Honourable Speaker; Mister President; Mister Deputy President; Cabinet colleagues and Deputy Ministers; the Governor and Deputy Governors of the Reserve Bank; the MECs of Finance from our provinces and fellow South Africans, I have the honour today of presenting the 2016 Budget of President Zuma's second administration. We do so in a spirit of frankness, both about our challenges and the opportunity to turn our economy's direction towards hope, confidence and a better future for all.
Low growth, high unemployment, extreme inequality and hurtful fractures in our society are unacceptable, I believe, to all of us. I have a simple message from government. We are strong enough, resilient enough and creative enough to manage and overcome our economic challenges. [Applause.]
All of us want jobs, thriving businesses, engaged professionals, the narrowing of inequality, and fewer and fewer people in poverty. All of us want new values and a new paradigm, a society at peace with itself, a nation energised by the task of building stronger foundations for our future society and economy.
We want our government to function effectively and our people to work in dignity, with resources for their families, decent homes and opportunities for their children. We want to see progress throughout our land - in agriculture, manufacturing, mining and construction; in tourism, science and research; sport and leisure; trade and commerce.
I believe it is within our grasp to achieve this future. However, it requires bold and constructive leadership in all sectors of society, a shared vision, a common purpose, and the will to find common ground. Above all, we need action, not just words. Let us unite as a South African team, sharing our skills and resources, building social solidarity, defending the institutions of our democracy, and developing our economy, inclusively.
We believe we do have a plan to: manage our finances in a prudent and sustainable way; reignite confidence and mobilise the resources of all of our social partners; collectively invest more in infrastructure to increase potential growth of our economy; give hope to our youth through training and economic opportunities; protect South Africans from the effects of the drought; continuously improve our education and health systems; accelerate transformation towards an inclusive economy and participation by all; and strengthen social solidarity and extend our social safety net.
The Budget rests on the idea of an inclusive social contract, encompassing an equitable burden of tax and a progressive programme of expenditures. The Budget relies on institutions of good governance and a public ethic that values honesty and fairness. If we act together on the basis of these principles, as public representatives, civil servants, business people, youth, workers and citizens, we can overcome the challenges of tough economic times and difficult adjustments. In acting together, we can address declining confidence and the retreat of capital, and we can combat emerging patterns of predatory behaviour and corruption.
We are conscious of the difficulties we face. Our resilience as a nation, black and white, can propel us to a better future if we make the right choices.
I hereby table before the House, in this pack of documents, the 2016 Budget Speech, as read out; the 2016 Budget Review, including the Fiscal Framework, the Revenue Proposals, Customs and Excise Duties and Estimates of National Revenue; and our responses to the Budgetary Review and Recommendation Reports; the Division of Revenue Bill; the Appropriation Bill, and the Estimates of National Expenditure. These are all the documents that you will find here.
In addition, I am introducing the Revenue Laws Amendment Bill of 2016 to adjust certain provisions regarding retirement funds, and related matters. These are our budget proposals, and I look forward to further engagement through the parliamentary budget process.
The past year has seen a deterioration in the global economy. In our own region, weaker business confidence coincides with a severe drought, bringing with it rising prices and threats to water supply in many areas. In addition, we have to confront the impact of slow growth on our public finances, while continuing to respond to the expectations of citizens and communities for improved education, reliable local services and responsive public administration. The combination of multiple demands and constrained resources seems overwhelming and almost paradoxical. How does the state deal with such complexity, and how do we prioritise? I ask because this Budget is about prioritisation.
As in the past, we have sought advice from citizens. This year, I sought budget pointers on several specific things: What does government do well? What should we stop doing? How can we achieve inclusive growth?
On what we do well, South Africans were very clear. Firstly, we pay paying social grants well and we collect tax revenue well.
Secondly, what we should stop doing? Corruption and waste; and bailing out state entities - both of which we agree with. [Applause.]
Thirdly, how do we support inclusive growth? Here, the response, overwhelmingly, was support for small business, and job opportunities targeting the youth.
I greatly appreciate the response from almost 1 500 South Africans to that request. In our presence today, in the gallery are Mr Faiek Sonday and Ms Thuli Ngubane, who have kindly agreed to be with us. Mr Sonday's advice was that we should "build more roads and train routes, because the sooner you get a worker at the desk or machine, the more productive the economy will be". I am sure you agree with him.
Ms Ngubane expressed the views of so many so many people: "Let our schools' infrastructure be improved so that all schools are conducive to learning. This will ensure that we produce the quality of students that can take our country forward." I'm not sure if Minister Motshekga organised this! We agree, and, indeed, these are central priorities of the National Development Plan, NDP.
As points of departure for the 2016 Budget, allow me to emphasise several broad principles that flow through our National Development Plan. It is a programme for inclusive growth. Our social programmes, industrial action plan, promotion of agriculture and rural development, skills and training initiatives, and investment in housing and municipal services are aimed at both prosperity and equity, creating opportunities for all and broadening economic participation.
It is a plan for a strong, mixed economy, in which public services and state actions complement private investment, expansion of trade and social enterprise. It recognises that improvements in the quality of education are the foundations of broad-based growth, productivity improvement and sustainable growth.
It acknowledges that investment in infrastructure has to be enhanced and sustained both to underpin economic growth and to address the spatial inefficiency and fragmentation of the apartheid landscape. It also emphasises that employment creation has to be accelerated if growth is to be inclusive, and that income security for all relies also on appropriate social security, health services and social development programmes.
It prioritises building the capability of the state and strong leadership throughout society to drive development and promote social cohesion. It highlights that partnership between governments, business, organised labour and civil society is the key to policy coherence and more rapid development.
The Budget tabled today is guided by the NDP. It is a budget for inclusive growth; it emphasises partnerships amongst role-players in our economy; it prioritises education and infrastructure investment; it supports employment creation; and it contributes to building a capable, developmental state.
In brief, we propose the following in this Budget. Against the background of slow growth, rising debt and higher interest rates, the pace of fiscal consolidation will be accelerated. The budget deficit will be reduced, compared to the Medium-Term Budget Policy Statement, MTBPS, figures that this House had learnt in October. The budget deficit will be reduced to 3,2% in 2016-17; 2,8% in 2017-18; and 2,4% in 2018-19. This is, indeed, the tightening of the belt. [Applause.]
