THE FULL MINI-BUDGET SPEECH
Nhlanhla Nene's full speech
Cape Town - Fellow South African, it is my privilege to present
the 2014 Medium Term Budget Policy Statement and the Adjustments
Appropriation Bill, the Division of Revenue Amendment Bill, all for 2014
to 2015, and this year's Revenue Laws Amendment Bills.
Nhlanhla Nene, adjunkminister van finansies. ~ SAPA
Mister President, we are calling upon Parliament to consider our budget proposals at a difficult time.
In many countries, growth has slowed and the economic outlook is uncertain.
the world, tough questions are being asked about how to generate
growth, and how to reduce inequality. Governments everywhere face
difficult choices because the gap between what is required and what can
be afforded is very wide. And so we have to be steadfast in our resolve
to do more, together, with less.
Speaker, when we tabled the 2014 Budget in February, we expected the
economy to grow by 2.7% this year. The revised estimate is 1.4%. The
Treasury projects that growth will reach 3% in 2017.
revision is partly because of a weak global environment, including the
slowdown in Europe, China and other emerging economies. But it also
reflects obstacles to our own development:
labour market disruptions, skills shortages, administrative shortcomings
and difficulties in our industrial transformation.
achieved much over the past twenty years: we have expanded education and
health care, broadened economic participation and extended income
support to the most vulnerable.
But we are not making enough
progress in raising incomes or reducing poverty. Far too many people are
unemployed, which deepens inequality and heightens vulnerability. We
import considerably more than we export.
As a result of slow
growth, tax revenue is below our budget projection. Government's debt
continues to rise as a percentage of GDP.
Increased debt is not in
itself a bad thing, if it finances investment in future productive
capacity. But we are not investing enough. And our expenditure on public
services achieves less than it should.
And so, Honourable
Speaker, the budget framework we table today is focused on restoring
balance to the nation's finances, bolstering investment, and achieving
better value for money in public expenditure. We want to improve our
export performance and shift away from consumption-led, debt-reliant
These changes are fundamental to our economic
transformation, because they are the foundations on which our social
progress and human development goals will be achieved.
National Development Plan
National Development Plan is about both growth and redistribution
"expanding output and incomes and building a more inclusive and more
equal society. As emphasised by President Zuma in opening the fifth
Parliament, we need economic growth of around 5% a year to decisively
reduce unemployment and poverty, and to transform our social and
economic order. There are many aspects to this transformation challenge:
How we utilise land and our mineral resources,
How we organise transport, energy and communication networks,
How we manage cities and local government,
How we improve education and health services,
How we reform our social security and welfare services,
How we broaden ownership and enterprise development, and
How we engage with Africa and the rest of the world.
cannot achieve this vision if we remain on our present economic path.
We have to navigate a definite change of course, taking all South
Africans with us.
Medium term strategic framework
Speaker, the budget framework we are proposing for the period ahead
signals this change. But economic development is much more than a
schedule of taxes and spending plans.
The success of our budget is
defined by its contribution to building a more equal, prosperous
society, as envisaged in the National Development Plan.
actions over the next five years to achieve this vision are set out in
the Medium Term Strategic Framework. It highlights the need for a
compact between a capable developmental state, a thriving business
sector and strong civil society. It identifies employment, education and
enhancing the capacity of the state as central policy objectives.
MTSF includes programmes aimed at improving our competitiveness,
particularly in new areas such as oil and gas development, renewable
energy and green technology. It recognises the need to support job
creation through sector-based interventions, employment incentives, the
expanded public works programme and the Jobs Fund.
The MTSF also
acknowledges the importance of our social grant programmes and welfare
services in combating poverty, and the role of public health services
and child-focused programmes in reducing vulnerability.
