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Budget Speech 2020

3. Towards an economic strategy


Last year, the Government embraced the ideas contained in the document Towards an Economic Strategy for South Africa. This is our plan, and it contains the basic and fundamental pillars of our approach:


1. Strengthening the macroeconomic framework to deliver certainty, transparency and lower borrowing costs
2. Focusing spending on education, health and social development
3. Modernising "network industries" and restructuring our state-owned enterprises
4. Opening markets to trade with the rest of the continent
5. Implementing a re-imagined industrial strategy
6. Lowering the cost of doing business
7. Focusing on job-creating sectors, such as agriculture and tourism


Underpinning all of this is the need for an efficient and capable state. We must also leverage the private sector as far as possible.


Today, we report on our progress. "We are moving forward!"


3.1. Prudent Fiscal Policy


3.1.1. Outline of the Budget for 2020/21


A sound macroeconomic framework always lays the foundation for growth. Budgets are complex, but the numbers are simple. The numbers show that we have work to do.


For 2020/21, revenue is projected to be R1.58 trillion, or 29.2 per cent of GDP.


Expenditure is projected at R1.95 trillion, or 36 per cent of GDP.


This means a consolidated budget deficit of R370.5 billion, or 6.8 per cent of GDP in 2020/21.


2020 Budget Speech Gross national debt is projected to be R3.56 trillion, or 65.6 per cent of GDP by the end of 2020/21.


3.1.2. Tax Adjustments


To support growth, we propose no major tax increases. Indeed, there is some real personal income tax relief. This Budget means that a teacher who earns on average R460 000 a year, will see their taxes reduced by nearly R3 400 a year.


Hard-working tax payers, who earn on average R265 000 a year, will see their income tax reduced by over R1 500 a year.


Our income tax system is progressive, and the adjustments reflect this. Someone earning R10 000 a month will pay 10 per cent less in tax. Someone earning R100 000 a month will pay about 1.5 per cent less.


We are also proposing broadening the corporate income tax base. This additional revenue will be used to reduce the corporate tax rate in the near future to help our businesses grow.


Start-ups will ignite the economy. The tax system supports them in a number of ways, including the preferential small business tax regime, the VAT registration threshold and the turnover tax. We will review these to improve their effectiveness while at the same time reducing the scope for fraud and abuse.


To support the property market, the threshold for transfer duties is adjusted. Property costing R1 million or less will no longer be subject to transfer duty.


There will be a renewed focus on illicit and criminal activity, including non-compliance by some religious public benefit organisations. Religious bodies must operate within the strict boundaries of the law if they are to enjoy tax exempt status. The annual tax free savings account contribution limit rises to R36 000.


We have increased excise duties to keep pace with inflation. From today:


A 340ml can of beer or cider will cost only an extra 8c
A 750ml bottle of wine will cost an extra 14c
A 750ml bottle of sparkling wine an extra 61c
A bottle of 750 ml spirits, including whisky, gin or vodka, will rise by R2.89
A packet of 20 cigarettes will be an extra 74c
A 25 gram of piped tobacco will cost 40c more
A 23 gram cigar will cost an extra R6.73


I am again happy to report that there is no increase in the price of sorghum beer.


In line with Department of Health policy, we will start taxing heated tobacco products, for example hubbly bubbly. The rate will be set at 75 per cent of the rate of cigarettes. Electronic cigarettes, or so-called vapes, will be taxed from 2021.


To adjust for inflation, the fuel levy goes up by 25 cents per litre, of which 16 cents is for the general fuel levy and 9 cents is for the Road Accident Fund levy.


Despite this increase, the liabilities of the RAF are forecast to exceed R600 billion by 2022/23. We need to take urgent steps to reduce this risk to the fiscus and bring about a more equitable way of sharing these costs. One option is to introduce compulsory third-party insurance.


The carbon tax and other measures will help green the economy, and will bring in R1.75 billion over the next few months. This will be complemented by more focussed spending on climate change mitigation. We remain extremely concerned about plastic bags throughout the length and breadth of our country. In this regard, we have increased the plastic bag levy to 25 cents.


3.1.3 Reducing structurally high spending


Madam Speaker, our measures will support growth.


But fiscal sustainability must be uppermost in our mind.


Our Aloe Ferox can withstand the long dry season because it is unsentimental. It sheds dead weight, in order to direct increasingly scarce resources to what is young and vital.


Total consolidated government spending is expected to grow at an average annual rate of 5.1 per cent, from R1.95 trillion in 2020/21 to R2.14 trillion in2022/23. This is mainly due to mounting debt-service costs. Non-interest spending declines on average over the MTEF in real terms.


As a major step towards fiscal sustainability, today we announce a net downward adjustment to main budget non-interest expenditure of R156.1 billion over the next three years relative to the 2019 Budget projections.