The expenditure ceiling is cut over the next three years by R25 billion, mainly by curtailing personnel expenditure. What we mean here is that we are cutting government expenditure.
Tax increases amounting to R18 billion in 2016-17 are proposed, and a further R15 billion a year needs to be found in 2017-18 and 2018-19.
An amount of R93 billion is allocated to higher education over the next three years, funded through reprioritisation of expenditure plans. The National Student Financial Aid Scheme, NSFas, receives R41,2 billion. [Applause.] Minister Nzimande smiles for the first time! [Laughter.]
Taking into account projected increases in the cost of living, R11,5 billion is added to social grant allocations over the next three years. [Applause.]
Funds have been reprioritised to respond to the impact of the drought on the farming sector and on water-stressed communities.
In support of growth and development, our initiatives are also aimed at enabling and mobilising private sector and civil society capacity. Building on the success of our Renewable Energy initiatives, the Independent Power Producers Programme will be extended to include coal and gas power projects over the period ahead, thanks to Minister Joemat-Pettersson.
Measures to strengthen tourism, agriculture and agro-processing are in progress.
Collaboration with regional partner countries is being stepped up to improve border management, streamline trade flows and invest in transport and communications corridors.
Investment in our cities is being accelerated, creating opportunities for participation of developers and other partners in housing, infrastructure and commercial development. Regulatory challenges that affect mining investment and employment are being addressed.
A pathbreaking study of the cost of doing business has been completed, and municipalities, in particular, are working on identified reforms to make it easier to do business in municipalities.
Progress has been made towards a minimum wage framework, and to reduce workplace conflict - the former under the guidance of the Deputy President.
The National Health Insurance White Paper has been published, and proposals for comprehensive social security will be released by mid-year, for discussion in Nedlac.
Engagement with social partners needs to be intensified. Project plans and investments need to be managed and implemented. However, I know you will join me in acknowledging that the real champions of our development are the activists and entrepreneurs, officials and facilitators, who get on with the job, day by day, of managing programmes and running businesses, serving communities and meeting needs. In their hands - because these are the people who actually work - lies our future. Our faith communities, nongovernmental organisations and community volunteers all demonstrate every day that basic needs can be met with dignity and social solidarity. Initiatives like Operation Hydrate and the Gift of the Givers Foundation have led the way in responding to the impact of the drought, for example. The Gauteng province's Ntirhisano outreach programme, similarly, emphasises that communities can be copartners with government in accelerating service delivery. We can strengthen these efforts as government, business, religious and community organisations, by working together.
So, let us ask ourselves, in an interconnected world, what is going on out there and how it impacts upon us. South Africa's economic prospects are intertwined with global economic developments. We are part of this global economy. A period of unprecedented monetary stimulus - what everybody calls quantitative easing - in response to the 2008 recession is not yet over. Global volatility and structural imbalances are far from resolved.
What this means, in simple terms, is that when you wake up every day, don't be surprised if something has happened in the global economy to impact upon us, negatively. The pace of economic growth has slowed in many countries. The price of oil has fallen significantly over the past year, and that's a benefit to many people. Our major exports - platinum, gold, iron ore and coal - have seen substantial declines in global demand and in prices.
The effects on our economy of these phenomena are, indeed, widespread: lower export earnings, lower revenue, declining investment, job losses, and, in some cases, business failures. For the world as a whole, growth declined from 3,4% in 2014 to an estimated 3,1% last year. In sub-Saharan Africa, the decline was from 5% to 3,5%. A moderate recovery is expected over the next two years.
It is notable that faster growth is being achieved in countries which have undertaken bold structural reforms. India has scaled back subsidies for industry and has opened up trade opportunities and the promotion of skilled migration, urban investment and labour-intensive manufacturing and agro- processing. Similar reforms are being undertaken in Southeast Asian economies and several African economies. These efforts have helped boost investor sentiment and reduce economic vulnerabilities in these countries.
Our own structural challenges and reforms are articulated in the National Development Plan. Our economic recovery depends on our ability to convert the plan into actions that deliver on the promise of a better life for all.
If we, then, look at our own economy, fellow South Africans, growth rates of below 1% fall short - and far short - of what we need to create employment and reduce poverty and inequality in South Africa. The Treasury's current estimation of growth for the year is 0,9% this year, after being 1,3% in 2015. This reflects both the depressed global conditions and local factors. It also reflects the impact of the drought, policy uncertainty in a few areas, the effect of protracted labour disputes on business confidence, electricity supply constraints and regulatory barriers to investment.
However, the institutional foundations of our economy remain resilient. Macroeconomic policy is effective and stable; the inflation-targeting framework provides an anchor for price and wage setting; our banks and financial institutions are well-capitalised, and we have liquid rand- denominated debt markets - very important in the current environment. The architecture of our Constitution, justice system, public and private law and dispute-resolution mechanisms is robust; we have excellent universities - of course, we need more of them - and research centres; we have a strong private sector; and we are a resourceful people, committed - I hope, most of us - to contributing to a better South Africa.
I want to quote Mr Raymond Wesley - again, a person who wrote to us - as follows: "As South Africans, we don't have an appreciation of the strides we've made. Minister, show South Africans, especially the rich, that people's lives have changed for the better." [Applause.] This is, indeed, true, yet there is more to be done, as we all know. I want to suggest that we are a resilient people, that we can become committed and be resourceful in tackling the challenges that we have ahead of us, seizing the opportunities and learning how to turn adversity into opportunity.
In the numbers, there are indicators that an economic turnaround is possible if we build confidence and make the right choices. Business services, tourism and communication services continued to expand over the past year, contributing positively to job creation. While overall agricultural output has declined under severe drought conditions, there has been strong growth in several export products, including nuts and berries, grapes and both deciduous and citrus fruits. Overall export growth by volume was over 9% last year, and will continue to benefit from the competitiveness of the rand. South African exports to the rest of Africa now exceed R300 billion a year, up from about R230 billion just three years ago. [Applause.] Retail trade data for December 2015 indicate growth of over 4% in real terms, signalling that consumer spending remains buoyant despite declining confidence. Investments amounting to over R20 billion have recently been announced in the automotive sector, thanks to the hard- working Minister Davies. [Applause.]
