Amid a global economic outlook which continues to remain uncertain, the Minister of Finance Pravin Gordhan today presented a circumspect, yet upbeat Budget Speech detailing how the infrastructure projects highlighted by President Jacob Zuma earlier this month would be funded.
Gordhan also called on South Africans – including the corporate sector which has millions locked up in savings – to take advantage of opportunities in emerging markets and in the continent.
Revenue for 2012/13 is forecast at R904.8bn – 27.4% of gross domestic product (GDP) – and expenditure at R1.058 trillion, resulting in a budget deficit of 4.6% of GDP for the 2012 financial year.
But Gordhan said the country’s finances remain in good health, and pointed out that the deficit would be brought down to three percent of GDP by 2014/15.
Government borrowing is also expected to moderate as the economy recovers and as fiscal consolidation proceeds, with public debt peaking at 38.5% by 2014 – up from 36% in the next financial year.
He also revealed that while 365 000 jobs were added in the year to December 2011, unemployment remained high at 23.9%.
Over the next three years, imports are projected to grow quicker than exports, such that the deficit on the current account would widen from 3.3% in 2011 to 4.4% in 2014.
Inflation is expected to rise from five percent in 2011 to 6.2% this year, before tapering off to 5.1% in 2014.
South Africa’s projected inflation this year however is lower than the average expected for sub-Saharan Africa (8.3%) and in line with that of emerging economies (6.2%).
Gordhan also announced R9.5 billion in personal income tax relief; revealed further measures to increase tax compliance; announced tax credits for medical-aid scheme contributions and proposed measures to get households to save more.
He said changes to procurement policies and practices would be made and tough enforcement introduced to tackle fraud and corruption.
Financial management in the public sector would also be strengthened to ensure that taxpayers’ money is used effectively.
The bulk of the government’s R1.06 trillion would, as in previous years, be spent on education, health and social assistance.
Much of this is helped by the additional R55.9bn the government has collected, to spend over the next three years.
This includes an additional R9.5bn for an economic competitiveness and support package – with R2.3bn of this going to special economic zones – R6.2bn for job creation and R3bn to fund the equalisation of subsidies to no-fee schools and the expansion of access to grade R.
One billion would also be allocated under this new amount, for national health insurance (NHI) pilots projects.
Other significant amounts include R4.7bn to be spent on solar-water geysers, R4bn for passenger rail coaches, R3.9bn to upgrade informal settlements, R1.8bn for municipal water infrastructure, R1.4bn for early childhood development and R1bn for rail signalling and depot infrastructure.
Government spending is expected to reach R1.1 trillion next year – double what the government spent in 2002/2003 in real terms.
Gordhan said the state would have about R4.5 trillion in consolidated resources available over the next three years, which would help fund its key infrastructure projects.
Tax revenue for the 2011/12 year has been revised up by R2.9bn – to R738.7bn and the National Treasury expected to collect R828.7bn in the next financial year (2012/13).
Revenue from tax would stabilise at about 25% of GDP, while public sector borrowing is expected to decline from 7.1% of GDP in 2011/12 to five percent in 2014/15.
Gordhan said South Africa had to seize the opportunities presented by the changing world – which has seen massive economic growth in emerging countries, particularly India and China – while growth in advanced economies remains lack lustre.
He said in the last five years, the Chinese economy had expanded by 60% and India by 45%, but that advanced economies had barely shown positive growth.
“As a major mining economy, we should be benefiting more from the continued buoyancy in commodity markets internationally. We also need to take advantage of rising demand for agricultural and manufacturing goods,” he said.
He pointed out that about 85 million manufacturing jobs in China are expected to shift to other countries over the next few years.
“Do we have the right policies, conditions and boldness to enable South African businesses to gain from these intense shifts in the patterns of production and trade?” asked Gordhan.
The African continent presented another growing opportunity for South Africa.
He pointed out that Africa, is expected to be the second fastest growing region in the world – with sub-Saharan Africa growing at 5.5% this year, compared to Asia’s 7.3%.
“As well as developing South African business interests in the continent, we should use the strength and sophistication of our financial system to turn our country into a true gateway for investment into, and development of, Africa,” he said.
He called on a more dynamic partnership between the government, the private sector and civil society to take advantage of opportunities across Africa and the globe.
Gordhan also touched on Vision 2030, outlined in the National Development Plan, which is now receiving comments from the public before it is expected to go before President Jacob Zuma in the middle of this year.
Vision 2030 calls for among other things – lowering costs for households and businesses, increasing public infrastructure spending, growing the manufacturing and agricultural sectors, raising mining output, raising competitiveness and exports and improving the labour market.
In a media briefing before his speech today, Gordhan said if South Africa is to reduce inequality, all South African also had to ask themselves what they were prepared to sacrifice.
Big spend on education
South Africa’s spending on education continues to grow with Finance Minister Pravin Gordhan today announcing an allocation of R207 billion to the sector with projections that this may rise to up to R236 billion over the next three years.
Delivering his Budget Speech in Parliament, Gordhan said provincial education spending was expected to grow by 5.9% over the next three years from R169.9 billion this year to R183.8 billion in 2015.
Government will further spend over R18 billion of the money towards boosting learner subsidies for no- fee schools and expanded access to Grade R. Authorities say learner performance in literacy and numeracy remained a challenge as shown by the national assessment of all Grade 3 and 6 learners conducted last year. The assessments identified problem areas in each school and allowed for tailored interventions to be made with R235 million set aside in the budget for this purpose.