The total reduction is mainly the result of lowering programme baselines and the wage bill by R261 billion. These are partially offset by additions and reallocations of R111 billion. Of this, more than half, or R60 billion, is for Eskom and South African Airways.


3.1.4 Programme Spending Adjustments


Let me unpack the R261 billion in baseline spending reductions.


The first part is adjustments on programme spending of about R100 billion. Some of these were announced in the MTBPS.


Adjustments are mainly in conditional grants for provinces and municipalities. For human settlements, adjustments amount to R14.6 billion over the MTEF.


There are also adjustments of R2.8 billion to the municipal infrastructure grant.


Over the three years, public transport spending is adjusted by R13.2 billion, mainly on allocations to the Passenger Rail Agency of South Africa and the public transport network grant. The planning and implementation of integrated public transport networks will consequently be suspended in the Buffalo City, Mbombela and Msunduzi municipalities.


Education infrastructure allocations are adjusted by R5.2 billion over the medium term, while health is adjusted by R3.9 billion over the same period.


While some of these savings are good for the fiscus, in many cases we are also making difficult and painful sacrifices. It is therefore important that we direct our constrained resources to areas that have a high social impact and have the largest economic multipliers.


We shall undertake spending reviews to ensure that we achieve this objective.


3.1.5 The wage bill


The second part is adjustments on the wage bill by about R160 billion over the medium term.


Public servants do crucial work for our country, often in trying conditions. The governing party is a firm believer in the critical role of the state in development. For this reason, we need qualified, motivated and effective staff.


Working with the public sector unions, we have over the past 15 years sought to improve the lot of public servants, and we have committed significant resources for compensating them every year even as we have tried to increase their numbers in recognition of their demanding workloads.


Between 2006/07 and 2011/12, we were able to add about 190 000 employees. However, at the same time government wages also increased significantly.


To balance the books, we slowed hiring, and since 2011/12 the number of government employees has declined.


Madam Speaker, we cannot go on like this. Classroom sizes are growing, hospitals are getting fuller and our communities are becoming increasingly unsafe.


Once we get wage growth, corruption and wasteful expenditure under control, we will focus our attention on hiring in important areas such as education, police, and health care. We can hire strategically, and better match skills with opportunities.


The employer has tabled an agenda item on the management of the public service wage bill at the Public Service Coordinating Bargaining Council, the focus is to discuss containment of costs in the final phase of implementation of the current wage agreement.


We aim to save R37.8 billion in the next financial year.


There is more than one way in which this goal can be achieved.


Organised labour understands where we are. They have made constructive proposals on a range of issues.


3.1.6 Wasteful expenditure and corruption


Mr President you have directed your government to deal with wasteful expenditure. This is a vital step in restoring the confidence of the public in the government. We must get more value for our money.


The President's instruction requires a dynamic and appropriate mix of quantity, quality, capacity and capability in the administration of the state.


We are moving forward with reforms to the procurement system with a focus on value for money and maximising the quality and quantity of services. Cabinet approved the publication of a new Public Procurement Bill.


We will accelerate merging and consolidating public entities.


We will propose a new law to stop excessive salaries in these public entities. We must also deal decisively with the excessive high cost of leasing government buildings.


We are already acting on fruitless and wasteful expenditure. Last year, this House amended the Public Audit Act to empower the Auditor General to:

1. Refer matters to a public body for investigation and prosecution
2. Take binding remedial actions
3. Recover money directly from the responsible culprits


To show the determination of the executive to deal with runaway costs, we will implement a number of steps.


These include:

1. Abolishing the current wasteful subsidence and travel system
2. Replacing the cell phone policy
3. Requiring economy class travel for all domestic flights, except for exceptional circumstances


Minister Pandor, the Minister of International Relations and Cooperation, is providing phenomenal leadership in building A Better Africa and a Better World.  Her work is unlocking massive value for money from South Africa's overseas missions by amongst other things:

1. Closing and merging some missions
2. Downgrading the level of representation
3. Reducing the number of officials
4. Establishing a fully-fledged Diplomatic Academy


3.2. Appropriate monetary policy


The twin of our fiscal framework is appropriate monetary policy.


Regular consultation on fiscal and monetary policy is critical to the sustainability of our fiscal accounts, to the balanced growth of the economy, and to protecting the welfare of our people. We would like to re-iterate the current inflation target band of 6 to 3 per cent as the most appropriate monetary policy framework for a country like ours.


In line with that target, the moderate inflation outcomes for 2019 of 4.1 per cent and the forecast for inflation to be about 4.5 per cent over the next few years, has helped to lower the cost of capital to firms, households and the public sector. The South African Reserve Bank will continue to undertake its duties in line with section 224 of the Constitution which is to perform its functions independently without fear, favour or prejudice in the interest of balanced and sustainable growth in the Republic.