Yet, our economy is not growing fast enough to raise employment or improve average incomes. Investment growth must be substantially scaled up, and that's our challenge for the next few years. So, we are resolved to restore the momentum of growth, to ensure that it is inclusive and sustainable, and to preserve our economy's investment-grade status. As Minister Nene put it in his October Medium-Term Budget Policy Statement address:
If we do not achieve growth, revenue will not increase. If revenue does not increase, expenditure cannot be expanded.
This means we must address institutional and regulatory barriers to business investment and growth. It means we must give greater impetus to sectors and industries where we have a competitive advantage. It means being bold where there is a need for structural change, innovation and doing things differently. Above all, we need agility and urgency in implementing plans, not just talking about them.
International experience has demonstrated that growth is ignited by strong and stable political and economic institutions; sound infrastructure that reduces the cost of doing business and facilitates trade; competition between firms and openness to trade; and an environment where firms invest and undertake research and development. We also know that the more inclusive the economy, the greater its scope for growth.
These are the challenges we hear from South Africans today, and this is how we respond to them. We are responding to appeals from the business sector for greater certainty in respect of policies that affect investment decisions. We hear you. We are engaging with proposals from organised labour for a minimum wage policy and for progress on opportunities for young people, in particular. We are responding to action in communities where services are missing or badly managed. We are crafting solutions to the voices of students regarding fees and housing.
I need to emphasise that violent protest, however, is not an acceptable way of articulating these challenges. [Applause.] Also, in these and other areas, the choices we make cannot meet every need, and the action we require involves collective action by many stakeholders. Today's Budget sets out government's plans for the next three years, building on what we have achieved since 1994 and what was articulated in the state of the nation address. It also signals the actions under way to improve policy co- ordination and collaboration between social partners and stakeholders.
As outlined by the President, initiatives are in progress to address our policy co-ordination and implementation challenges. Here are some examples. Over 80 Bills and plans have been reviewed since September last year as part of the new Socioeconomic Impact Assessment programme, under Minister Radebe's oversight. The aim is to address possible regulatory constraints in a proactive way.
Visa regulations have been revised in the right direction. Talks are in progress under Minister Olifant's leadership to improve workplace dispute resolution procedures. Minister Davies is introducing and inducting a new investment promotion agency to streamline administrative procedures and enhance our position as an African financial centre. Special economic zones and employment-intensive sectors with export potential have been prioritised by the Industrial Development Corporation.
Initiatives to transform ownership of land and improve productivity in agriculture are under way, and Ministers Zokwana and Nkwinti are addressing drought-related challenges in rural areas. Under Minister Molewa's guidance, South Africa's response to the global climate change challenge has been prepared, and work with the National Business Initiative on the green economy has been strengthened.
Our environmental employment programmes continue to earn international recognition. The Community Work Programme is expanding its reach and Jobs Fund partnership projects of R12 billion have been approved. [Applause.] Please do that regularly, so you stay awake! [Laughter.] Building on the Operation Phakisa oceans economy initiative, a R9 billion investment in rig repair and maintenance facilities at Saldanha Bay is planned. Work has also begun on a new gas terminal and oil and ship repair facilities in Durban.
Minister Joemat-Pettersson is overseeing our renewable energy, coal and gas Independent Power Producer Procurement, IPPP, programme and preparatory work for investment in nuclear power. Minister Pandor's department is leading work on beneficiation initiatives, including titanium, fuel cells, fluorochemicals and composite materials. Minister Motshekga is working with social partners on the National Education Collaboration Trust to identify and implement school-improvement initiatives.
In recent weeks, President Zuma, other Ministers and I have engaged with business leaders to understand their concerns and views - and, of course, get their contributions. Confidence and shared understanding have been reinforced, and will be reinforced even further as we go forward. [Applause.] These engagements are clearly critical to boosting our economy and must be extended to include regional forums, and other stakeholders.
We particularly welcome the working groups that have been established and several practical proposals for joint action between government and the private sector. These include a collaborative initiative to combat corruption and abuse of tender procedures, a new fund to accelerate small- business and medium-enterprise development, and measures to build investor confidence and contribute to social cohesion. By removing constraints, supporting innovation, protecting jobs, diversifying our economy and exploring new opportunities, we can, indeed, expand growth prospects.
Our economic outlook is not what it should be. Global uncertainty and the drought are very real challenges, but our efforts to build a better future must continue. By working together, we can increase growth, broaden participation and inspire confidence in our economy and in our society.
The economist, Dani Rodrik, has recently noted that, in those countries that are still growing rapidly despite the global economic headwinds or difficulties, public investment is doing much of the work. To finance the investment needed for sustainable growth, we have the institutional capacity to blend international and domestic savings, and to combine public and private sector financing to mitigate risk and to reduce the cost of capital.
The Presidential Infrastructure Co-ordinating Commission, under Ministers Nkwinti and Patel, has brought greater coherence to our strategic investment plans. They have drawn attention to the need for multi-year appropriations for major capital projects - something that we will work on, shortly. Reform, in this regard, is under consideration. Energy investments amount to R70 billion this year and will be over R180 billion over the next three years as construction of the Medupi, Kusile and Ingula power plants is completed.
Transport and logistics infrastructure accounts for nearly R292 billion over the next three years under Minister Peters's oversight. Transnet is acquiring 232 diesel locomotives for its general freight business and 100 locomotives for its coal lines. There is R3,7 billion set aside to upgrade the Moloto Road, R30 billion for provincial roads maintenance, and R18 billion for bus rapid transit projects in cities and the refurbishment of over 1 700 Metrorail and Shosholoza Meyl coaches.
A total of R62 billion is allocated for the housing subsidy programmes of Minister Sisulu's department, and R34 billion for bulk infrastructure and residential services in metropolitan municipalities. [Applause.] In addition, R28 billion will be spent over the Medium-Term Expenditure Framework, MTEF, period on improving health facilities, and R54 billion on education infrastructure.