Speaker, there are structural shifts underway in our economy that need
to be accelerated. Allow me to highlight just a few:
manufacturing, we are helping companies to enhance their competitiveness
and upgrade equipment through the Industrial Policy Action Plan. A new
framework for special economic zones has been introduced. It allows for
targeted incentives, logistics improvements and active partnerships
between businesses, municipalities and development agencies.
agriculture, better links between emerging farmers and produce markets
need to accompany an improved alignment between land reform and
agricultural support programmes. We have seen strong increases in maize
and livestock production this year. There has also been notable growth
in exports of citrus, wine and horticulture products.
sub-Saharan Africa, South African firms are expanding investment and
business partnerships, giving impetus both to regional development and
our own export growth. Africa is the fastest growing region in our trade
portfolio, and offers many opportunities for domestic producers to
In the energy sector, we have one of the largest
renewable energy programmes in the world, with over 60 wind and solar
power projects underway. The independent power producer programme will
be extended to include 2500 MW of coal projects and 800 MW of
cogeneration projects to be connected to the national grid.
mining, we recognise the need for a new accord between producers,
organised labour, government and local communities. Modernisation of
mining is not just about new technologies. It also involves housing
investments, social development and improved processes for dispute
In transport and communications, we are in the early
stages of major transformative investments. The Passenger Rail Agency
of South Africa has concluded a R53bn contract to replace over 500
commuter trains over the next ten years. Transnet is expanding and
improving its infrastructure and services. New public transport systems
are being constructed in our cities. Telecommunications investments are
steadily improving the quality and coverage of broadband networks.
In our financial sector, the twin peak reforms to improve consumer
protection and safeguard investments are underway. These will include
attention to unfair lending and debt recovery practices. We are working
with our Nedlac partners to promote retirement reforms. Initiatives to
encourage saving are in progress. The shift away from exchange controls
to more appropriate prudential standards will continue, including
simpler administrative requirements.
These are areas of structural
transformation, Honourable Speaker, that involve investment and change
across the economy as a whole, bringing together the public and private
sectors, civil society and local initiatives.
I need to highlight the key aims of our Medium Term Strategic Framework that have substantial implications for the budget.
The quality of our education system and our health services needs to be
improved. These will remain the top priorities of government spending.
Building capacity and strengthening accountability of the public sector
is critical, particularly at local government level and in state-owned
South Africa's spatial landscape has to be re-shaped,
including investment in dynamic city development, integrated housing
and transport programmes and support for business activity and job
creation in both urban and rural areas.
The MTSF will guide the
budget decisions that contribute to making the NDP a reality. The
required increases in investment and productivity will not be easily
achieved. There will be difficult short-term adjustments, to achieve a
sustainable long-term development path. As the NDP says, we must work
together as partners to revive investment, avoid lengthy production
stoppages, improve public services, strengthen local accountability and
generate confidence in the economy.
The recent Operation Phakisa
review of our oceans economy is an excellent example of the kind of
cooperation we need. We had intensive engagement, over several weeks,
under expert guidance. This has deepened our understanding and generated
practical ideas for further development.
On Friday this week, the
President will again meet business leaders to discuss measures to
increase investment in our economy. On 4 November, the Deputy President
will lead a consultation between social partners on challenges in the
labour relations environment. Through forums of this kind, Honourable
Speaker, we make progress in implementing the National Development Plan
and in addressing specific challenges that confront us.
We have responded to two such challenges in recent months. Let me comment briefly on each.
became clear earlier this year that African Bank was in difficulty.
After consideration of the implications for the wider financial system,
it was resolved that African Bank should be placed under curatorship.
The intervention was led by the Reserve Bank and the Treasury, and
included participation by other banks, private investors and the Public
In support of the restructuring, the
Treasury has provided a R7bn assurance to the Reserve Bank. Our
expectation is that the new African Bank will re-list on the stock
exchange early next year, and that the curatorship will be concluded
without the use of taxpayer money.
Eskom and other state-owned companies
We have also taken steps to safeguard Eskom's financial sustainability.
support proposed for Eskom will allow its build programme to continue
without an unduly steep increase in electricity prices.
Eskom will borrow a total of R250bn over the next five years, supported by existing guarantees from government.
Government will provide at least R20bn of funding, raised through the
sale of non-strategic assets. This will be deficit-neutral: the
capitalisation of Eskom will only occur once these funds are realised.
