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Budget 2008

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Created on 24 October 2006. To be used at MTBPS breakfast – PowerPoint PPT presentation

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Title: Budget 2008


1
Budget 2008
  • 21 FebruaryMinister of Finance

2
Budget highlights
  • Overall theme
  • Weathering the storm
  • Investing for growth
  • Bullish macroeconomic outlook
  • Downward revision in GDP growth
  • Confidence on underlying growth potential
  • Strong spending growth with significant additions
    for
  • Infrastructure and social services
  • Provision for support to Eskom
  • Tax relief for individuals, companies and small
    businesses
  • Fiscal surplus that contributes towards
  • Increased savings
  • Cushioning the economy in the light of current
    account and inflationary pressures
  • Reforms that signal shift from exchange controls
    to prudential regulations

3
GDP and inflation forecasts
4
The macroeconomic forecast for budget 2008
Calendar year 2004 2005 2006 2007 2008 2009 2010
  Actual Actual Actual Estimate Forecast Forecast Forecast
Percentage change unless otherwise indicated Percentage change unless otherwise indicated Percentage change unless otherwise indicated    
Final household consumption 6.7 6.9 8.2 7.0 3.7 3.8 4.2
Final government consumption 6.2 4.8 5.2 5.2 4.6 4.5 4.5
Gross fixed capital formation 8.9 8.9 13.8 15.3 9.6 9.7 9.9
Gross domestic expenditure 7.9 5.7 9.2 6.4 5.0 4.6 4.8
Exports 2.9 8.0 5.6 7.1 3.8 6.0 6.4
Imports 14.5 10.3 18.8 11.0 7.0 6.9 6.3
Real GDP growth 4.9 5.0 5.4 5.0 4.0 4.2 4.6
GDP inflation 5.5 5.2 7.2 8.6 7.9 5.5 5.0
GDP at current prices (R billion) 1 395.4 1 541.1 1 741.1 1 986.1 2 229.8 2 449.1 2 691.2
CPIX inflation 4.3 3.9 4.6 6.5 7.1 4.9 4.7
Current account balance(percentage of GDP) -3.2 -4.0 -6.5 -7.2 -7.3 -7.8 -8.0
5
GDP revisions from MTBPS
  • GDP revisions driven by
  • Impact of electricity shortages on domestic
    industry
  • Slower global growth (assumption for G7 growth
    lowered by 0.4)
  • Higher than expected inflation due to food and
    petrol
  • Overall growth remains supported by
  • High commodity prices (assumptions upped by
    nearly 30) and
  • Strong growth in real fixed capital formation
    (10 average over MTEF)
  • Major impacts on the GDP growth revision can be
    summarised as follow
  • Net loss due to electricity shortfall -0.48
  • Impact of higher commodity prices 0.36
  • Impact of slower global growth -0.25
  • Other factors -0.12
  • Net impact on GDP growth -0.50
  • When compared to the MTBPS forecast, this
    includes the net impact of higher food and oil
    prices, GDP revisions by Stats SA and a
    marginally weaker exchange rate
  • A more competitive rand may provide additional
    stimuli

6
Impact of electricity supply shock on the economy
  • Peak electricity shortfall estimated at 6.3,
    assuming
  • Eskoms planned expansions
  • Flat electricity demand
  • Operating capacity of 85
  • Estimated impact about 1.46 of GDP in 2008
  • But, this size of shortage is only applicable in
    winter for 3 months of year
  • Adjusting for lower summer peak demand and
    January shutdowns, estimated GDP impact is -0.48
  • Overall impact depends on
  • Success of demand management policies, and
  • Eskoms ability to manage short and long-term
    supply constraints

7
Outlook for global growth has deteriorated
8
Inflation driven by food and oil shocks
  • CPIX has been outside the inflation target range
    since April 2007
  • Supply-side price pressures include
  • High global prices for agricultural commodities
  • Oil prices at record high levels
  • High capacity utilisation in many sectors of the
    economy
  • Average wage settlements above 8

Major contributors to CPIX inflation
9
Commodity prices support the terms of trade
  • Unprecedented rise in commodity prices
  • Supply response has been very slow
  • Over time prices must revert to long term average
    cost of production
  • High prices cushion SA against disruptions to
    supply due to electricity outages

10
Investment remains a key driver of growth over
MTEF
11
Rising investment ratio requires higher domestic
savings
12
Investment savings imbalance
Either we increase savings or we settle for lower
investment/growth
13
High current account deficit is a vulnerability
Red bars reflect countries with similar credit
rating to SA
14
Achieving and sustaining growth above 6
  • Pattern of growth
  • capacity skills constraints larger CA
    deficit and inflation
  • Electricity shortage and global slowdown delays
    6 growth target
  • Imbalances must be addressed to position SA for
    global rebound
  • Fiscal space to ensure long-term financing of
    public investment
  • Investment to ease capacity constraints and
    improve exports
  • Reserve accumulation to reduce external
    vulnerability
  • IT to lower inflation and improve competitiveness
  • Microeconomic reforms (lower business costs,
    increased efficiency, market failures, government
    services, trade reform)
  • Step up efforts in human capital formation

