HIGHLIGHTS: Budget speech 2018

Finance Minister Malusi Gigaba on Wednesday afternoon delivered the annual budget speech in the National Assembly.

14:06 The DA says the full bench of the Pretoria High Court has found that the minister of finance has lied under oath and is not suitable to table the budget speech.

14:07 Speaker Baleka Mbete rules that the motion by DA Chief Whip John Steenhuisen was not submitted to her office. The motion has not been granted.

14: 12 Gigaba: President Cyril Ramaphosa urged us to honour Madiba and Mama Sisulu, not only in words. It’s a profound statement.

14: 13 Gigaba: President Ramaphosa fired all of us with hope and enthusiasm.

14: 14 Gigaba: We stand before you with great sense of optimism and we are here to lend a hand in addressing pressing challenges.

14:15 Gigaba: “We must run while others walk” – a quote from former Tanzanian President Julius Nyerere.

14: 16 Gigaba: We have started with Eskom, there is a new management.

14: 20 Gigaba: Government has shown resolve to deal with the phenomenon of state capture through the establishment of the commission of inquiry. Opposition MPs boo the minister.

14: 21 Gigaba: The President’s intervention on mining  with stakeholders sector through engagement will assist to unlock  growth within the mining sector.

14: 22 Gigaba: All of us should heed the president’s call echoing the late, great Hugh Masekela, to lend a hand in addressing society’s most pressing challenges.

14: 22 Gigaba: Fellow South Africans, we have the opportunity to achieve faster and more inclusive growth, to create jobs for our people and a better life for all South Africans.

14: 23 Gigaba: That opportunity comes from a favourable global economic outlook, with many of our trading partners doing well, and from improved prices for our exports.

14: 24 Gigaba: All of us who have the honour to serve as public representatives and officials should be prepared to subject ourselves to public scrutiny.

14: 24 Gigaba: We have demonstrated our resolve by strengthening Eskom’s board and management with highly capable, ethical and credible leadership.

14: 25 Gigaba: This leadership has hit the ground running to turn the utility around, by decisively addressing outstanding governance concerns and restoring the confidence of stakeholders to stick with it as it improves its performance and sustainability.

14: 26 Gigaba: We remain committed to the goals we set ourselves in the Freedom Charter, the Constitution and the National Development Plan (NDP).

14: 27 Gigaba: It would be remiss of me not to acknowledge that last year was particularly difficult for our economy.

14: 28 Gigaba: The year was characterised by slow economic growth, recession, ratings downgrades, and heightened concerns regarding the governance and sustainability of key state-owned companies.

14: 29  Gigaba: Over the medium term, the growth outlook is higher than projected in last year’s MTBPS.

14: 30  Gigaba: Private sector investment and job creation are critical to reducing unemployment which remains stubbornly high at 26.7 per cent.

14: 31 Gigaba: The 2017 GDP growth projection has been revised upward to 1 per cent, which is higher than the 0.7 per cent expected at the time of MTBPS last year.

14: 32 Gigaba: We are anticipating growth of 1.5 per cent in 2018, rising to 2.1 per cent in 2020.

14: 33 Gigaba: The enormous potential of our partnership has been demonstrated by the CEO initiative, which has established a business-led fund committing about R1.4 billion to support high potential SMMEs.

14: 34 Gigaba: As the President indicated, the Competition Commission’s market inquiry to investigate data prices will be completed by the end of August 2018.

14: 35 Gigaba: We are inspired by the President’s commitment in the SONA to convene investment and jobs summits, to bring all stakeholders together around practical initiatives to catalyse inclusive growth and job creation.

14: 36 Gigaba: At the time of the MTBPS, government debt was shown to be on an unsustainable path. Debt-service costs were also projected to rise, crowding out social spending.

14: 37 Gigaba: Despite an improved outlook, government still faces a revenue gap of R48.2 billion in the current year, which carries through to the outer years of the medium-term expenditure framework.

14: 38 Gigaba: In addition, the December 2017 announcement of fee-free higher education and training entails large new allocations over the medium term.

14: 39 Gigaba: Firstly, new tax measures raise an additional R36 billion in 2018/19, mainly through a higher VAT rate and below-inflation adjustments to personal income tax brackets.

14:40  Gigaba: Over the next three years, the spending framework includes:

  • Expenditure reductions approved by Cabinet amounting to R85 billion.
  • An allocation of R57 billion for fee-free higher education and training.
  • Additions to the contingency reserve amounting to R10 billion.