If necessary, consideration will be given to a partial equity conversion
of the R60bn loan that has already been provided.
assistance to municipalities for free basic services will continue,
ensuring that the poorest households are protected against rising
electricity tariffs. Electricity supply will remain tight until the
first units of the new Medupi power station come on line and the
capacity of existing plants improves. Even then, it will require several
years and substantial public and private investment in power generation
before a satisfactory balance between supply capacity and demand is
Stepped-up investment in distribution infrastructure is
also required by municipalities, alongside investment in demand
management and energy efficiency improvements by both businesses and
In addition to Eskom, several other state-owned
companies are under Cabinet's close scrutiny. A new framework is
envisaged that will distinguish commercial activities from development
mandates, accompanied by more stringent financial reporting
Following the successful restructuring of the
Development Bank of Southern Africa, steps to address financial risks
and improve governance are being undertaken at South African Airways,
South African Express, the SA Post Office and the Land Bank.
Adjustments Appropriation: 2014 to 2015
Members, I now turn to the Adjustments Appropriation for the current
financial year. Details are set out for each vote in the Adjusted
As in past years, there are various shifts of funds and minor adjustments. I will highlight just a few.
Additional allocations for unforeseeable and unavoidable expenditure include:
R157 million on the Cooperative Governance vote to repair
infrastructure damaged by disasters, and R35 million for emergency water
and sanitation interventions;
R32.6 million for the Department
of Health for Ebola control and prevention measures, including support
for affected countries; and
R350m for International Relations and Cooperation to compensate for the depreciation of the Rand.
Adjustments Appropriation also includes R620m for the digital broadcast
migration programme, as indicated in the February budget speech.
taking into account the unallocated reserve, declared savings and
projected underspending, total expenditure in 2014 to 2015 will be about
R6bn less than the February estimate.
The revised revenue
estimate is R956bn, leaving a deficit on the main budget of R180bn.
Surpluses of the social security funds, provinces and public entities
are estimated at R27bn. This brings the consolidated budget deficit to
R153bn, or 4.1% of GDP, which is in line with the February budget
Elements of the MTBPS
the 2014 Medium Term Budget Policy Statement, Honourable Speaker, allow
me to emphasise once more that investment and initiative by both the
private and the public sectors are required for our economic growth and
The National Development Plan calls for
private and public sector investment to reach 30% of GDP. Progress has
been made: public sector spending on infrastructure has doubled over the
past five years. But there is still a long way to go if we are to
achieve investment-led growth, which is the centrepiece of our
Two years ago, we pointed out that if the
economic and fiscal outlook were to deteriorate, expenditure and revenue
plans would be reconsidered. In the 2013 Budget, government reduced its
spending plans and cut the unallocated contingency reserve. The 2014
Budget indicated that additional measures would be required if the
economic outlook were to worsen.
Members of the House, we have reached that turning point. Fiscal consolidation can no longer be postponed.
proposing measures to reduce the budget deficit, government will
stabilise public debt and ensure the sustainability of our critical
social programmes. The proposals being tabled today complement reforms
under way to encourage lower consumption, higher savings and increased
Re-establishing a sustainable foundation
for the public finances will lower the cost of capital across the entire
economy and open the way for investment-led growth. It also means that
government will play its part in moderating the wide deficit on the
current account and correcting our external imbalance.
these fiscal measures will complement job creation and skills
development initiatives. These include government's flagship
re-industrialisation programmes, projects of the Presidential
Infrastructure Coordinating Commission and support for our expansion of
higher education and vocational training.