Important to be ambitious and realistic The BOP
constraint required intensified focus on export
development via industrial diversification and
overall improvement in domestic savings.
15
From exchange controls to prudential regulation
  • Prudential framework for institutional investors
  • Banks
  • Prudential regulations for banks refined
  • Macro-prudential limit set equal to 40 of banks
    liabilities
  • Companies
  • Diversification supported through inward listing
    and rand currency futures
  • Pre approval removed for FDI up to R50 million
    per year
  • Name change for Exchange Control Department to
    Financial Surveillance Department

16
Fiscal policy to sustain growth and employment
  • Sustainable fiscal policy ensures
  • Reduced pressure on inflation and the cost of
    capital
  • Higher savings protect jobs and investment
  • Efficient and effective spending value for money
    implementation
  • Fiscal stance balances macro- and microeconomic
    objectives
  • Sustainable growth
  • Development
  • Employment creation
  • Poverty reduction
  • Reduced inequality
  • Cyclical revenue factors

17
Fiscal stance remains prudent
  • Consolidated national budget surplus moves from
    0.8 of GDP (2008/09) to 0.6 (2009/10), and back
    to 0.7 (2010/11)
  • Real growth in consolidated government
    expenditure averages 6.1 a year (real GDP growth
    4.3)
  • Total resources available over BR 2007 baseline
    R115.6 billion

Consolidated national government balance, 2006/07 2010/11 Consolidated national government balance, 2006/07 2010/11 Consolidated national government balance, 2006/07 2010/11 Consolidated national government balance, 2006/07 2010/11    
  2006/07 2007/08 2008/09 2009/10 2010/11
R million / per cent   Estimate Projections Projections Projections
Consolidated national budget          
Revenue 501,636 580,417 650,026 720,134 788,980
percentage of GDP 27.8 28.4 28.4 28.7 28.6
Expenditure 484,216 560,086 631,540 704,116 768,454
percentage of GDP 26.8 27.4 27.6 28.1 27.9
Budget balance 17,420 20,331 18,486 16,018 20,526
percentage of GDP 1.0 1.0 0.8 0.6 0.7
Gross domestic product 1,807,316 2,045,533 2,286,906 2,506,870 2,758,552
18
Main budget and structural budget balances
19
Lower borrowing makes room for SOE borrowing
20
Revenue trends and tax proposals
  • Tax revenue still buoyant, but growth slowing
  • Revenue for 2007/08 estimated to be R15 billion
    above estimate and 15.2 over 2006/07 outcome
  • Growth in 2007/08 has been mainly in PIT (20
    growth)
  • Main tax proposals (net effect R10.5 billion)
  • R7.7 billion in personal income tax relief
  • Reduction in corporate income tax rate to 28
  • 2nd phase of STC reforms
  • Reforms to small business taxes
  • Electricity sales tax of 2 cents per kWh
  • R5 billion in tax subsidies to support industrial
    incentives

21
Contribution to growth in tax revenue
  • Total revenue up 15.2 per cent
  • Revenue growth driven by CIT, VAT and PIT

22
Tax relief for individuals
  • R7.7 billion total tax relief for individuals
  • PIT relief adjustments to tax brackets and tax
    rebate thresholds
  • Individuals younger than 65 yrs earning lt R46 000
    p.a. pay no income tax
  • Individuals 65 yrs and older earning lt R74 000
    p.a. pay no income tax
  • Tax free interest income increased to
  • R19 000 for individuals below 65 yrs of age
  • R27 500 for individuals above 65 yrs of age
  • Tax free medical scheme contribution limits
    increased to R570 and R345
  • Reforms to retirements saving contributions and
    the taxation of withdrawals from retirement funds.

23
Tax relief for businesses
  • Tax relief of R7.4 billion in 2008/09
  • Headline corporate income tax rate reduced to 28
    per cent
  • STC regime reformed to a dividend withholding tax
    system
  • R5.0 billion over 3 years to support the
    governments industrial strategy
  • Simplified (turnover-based) presumptive tax
    system for very small businesses with an annual
    turnover below R1.0 million
  • Compulsory VAT registration threshold raised from
    R300 000 to R1 million
  • Extension of the UDZ tax incentive to March 2014
  • Enhanced skills training (learnership) tax
    allowance for apprenticeships
  • Enhanced incentives for low cost housing
    (ownership and rental)
  • Enhanced bursary incentives to dependants of low
    income workers