14: 41 Gigaba: The consolidated deficit is projected to narrow from 4.3 per cent of GDP in 2017/18 to 3.5 per cent in 2020/21.

14: 42 Gigaba: The main budget primary deficit closes over the medium term, helping to stabilise the gross debt-to-GDP ratio at 56.2 per cent of GDP in 2022/23, and declining thereafter.

14;43  Gigaba: The tax proposals for the 2018 Budget are designed to generate an additional R36 billion in tax revenue for 2018/19.

The main tax proposals for the 2018 Budget are:

  • An increase in the value-added tax rate from 14 per cent to 15 per cent,
  • A below inflation increase in the personal income tax rebates and brackets, with greater relief for those in the lower income tax brackets,
  • An increase in the ad-valorem excise duty rate on luxury goods from 7 per cent to 9 per cent,
  • A higher estate duty tax rate of 25 per cent for estates greater than R30 million,
  • A 52 cents per litre increase in the levies on fuel, made up of a 22 cents per litre for the general fuel levy and a 30 cents per litre increase in the Road Accident Fund Levy, and
  • Increases in the alcohol and tobacco excise duties of between 6 and 10 per cent.

14: 44 Gigaba: We therefore decided that increasing VAT was unavoidable if we are to maintain the integrity of our public finances.

14: 45 Gigaba: The current zero-rating of basic food items such as maize meal, brown bread, dried beans and rice will limit the impact on the poorest households.

14: 46 Gigaba: In addition to VAT, we are increasing excise duties on luxury goods and estate duty on wealthy individuals.

14: 47 Gigaba: Working closely with the Department of Trade and Industry, I have approved six special economic zones that will make qualifying companies subject to a reduced corporate tax rate, and enable them to claim an employment tax incentive for workers of all ages.

14: 49 Gigaba: Parliament is currently considering the draft Carbon Tax Bill, which will assist South Africa to meet its climate change commitments to reduce our carbon emissions. The tax will be implemented from 1 January 2019.

14: 50 Gigaba: Tax morality is a crucial component of a healthy democracy.

14: 51 Gigaba:  Government will respond to the Davis Tax Commission’s report on tax administration and introduce draft legislation to give effect to some of its recommendations.

14:51 Gigaba: This includes those on the accountability of SARS to the Minister of Finance, and the establishment of a supervisory board, as well as measures to strengthen the Office of the Ombud.

14: 52 Gigaba: Consolidated spending will increase from R1.67 trillion in 2018/19 to R1.94 trillion, representing a nominal annual average growth of 7.6 per cent, or 2.1 per cent in real terms.

14: 53 Gigaba: In aggregate, government will be spending R792 billion on basic education, R668 billion on health and R528 billion on social grants, over the medium term.

14:53 Gigaba: Government has allocated over R200 billion for peace and security and another R200 billion for economic development to build a safer country and to grow our economy inclusively.

14:54 Gigaba: The largest reallocation of resources towards government’s priorities was on higher education and training, amounting to additional funding of R57 billion over the medium term. This is the fastest-growing spending category, with an annual average growth of 13.7 per cent.

14: 55 Gigaba: Government will phase in fee-free higher education and training to students from poor and working-class families. This means that all new first-year students with a family income below R350 000 per annum at universities and TVET colleges in the 2018 academic year will be funded for the full cost of study.

14:56 Gigaba: This will be rolled out in subsequent years until all years of study are covered. Returning NSFAS students at university will have their loans for 2018 onwards converted to a bursary.

14: 57 Gigaba: Basic education remains a key focus in the 2018 Budget.

14: 58 Gigaba: Over the medium term, R3.8 billion allocated to the School infrastructure backlogs grant will replace 82 inappropriate and unsafe schools, and provide water to 325 schools and sanitation to 286 schools.

14: 59 Gigaba: The Education infrastructure grant is also allocated R31.7 billion over the medium term to build new schools, upgrade and maintain existing infrastructure, and provide school furniture.

15:00 Gigaba: Meals will be provided at 19 800 schools for about 9 million learners each school day through the National school nutrition programme grant, which is allocated R21.7 billion over the medium term.

15: 01 Gigaba: 39 000 Funza Lushaka bursaries, disbursed via NSFAS at a cost of R 3.7 billion for prospective teachers in priority subject areas.

15: 02 Gigaba: Government has continued progressively on the path towards National Health Insurance (NHI).