The fiscal framework set out in the MTBPS is as follows.
order to reduce the budget deficit from 4.1% this year to 2.5% over the
next three years, the expenditure ceiling will be lowered by R10bn in
2015 to 2016 and R15bn in 2016 to 2017. To effect the lower ceiling,
national government will:
* Freeze budgets of non-essential goods and services at 2014 to 2015 levels;
Withdraw funding for posts that have been vacant for some time; and
Reduce the rate of growth of transfers to public entities, particularly those with cash reserves.
national departments, planned expenditure on travel and subsistence,
conference venues and catering has been cut. Advertising and
communications budgets have been reduced. Allocations for consultant
services have been capped. These steps will contribute savings of about
R1.3bn over the next two years. They supplement the cost-containment
measures adopted at the start of this year, which have already achieved
Lower government consumption also requires
prudent management of the public-sector wage bill, while maintaining the
real value of public service salaries. New posts will have to be funded
from existing allocations and natural attrition. Posts that remain
vacant will be reviewed.
Honourable Speaker, our consolidation
path thus far has relied mainly on containing expenditure growth.
Revenue measures will also come into consideration in the period ahead.
If we are to avoid reducing expenditure in real terms, about R15bn a
year in additional revenue will need to be raised. Details will be
announced in the 2015 budget. The revenue measures will be designed to
limit as far as possible any negative impact on growth and job creation.
now to re-establish a sustainable foundation for public finances will
enable government to rebuild fiscal space in the years ahead. Once debt
has stabilised, spending growth will be aligned with long-term economic
growth trends. In the final year of the MTEF period an unallocated
reserve is retained, to allow for future shocks to the fiscus or
allocations to new priorities.
Government will place greater
emphasis on longer-term planning and efficient resource allocation.
There will be a comprehensive assessment of baseline estimates for 2017
to 2018, emphasising value for money and alignment with policy
Capital injections for state-owned companies will be
allocated without impacting on the budget deficit over the next two
years, and on the condition that a sound business plan is in place.
Medium term expenditure priorities
Speaker, over the past decade we have increased public spending on the
main budget from 26% to 31% of GDP. Much of this increase has gone to
programmes that contribute to the social wage, including schools, roads,
hospitals, housing and municipal services.
Our medium term
objective is to ensure that public spending promotes growth and creates
an environment for greater private sector investment. To this end, we
are targeting three priority spending areas.
First, we will
support cities to improve living conditions, modernise transport and
communications infrastructure, expand the urban economy and promote
trade and investment. Government will work with development finance
institutions to increase investment in the urban landscape and expand
the municipal debt market.
Secondly, we will reinforce support
for export competitiveness and job creation. This includes over R18bn
for manufacturing incentives, the establishment of special economic
zones and the employment tax incentive.
Thirdly, we will expand
the skills base: R800bn is proposed over the MTEF period for education
and skills development. Post-school education and training has received
the fastest-growing share of the budget over the past three years, and
will continue to expand.
Alongside these priorities, there will be
real growth in spending on local development and social infrastructure.
As in the past, the largest allocations will go to education, health
and social protection.
This year, one-third of allocated
expenditure will go to the compensation of employees. Over the period
ahead, we have budgeted for nominal wage-bill growth in line with
consumer price inflation. In the present economic circumstances, it is
especially important that we maintain a careful balance between
personnel spending and other resources required for public service
Division of revenue
Speaker, a national appropriation of R1.2trn in 2015 to 2016 is
proposed, rising to R1.3trn in 2016 to 2017. The proposed division of
revenue allocates 48% to national departments, 43% to provinces and 9%
to local government over the MTEF period.
Allocations to national departments will total R495bn in the current year and will increase to R585bn in 2017 to 2018.
will receive R469bn next year, increasing to R527bn in 2017 to 2018.
Efficiency improvements will be prioritised in the core areas of service
delivery: basic education, health, roads and social development.
Treasury will work with provincial departments to improve human
resource management and supply chain processes. Special attention must
be paid to containing personnel expenditure, which now accounts for 61%
of total provincial spending.
division of revenue allocates R91 billion to local government next
year. This will increase to R110bn in 2017 to 2018 to support the MTSF
outcome of responsive, accountable, effective and efficient local
Support will be provided to municipalities to improve
revenue collection and management of infrastructure financed from both
own revenue and grants.
The local government equitable share
continues to finance the provision of free basic services to poor
households, but municipalities must work harder to broaden access.