Under Minister Mokonyane's leadership, the next phase of the Olifants River water scheme is in progress, as are completion of supply to Lukhanji Local Municipality in the Eastern Cape, completion of the Wolmaransstad Wastewater Treatment Works and construction of the Polihali Dam as part of the Lesotho Highlands Water Project. These are massive projects. I think you should compliment her on this one. [Applause.] Thank you. I need some favours from her! These are some components of the R870 billion the public- sector infrastructure programmes will spend over the next three years.
However, our growth and development depends also on an expanding envelope of enterprise investment in industry, mining and mineral beneficiation, agriculture and agro-processing, housing, commercial development and tourism facilities. There are also initiatives in progress to reinforce financing of these projects.
The Industrial Development Corporation continues to play a leading role in financing manufacturing and beneficiation projects. It plans to invest R100 billion over the next five years, including R23 billion set aside to support black industrialists.
We have completed a R7,9 billion capital transfer to the Development Bank of Southern Africa, DBSA, approved in 2013. This enables it to expand lending and implementation support to municipalities, and to complement private-sector funding of strategic infrastructure projects. The Bank aims to increase lending by R48 billion over the next three years. Initiatives to reinforce municipal implementation capacity have been prioritised.
The Land Bank has set aside a concessionary loan facility to assist farmers in recovering from the impact of the current drought conditions. Over the next three years, R15 billion is allocated for land acquisition, farm improvements and expanding agro-processing opportunities.
I am also pleased to confirm that the New Development Bank, which we know as the Brics Bank, will open its Africa Regional Centre in Johannesburg, next month. [Applause.] Our first instalment of R2 billion was paid in December last year. The Budget makes provision for our further commitments over the medium term - and we'll be passing the hat around, ladies and gentlemen. This initiative gives impetus to our role as a financial centre for Africa, and will facilitate access to global finance by African investors and institutions. So, the capacity to mobilise finance is in place. Amendments to bank regulations are proposed, furthermore, which will facilitate lending for long-term infrastructure investment. In energy, transport, telecommunication and urban development, there are many opportunities for joint public and private investment and facilities management. Corporate investment and participation by trade union funds in infrastructure development need appropriate policies and market structure frameworks, clarifying the roles and linkages between public and private- sector service providers. Progress in these regulatory arrangements is the key to more rapid investment and more inclusive growth in these sectors. Our working partnership with business leaders and social stakeholders, under President Zuma's initiative, is about implementing these and other aspects of the National Development Plan.
Now, we come to the tough part. What do we mean by fiscal consolidation? This year's Budget has, as one of its focus areas, fiscal consolidation. In simple terms, we cannot spend money we do not have. [Applause.] We cannot borrow beyond our ability to repay. If you can afford R1 000 to be repaid, borrow R1 000, not R2 000. [Applause.] Until we can ignite growth and generate more revenue, we have to be tough on ourselves.
A central objective is to stabilise debt as a percentage of GDP. To achieve this, the new budget framework sets deficit targets, as I indicated earlier, for the next three years which are lower than the October Medium- Term Budget Policy Statement projections. Spending plans are reduced, a higher revenue target is set and net national debt is projected to stabilise at 46,2% of GDP in 2017-18, and to decline after that. These budget proposals signal government's commitment to a prudent, sustainable fiscal policy trajectory, and respond directly to the changed circumstances since the 2015 MTBPS was tabled by Minister Nene.
We have to take into account the slowdown in revenue associated with slower economic growth over the past year. In last year's Budget, we projected total tax revenue of about R1 081 billion. The revised estimate is R11,6 billion short of this total, but nonetheless, slightly higher than the 2014-15 outcome. This is a most commendable effort under the circumstances, and all South Africans have contributed to achieving some of these objectives. In particular, the 14 000-odd staff of the SA Revenue Service, Sars, have done a sterling job. [Applause.]
A consolidated revenue target of R1,3 billion is set for 2016-17, or 30,2% of GDP. Expenditure will be R1,4 billion, leaving a budget deficit of R139 billion -that's what we go out and borrow - or 3,2% of GDP. The deficit will decline to 2,4% in 2018-19. Details of the proposed adjustments are set out in the Budget Review.
I have highlighted key spending priorities already. I need to emphasise that additional spending on higher education and small business development, and amounts set aside for responding to drought and other contingencies, are accommodated through stringent cost-containment measures across all departments.
Amongst these cost-containment measures are the following: restrictions on filling managerial and administrative vacancies, subject to review of human resource plans and elimination of unnecessary positions, without affecting front-line service-providing staff; reduced transfers for operating budgets of public entities; capital budgeting reforms to align plans with budget allocations while strengthening maintenance procedures - what we are saying here is to stop simply spending money on new investments and infrastructure, and also spend money on looking after the infrastructure we have. [Applause.]
Mandatory use of the new e-tender portal, thereby enforcing procurement transparency and accessible reference prices for a wide range of goods and services, will transform procurement in South Africa and make it very transparent, so that it's hard to crook the system. You should clap for that, I think. [Applause.] Further, a national travel and accommodation policy and instructions on conference costs - basically, reduce all of them; new guidelines to limit the value of vehicle purchases for political office bearers ... [Interjections.] [Applause.] ... renegotiation of government leasing contracts; new centrally negotiated contracts for banking services, Information and Communications Technology, ICT, infrastructure and services, health technology, school building and learner support materials.
Initiatives of the Chief Procurement Office will be extended to include monitoring of state-owned companies' procurement plans and supply chain processes, and reviews of contracts above R10 million to ensure value for money - and that is, the public's money. [Applause.] Centrally negotiated contracts will be mandatory, with effect from April 2016. As Ms Nobuntu Mbelle advised me, "Minister, government should also tighten its belt." I have tightened it by one notch.
The mandate of the Office of the Chief Procurement Office is to achieve savings of R25 billion a year by the third year of the current MTEF period, out of the government procurement budget of about R500 billion a year. Our reform proposals draw on a consultation programme. Last year, that reached over 7 000 suppliers and 2 500 supply chain practitioners, and attracted over 27 000 responses to a national survey. It is clear that we can achieve considerable savings to government, while also ensuring that procurement processes are streamlined and service providers are paid on time.