About R850 million has been set aside towards improving the country’s university infrastructure including student accommodation facilities. The National Student Financial Aid Scheme, which has helped poor students at tertiary institutions with loans, will receive more than R17 billion over the next three years.
Also, a Green Paper on Higher Education, released earlier this year, further makes commitments by government to build two new universities in Mpumalanga and the Northern Cape to address the challenge of space at the country’s tertiary institutions.
While he made no mention of the project in his speech today, Gordhan did tell reporters earlier that work was currently at an advanced stage pointing out that R300 million was provided in the fiscus for planning and design of the universities. Further financial commitments will be made as the projects get off the ground.
A further R1.4 billion will be spent over the next three years to support early childhood development programmes and implementation of the community-based childcare and protection programme. This will increase access to early childhood development from the current 500 000 to 580 000 children with a focus on rural areas with expectations that more than 10 000 youth will be employed as a result of the programme.
R1bn pumped towards NHI
Government has moved one step further towards the establishment of the massive National Health Insurance scheme for South Africa, with Finance Minister Pravin Gordhan today announcing an allocation of R1 billion to the scheme’s pilot projects.
The money comes from the R121 billion health budget which aims to improve hospital infrastructure and strengthen the public health system ahead of the introduction of the NHI, which will be phased in over a period of 14 years, starting this year.
Government has said the new system will provide equitable health protection for all South Africans.
In his presentation of this year’s national budget in the National Assembly, Gordhan also announced today that R450 million has been put aside to upgrade about 30 nursing colleges, while a further R426 million is allocated for the initial work on rebuilding five major tertiary hospitals. They are Chris Hani Baragwanath Academic in Johannesburg, King Edward in Durban, George Mukhari, Limpopo Academic and Nelson Mandela Academic in Mthatha.
Also, the national Department of Health will this year complete an audit of all health facilities in the country and was working with the Council for Scientific and industrial Research and Development Bank of Southern Africa to develop what is called a targeted response to the infrastructure needs of the sector.
Health Minister Aaron Motsoaledi acknowledged today that it would take some work to finally get the NHI to where the government wants it to be.
“That is why we are giving ourselves a period of 14 years but we do acknowledge that we have to start somewhere and I must emphasise that by piloting we putting down the bricks and we getting everything ready,” he said.
There were two “preconditions” that would make NHI work in South Africa and these were the overhaul of the quality health care system and strict regulations of the sector to make it more affordable to all South Africans.
“When we say we want to regulate pricing, it does not mean we are unfair to the private sector. What we saying is that you can’t discriminate against people based on price just because the public health system is so poor,” Motsoaledi said.
In the interim, general taxes will remain the primary financing of the NHI projects while new funding resources will be explored over the long term depending on the progress of institutional reforms and health delivery capacity.
Preliminary modelling suggests that full implementation of the system may be realised by 2025 but this will require financing to rise from 4% of the GDP to 6%. A discussion paper on revenue option will be released later this year, together with other associated transitional issues including the role of medical schemes.
To accommodate provisions of HIV drugs, the budget makes R968 million available over the next three years. The move is expected to bring up the number of antiretroviral recipients from 1.5 million last year to about three million by 2015.
Massive increase in social spending, grants
As government finds ways to grow an economy that may eventually produce much needed jobs, spending on social assistance will rise sharply in the next three years from R111.2 billion this year to a projected R129 billion in 2015.
The increase will cater for an expected rise in the number of social grant beneficiaries from 15.6 million this year to 16.8 million in three years. More than 10 million of these are children.
Tabling this year’s Budget in Parliament today, Finance Minister Pravin Gordhan said expenditure on social grants will grow from R105 billion in the current financial year to R122 billion in the next three years.
As from April, old age pensioners will get R1200 while foster care grants increase by R30 to R770 and child support grant to R280. Gordhan suggested that the increases may need to be reassessed if inflation continued to rise.
Earlier, Gordhan told reporters that social assistance still remained crucial in ensuring that the poor were cushioned from the effects of poverty which arise mainly from the high employment rate.
“Investment in our people is something that is very crucial to us in overcoming our legacy, without these measures and the support given to our people, the level of poverty and inequality would be much worse and South Africa would find its self in even a worse situation,” he said.
However, while government had expanded social assistance to households over the past decade, employment and economic growth have to be the main economic drivers of income growth and poverty reduction.
South Africa’s social assistance expenditure increased at an average annual rate of 11% between 2008 and this year. During the same period, there was an 11.4% reduction in the number of disability grant beneficiaries, with officials attributing this to an improved assessment process.
But Government says despite the rapid growth in the number of social grant beneficiaries in recent years, spending on grants may decline from 3.5% to 3.2% in 2015. This is because there are no major grant increases planned for the next three years and also economic growth is expected to outpace growth in the number of recipients.
A green paper, to be published this year, will propose major social security reforms for the country. These will include a recommendation that the present fragmented arrangements be replaced by an integrated contributory social security system that includes provision for a basic retirement pension and shared death, disability and unemployment insurance for all workers.
Meanwhile, Gordhan said a series of discussion papers will be released this year focusing on promoting household savings and reforming the retirement industry.
“Consultation with the industry, employers and trade unions will take place on these reforms”.
Included in the issues is improved governance over pension funds, including measures to eliminate corruption and fraud. The main proposal is to establish a mandatory statutory fund to provide pensions, life insurance and disability benefits. In the absence of such a fund, government says a large number of occupational and voluntary schemes had been established but these fail to protect a majority of workers.
“The proposed national social security fund will be based on the principle of solidarity, risk will be shared across the workforce and the state will stand behind the fund”. – BuaNews
