Hon Speaker, Mr President, Mr Deputy President, fellow Cabinet colleagues and Deputy Ministers, Governor of the Reserve Bank, Ms Marcus, the MECs for Finance, honourable mayors, members of the diplomatic corps, directors-general, hon members, ladies and gentlemen, I have the honour today to present the fifth Medium-Term Budget Policy Statement, MTBPS, of President Zuma's administration, the fourth democratic government of the Republic of South Africa. Over the past four and a half years, this government has steered our country through the worst global recession in 70 years. We have made bold, and, I believe, correct decisions, which have restored growth, supported our industries, and maintained a sustainable fiscal policy.
This MTBPS outlines government's intent to pursue a fiscal path that balances the requirements of countercyclicality with a commitment to medium- term consolidation. It keeps government's debt on a sustainable long-term path. It reflects our intent to implement the National Development Plan, NDP; to direct public spending to reignite inclusive growth and complement increased private sector investment; to support job creation and skills training, particularly for the unemployed youth amongst us; to create a climate for investment; to manage the risks emerging from the current and potential global economic turbulence; to cut costs and waste in government; and to support black entrepreneurs as investors and partners in our industrialisation and broadening of economic participation.
We must be frank with our fellow South Africans. This is a tough period, both globally and for the South African economy, but one with many possibilities and opportunities. We are developing and implementing solutions to the challenges facing our economy - the challenge of growth being too slow, unemployment being high and many households being over- indebted, and the challenge of government expenditure substantially exceeding our revenue.
Since 2008, we have issued more than R1 trillion in debt. Our level of savings is too low to finance the investment we need. We import considerably more than we export. Unless we save and invest more, unless we expand and diversify our economy, unless we accelerate job creation, our aspirations will remain unfulfilled. Above all, we need faster, inclusive, job-creating growth. Without growth, we cannot increase the number of enterprises or create more jobs. Without growth, we cannot generate the revenue needed to fund our social programmes, infrastructure investments and incentives to support important industries.
We have a duty to broaden opportunities for those who do not have secure incomes, formal jobs, solid homes, electricity, water or access to health care. We have to share the benefits of growth, so that those of our people who are most vulnerable and disadvantaged can say, "This economy works for me". Faster and more inclusive growth calls for greater co-operation and better alignment between labour, business, government and other actors to get things done - hearing each other out, finding solutions, encouraging innovation and building a "smart" South Africa.
It is also appropriate, 19 years into our hard-won democracy, to celebrate our achievements as a young nation. Our economy has grown by over 80% since 1993. National income per capita has increased by 40% in real terms, that is, excluding inflation. Total employment has increased by more than 3,5 million jobs. Fixed investment increased from 15% of GDP in 1993 to an average of 20% over the past five years. A new tax administration has been established, and an overhaul of the tax structure has allowed tax rates to be lowered, while improving revenue performance. Our guess is that, in the last 10 years, we have refunded probably R100 billion to individual taxpayers in South Africa.
Over R600 billion in black economic empowerment, BEE, transactions have been recorded since 1995. More than 15 million people are now eligible for social grants. We have built more than 3 million homes and have substantially increased the number of households with access to electricity, water and sanitation. However, our work is far from done. As President Mandela once said:
After climbing a great hill, one only finds that there are many more hills to climb.
We must continue our process of transformation against a backdrop of global economic uncertainty, and despite this uncertainty, we must be steadfast, creative and bold.
The central message of the National Development Plan, NDP, is clear. To accelerate progress, deepen democracy and build a more inclusive society, South Africa must translate political emancipation into economic wellbeing for all. It is up to South Africans to fix the future, starting today.
This Medium-Term Budget Policy Statement demonstrates government's resolve to implement the NDP through, among other things, the following: expanding electricity, transport and communications capacity; promoting industrial competitiveness and job creation; addressing challenges in mining and community development; supporting growth of our cities and special economic zones; broadening rural development and expanding agricultural opportunities; and strengthening Public Service delivery, while combating waste and corruption. As the President noted in his budget speech:
We have moved to the implementation of the plan. Going forward, all delivery agreements, sector plans, departmental strategic plans, as well as provincial and municipal plans will be aligned to the National Development Plan.