I need to acknowledge the valued co-operation of Minister Ramatlhodi in addressing another important area, and that is personnel management challenges. Government procurement reforms also rely on collaboration with my colleagues and their respective departments: Minister Nxesi in Public Works; Ministers Davies and Zulu in respect of industrial participation, supplier development and black economic empowerment; and Minister Cwele on telecommunications and the robust rollout of broadband services, which is both an area of cost-saving in itself and an enabling condition for more efficient procurement systems and electronic communications.
In saying this, members of the House, I want to draw attention to the broader opportunities that well-managed public administration reforms offer. Investments by telecommunication partners in fast internet connectivity for schools, clinics and government buildings brings down the costs, over time, for internet connectivity for neighbouring homes and businesses.
When government office accommodation projects are well planned, they create opportunities for commercial and residential development in the surrounding precinct. Government, as an employer, contributes to training and organisational development across the wider economy itself. Inclusive growth is, in part, about these linkages between public and private-sector development.
Now, the part that concerns some of your pockets, if not all: tax proposals. Inclusivity is also an important principle in our tax system. South Africa has built one of the most effective tax authorities in the developing world, if not elsewhere, as well. [Applause.] Thank you for the credit you are giving me.
The SA Revenue Service has made huge strides over the past decade in enforcing the law while providing assistance to small businesses and individuals. Public compliance with tax obligations is high. I am deeply mindful that we have a corresponding obligation, as government, to improve the impact of every rand we spent, and to eliminate waste and corruption.
Inclusivity is also about the details of tax design, how it supports or hinders small and growing businesses, how the burden of tax is shared across individuals and households in different circumstances and in different income brackets, and how taxes contribute to environmental and health objectives. This year, in view of the need to raise additional revenue and reduce the budget deficit, we have paid special attention to the fairness and inclusivity of the tax system. We have also been mindful of the need to moderate the impact of tax increases on households and firms in the present economic context. In other words, we don't want to impose additional burdens, but there have to be some.
Our tax proposals include the following: personal income tax relief of R5,5 billion, which partially compensates for inflation, focused mainly on the lower- and middle-income earners, not the high-income earners. [Applause.] Shall I tell you about the increases you're going to get now? [Laughter.]
Further, an increase in the monthly medical tax credit allowance; an increase of 30c a litre in the general fuel levy in view of the low price of oil; the introduction of a tyre levy to finance recycling programmes, increases in the incandescent globe tax, the plastic bag levy and the motor vehicle emissions tax; for those of you who like fizzy drinks, the introduction of a tax on sugar-sweetened beverages; and increases of between 6% and 8,5% in duties on alcoholic beverages and tobacco products. [Applause.]
The Income Tax Act already contains measures to encourage provision of bursaries by employers to employees and their relatives. It is proposed that the income eligibility limits and qualifying bursary values should be increased. Inclusion of industry-based training programmes and the list of activities qualifying for tax exemption are also under consideration. What we are trying to do here is increase the possibilities of people offering bursaries and internships.
Our current taxes on wealth are under review by the Davis Tax Committee. Higher capital gains inclusion rates are proposed for the coming year, together with an increase in the annual amount above which capital gains become taxable. So, in simple terms, there is an increase in capital gains tax.
The transfer duty rate on properties above R10 million will increase from 11% to 13% ... [Interjections.] ... and measures are proposed to strengthen the estate duty and donations tax. We will continue to act aggressively against evasion of tax through transfer pricing abuses, misuse of tax treaties and illegal or illicit money flows. [Applause.] This is especially for the hon Shivambu. [Laughter.]
Drawing on the work of the Organisation for Economic Co-operation and Development, OECD, the G20 joint project on base erosion and profit shifting and independent bodies, such as the Tax Justice Network, further measures will be taken to address such revenue losses, including inappropriate use of hybrid debt instruments. Billions of rand are being lost through these mechanisms and we need to start pooling the right skills in the right places in order to contest this. [Applause.]
With effect from 2017, international agreements on information sharing will enable tax authorities to act more effectively against illicit flows and abusive practices by multinational corporations and wealthy individuals. In other words, one country will be able to share your tax information with another country which also has your tax information, so that we can put all your incomes together. [Applause.] [Interjections.] I'm sure you'll agree, that is very fair.
Building on the expertise gained by the Large Business Centre since its establishment in 2004, Sars is well placed to take advantage of the new Common Reporting Standard. Our international collaboration is an essential part of efforts to ensure that the tax system remains robust and contributes to inclusive growth. I will announce further steps in this regard later in the year.
Time is now running out for taxpayers who still have undisclosed assets abroad. Please listen carefully. With next year's deadline in mind, additional relief will be offered for a period of six months, from October this year, to allow noncompliant taxpayers to regularise their affairs. Though not introduced today, we publish on our website the draft Bill on the special Voluntary Disclosure Programme and the rates and threshold Bill. What this means is that if you have got money hidden in mattresses, or somewhere, bring it out. Approach the right tax authorities and declare that money if you've taken it out of the country, both to the Reserve Bank and the SA Revenue Service; and you'll have to pay a small penalty for that. [Interjections.] Yes, some people call it ooplang [hot cash; undeclared money].
Alongside the impact of tax on take-home pay, there are also contributions to pension and provident funds, group life arrangements and medical schemes. Not everyone makes these contributions, and so, their benefits are not universally enjoyed. Our policy commitment is to achieve universal health coverage, and comprehensive social security, in time. These contribute to the broader framework for inclusive growth, decent work, income security and social protection that forms part of the National Development Plan.
These are not straightforward reforms. Health financing is complex, because the demands unavoidably exceed available funds. This is the case even in advanced, rich countries. Retirement and social security reform is complex, because existing arrangements create long-term obligations and the needs of today all too easily crowd out provision for tomorrow. Yet, we must confront these challenges.
Minister Motsoaledi has published the White Paper on National Health Insurance, NHI. He has rightly emphasised that public health service delivery improvements must be prioritised, and reform of the private health and medical scheme environment is needed. In order to take the White Paper's proposals forward, Minister Motsoaledi and I will provide further details on the financing of the NHI, in due course.