15: 02 Gigaba:  NHI is allocated an additional R4.2 billion over the the medium term.

15: 03 Gigaba: Overall, government will spend R205 billion on health in 2018/19 growing to R240 billion by 2020/21.

15: 04 Gigaba: Government has taken deliberate steps to adjust social grant values above inflation to at least partially cover for the proposed increase in VAT, therefore:

  • The Old age, disability and care dependency grants will increase on 1 April 2018 from the existing R1600 by R90 to R1690 and by a further R10 to R1700 on 1st October 2018.
  • The Child Support grant will increase from the baseline of R380 to R400 on 1 April and to R410 on 1 October. This is a 6.6% annual increase.
  • An additional R2.6 billion has been added since the MTBPS to social grants to enable these changes.

15: 05 Gigaba: These adjustments resulted in social protection spending increasing by 7.9 per cent per year, much above inflation.

15: 06 Gigaba: R18.8 billion is allocated for industrialisation incentives over the medium term.

15: 07 Gigaba:  R3.3 billion is allocated for the Economic Competitiveness and Support Package to support growth and job creation in support of the Industrial Policy Action Plan.

15: 08 Gigaba: Government is spending a significant amount on small business support in the medium term.

15: 09 Gigaba:  R4.9 billion is allocated for industrial infrastructure projects over the medium term for special economic zones, government-owned industrial and critical infrastructure projects.

15: 10 Gigaba: The Department of Agriculture, Forestry and Fisheries received an additional allocation of R40 million over the MTEF to upgrade infrastructure and equipment for analytical services laboratories.

15: 11 Gigaba: An estimated R581.7 million is expected to be reprioritised for the black producer commercialisation programme.

15: 12 Gigaba: By creating opportunities for black agricultural producers, we are radically transforming the agricultural sector of our economy.

15: 12: Gigaba: The Department of Rural Development and Land reform, over the medium term, intends to accelerate the settlement of restitution claims with plans to finalise 2 851 claims at a budgeted amount of R10.8 billion.

15: 13 Gigaba: Accelerating land reform has become urgent and the department has set aside R4.2 billion for the acquisition of about 291 000 hectares of strategically located land.

15: 13: Gigaba: The Judicial Commission of Inquiry into State Capture is ready to commence with its work.

15: 14 Gigaba: Budget allocation for the Commission will be considered during the 2018 Adjustment Budget once its costing is finalised.

15: 15: Gigaba: The preparations for the 2019 elections are well ahead.

15: 16 Gigaba: Severe drought conditions are affecting large parts of the country, and it is placing extreme strain on the supply of water to nearly 4 million people in the City of Cape Town.

15: 17 Gigaba: We need to conserve water.

15: 18 Gigaba: We have among the highest levels of per capita daily domestic water consumption levels in the world, but also some of the highest levels of inequality in reliable access to water.

15: 19 Gigaba: National government will continue to work with municipalities to respond effectively to the water crisis.

15:20 Gigaba: Government stands ready to provide financial assistance where necessary:

  • A provisional allocation of R6 billion has been set aside in 2018/19 for several purposes, including drought relief and to augment public infrastructure investment.
  • Government is concerned by the potential job losses in vulnerable farming communities as a result of the drought. We are therefore exploring the option of partially mitigating losses by temporarily increasing intake in the Working for Water programme.
  • Allocation for drought response funds for water infrastructure projects and EPWP will be made in the Adjustment Budget
  • To provide short term assistance, this budget includes disaster relief grants for provinces and municipalities worth R473 million in 2018/19. Other conditional grants can also be reprioritized to respond to disasters if necessary.

15: 21 Gigaba:  Funds available for spending on public services grow by an average of 7.1 percent per annum, increasing to R1.3 trillion next years, and projected to rise to R1.5 trillion in 2020/21.

15: 22 Gigaba: Over the next 3 years, 48 per cent of nationally raised funds are allocated to national government, 43 per cent to provincial government and 9 per cent to local government.

15: 23 Gigaba: The delivery of health services, for which provinces remain responsible, has recently come under the spotlight.

15: 24 Gigaba: Local governments continue to face significant financial management and governance challenges.

15: 25 Gigaba: Too many municipalities do not charge tariffs that reflect the full cost of the services they deliver, in particular for water services.

15: 25 Gigaba: Cities are the heart of the national economy and hold the potential to drive our economic renewal.

