2002 Medium Term Budget Policy Statement October 2002

Introduction n 2002 MTBPS highlights – Growth forecasts revised upwards – Inflation target date extended – Exchange control changes w. r. t to Africa – Strong real growth in expenditure – Continued revenue buoyancy – Shift in resources towards provincial and local spheres – 2003 Budget will prioritise social and household services, fighting crime, land restitution and international commitments National Treasury 2

MTBPS covers. . . Chapter 1 - Overview n Chapter 2 - Macroeconomic overview n Chapter 3 - Fiscal framework n Chapter 4 - Taxation n Chapter 5 - Medium term expenditure framework n Chapter 6 - Provincial and local government finances n National Treasury 3

Growth prospects n SA economy resilient under difficult circumstances – Growth projections revised upwards National Treasury 4

Sectoral GDP Growth (year -on-year) National Treasury 5

Domestic demand • Consumption • Rising disposable income, declining debt and tax cuts • Investment • Rising confidence • Rising export opportunity • Government investment • Rising net exports • Competitive exchange rate • Global recovery National Treasury 6

Balance of Payments • Positive BOP supported by… • Strong current account performance • Particularly strong trade balance • Positive domestic economic outlook • SA increasingly differentiated among emerging markets National Treasury 7

CPIX plus targets National Treasury 8

CPI inflation by expenditure group (year-on-year) National Treasury 9

Percentage change in employment National Treasury 10

Inflation targets n n n Depreciation, rising oil prices and rising food prices drive inflation above target. Monetary policy response 400 bp increase in key interest rates. Forecast: – – n n 2002 – 9. 6% 2003 – 7, 2% 2004 – 5, 5% 2005 – 4, 9% Target for 2004: 3 – 6% 3 - 5% target falls away until further notice National Treasury 11

Exchange control • Allowance for new investments in Africa is increased from R 750 million to R 2 billion • Expanded use of “top-up” funding for the financing of new approved expansions of existing, prior exchange control approved, foreign direct investments in Africa National Treasury 12

Macro forecasts National Treasury 13

Fiscal Framework National Treasury 14

Key MTEF trends n n n Real non-interest expenditure growth averages 4, 7 per cent per year Main budget revenue at 24, 5 per cent of GDP Total of R 79 billion new money + R 5, 6 billion unallocated infrastructure money = R 84, 9 billion over 2002 Baseline National Treasury 15

Debt and Financing n Debt service costs decline to 3, 9 per cent of GDP in 2005/06 n Includes provision for assumption of GFECRA losses up to R 28 billion, R 7 billion this year n National government debt declines to 37, 7 per cent of GDP by 2005/06 n Of which foreign debt declines to 7, 1 per cent of GDP by 2005/06 National Treasury 16

Revenue estimates n 2001/02 Outcome – R 14, 8 billion more than estimated n 2002/03 revised estimate increased up by R 8, 1 billion: – Due to higher nominal GDP (inflation) National Treasury 17

Revenue estimates National Treasury 18

Implementions of 2002 Budget Proposals n Learnership allowance – 285 registered learnerships, 15 000 enrolled n Strategic Investment Programme n – 7 applications considered, 5 approved with total investment of R 2 billion, creating 10 573 direct & indirect jobs Public Benefit Organisations (PBOs) n Business accomodation & subsistence allowances n Companies’ reorganisations

2003 Budget tax proposals n Considering the following tax proposals: – Moderate personal income tax relief – Taxation of retirement savings - review with wide consultations & enactment into law by 2004 – Mineral royalty bill will be introduced in 2003 National Treasury 20

Key MTEF Priorities n Extending social assistance, health and education n Investing in municipal infrastructure and basic services n Expanding capacity in the safety and security sector: – …with a particular focus on court administration n Higher education restructuring n Accelerating land reform and restitution n Better services to citizens provided by Home Affairs n Growing international role : NEPAD and AU National Treasury 21

Adjusted Estimates 2002 n The 2002 Adjusted Estimates provides for total adjustments of R 8, 1 billion R billions General Inflation Adjustment Provinces Unforeseen & Unavoidable National Unforeseen & Unavoidable Infrastructure development Food Security Total Adjustments n 3, 4 2, 3 1, 4 0, 7 0, 4 8, 1 The net increase in spending is R 3, 8 billion after in-year savings, contingency reserve, etc. National Treasury 22

Division of revenue • Additional R 84, 9 billion over the 2003 MTEF • Inflation adjustment of R 27, 8 billion • New policy priorities receive R 57, 1 billion National Treasury 23

Division of revenue 2003 MTEF will result in a moderate reallocation of resources towards provinces and local government National Treasury 24

Key spending areas n Social Services – Additional funding of R 11, 5 Billion in 2003/04 and R 15, 6 Billion in 2004/05 (3, 7 per cent average real increase) – Additional funds target n Health personnel, medicines, hospital buildings and equipment, fighting HIV/Aids n Learner support material and ECD n Restructuring of higher education, Research & Development n Protection Services – Additional funding of R 3 Billion in 2003/04 and R 3, 5 billion in 2004/05 (2, 4 per cent average real increase) – Additional funds target n Expansion of sector policing strategy n Court administration n New design prisons in outer year National Treasury 25

Key spending areas n Economic services and infrastructure – Additional funding of R 2, 9 Billion in 2003/04 and R 3, 8 billion in 2004/05 (2, 2 % real average increase) – Targeted towards n n Land restitution and reform, national electrification n Basic infrastructure services, Administration – Additional funding of R 2, 4 billion in 2003/04 and R 4, 2 billion in 2004/05 (6, 1 per cent real average increase) – Targeted towards n HANIS system in Home Affairs, SARS transformation n Elections in 2004 and 2005, New African missions National Treasury 26

Provincial budget priorities n Health infrastructure (both human and capital) n HIV/Aids programmes – Lifeskills, home-based care, prevention of mother-to-child transmission, gradual expansion of treatment regimes currently under investigation n Early childhood education n Enhanced delivery of learner support materials n Reducing classroom backlogs n Increasing income support to the poor n Improving the social grant payment system n Investing in provincial roads & other infrastructure National Treasury 27

Provincial allocations National Treasury 28

Local budget priorities n Further extension of free basic services n Accelerated roll-out of household service infrastructure n Strengthening redemarcated municipalities n Capacity building n Expanding labour-based infrastructure programmes n Investing in URS and ISRDS nodes National Treasury 29

Local government allocations National Treasury 30