In taking the comprehensive social security agenda forward, we have to recognise that existing social security arrangements are fragmented. This raises costs and leaves several social needs unaddressed. Minister Dlamini and I have been given the responsibility by the President for the social security reform programme, which has to draw on both international good practice and interdepartmental work of recent years.
Tighter regulation of the retirement funding industry is part of this reform effort. The intention is to protect members' interests and ensure that funds are not dissipated by unnecessary administration and financial costs, and that an income in retirement is assured. Our engagements with stakeholders will continue this year in the Nedlac framework, and elsewhere.
To support a greater national savings effort, we introduced tax- free savings accounts, last year. The response has been most gratifying. About 150 000 accounts have been opened, with savings totalling R1 billion at this stage. For those who have not yet taken this opportunity, you have until the end of this month to take advantage of this year's R30 000 limit for special tax treatment in these accounts. Let's increase those numbers.
Let me assure public servants, again, that reform of the retirement system will not affect their accrued pension rights. [Applause.] Indeed, I am pleased to report that the investment portfolio of the Government Employees' Pension Fund, GEPF, grew by 12,2% to R1,6 trillion in the year to March 2015. [Applause.] Pensioners of the GEPF will receive a 5,3% increase in April, this year.
The Revenue Laws Amendment Bill of 2016, introduced today, gives effect to the decision by Cabinet, last week, to postpone the annuitisation requirement for provident fund members for two years, to allow for further consultation with key stakeholders. The tax benefits will continue to be implemented from 1 March 2016 for all retirement fund contributions, including for provident funds. So, this is a new benefit for workers who contribute to provident funds. For the first time, they will get a tax rebate, like pension fund contributors get, and will have extra money in their pockets. [Applause.] As I indicated earlier, we will engage further on these matters in Nedlac.
In respect of state-owned entities, these have important roles to play in boosting growth and development. However, there are issues to address in their governance, mandates, financing and operations. The recently released report of the Presidential Review Committee on State-owned Enterprises is a very welcome guide to the path ahead. It rightly emphasises that effective leadership is central to progress. It notes that our infrastructure financing requirements are huge, and require effective cofunding arrangements between these state entities and other investors.
The asset base of state-owned entities is over R1 trillion, equal to about 27% of GDP. That's what the state owns. They maintain networks and provide services - power, roads, transport, water, communications - on which the rest of the economy depends. However, the committee's report indicates that the mandates of some of our entities overlap, some operate in markets that should be more transparently competitive, and some are no longer relevant to our development agenda. Some are in perpetual financial difficulties. So, we must take decisive steps to ensure that they are effectively governed and that they contribute appropriately to the attainment of the goals of the National Development Plan.
HON MEMBERS: Hear! Hear! [Applause.]
Firstly, as President Zuma has indicated, entities that are no longer necessary should be phased out. The resources raised or saved will be redirected to the balance sheets of state-owned companies that should grow.
Secondly, where entities have overlapping mandates, rationalisation options will be pursued. The merger of our housing development finance institutions, DFIs, is already in progress, and is a good example. Yes. Please applaud Minister Sisulu, or else she's going to be upset with you. [Applause.] There are entities with regulatory responsibilities where capacity should be combined.
We have national and provincial entities - a large number of them - with diverse property holdings, interests in farming or trading or manufacturing enterprises, often inherited from the pre-1994 dispensation, typically buried in subsidiary companies that are not publicly accountable. These are unnecessary state investments, and often, a drain on government resources. They are also assets with the potential for growth in independent hands.
It seems clear, furthermore, that we do not need to be invested in four airline businesses.
HON MEMBERS: Hear! Hear! [Applause.]
You guys should outmatch that, you know! [Laughter.] Minister Brown and I have agreed to explore the possible merger of SAA and SA Express, under a strengthened board, with a view to engaging with a potential minority equity partner. [Interjections.] [Applause.]
Well done! Well done!
Fly SAA!
Thirdly, the balance sheets of several entities with extensive infrastructure investment responsibilities are now stretched to their limits. Government has provided support in the form of guarantees, which now total R467 billion or 11,5% of GDP. In other words, ladies and gentlemen, and hon members, if somebody says they want the money back that we borrowed on these guarantees, we'll have to find R467 million, tomorrow. This is a source of pressure on the sovereign rating. Yet, we need to accelerate infrastructure investment in the period ahead.
So, where do we get the money? We must broaden the range and scope of our cofunding partnerships with private-sector and other investors, like trade union investment companies. This requires an appropriate framework to govern concession agreements and associated debt and equity instruments, and appropriate regulation of the market structure. In taking this forward, we are able to draw on our experience in road-funding concessions, in building the renewable energy market, and in promoting broadband telecommunications. Across these and other sectors, we have much to learn from each other, both nationally and through provincial and local initiatives.
In addition, Minister Brown is in discussion with Transnet's leadership on measures to accelerate private-sector participation in the ports and freight rail sector - and we are not talking about privatisation. [Interjections.] [Applause.] I though the only p-word was Pravin, but now we have privatisation! [Laughter.] The intention is to improve efficiencies, reduce the cost of doing business and increase investment in port facilities and inland terminals. This will complement investments that Transnet has already initiated through its Market Demand Strategy.
Our aim is to strengthen our state entities so that they can play a dynamic role in our development. Further financial support to state-owned companies will depend on the clarity of this mandate and firm resolution of governance challenges. Our regulatory agencies have a special responsibility, in this regard. In setting prices for electricity, transport and water utilities, they have to ensure that investment can continue to be financed, that costs are properly managed, and that people can afford the costs.
The strength of our major state-owned companies does not lie in protecting their dominant monopoly positions. It lies in their capacity to partner with business investors and other investors; industry; mining companies; property and logistics developers; and, for example, as I mentioned earlier, union investment companies, both domestically and across global supply chains.
Before I conclude, allow me to return to the main elements of the 2016 Budget, our spending plans and their contribution to growth and broadening development. Our approach is to build on our strengths, directly address weaknesses and be bold where new initiatives are needed. The budget framework brings forward our fiscal consolidation, as I said, and reduces our budget deficit to 2,4% by 2018-19. Taxes are raised moderately, across a broad base, while limiting the impact on lower-income families. Personnel spending has been curtailed and cost-containment measures are reinforced. Expenditure growth is focused on post-school education and training, economic infrastructure, social protection and health services. In respect of economic infrastructure, Budget allocations for water infrastructure this year take into account the specific needs of drought- affected areas and the need to address water losses in critical supply networks. The Regional Bulk Infrastructure Grant programme has been allocated R15 billion over the medium term for the construction of bulk water and sanitation infrastructure.