Service delivery impact
What do all the proposals being announced today mean for service delivery?
me be absolutely clear: we will not balance the budget on the backs of
the poor. This means that intensive effort has to be focused on
achieving the intended savings and maximising efficiency.
will include a focus on procurement costs. In November, we will release a
Public Procurement Review which clearly outlines reforms to be
implemented over the next five years.
will be reinforced to identify goods and services expenditure that can
be eliminated without affecting service delivery.
A culture of
doing more with less is required. For example, Treasury is working with
municipalities to link the disbursement of infrastructure grants more
tightly to the efficient delivery of capital projects.
continue to fight waste and corruption, supported by our audit
institutions and stringent monitoring and reporting requirements.
More details of these measures will be provided in the 2015 Budget Review.
Speaker, South Africans rightly expect efficient and reliable delivery
of basic government functions water supply, sanitation, refuse
removal, teachers in classrooms, medicines in clinics, postal delivery,
visible policing. These essential services come first. Where they are in
disrepair, they must be fixed.
To meet the cost of these
services, taxes have to be paid and municipal bills collected. So let me
again express appreciation to the many South Africans who pay their
taxes and bills, on time. Our thanks also to the officials whose duties
are to enforce the laws.
concluding, Honourable Speaker, allow me to acknowledge the guidance and
support of President Zuma and Deputy President Ramaphosa in these
Cabinet collectively owns this medium term budget
policy statement. Its support and understanding for tough measures is
My appreciation also goes to colleagues in the
Ministers' Committee on the Budget for their continuous and vigorous
engagement with the challenges before us.
A heartfelt thank you to Deputy Minister Jonas for his sound advice.
My thanks to the MECs of Finance, who play a critical role as guardians of 43% of our spending.
Our appreciation also goes to:
The outgoing Governor of The South African Reserve Bank, Gill Marcus, who has so wisely steered the Reserve Bank during stormy financial times, Governor-designate Lesetja Kganyago and the Deputy Governors,
Auditor-General Mr Kimi Makwetu and the audit teams who keep us under scrutiny,
Commissioner Tom Moyane and the staff of the South African Revenue Service,
The executive heads of the Development Bank of Southern Africa, the
Land Bank, the Public Investment Corporation, the Financial and Fiscal
Commission, the Financial Services Board, the Financial Intelligence
Centre and the Government Pension Administration Agency,
The managing director of NEDLAC and its constituency representatives,
The chairs of the Standing and Select Committees on Finance and Appropriations, Honourable Yunus Carrim, Charel de Beer, Paul Mashatile and Seiso Mohai, who ensure that Parliament remains a vibrant forum for accountability and public participation,
Director-General Lungisa Fuzile and the management and staff of the National Treasury and the Ministry, and
My very supportive family. And finally, I must express sincere
gratitude to all South Africans who offer words of encouragement as
well as criticism and concerns. This is what keeps us accountable and
drives us constantly to improve.
I hereby table for consideration
by the House the Medium Term Budget Policy Statement, the Adjusted
Estimates of National Expenditure, the Adjustments Appropriation Bill,
the Division of Revenue Amendment Bill, the Rates and Monetary Amounts
and Amendment of Revenue Laws Bill, the Taxation Laws Amendment Bill,
and the Tax Administration Laws Amendment Bill.
Honourable Speaker, Nelson Mandela
set the tone for us in November 1994 when he said: Our primary
objective is to address the basic needs of especially the poor. We have
to reconcile this with South Africa's resource constraints. We must
consequently shift our priorities, accept financial discipline and
create a climate conducive to sustained economic growth.
this budget framework at a watershed moment in our country's history.
This year, we have been able to celebrate our collective achievements of
the past 20 years creating a more prosperous and inclusive nation, and
the maturing of our institutions of democracy and accountability.
we also share a determination to protect these gains, to deepen our
capacity to meet the needs of our people and to place our future on firm
foundations. We, Mister President, together with all South Africans,
are joint trustees of this compact.
I thank you.Ends