15: 26 Gigaba: South Africa’s eight metros are home to 39 per cent of our population but account for half of all employment (formal and informal) and 57 per cent of the country’s economic output. The economic importance of cities is likely to increase.

15: 26 Gigaba: State-owned companies operate network industries, such as electricity and transport, that underpin our country’s economic growth potential.

15: 27 Gigaba: To date we have managed to:

  • Secure Cabinet approval of frameworks on private-sector participation, the appointment of boards and the costing of developmental mandates
  • Appoint a new board, chief executive officer and restructuring officer at SAA, and to implement the long-term turnaround strategy for the entity.
  • Appoint a new board at Eskom. The Minister of Public Enterprises instructed the entity to conclude all power-purchase agreements with independent power producers.

15: 27 Gigaba: State-owned companies are expected to fund their own operations.

15: 28 Gigaba: Work will continue on reforming the legislation for financial markets and the payment system, to ensure that our infrastructure remains globally competitive.

15: 29 Gigaba: The Treasury is working with the Reserve Bank, Financial Services Board and other government entities towards a regulatory framework for all types of FinTech.

15: 30 Gigaba: In 2017, the Reserve Bank granted three bank licences – two for banks with significant digital banking capabilities and one for a new digitally focused mutual bank.

15: 30 Gigaba: We are pleased that one of the new banks has significant direct black ownership.

15: 31 Gigaba: We welcome the return this year of Old Mutual, which will move its primary listing back to the Johannesburg Stock Exchange.

15: 31 Gigaba: We see this as a major vote of confidence in the attractiveness and growth potential of South Africa as a market in its own right, as well as a headquarters for African operations.

15; 32 Gigaba: Government notes recent exposure of fraudulent accounting practices involving Steinhoff, resulting in large losses for many retirement and institutional funds.

15: 32 Gigaba: Government regulators, namely, the Financial Services Board, Independent Regulatory Board of Auditor and other regulators have initiated investigations which are currently in progress and are working with overseas regulators to ensure that those at fault are made to account for their crimes.

15: 33 Gigaba: Government’s retirement reform programme will continue in 2018.

15: 34 Gigaba: During the current financial cycle, we engaged with the Auditor-General and are making proposals to amend the Public Audit Act.

15: 35 Gigaba: It is the policy of this government to leverage public procurement to support black economic empowerment, industrialisation and development of small businesses.

15: 36 Gigaba:  Amendments to the Preferential Procurement Regulations became effective in April 2017. Key changes include:

  • Targeted procurement from designated groups, including township and rural enterprises, black women and youth enterprises, cooperatives and people with disabilities, among others
  • Compulsory sub-contracting to designated groups in all projects or contracts above R30 million. Nothing prevents organs of state from applying sub-contracting provisions in projects or contracts below R30 million.
  • Designation of sectors, and industries for localization to support industrial development, localization and job creation.

15: 37 Gigaba: The Public Procurement Bill will be submitted to Cabinet in March 2018 for gazetting for public comments.

15: 38 Gigaba: Treasury will increase collaboration with all law enforcement agencies to strengthen efforts to fight fraud, corruption and abuse of SCM system across all spheres of government in order to restore the integrity of supply chain management.

15: 39 Gigaba: In recent years, a large number of deviations from normal procurement processes has reduced the credibility of the supply-chain management system. In future, deviations will be allowed only in rare, well-justified cases.

15: 40 Gigaba: Evergreen contracts create barriers to entry, making it impossible for new entrants to participate in the allocation of government contracts.

15: 40 Gigaba: SMMEs and black-owned companies find it very difficult to participate in procurement opportunities as a result. We are therefore in the process of reviewing all of these with a view to ending them in the majority of cases.

15: 41 Gigaba: Next week, the Director-General of National Treasury will issue a directive to all government departments and public institutions, instructing them to pay suppliers on time, or be charged with financial misconduct.

15: 42 Gigaba: Management of public finances must continue to remain at the core of a capable and peoplecentred state.

15: 43: Gigaba: Citizens should be proud of the independent international recognition of being ranked first in the most recent 2017 Open Budget Survey, together with New Zealand.

15: 44 Gigaba: Looking to the future, true to the South African budget reform approach, we are not seeking the easy way out and our efforts will not be superficial.

15: 45 Gigaba: We are prioritising public participation. We are taking National Treasury further to the people.

15: 47 End of speech.

HIGHLIGHTS: Budget speech 2018


Thapelo Lekabe and Citizen Team

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