'Time is growing... When will our suffering bear fruit? One great thought can alter the future of the world. One revelation. One dream. But who will dream that dream? And who will make it real?'
Ben Okri, Infinite Riches.
Ben Okri, Infinite Riches.
Introduction
The Budget we table in this Parliament today bears testimony to the fact that as a nation we dared to dream. That through our tormented past we kept the dream alive. We understood then as we do now that the fruits of progress come slowly, one harvest a little richer than the last. Our great thought was freedom, our dream a better life for all. We dreamt that dream and we have the courage to make it real.
We now face the hope and the excitement of the new century. The last decade has witnessed a dramatic re-ordering of world affairs. Greater prosperity than ever before, further advances in democracy, but also greater uncertainty, more dramatic swings in the fortunes of nations, than we have ever known. So this is a time when the nations of the world, rich and poor, are searching for a new cohesion, a balance between exuberance and order, between the dynamism of the market and the constraints of prudent governance. Along with other nations, we seek to harness the potential of our economy, while investing in a more just, socially responsible future.
In a world where a decision made in a split second on a screen in a trading floor in New York can deny a child in Indonesia an education, we have to find new solutions. To alter the future of the world we have to make people matter, to recognise that prosperity must be shared if it is to be sustained. As a nation we must actively participate in shaping this future, for our country and our children, our region and our continent.
The centrepiece of our new democracy is this, its First Parliament. This is the last budget to be tabled before this Parliament. But the confidence with which we face the new day is embodied in the fact that this will also be the first budget to be implemented by our Second Parliament. We have an election before us. But there is work to be done. And so we table before you a budget that builds on the advances we have made over the past five years and makes clear our plans for the future.
As the record since 1994 confirms, we have brought about a thorough transformation of the priorities and spending programmes of government. We now deliver more and better services to more people. Importantly, we are doing this within an affordable budget framework. The Budget now embodies the goals and operational strategies of the Reconstruction and Development Programme. And our macroeconomic framework provides the discipline needed for sustainable growth and transformation.
This government is delivering a reconstruction and transformation of public services for sustainable growth and social development. We have had the courage to tackle the poverty and suffering imposed on our people during the long night of apartheid. Our suffering is not over. We have not yet conquered poverty and unemployment. But we have overcome the despair, the fear, the feeling of powerlessness, which was our past. We have advanced the assault on poverty, inequality and unemployment. It is our measured progress in building houses, bringing water and electricity to villages, immunising children and training the unemployed that gives our people hope and confidence in our nation's future.
More. For All. For Ever.
Budget reform
Transformation depends on sound policies and institutions. A major overhaul of financial management and the budget process is in progress. Our mantra has been and will continue to be reprioritise, reprioritise, reprioritise.
This year for the first time we are publishing a separate review of the national budget expenditure estimates. The National Expenditure Survey (NES) is a detailed account of spending and service delivery by national government departments and spending agencies, complementing the printed Estimate of Expenditure. The Survey looks not just at what government spends but at what government does. It sets out policies and goals and the resources that have been allocated to achieve them.
It links departmental expenditure with outputs, enabling us to assess whether spending trends meet the policy priorities we have set for ourselves as a nation.
The survey includes accessible accounts of the programmes on each vote for which Parliament appropriates funds. It also includes selected information on the impact of government spending on women and the redistribution of resources in favour of the poor.
The National Expenditure Survey empowers Parliament and the nation as a whole to monitor what we deliver with the resources available. It says, here is the value for the money we spend. As government we want to ensure that more and more of every rand we spend makes its way to improving the quality of peoples' lives.
By emphasising the links between spending, service delivery, and outputs the Survey provides a powerful tool with which to call government to account. We hope that the Survey will contribute to informed debate about the outputs delivered by government and thereby promote more effective use of public money.
The 1998 Budget included for the first time three year spending plans - our Medium Term Expenditure Framework (MTEF). The National Expenditure Survey indicates where policy changes or spending trends have led to adjustments to last year's forward estimates. It also reports on spending outcomes for the past three years, indicates the expected outcome for this year and sets out the Budget estimates for the next three years.
This is another step forward in our budget reform programme.
The Medium Term Budget Policy Statement which we tabled in Parliament on 2 November 1998 set out the macroeconomic context, fiscal policy goals and the budget framework. It outlined the division of resources between national, provincial and local government for the next three years and set out broad medium term expenditure projections. Now in its second year, the MTEF budget process has added significantly to the responsible allocations of resources and to improved co-ordination in our evolving intergovernmental system.
Alongside the Budget we now table the 1999 Budget Review, which elaborates the economic context, developments in the public finances and our spending and tax proposals. As in the past our Budget Review is compulsory reading for anyone interested in fiscal policy and public finances in South Africa.
