course of its investigations, we will be introducing the following
interim measures to protect our tax base in the short term.
The existing provisions of the Income Tax Act which deal with the deeming
of the source of income, will be extended to include passive income, namely
interest, royalties, annuities and rentals not presently deemed to be from
a South African source. The effect of this is that South African residents
be they corporate or individual will become subject to tax in South Africa
on passive income, regardless of the source, from the date that the exchange
controls are relaxed.
The deeming provisions would, however, exclude passive income which
is effectively connected with an active business operation (permanent establishment)
conducted by a South African resident through a fixed facility outside
Managing Government debt
In line with our approach to govern better, we have embarked on a major
project to improve the management of government's assets and liabilities.
As part of this project a framework for risk management has been developed
and adopted and a two-phased implementation strategy is underway. The strategy
has two key objectives: to improve debt and cash management so as to reduce
debt service costs; and to improve the structure and liquidity of the domestic
financial markets through a series of market reforms.
Phase one of the project which entails the ring-fencing of the funding
operations that the Reserve Bank performs on behalf of the Department of
Finance is currently being implemented.
Phase two entails the appointment of a number of primary dealers in
government stock. This requires a close working relationship with market
participants and its success depends on our ability to address some of
the structural and liquidity issues which characterise our financial markets.
To this end a workshop was held on 7 February 1997 between the Department
of Finance and a wide range of market participants.
A number of issues were identified and several working groups were tasked
with doing further work on a number of these issues and report back by
the end of March 1997.
On the asset side the focus has been primarily on cash management. Cabinet
has now granted approval for the formal establishment of a cash management
function within the Department of Finance.
Despite higher than foreseen nominal capital and money market interest
rates and the depreciation of the rand, the cost of servicing government
debt for 1996/97 is estimated to remain within the budgeted R34,4 billion.
The projected budget deficit for 1996/97 remains at 5,1 per cent.
The projected budget deficit for 1997/98 is R24,771 billion, or 4 per
cent of GDP. This deficit is in line with the commitments we made in the
GEAR. Unlike previous years when extra-ordinary revenues were included
in the calculation of the deficit, for 1997/98 we have only considered
ordinary revenue in the calculation.
After taking into account scheduled loan redemptions of R12,278 billion
and other items, the gross loan financing requirement for 1997/98 amounts
to R36,849 billion.
For the 1997/98 financial year we estimate that the cost of servicing
government debt will be R39,6 billion. This includes debt service costs
in respect of the former TBVC states and self-governing territories, which
have been taken over from provincial governments. Debt service costs are
21 per cent of the total estimated expenditure for 1997/98, and 6,4 per
cent of GDP compared with the revised estimate for 1996/97 of 6,5 per cent
What this means in very simple terms is that for every rand of tax we
collect, about 24 cents is spent on interest on government debt. This
leaves 76 cents to be divided up between all other government programmes.
Clearly this situation is both untenable and unsustainable.
The first charge against government revenue is interest on government
debt. The bigger our deficit, the more we have to borrow, the higher the
interest bill and the less money there is available to invest in social
development, in poverty relief and in the development of our human resources.
It is for this reason that reducing our debt burden is important. It is
important because it will free up the resources we need to create a better
life for all.
The commitment to better government is captured in our approach to government
finances. In relation to state debt we have committed ourselves to reducing
the overall level of government borrowing and thereby reducing over time
the burden of debt service costs which constrain our ability to increase
expenditures on social development. We also deliver on our commitment to
improving the lives of ordinary South Africans by reducing the tax burden
for low and middle income earners.
In addition we deliver on our commitment to improve the competitiveness
of the South African economy by halving the rate of marketable securities
tax, thereby bringing it line with some of our major trading partners.
This Government has set itself the task of transforming our country
from its unequal past to one which provides for the needs of all its people.
In the parlance of this House, " a better life for all". The
budget which we table here, makes huge strides towards this objective.
This Budget is a tough budget - it demands substantially more austerity
from government than many of its forerunners have - yet it does not sacrifice
the fundamental objective of transformation. This year, as we have said
repeatedly, is a year of consolidation. Our budget deficit, at 4 per cent
of GDP, reflects this, as per our commitments made in this House in June
The realisation of this budget framework can be attributed to four distinct
- Firstly, the deficit target has been achieved in an environment of
no new taxes, and no net tax increases. In fact, for the first year in
many, we have been able to provide tax relief to working people. In respect
of taxes, our endeavour is to turn our commitment to tax equity into reality
by improving on the efficiency of our tax collection and administration,
and by the improved policing of our tax laws. Tax dodgers and customs fraudsters
are guaranteed more attention.
- Secondly, there is significantly better targeting of expenditure programmes
on poverty relief, infrastructure development, human resource development
and crime prevention each adds to the picture of a government which has
exercised choices in policy priorities. Similarly, the budget lines which
have been cut add to the total picture.
- Thirdly, there have been substantial improvements in the overall management
in government - the management of cash, of assets, of procurement and of
logistics, have all been enhanced to ensure that South Africa's taxpayers
receive better value for money.
- Fourthly, we now have cooperative governance. The operations of "Team
Finance" in the Budget Council and in the general interactions between
ourselves, despite the fact that three different political parties are
represented and each MEC fights tirelessly for the interests of his Province,
bodes well for the future of cooperation. We should not lose sight of the
importance of this cooperation especially in this year of consolidation
when, in both real and nominal terms, some provinces and national departments
are faced with major cuts in available expenditure.
It is appropriate that I record my profound gratitude to a number of
groups and individuals who have made this, my first, Budget possible:
- First, my deepest gratitude goes to Deputy-Minister Gill Marcus, who
shared with me a baptism of fire as we lived through the enormous currency
volatility during our first year in this office;
- Secondly, that new entity, the living embodiment of cooperative governance
which I have named "Team Finance" , is given form by the active
participation of the nine MEC's for Finance;
- Thirdly, to those individuals who have given so much of their valuable
time - Dr Stals and the senior management of the SA Reserve Bank; Mr Murphy
Morobe and Financial and Fiscal Commission; Mr Jayendra Naidoo and Nedlac;
and Prof Michael Katz and the members of the Katz Commission stand out
- Fourthly, I want to thank Mr Chris Liebenberg my immediate predecessor
for his guidance and support.
- Fifthly, to the Directors-General of the three departments which report
to us: Mr Hannes Smit of the Department of State Expenditure, Mr Piet Liebenberg
of the SA Revenue Service and Ms Maria Ramos of the Department of Finance,
and to their teams for the tireless effort and professional advice from
which we have benefited so much during this past year;
- Sixthly, each one of you for your patience in listening to us this
Lastly, I need to thank you, Comrade President, Comrade Deputy President,
and all of my Cabinet colleagues, for your support and understanding in
the formulation of this Budget, and for your encouragement during the difficult
period through which we have passed.
In fact, I place before you far more than a statement of revenue
and expenditure priorities for debate. What we have here is an
instrument by which the commitment and performance of Government can
be measured. It is simultaneously an instrument for the transformation
of our country from its past to the place where every one of us and
millions of other good men and women will want to live and flourish. I
have no doubt that the tighter fiscal environment has challenged us to
respond to the wider social needs differently, compelling us to
prioritise our policies and reprioritise our expenditures, within and
between our budget lines. This is what transformation is about.
I thank you.