Public transport improvements in our cities are again prioritised, alongside better road maintenance and rehabilitation plans. Over the MTEF period, R1,6 billion is allocated to the SA Connect broadband programme to support access in remote areas and of schools, health care facilities and government institutions.
Steps to reduce the regulatory burden for business investors are also in progress. These include the establishment of Invest South Africa as a partnership with the private sector, and concerted efforts by our largest cities to reduce the administrative costs of starting businesses. A review of business incentives has been initiated, to strengthen their impact and to focus those initiatives in respect of growth, productivity, competitiveness and trade. An amount of R475 million has been reprioritised to the Department of Small Business Development for assistance to small and medium enterprises and co-operatives. [Applause.]
Programmes aimed at revitalising agriculture include spending on small- scale farming and developing Agri-parks in rural economies. An amount of R2,8 billion is allocated over the medium term to Fetsa Tlala, a food security initiative. The Department of Agriculture, Forestry and Fisheries aims to bring 120 000 ha of land into productive use in the period ahead, benefiting 145 000 subsistence and smallholder producers, each year. [Applause.]
Already this year, the Department of Water and Sanitation has reprioritised R502 million to deliver water, protect springs and refurbish boreholes in response to drought conditions. Funds have also been provided for feed and support for livestock farmers, and disaster relief measures. Additional drought response allocations will be made, as required, in the Adjustments Appropriation, later this year.
In respect of higher education, an additional R16,3 billion has been allocated for higher education over the next three years. Of this, R5,7 billion addresses the shortfall caused by keeping fees for the 2016 academic year at 2015 levels - a zero increase - and the carry-through costs over the MTEF period. An amount of R2,5 billion goes to the NSFas to clear outstanding student debt, along with a further R8 billion over the medium term to enable current students to complete their studies. [Applause.]
In respect of basic education and early childhood education, our expenditure on basic education will increase from R204 billion this year to R254 billion in 2018-19. [Applause.] By 2018, 510 inappropriate and unsafe schools will be rebuilt, 1 120 schools will be supplied with water and 916 schools with electricity. An additional allocation of R813 million for early childhood development, ECD, is proposed to increase the number of children in ECD centres by 104 000 over the MTEF period. [Applause.]
In respect of health and welfare services, R4,5 billion is budgeted over the medium term for revitalising health facilities in the 11 NHI pilot districts, and related health system reforms. An additional R740 million has been allocated to strengthen TB programmes to encourage early detection and treatment, and R1 billion for expansion of the antiretroviral treatment programme. [Applause.] Additional funds are allocated for new substance- abuse treatment centres in the Northern Cape, Free State, Western Cape and North West provinces. Now, for the older people who are listening carefully to us and others that depend on social grants, our overall expenditure on social assistance will increase from R129 billion this year to R165 billion in 2018-19. The old age, disability and care dependency grants will rise by R80 to R1 500, in April 2016, and by a further R10 to R1 510, in October. [Applause.] The child support grant will rise by R20 to R350, in April, and the foster care grant by R30 to R890. [Applause.]
In respect of defence, public order and safety, spending will rise from R172 billion, this year, to R204 billion, in 2018-19. Taking into account the recommendations of the Farlam Commission of Inquiry, an amount of R598 million is allocated to enhancing capacity of Public Order Policing units over the MTEF period ahead. [Applause.]
Allocations are also made to strengthen institutions supporting constitutional democracy and to combat corruption, and to enhance the independence of the judiciary. Funds are allocated for the Information Regulator established in terms of the Protection of Personal Information Act of 2013.
In respect of provinces and provincial expenditure management, our Constitution requires an equitable division of nationally collected revenue between national, provincial and local government. Taking into account the current Fiscal Framework, the provincial MECs for finance have agreed to a joint action plan to address expenditure management and service delivery improvements in each of their provinces.
Some of the key measures that they have adopted are the following: firstly, containment of administrative personnel expenditure, while protecting education and health service staff; secondly, improved revenue collection by the provinces themselves; thirdly, rationalisation and closure of redundant and underperforming programmes and entities; and lastly, an intensification of cost-containment measures, in keeping with national guidelines. I think you should congratulate the MECs. [Applause.] They are going to watch you. Those of you in the provinces didn't clap enough for them!
In respect of municipal financial management, we are mindful that municipalities face growing pressures from both the rising cost of bulk services and rapidly growing numbers of households. Municipal capital spending exceeded R53 billion in 2014-15. Yet, we continue to see underspending of infrastructure grants in many local municipalities.
A review of these grants has led to several new proposals for improvement in the delivery of infrastructure. Firstly, grant frameworks will, in future, allow for refurbishing of assets, as I said earlier, recognising the long-term nature of municipal infrastructure. Maintenance is sometimes more important than new infrastructure. [Applause.]
Secondly, water sector grants will be restructured to reduce duplication and the associated administrative burden.
Thirdly, refinements are proposed to take into account the diverse challenges of urban and rural areas, and different-sized towns and cities.
Lastly, public transport transfers to cities will now be allocated through a formula, bringing greater certainty and sustainability to these funding arrangements.
This year brings our fourth fully democratic local government elections to our doorstep. In recognition of this, Treasury will launch a data portal to provide all stakeholders with comparable, verified information on municipal financial and nonfinancial performance. I hope this will further stimulate citizen involvement in local governance. The elections will also see a significant change in municipal demarcations. The number of municipalities will be reduced from 278 to 257, with the objective of improving their viability and sustainability. Local government allocations will be revised to take account of these boundary changes and over R400 million is allocated over the next two years to assist with this transition in the merger process.
The Back to Basics programme, launched in 2014, aimed at improving service delivery performance of municipalities, is entering its second phase of implementation, under Minister Van Rooyen. [Interjections.] [Applause.] It involves active monitoring of performance in governance and service delivery, support to struggling municipalities and stronger accountability measures.