The Budget in brief
The 1999 Budget reflects both the substantial reprioritisation that has been achieved since 1994 and government's expenditure and revenue plans for the next three years.
Our key priorities for the next three years include:
* Investing in people - through better schooling, skills development and access to health care and social welfare.
* Improved policing, more secure correctional facilities and a streamlined criminal and civil justice system.
* Building homes, extending municipal infrastructure and improving living conditions.
* Targeted support for industrial clusters, small business development and strategic trade linkages.
* Extending electrification, telecommunications networks and clean water and sanitation.
* Targeted poverty relief programmes.
* Implementing our Jobs Summit commitments.
The 1999 Budget provides for expenditure of R216,8 billion or 30,6 per cent of the Gross Domestic Product (GDP). From this we deduct R48,2 billion for debt service costs, R750 million of donor financed projects and R1,1 billion as a contingency reserve leaving R166,7 billion to be shared. The Division of Revenue Bill, which I hereby table, provides for the resources to be equitably divided between national, provincial and local government. It also sets out the equitable division of resources between provinces which is done on the basis of a formula.
Taking into account amounts provinces will later receive for improvements in conditions of service, the equitable division in 1999 is as follows:
* National government gets R78,7 billion or 47 per cent of the total.
* Provincial governments get R86,3 billion or 52 per cent of the total.
* Local government gets R1,7 billion.
The national share includes R8,8 billion in conditional grants for provinces and local government, mainly in support of health services.
In line with our priorities, national and provincial government will spend R103,7 billion of the available resources on social services. Social spending now accounts for 61 per cent of non-interest spending.
Spending on police, prisons and justice services amounts to R23,5 billion in 1999. Our expenditure on crime prevention includes provision for modernisation of policing systems, upgrading of security at prisons and several initiatives aimed at improving the efficiency of the courts.
We have also set aside R1 billion for targeted poverty relief programmes in 1999, giving effect to several Jobs Summit commitments. This rises to R1,2 billion and R1,5 billion in 2000 and 2001.
Fairness and redistribution are also promoted through the tax system. The South African Revenue Service (SARS) has had considerable success in broadening the tax base and combating tax evasion. Our tax system is strongly redistributive in its impact.
It is our commitment to lower the overall tax burden, particularly on low and middle-income working people. In this Budget we again make significant progress in lowering the income tax burden. We have also continued to raise taxes on tobacco and alcohol products, contributing in this way to healthy living in this Chamber and elsewhere.
Total revenue in 1999/00 will be R191,7 billion. This brings the deficit for the year to R25,1 billion, or 3,5 per cent of GDP - consistent with the medium term outlook we tabled in November 1998.
Madam Speaker, in preparing the 1999 Budget, our main focus has been to align our spending and revenue plans with our policy objectives. We can say with confidence that the objectives of our reconstruction and development programme are deeply embedded in this Budget which reflects the substantial reprioritisation we have effected over the past five years. This is our investment in the future of our children and grandchildren. It is this that gives us hope.
This reprioritisation has been achieved in a context of slow economic growth and considerable financial uncertainty. We have had to make some changes to our spending plans, but sound fiscal and financial policies have protected us from more severe adjustments. The Budget leaves unchanged our allocations to provinces for their core education, health and welfare functions. Our social and development programmes will continue to strengthen as growth returns to our economy over the next few years.
Sustainable social development and globalisation
The global economy has been rocked in the past eighteen months by one financial crisis after another. Economies that were once fast growing now face recession, increased unemployment and social deprivation. Globalisation has brought increased uncertainty and the world appears to be inadequately prepared to deal with the risks and equitably share the opportunities.
These crises have challenged many accepted paradigms of economic theory and policy. They have dented confidence in the integration of global markets and have pointed to some of the shortcomings in the international institutional environment.
More importantly, the global crisis has highlighted that it is the poor and vulnerable and in particular women and children who bear the greater burden of the pain when economic institutions fail. In the countries worst affected by financial distress severe cuts in social spending have occurred, large numbers of people have been pushed into unemployment, the children of the poor have been taken out of school, primary health care projects have been stopped. The social consequences of these financial crises have been devastating.
The sudden reversal of capital flows to Asia resulted in recession in many countries in that region. The Asian melt-down spread rapidly to other parts of the world as investors panicked and demanded higher and higher premiums for holding emerging market assets. Given their debt positions many countries (including Russia and Brazil) could not afford their increased interest costs. What started as financial distress quickly became a deep economic crisis in many countries, requiring tough and painful adjustments.
We have in the past year actively participated in an international dialogue on dealing with the crisis and creating more efficient and effective global capital markets, better able to make rational assessments and differentiate more appropriately between different countries and the credit risks that they present.