So, we have a plan, and we now have to track progress, year by year, in its implementation.
Let me highlight some of the projects that are already in progress. Construction of the Medupi and Kusile Power Stations is well under way. Rail capacity is being expanded to support manganese and coal exports. Over the next 12 years, we will replace more than 300 trains for the 2 million people who use Metrorail services every day. [Applause.] At least, now I know you are awake! [Laughter.]
Tax incentives for industrial development projects amounting to R10 billion have been approved over the past three years, which will support investment, amounting to R35 billion. The Manufacturing Competitiveness Enhancement Programme has approved 387 applications since mid-2012, with a value of R2,6 billion.
In support of regional infrastructure development, the Development Bank of Southern Africa has provided almost R1,5 billion for road projects in Angola this year. It also committed funding of R3 billion to energy projects in Tanzania and the Democratic Republic of the Congo, amongst many other projects.
The Expanded Public Works Programme created 970 000 work opportunities last year. The Jobs Fund has approved allocations of R3,4 billion to more than 60 projects, which will generate 90 000 permanent jobs and about 100 000 training opportunities over the period ahead.
The President recently launched the Bridge City project, which brings together public and private investment to create a new urban centre linking the communities of Inanda, Phoenix, Ntuzuma and KwaMashu, north of Durban. Another excellent example of partnership between the public and private sectors is the Renewable Energy Independent Power Producer Programme. A total of 47 projects have been approved, to be completed between 2014 and 2016. The first 75 megawatt solar plant in the Northern Cape was connected to the Eskom transmission grid last month, three months ahead of schedule. Two wind farms in the Eastern Cape will be connected by May next year.
These are just some of the ways in which the implementation of the National Development Plan is proceeding. In many cases, it builds on initiatives that were already under way. In other areas, new programmes or reform proposals are being introduced.
To support job creation in special economic zones and for young work seekers, a revised Employment Tax Incentive Bill will be formally introduced in Parliament tomorrow. [Applause.] This forms part of the multipronged approach to expanding work opportunities, especially for young people, envisaged in the national Youth Employment Accord. The evidence on this is very clear. If young people find work within a reasonable timeframe after leaving school, this greatly improves their lifetime career prospects.
These are steps towards faster, more inclusive growth. They are all areas in which private sector and civil society involvement is no less important than the role played by government.
Let us look at the economic outlook. In crafting our fiscal strategy for the next three years, Cabinet has taken careful account of global and local economic circumstances. Global economic activity remains subdued. In the Euro area, which is our main trading partner, GDP growth of 1% is expected next year, after negative growth during much of 2012 and 2013. The International Monetary Fund, IMF, has revised down the 2013 growth outlook for developing countries from 5% to 4,5%. Our economic prospects are interconnected with these global trends.
As the United States tapers its quantitative easing programme and starts to raise interest rates, this will impact on our debt costs and might cause further volatility of the rand. For those of us that are not familiar with quantitative easing, this is a process whereby the reserve bank of the United States injects $85 billion a month into the financial system. Since about May this year, they have been announcing that they are going to taper. It means to cut it down from $85 billion. This is what has caused a lot of turbulence around the globe, and part of the consequences of this turbulence has reached our shores as well. So, we have emphasised, in recent engagements with our international partners, that progress towards a better future requires greater global co-operation and greater respect for the interdependence of industrialised and emerging economies.