Our investment in cities and urban networks is as follows. Cities are already taking steps to encourage higher land-use density and inner-city development under the authority of the new Spatial Planning and Land Use Management Act. This will unlock significant further private sector development potential across our cities, focused on strategic corridors.
Bus rapid transit systems are operational and expanding in Johannesburg, Tshwane, Cape Town and George. They will be extended to Ekurhuleni and eThekwini this year, although we've got to watch the sustainability of these programmes, as well. About R6 billion is allocated to this programme in 2016-17. Improvements to rail rolling stock and infrastructure will begin to improve the daily travel experience for commuters. We owe that to the workers of South Africa. [Applause.]
Associated with these transport investments, over 90 integrated land development projects valued at more than R130 billion are in progress to reshape our cities, in partnership with the private sector. Let me give you some examples.
In eThekwini, the Cornubia node comprises 25 000 housing units. An inner- city regeneration programme is also under way, including projects at Bridge City, Centrum, the Point and the interconnecting corridor. In the Tembisa Corridor in Ekurhuleni, R6,5 billion in public investment will leverage R8 billion in private-sector investment to deliver housing, commercial and office facilities.
In Cape Town, the N2 Gateway housing programme is continuing, together with the redevelopment of the Voortrekker Road Corridor, Conradie Hospital, the Athlone Power Station, and other sites. In Tshwane, investments are focused on the Mabopane Station hub, which is the gateway to the north for more than 150 000 passengers a day and has an informal market accommodating approximately 2 500 traders.
In Manguang, the R2,6 billion mixed-use Airport Development Node is under construction. An inner-city residential development is planned and the Vista Park and Brandkop projects will yield over 8 500 housing units at a total development cost of over R1,9 billion. In Johannesburg, the Corridors of Freedom connecting Soweto, Alexandra, Sandton and the Johannesburg CDB bring together public transport improvements, social amenities and partnerships with property developers to increase settlement densities and improve social mobility.
Our economic imperative is to ignite inclusive growth. This is central for jobs, for lowering debt, for delivering services and building infrastructure for a 21st century economy. Let us chart a new course for the economy and the wellbeing of all South Africans, particularly for those hardest hit by unemployment - the low-skilled and the youth. This is not only crucial to address social imbalances and inequality, it is also fundamental to encouraging investment. The recent tremors felt by the emerging markets are a warning that we need to take corrective steps urgently or we will all be worse off. At the same time, we need to move forward to mobilise the resources and capacity of all our people, large and small enterprises, civil society organisations and, importantly, the public, more generally.
The joint actions we need will not always be easy. All too often, bureaucrats and businesspeople speak past each other. The needs of the young are not the same as those of the elderly, like yourselves. The rhythms of the township differ from those of the suburb. Race, class and language differences hold back progress, even when we have shared aspirations and shared goals. We need to bridge these divides. [Applause.]
I believe that we are resilient enough, committed enough, and, hopefully, resourceful enough to overcome these challenges and seize these opportunities. We can turn today's adversity into opportunities. We can address the weaknesses that create policy uncertainty. We can build on the strengths that our resource base, our institutions and our workforce offer us. We can do things differently and, indeed, be innovative.
We have avoided reckless policies which might have dragged us into recession or reversed the capital flows we need. We have a sound macroeconomic and fiscal framework, and the will to work together for faster and inclusive growth.
Allow me, in conclusion, to thank you, Mister President and Minister Deputy President, for your leadership and support. [Interjections.] [Applause.] I also want to thank Cabinet colleagues for their contributions to addressing the challenges before us and for working as a team.
Members of the Ministers' Committee on the Budget, including Deputy Minister Jonas, who has been a pillar of strength, have provided sterling support. [Applause.] I want to thank our provincial Premiers, finance MECs and municipal mayors, who share our fiscal and financial responsibilities.
Please join me in also expressing appreciation to Minister Nene for his valuable contribution to our government and Treasury. [Applause.] Thank you! Thank you! Thank you. [Interjections.] I want to finish the speech now!
What about your predecessor?
I also wish to express my appreciation to Director- General Lungisa Fuzile, who is the second pillar of strength in the Treasury ... [Applause.] ... for his integrity and leadership, and to all the officials of the National Treasury; to Governor Kganyago, the deputy governors and staff of the SA Reserve Bank; Commissioner Moyane and the 14 000 staff, in particular, of the SA Revenue Service; the commissioners and staff of the Financial and Fiscal Commission; the chairpersons, boards, chief executive officers and staff of the DBSA, the Land Bank, the Public Investment Commission, PIC, the Financial Intelligence Centre, FIC, the Financial Services Board, and the Government Pensions Administration Agency; the staff and constituency representatives of Nedlac and, particularly, its Public Finance and Monetary Policy Chamber; and, finally, Judge Dennis Davis and members of the Davis Tax Committee. [Applause.]
Because I am passing on some difficult tasks, I must also be especially grateful to the Chairperson of the Standing Committee on Finance, the hon Carrim; acting Chairperson of the Standing Committee on Appropriations, the hon Gcwabaza; and Chairpersons of the Select Committees on Finance and Appropriation, the hon De Beer and hon Mohai, who have the responsibility of facilitating the consideration of the Division of Revenue Bill and the Appropriation Bill, and the Revenue Bills which will be tabled later in the year. [Applause.]
I must also be especially grateful to my family. [Applause.] Politics can be rough, so they face rough times.
In conclusion, looking back on his extraordinary life of resilience and of commitment, former President Mandela had this to say, and I think we should take it to heart:
I am fundamentally an optimist. Whether that comes from nature or nurture I cannot say. Part of being optimistic is keeping one's head pointed toward the sun, one's feet moving forward. There were many dark moments when my faith in humanity was sorely tested, but I would not and could not give myself up to despair. That way lays defeat and death.
Let's be resilient. Thank you very much. [Applause.]
Hon Speaker, I move that, notwithstanding the relevant provisions of the Rules on Money Bills, the Fiscal Framework and Revenue Proposals, the Minister of Finance's speech and the Revenue Laws Amendment Bill be referred to the Standing Committee on Finance for consideration and report.
Agreed to.