24
Environmental protection
  • Tax relief for protecting bio-diversity
  • Taking forward the work on Environmental Fiscal
    Reform
  • Exploring the introduction of emission charges
    and taxes
  • Exploring tax incentive for cleaner production
    technologies
  • Review vehicle purchase taxes to consider
    environmental criteria
  • Introduction of a 2 cent per kWh electricity levy
    on electricity generated from non-renewable
    resources (e.g. coal , nuclear, gas diesel)
  • The levy will also support other demand side
    interventions to promote energy efficiency and
    reduce the energy intensity of the economy

25
Key spending areas
  • Increased social spending, specifically in
    education and health
  • Stepping up anti-poverty initiatives
  • Broadening social security
  • Enhancing job creation and productive capacity of
    the economy
  • Speeding up the pace of land and agrarian reform
  • Further investment in infrastructure
  • Enhancing state machinery for improved civic
    immigration services to address crime
  • Following slides deal with additional
    allocations

26
Additional allocations per cluster
27
Social security reforms
  • Child Support Grant extended from 14 up to 15
    years conditionalities being considered
  • Qualifying age for old age grant - phasing down
    of the qualifying age for men to 60 over the MTEF
    period
  • Age 63-64 April 2008
  • Age 61-62 April 2009
  • Age 60 April 2010
  • Raising of means tests (disability, old age
    grants) under consideration
  • Above inflation grant increases
  • R70 to R940 a month for OAG and disability (8)
  • R10 in April and R10 in October to R220 a month
    for CSG (7.5)
  • These changes budget to cost an additional R12
    billion over 3 years
  • SASSA administrative reforms under way
  • Broader social security reforms entering design
    phase

28
Infrastructure, economic and admin services
  • Infrastructure and economic services
  • Municipal infrastructure - R3.8 billion,
    provincial infrastructure - R2.7 billion
  • Investments in buses, taxi recapitalisation,
    roads and rail - R3.9 billion
  • Public transport infrastructure and systems - R2
    billion
  • Digital television internet infrastructure -
    R984 million
  • Industrial development R2.3 billion
  • Expanded Public Works R1 billion
  • Land restitution and distribution R1.9 billion
    and agric support R500m
  • Human capital development and RD R760 million
  • PBMR R3.5 billion
  • R60 billion provision to support Eskom over five
    years
  • Admin services
  • Military skills development and defence
    infrastructure - R1.4 billion
  • Home Affairs turn around strategy R1.5 billion
  • R1.2 billion for SARS - customs and systems
    improvements
  • R717 million for the construction of Pan African
    Parliament building

29
Social services and justice and crime prevention
  • Social services
  • Increased social grant amounts and number of
    beneficiaries R12 billion
  • Higher education R1.4 billion
  • School Nutrition Programme R1.8 billion
  • Hospital revitalisation and tertiary services -
    R3.1 billion
  • HIV/Aids prevention and treatment R2.1 billion
  • Justice and protection services
  • Forensic laboratories, policing and IT equipment
    R1.4 billion
  • SAPS ICT for resource evidence management -
    R1.3 billion
  • R300 million - judges, magistrates and public
    defenders
  • Correctional facilities and personnel R1.9
    billion
  • Military skills development and defence
    infrastructure R1.4 billion

30
Provincial priorities
  • R45.7 billion added to provincial share
  • R33.2 billion to the equitable share and R12.5
    billion to conditional grants
  • Personnel adjustments
  • Interventions to recruit and retain social
    services personnel
  • 2007 wage agreement, including OSD for educators,
    health professionals, social workers
  • In education
  • Grade R and ECD
  • Learners with special needs (inclusive education)
  • Learner support materials for grades 10 to 12
    (NSM)
  • Education infrastructure needs
  • In health
  • General baseline adjustment to stabilise the
    public health system
  • TB (MDR and XDR)
  • Comprehensive HIV and Aids strategy
    (preventative, HBC and ARVs)
  • Hospital revitalisation
  • In social development
  • ECD (in collaboration with education)
  • Secure care services for children in conflict
    with the law
  • Access home and community based care

31
Local government priorities
  • Increasing the equitable share envelope (R6.5
    billion) for
  • Increased service delivery costs due to tariff
    increases
  • Increased demand following the rollout of basic
    infrastructure to the poor
  • Support for poorer municipalities
  • Step up of MIG to the tune of R7 billion
  • to allow further rollout of basic municipal
    infrastructure in poor communities
  • to provide each municipality with a reasonable
    minimum MIG allocation
  • Enhanced funding of capacity-building initiatives
    in the area of financial management
  • Further ensuring the readiness of the host cities
    for the 2010 FIFA World Cup

32
Conclusion
  • Budget focuses on investing to raise long term
    growth
  • Were protected from the storm, growth will slow
    but no chance of recession
  • Economic foundation strong
  • Spending growth slows but still healthy, mainly
    on infrastructure and social services
  • Fiscal balance in surplus, providing cushioning
    effect against inflation and current account
    deficit
  • Tax measures support investment, growth and jobs
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