Mr. President, you outlined our program of action in your State of the Nation address two weeks ago. Mr. Speaker, there are encouraging signs of stronger recovery in the global economy as we enter 2011. By the end of the century, developing countries accounted for about 20 percent of global output.
Macroeconomic stability in an uncertain world
Exchange rate movements affect different sectors of the economy in different ways and pose macroeconomic policy problems for many countries. Together with uncertainty and volatility in global financial markets, this contributed to the depreciation of the rand. However, too rapid currency depreciation poses a risk to macroeconomic stability, so we expect the central bank governor to be vigilant in monitoring inflationary pressures and ensuring that monetary policy is effective in achieving our inflation targets.
Transformation of the financial sector
The fiscal framework
Division of revenue
National departments are allocated 47 percent of the total, provinces 44 percent and municipalities just under 9 percent. National transfers to local government have increased significantly and will amount to more than R70 billion in budget support and infrastructure grants in the year 2011/2012. Speaker, the proposed medium-term spending framework is structured to deliver on the government's policy priorities, in line with supply agreements.
The 2011 budget makes R94 billion available in addition to the base allocations over the next three years. Savings of R30.6 billion were identified, of which R21.6 billion was reallocated within departmental baselines to meet existing commitments. Part of this revision of base allocations is the carryover cost of the 2010 wage agreement, which requires an additional R39.4 billion in employee benefits over the MTEF period.
Consolidated government expenditure
Including adjustments to teacher pay, a total of R24.3 billion will be added to education and skills spending over the next three years, rising from R190 billion next year to R215 billion in 2013/14. Total spending on public health services has risen sharply over the past three years, from R63 billion in 2007/08 to R113 billion projected for next year. Total HIV/AIDS Comprehensive Conditional Grant expenditure will be R26.9 billion over the MTEF period, based on an increase in
A total of R12.8 billion goes to the Departments of Police, Justice and Constitutional Development, Correctional Services and the Independent Complaints Directorate. Additional allocations of R2.2 billion are earmarked for these functions, including a further R400 million for the Comprehensive Agricultural Support Program and grants for the Land Supply Program to enable a further 5 000 new members of the National Rural Youth Service. Minister Ndebele's vote sees additional allocations of R10.3 billion for MTEF for transport infrastructure and services.
This includes R3.8 billion for the maintenance of the coal transport road network, funded by increased electricity taxes collected by Eskom. An additional $1.5 billion is going to the provinces for road and weighbridge maintenance as part of a new conditional grant for road infrastructure. R800 million in funding has been set aside over the next three years for "green economy" initiatives.
A total of $2.2 billion has been allocated to environmental employment programs over the medium term and the funding is secured by Minister Molewa's vote to host the Climate Change Conference in November this year. A further R3.6 billion is added for water infrastructure and services, including funding for the threat of acid water drainage associated with abandoned underground mines. A new urban settlement development grant contributes R21.8 billion over the next three years to these projects.
Revenue estimates and tax proposals
As in previous years, inflation-related increases will be made to the monthly thresholds for deductible payments to medical schemes. These deductions and those for qualifying medical expenses are converted to tax deductions effective March 2012. From March 2012, an employer contribution is treated as a taxable benefit, and employees are allowed to deduct up to 22.5 percent of taxable income for contributions to approved pension funds.
As of April 2012, all winnings above R25,000, including National Lottery payouts, are subject to a final withholding tax of 15 percent. The fiscal and financial implications of health system reform and alternative sources of income will be examined in the coming year. Dividend arrangements that undermine the tax base are closed by treating the dividends in question as ordinary income.
The approach will be refined to facilitate greater access to equity financing by small and medium enterprises and junior mining companies. From March 2011, the turnover tax for micro-enterprises with an annual turnover of up to R1 million will be adjusted so that tax will only be payable if turnover exceeds R150 000 per year. Consideration will be given to extending such incentives for labour-intensive projects in Industrial Development Zones (IDZs).
From October 1, 2011, the increase in the departure tax of air passengers for flights to international destinations will come into force.
