SA is strong and creative - Gordhan

Copy of MSH04_SAFRICA-BUDGET-_0224_11 REUTERS South Africa's Finance Minister Pravin Gordhan delivers his 2016 budget address. Picture: REUTERS/Mike Hutchings

Parliament - Finance Minister Pravin Gordhan preached measured optimism even as he revised South Africa's growth forecast down significantly in his budget speech on Wednesday.

Delivering his budget speech in Parliament amid tough global economic conditions and a series of problems affecting the economy locally, Gordhan said he had simple message for South Africans: "We are strong enough, resilient enough and creative enough to manage and overcome our economic challenges."

South Africa's growth forecast was slashed to 0.9 percent - down more than half of the two percent predicted during last year's budget.

"The Treasury currently expects growth in the South African economy to be just 0.9 percent this year, after 1.3 percent in 2015. This reflects both depressed global conditions and the impact of the drought," said Gordhan.

"It also reflects policy uncertainty, the effect of protracted labour disputes on business confidence, electricity supply constraints and regulatory barriers to investment."

After pointing out the impediments to growth, the minister also went to great lengths to highlight why the South African economy would remain resilient. These included effective macroeconomic policy, a strong private sector, banks that were well-capitalised, and "resourceful people, committed to contributing to a better South Africa".

Emerging unscathed out of the economic crisis would require building confidence and making "the right choices", according to Gordhan, who told Parliament that for the economy to grow at a rate that would create jobs and raise incomes investment growth needed to be scaled up.

Quoting his fired predecessor, Nhlanhla Nene, Gordhan said without growth the country would be unable to increase spending on its priorities sufficiently.

"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 competitive advantages," he said.

"And it means being bold where there is need for structural change, innovation and doing things differently. We need agility and urgency in implementation."

Gordhan said an inclusive economy would increase the country's prospects for growth. In this regard, he said government was responding to calls from businesses for greater policy certainty on investment, as well as to proposals from the organised labour for a national miniumum wage to be set.

He highlighted the calls of communities protesting a dire lack of services, as well as students demonstrating against high university and accommodation fees, but cautioned: "I need to emphasise that violent protest is not an acceptable way of articulating these challenges."

Higher education would get an additional R16.3 billion from the fiscus over the next three years.

"R5.7 billion of this addresses the shortfall caused by keeping fees for 2016 academic year at 2015 levels, and the carry-through costs over the MTEF [medium term expenditure framework] period," said Gordhan. "R2.5 billion goes to the National Student Financial Aid Scheme to clear oustanding debt, along with a further R8 billion over the medium term to enable current students to complete their studies."

Spending on infrastructure would continue unabated, with energy investment alone totalling R70 billion this year, and reaching R180 billion over the next three financial years. The money would be spent on completing the Medupi, Kusile and Ingula power stations.

Spending on transport and logistics would amount to R292 billion over the medium term (next three years).

"Transnet is acquiring 232 diesel locomotives for its general freight business and 100 locomotives for its coal lines," Gordhan said.

"There is R3.7 billion to upgrade the Moloto Road, R30 billion for provincial roads maintenance, R18 billion for bus rapid transit projects in cities and refurbishment of over 1700 Metrorail and Shosholoza Meyl coaches."

Spending on education infrastructure was set to reach R54 billion by the end of 2018/19, and health facilities would be improved to the tune of R28 billion over the same period.

The injection of R7.9 billion in capital to the Land Bank was complete, and Gordhan said the agricultural financier was setting aside a concessionary loan facility to assist farmers to recover their losses from the current drought.

Government paid its first instalment of R2 billion to the New Development Bank, the development bank of the BRICS (Brazili, Russia, China, South Africa) group of countries, in December, with further allocations planned over the next few years.

As expected, the amount of revenue from taxes was revised downwards by R11.6 billion for 2015/16, but was still 8.5 percent above the amount in taxes collected in 2014/15.

The revenue target for 2016/17 was set at R1.3 trillion, with expenditure at R1.4 trillion, "leaving a budget deficity of R139 billion, or 3.2 percent of GDP".

"The deficit will decline to 2.4 percent in 2018/19," said Gordhan.

As government spends more on higher education, small business development, and dealing with the drought, it will be cutting the fat - which cabinet ministers are likely to feel too.

The cost cutting measures include limiting the filling of vacancies of managerial and administrative posts, eliminating unnecessary posts, less money for public entities' operating budgets, setting limits on travel, accommodation and conference costs for government, renegotiating government lease contracts, and new limits on the amounts political office bearers are allowed to spend on official vehicles.

Asked about the limit on the amount cabinet ministers and other political office bearers would spend during a media briefing, Gordhan said it would be around R750,000.

The Office of the Chief Procurement Officer (OCPO) would be tasked with monitoring the procurement plans of state-owned entities and also their supply chain management processes.

"The OCPO's mandate is to achieve savings of R25 billion a year by the third year of the current MTEF period, out of a government procurement budget of about R500 billion a year."

While government would not be touching personal income tax, Treasury was proposing increases in the fuel levy, environmental taxes and excise duties to raise much needed additional revenue in the next financial year.

"We have been mindful of the need to moderate the impact of tax increases on households and firms in the present economic context," Gordhan said.

The fuel levy would increase 30 cents a litre on April 1. Treasury was also making adjustments to the capital gains tax and transfer duty, and only introducing partial fiscal drag relief - a measure used to offset the impact of inflation on mostly lower income earners.

The hikes in the fuel levy, excise duties and environmental taxes would add R9.5 billion in revenue for government, while the adjustments to capital gains tax and transfer duties would increase revenue by R2 billion.

"The transfer duty rate on properties above R10 million will increase from 11 percent to 13 percent, and measures are proposed to strengthen the estate duty and donations tax," Gordhan said.

While full fiscal drag relief for 2016/17 was estimated at around R13.1 billion, government proposed only partial relief amounting to R5.5 bln. That leaves R7.6 bln as additional revenue.

If Gordhan and Health Minister Aaron Motsoaledi have their way, a "sugar tax" would come into effect on April 1 next year.

Gordhan said the tax would combine the need to raise additional revenue with public health and social wellbeing.

The proposed tax on sugar-sweetened beverages (SSBs), predicted to be 20 percent, was in line with the country's need to raise additional revenue and reduce the budget deficit.

In addition to raising revenue, the sugar tax would also assist in tackling obesity, according to budget documents.

And, as expected, smokers and boozers will be forking out more for their vices.

Gordan announced "increases of between 6 and 8.5 percent in the duties on alcoholic beverages and tobacco procucts".

State-owned companies came under the spotlight as Gordhan repeated President Jacob Zuma's assurances that "entities that are no longer necessary would be phased out". Those with "overlapping mandates" government would pursue rationalisation options, as was the case with South African Airways and South African Express which would be merged.

"We do not need to be invested in four airline businesses."

"(Public Enterprises) Minister (Lynne) 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, and to create a bigger and more operationally efficient airline," he added.

The 16 million South Africans benefitting from social grants would also see increases in their bank accounts.

"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," Gordan told MPs.

The child support grant will increase by R20 to R350 in April and the foster care grant by R30 to R890.

Gordhan said government's overall expenditure on social assistance would increase from R129 billion this year to R165 billion in 2018/19.

African News Agency (ANA)

The full text of the 2016 Budget speech

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