We now expect growth of about 2,1% in the South African economy this year, rising to 3,5% by 2016. Gross fixed capital formation will increase by about 4% this year, mainly driven by public sector infrastructure projects. Private sector investment growth remains subdued, but should gather momentum over the period ahead. Consumer price inflation is expected to average 5,9% in 2013, and to remain within the 3% to 6% target band next year. Statistics SA today announced a 6% inflation increase over the past period. A trade deficit of 2,6% of GDP was recorded in the first half of 2013, contributing to a deterioration in the current account of the balance of payments to about 6,5% of GDP. Muted economic growth has translated into limited gains in job creation. The Quarterly Labour Force Survey indicates an increase in employment of about 275 000 in the year to July, but formal nonagricultural employment growth has been slow.
The challenge that faces us is how to boost confidence and build stability in this kind of environment. Over the past year, government has been working with business and labour in several sectors to build a better investment climate in South Africa. A recent Johannesburg Stock Exchange, JSE, and UBS road show in New York brought government ministers, representatives of the Reserve Bank and leading South African CEOs together on the same platform, presenting a balanced perspective on the South African economy.
Deputy President Motlanthe and Minister Shabangu responded quickly to allay concerns of investors in the mining industry. Ministers Shabangu and Oliphant have also made progress in resolving labour disputes in this sector. [Interjections.] Minister Davies has engaged with senior executives and labour representatives to improve co-operation and restore confidence in the automotive sector. Constructive co-operation between government, business and organised labour also characterises the work of the task team on infrastructure, which aims to get these crucial projects moving.
Meanwhile, a wide range of measures are in place to give greater impetus to investment. Some of these are the following. Ministers Gigaba and Peters are overseeing substantial improvements in road and rail logistics, including reductions in container handling charges at our ports. The Special Economic Zones framework introduced by Minister Davies provides new opportunities for supporting industrial development and exports. Under Minister Patel's leadership, action has been taken to ensure that competition is not undermined by collusive practices. Improved administration of work permits for skilled foreign workers will be implemented next year by Minister Pandor.
Reforms are also under way to enhance private-sector participation in the electricity sector and improve the structure of support programmes to firms. Work is in progress on a new Promotion and Protection of Investment Bill and a policy framework to address investor concerns relating to ownership, tax, industrial support measures and exchange controls.
Government remains committed to macroeconomic stability, supported by prudent fiscal management and sound monetary policy. We are aware of the risks posed by the deficit on our current account, which has so far been mitigated by our flexible exchange rate, but which, over the long term, requires fundamental change to the structure of our economy. These policies ensure that the country's finances are sustainable; that wages, social benefits and savings are not eroded by high inflation; and that the economy can absorb external shocks.
Financial sector reforms are now in the implementation phase, with the twin peaks legislation to establish two new regulatory authorities to be submitted to Cabinet shortly. The retirement reform programme is also progressing, with the consultation process on retirement fund costs in its final stage. Draft regulations will be released shortly.
Allow me now to move to the Fiscal Policy Framework, which is set out in this statement. We remain committed to countercyclical fiscal management and long-term sustainability. A sustainable expansion of public services is an important developmental goal and cannot be achieved without economic growth. A larger economy means higher revenue. The 2013 MTBPS balances fiscal consolidation with support to the economy.
The proposed Fiscal Framework will meet the 2013-14 deficit target as defined in the new format presented in the 2013 Budget Review. I must just pause for a moment, colleagues and hon members, and point out that there is a change in the way in which the deficit is being calculated. So, the old number would have been 4,6%. The new number is 4,2%, but it is accounting technicalities, if you like, that are giving us slightly different numbers. They mean the same thing, and we explained this to the media earlier on. We want to narrow the deficit going forward in order to stabilise public debt.
Despite all of this, we are growing expenditure at 2,2% in real terms, above inflation, but within a clear expenditure ceiling. We are containing spending growth on wages and goods and services in order to stabilise debt and begin rebuilding fiscal space.
Expected gross tax revenue for 2013-14 has been revised down marginally by R3 billion to R895 billion. Personal income tax collection remains strong as a result of high wage settlements, and corporate income tax has been robust. Lower revenue growth is expected over the medium term as a result of slower economic growth than we projected in February. The Tax Review Committee, chaired by Judge Davis and established earlier this year, is mandated to inquire into the role of the tax system in promoting inclusive economic growth, employment creation, development, and fiscal sustainability. Its first report, on small and medium-sized businesses, will be submitted to us before the end of this year.
