We've come a long way over the last five years, in a very difficult post-recession climate. In fulfilling our aspirations in the Freedom Charter, we have a clear and comprehensive vision for South Africa in 2030, a plan for higher growth, decent work and greater equality – the MDG. We have spent $41 billion on HIV and AIDS programs over the past five years, and $43.5 billion is budgeted over the next three years.
Spending on infrastructure amounted to R1 trillion over the past five years and will be R847 billion over the next three years. We have also made progress in improving access to education over the past five years.
Global situation
Amendments will be made to the tax system for venture capital companies, and the rules related to access to foreign capital will be eased to improve support for entrepreneurial development. Subject to appropriate tax treatment, amendments to the intellectual property rules will be made as part of this reform. As a complementary measure, grants received by small and medium-sized enterprises will be tax-free, regardless of the source of funds.
The G20, new global turbulence and emerging markets
South Africa’s economic outlook
The African continent is expected to grow at about 6 percent per year over the next two years. Investment is expected to grow at about 5 percent per year and the current account deficit will average 5.8 percent of GDP over the medium term, while consumer price inflation will return to levels within the target range between 2015 and 2016. Potential domestic risks to the outlook include further delays in the introduction of new infrastructure, particularly additional electricity capacity, higher inflation due to the weakness of the rand, and ongoing labor disputes that could undermine consumer and business confidence.
Boosting growth
As announced by President Zuma, Parliament is finalizing amendments to give effect to this very positive development which will reduce the time it takes to start a mine from application to final approval to less than 300 days. Further work is underway to lower the cost structure of the economy, for example through improved efficiency in freight logistics. Minister Carrim has published a new policy on broadband, which over time will lead to the modernization of our communications capabilities.
SARS is taking further steps to reduce the cost of tax compliance in South Africa. In 2012, 12 percent of our dividends came from Africa, compared to just 2 percent a decade earlier. The HoldCo regime for African and offshore operations will be extended to unlisted companies, and restrictions on listed companies will be increased.
South Africa is an important center for financial services such as funds and wealth management. These funds will support South Africa as a hub for the management of African funds and provide a nationally regulated channel for investors to gain foreign exposure. In collaboration with Minister Davies and the Department of Trade and Industry, a holistic framework for investment is being finalised.
This framework flows from the National Development Plan, which places investment at the center of our economic growth plan.
The fiscal framework and long-term sustainability
This regime creates a simplified tax and currency framework for companies trading with Africa. Increased investment in the economy by the private and public sector is at the heart of job creation and growth. These trends reinforce the need to moderate public spending, reduce the budget deficit and ensure that public sector debt stabilizes relative to GDP.
Non-interest expenditure plans are unchanged over the medium term, leading to real spending growth of around 2 percent per year. Over the past decade, government spending has doubled in real terms, financing a major expansion of the social wage that now stands at 57 percent of consolidated spending. Our Constitution requires government to devote increasing resources to a rising floor of social and economic rights.
In a period of weak economic growth, the sustainability of public finances is inevitably put to the test. Our debt portfolio is well structured, with foreign currency debt limited to around 10 percent of total debt. Broader sustainability in the public sector is supported by large surpluses from social security funds, a fully funded pension system for public servants and the improved balance sheets of state-owned enterprises.
With these pressures in mind, the government has adopted a balanced fiscal stance that continues to support the economy, but sets a stronger course for fiscal consolidation.
Tax policy, savings and small business support
Legislation enabling tax-exempt savings will continue this year to encourage household savings. As a supplement to this tax reform, the Ministry of Finance will introduce a new top-up savings bond this year, which will enable regular deposits into government bonds by the population. The Income Tax Act currently requires philanthropic institutions to distribute 75 percent of the money they generate in a year.
This requirement is unduly restrictive and will mitigate, while ensuring that the accumulated capital is distributed to worthy purposes within a reasonable time. Regulatory and other measures have been put in place to address the environmental consequences of acid mine drainage. To complement current efforts and ensure that the mining sector contributes fairly to the continued costs of acid mine dewatering, consultations will be launched on an appropriate funding mechanism.
To allow for further consultation, the implementation of the carbon tax is delayed by a year to 2016. Reforms to the tax treatment of risk business for long-term insurance companies are also proposed. Profits from a long-term insurance company's risk business will be taxed in the enterprise fund, in the same way that short-term insurance companies are taxed.
In 2014, they will deal with the impact of the tax system on economic growth and job creation, as well as aspects of VAT, mining taxes and property taxes.
Tax administration
The committee has also begun work on base erosion and profit shifting – trends that are under international scrutiny. For example, one of South Africa's ports of entry is being prepared as a pilot for seamless border management, which will lead to improved border control and trade facilitation.
Improving the quality of public services and cutting waste
The one-stop border post at Lebombo will be operational soon after the remaining formalities are completed. Budgets for consultants, travel, accommodation and meeting venue hire have been reduced, which will contribute to savings over the next three years. Mr Speaker, I referred in 2012 to an initiative to be undertaken together with Minister Nxesi and his department to review the validity and cost effectiveness of all government property leases.
As a result of this initiative, DPW now has a turnaround strategy that will enable it to streamline its rental portfolio while ensuring continuity of service for client departments. He will review high value contracts and strategic contracts to ensure that value for money is derived and that all contracts comply with relevant regulations. We are also aware of the importance of government procurement in supporting local industry and the development of the black economy.
This requires a database of South African products and black-owned businesses so that the system can drive economic empowerment and contribute dynamically to growth. And further, tougher measures are being considered to enforce the rule that especially small businesses must be paid within 30 days.
Indebtedness, savings and retirement reform
South Africa has made good progress towards the NDP target of 90% access to financial services by 2030. Many more households have access to affordable credit, which is very useful if used productively, but bad if used to finance excessive consumption. The Cabinet therefore approved a number of measures to help such households reduce their debt burden and to root out abuses and fraud by unscrupulous lenders and unscrupulous debt collectors.
In cooperation with the Ministers of Trade and Industry and Justice, we will soon take action against abuses and unsustainable practices. Parliament has already passed legislation to improve the management of pension and provident funds and to align the rules and tax treatment of pension and provident funds, while protecting acquired rights. We are still striving for better coverage and retention of pension funds and for lower costs in the system.
We are currently consulting within NEDLAC on measures to cover the 6 million employed South Africans who do not have access to an employer-sponsored pension scheme. An agreement has been reached with the Association of Savings and Investment of South Africa on a way forward to reduce the level of levy on pension savings products.
Conclusion
Almost universal school enrollment and the steady increase in average years of education for both men and women have improved the life prospects of millions of South Africans. Black participation in the economy expanded and there was a transformation of the middle class. There are still fault lines that run deep into the social fabric of our communities and trends in the political landscape.
The economy must offer many more opportunities and the state and the private sector much more support for businesses and entrepreneurs. Mr. President, thank you for your leadership and for the opportunity to serve the government and the people of South Africa. My appreciation to cabinet colleagues who collectively own this budget and the programs they implement.
Governor Marcus and the Deputy Governors of the Reserve Bank have wisely managed monetary policy in an unstable environment. Senior managers and staff in the National Treasury who have risen to the challenges of a post-recession South Africa and remain committed to excellence in public service. The Chairmen, Boards, Managing Directors and staff of DBSA, Land Bank, PIC, Financial Services Board, Financial Intelligence Center and Government Pension Administration Agency for their excellent work.
I also thank all Members of this House and the Presidents of Parliament for their cooperation and support.