Measures to combat fraud and corruption
We are also exploring, in collaboration with the tobacco industry, a new method of marking and authenticating legal cigarettes with a counterfeit-resistant digital system to replace the current one. Speaker, the sector most visibly affected by the illicit economy in recent years has been the clothing and textile industry, resulting in significant job losses in local factories. In the coming months, a multi-disciplinary task team, comprising representatives from the manufacturing, import and retail sectors and a range of public sector stakeholders, will begin interventions across the supply chain to address the illicit importation of clothing and textiles.
Government departments will be required to introduce strict demand management procedures, including the submission of advance tender programs for the next financial year to the relevant treasury authority. Limits will be prescribed for variation orders, to limit significant changes to procurement orders and align our system with international standards. Companies bidding for tenders will be required to disclose the identity of all directors, to determine whether any of the directors are public servants or non-tax compliant.
SARS has also increased its analytical capacity with the aim of ensuring that vendors who win government contracts fully comply with their tax obligations. By the end of January 2011, SARS had identified around 13 000 vendors who had been awarded government contracts and who owed taxes of more than R1 billion. Mr. Speaker, we have a shared responsibility to prevent corruption and we call on all citizens to blow the whistle on corruption and to report any procurement irregularities to the relevant authorities.
Infrastructure investment, city planning and development finance
While infrastructure spending ahead of the FIFA World Cup helped cushion the impact of the recession on South Africa, there has been a marked deterioration in the country's construction spending over the past year. The challenge of public finances is to balance investments in expanding city capacity while providing key public services – electricity, water, sanitation, garbage collection and public transport. The function of public transport, including railway management, was transferred by the Ndebele minister to metropolitan municipalities under the National Land Transport Act.
Members will remember that in last year's budget we agreed to support an expanded lending capacity for several development finance institutions. So far, R1.7 billion has been transferred to the Landbank and its finances are improving. Land Bank's board has decided to step up the bank's support for new farmers.
In collaboration with the Departments of Rural Development and Land Reform, and Agriculture, Forestry and Fisheries, steps are being taken to turn failing farms transferred to emerging farmers under the land reform program into successful business ventures. The lending capacity of the Development Bank of Southern Africa has also been increased by means of an interim guarantee while processing the necessary legislative change. Including the investment and lending capacity of the Industrial Development Corporation, our development finance institutions are poised to significantly expand funding over the next three years.
The challenge is to ensure that available resources are allocated effectively and efficiently, to contribute to increasing productive capacity and to complement the investment activities of the wider financial sector.
Conclusion
Our agreement is that the delivery capacity and excellence that we mobilized nationally to build stadiums and host the World Cup will be the benchmark for undertaking these initiatives. Thanks also go to the MECs for Finance, who play a vital role in managing over 40 percent of the budget. NEDLAC, its Managing Director, Herbert Mkhize, and representatives of the business, labor and community sectors in the Chamber of Public Finance and Monetary Affairs.
The Honorable Thaba Mufamadi and the Honorable Charel de Beer who respectively chair the Standing and Select Committees on Finance and to the two Chairmen of the Appropriations Committees, the Honorable Eliot Sogoni and the Honorable Teboho Chaane. Lesetja Kganyago and the National Treasury team, who continue to exceed their own high standards and remain wonderful examples of loyal and professional public servants, and are an invaluable asset to our democratic state. Once again, my sincere appreciation to the wide variety of South Africans who give positive feedback and ideas on how the government can work better and differently.
Now is the time for all of us to say "making South Africa work starts with you and me". Giving every South African the dignity of a job, the security of income, the prospect of training, the support to start new businesses, the confidence to be an entrepreneur and the sheer passion and optimism to break the shackles of unemployment - is the best legacy this generation can leave for the future. Our job is to transform these opportunities into real, tangible results that all our people can experience and call their own.
The latter is not sustainable;. the government pond in twenty years will never be able to supply a greater quantity of fish in this country to the ever-increasing multitude of people than it does now.