The budget deficit will narrow from 4,2% - remember, that is the old 4,6% - in the current year to 3% in 2016-17. This will stabilise debt over the medium term and begin to rebuild fiscal space. Government's approach to improving provision of public services is therefore focused on better use of existing resources and shifts in the composition of spending, rather than raising overall expenditure.
In respect of the division of revenue and the Medium-Term Expenditure Framework, as members of the House will know, preparation of spending plans for the 2014 Budget is now in progress and will be aligned to the NDP. The MTBPS provides a summary of the expenditure framework, which Cabinet has approved, and within which national and provincial budgets are being prepared. Our Constitution requires an equitable division of revenue between the national, provincial and local spheres of government. Over half of all revenue raised by national government through taxes and borrowing is transferred to provinces and municipalities.
The MTBPS proposes a national appropriation of R1,1 trillion in 2014-15; R1,2 trillion in 2015-16 and R1,3 trillion in 2016-17. Just under 10% of the total, or R110 billion next year, will be spent on debt service costs, or interest costs. The budget framework includes a contingency reserve, which is R3 billion next year, and R6 billion and R18 billion in the following two years. This allows for unforeseeable claims on the fiscus, and future policy considerations. This leaves R1 trillion to be allocated next year, rising to R1,2 trillion in 2016-17.
The proposed division of revenue allocates R453 billion to provinces and R93 billion to local government next year. The provincial share is largely determined by the requirements of education and health services and Public Service remuneration. Salary costs and infrastructure requirements are the main adjustments to the national votes.
New planning requirements were announced in the 2013 Budget for provincial grant allocations for health and education infrastructure. All provinces have submitted the required asset management plans. Incentives to reward value for money in infrastructure delivery will take effect in the period ahead. In co-operation with the Department of Performance Monitoring and Evaluation, a programme of expenditure reviews is in progress, focused on housing, broadband access, industrial development zones, and in-service training of teachers, amongst other subjects.
The NDP recognises capable municipalities as the bedrock of a capable state. The National Treasury will continue to closely monitor and engage, and if need be, intervene in those municipalities that fail to live up to the standards of public service established in the Constitution. Minister Tsenoli correctly emphasises the need for more people who can afford to pay for municipal services to do so. We must also appeal to citizens not to damage public property during protests. [Applause.]
In supporting municipalities over the Medium-Term Expenditure Framework, MTEF, period, a strong focus on economic development is proposed. From next year, the implementation of the City Support Programme will be accelerated, including incentives to encourage more compact and efficient spatial planning and investment. The regional bulk infrastructure grant receives an additional R934 million over the spending period to finance bulk water projects. By 2014, responsibility for the housing function will be devolved from provincial to local government in six metropolitan areas.
As a result of these and other additions, allocations to provinces are increased by R11,2 billion over the 2014 MTEF period, and allocations for local government are increased by just over R1 billion.
Public expenditure growth has remained well within the limits set by government over the past two years. We have again put every effort into finding savings, eliminating waste and reprioritising spending towards key social and developmental objectives. Over the MTEF period ahead, R10 billion in spending has been reprioritised.
To achieve value for money in these initiatives, we need improvements in financial management right across government. This applies equally to provinces and municipalities, where we have to see much better accountability and discipline in the stewardship of public resources. Wasteful expenditure on expensive cars and overseas trips is unacceptable. [Applause.] I will say more on this shortly. [Interjections.]
Rigorous procurement reforms are being initiated, especially in infrastructure project management, to strengthen service delivery, eliminate waste, and root out corruption. In reviewing the procurement system, we will also ensure that its contribution to broad-based black economic empowerment and local industrial development is reinforced. [Applause.] That was very meek applause, you know! [Laughter.] [Applause.] [Interjections.]