We have emphasised the importance of improved financial regulation domestically and internationally. We believe that regulation and oversight of all financial institutions (yes, including hedge funds) is necessary. We want to see increased compliance with appropriate international standards and not only by the emerging economies, but also by the major industrial economies where most speculative funds reside unhindered by regulatory constraints. We will continue to review and update our own financial regulation and supervision to ensure that it remains state of the art.
Through our participation in various international forums we have repeatedly emphasised the importance of putting people at the centre of the economic debate. This is the distinguishing characteristic of our reconstruction and development programme, of our macroeconomic strategy and our approach to fiscal policy.
Ours is an integrated strategy that sees the state redirect its spending towards core public services - education, health, welfare, social infrastructure, an effective system of justice. It is a strategy that recognises the enormity of the backlogs we inherited and the needs of our people. But it also recognises that our resources are limited. Success depends on a sustainable balance between taxes, spending and the resources we borrow, ensuring that we maximise service delivery within the available resources.
Our commitment to sound and sustainable economic policies is increasingly recognised as a strength. One measure of this recognition is that, after thorough review, our investment grade ratings have been confirmed by two international credit rating agencies.
Integrating the South African economy into the world economy has been a major challenge in the past four and a half years. We inherited an uncompetitive, inward looking, protectionist economy. We have since 1994 sought to open up the economy in a measured and sustainable way.
Recognising the importance of becoming globally competitive, we have discarded expensive and inefficient export and industrial incentives. In their place we now have a portfolio of targeted support programmes. These focus on key industrial clusters, the small business sector and strategic trade negotiations.
We have pursued a responsible path of exchange control reform, abolishing or easing a plethora of control measures. Ours has been and will continue to be a gradual approach. This approach appears to have gained support internationally. We expect to be in a position to announce further relaxation in exchange controls later this year.
Attracting foreign investment remains important to an economy such as ours. As a nation we do not generate enough savings to finance the levels of investment that we require to create jobs. We therefore have to attract foreign investment, making our international relations a key focus of economic policy.
Economic policy and outlook
We have already noted that South Africa did not escape the impact of the international financial crisis. As in other emerging markets investors withdrew funds from our capital markets in 1998 putting the rand under pressure. The ensuing financial uncertainty caused interest rates to increase to very high levels, which dampened confidence. Monetary policy was under enormous pressure during the past year as the Reserve Bank tried to restore stability to the currency whilst attracting sufficient foreign investment to finance the current account deficit.
Hardest hit by the high interest rates have been ordinary working people who have had to struggle to keep up the payments due on their home loans. The struggle to make ends meet has been worsened by the fact that many working families were over-indebted when interest rates started to rise. Also badly affected have been small and medium size businesses that depend on bank overdrafts and loans to finance themselves.
Of course we are deeply concerned by the effect of the high interest rates on people's lives. We are also concerned about their impact on growth and job creation in our economy. We are often asked how globalisation affects ordinary people's lives. For many, the steep rise in interest rates last year was a sharp reminder that there are both costs and benefits of more open international markets. It also signalled the importance of improving our saving performance, reducing our reliance on foreign capital flows.
We expect to see interest rates come down further during the course of this year. This will help ease the burden, although we know that many people and businesses will take some time to recover.
In the midst of this and as people struggle to make ends meet too many people have become hostage to unscrupulous money-lenders. There is a place for the micro-lending industry. But we will not tolerate the blatant exploitation that appears to be taking place at the moment. It is illegal to take people's Identity Documents as collateral, it is illegal to charge people usurious interest rates and it is bad practice to lend to the point where a person's entire wage is consumed by the repayment of the loans. Moreover, all micro-lenders are subject to normal tax provisions. The Revenue Service will pay particular attention to this in the coming year.
The Portfolio Committee on Trade and Industry has scheduled hearings on micro lenders. Based on the outcome of these hearings we will as government take the appropriate steps. We want to make it very clear that we will not hesitate to prosecute unscrupulous moneylenders.
The economy slowed down significantly in 1998, and after six years of growth, output and national income fell in the second half of the year. It is estimated that Gross Domestic Product (GDP) grew by 0,1 per cent in 1998, well below what was expected when we tabled the 1998 Budget.
The impact of instability in the global financial markets is registered through the balance of payments, and in the present crisis was initially felt through the capital account. From 1994 to mid-1998 a net surplus, peaking at R34,6 billion, was recorded on the capital account. However, from May 1998 investor sentiment changed leading to an outflow of R5,4 billion in the third quarter. Conditions stabilised somewhat in the fourth quarter, when foreign investors were net buyers of bonds and equities.
The current account of the balance of payments is expected to register a deficit of 2 per cent in 1998, compared to 1,5 per cent in 1997. Deteriorating trade conditions resulted in lower exports, while increases in investment by public corporations contributed to higher import growth. Exports are expected to increase modestly in 1999 as international trade recovers and our exporters take advantage of the weaker currency. Given the slower growth and the weaker currency demand for imports is expected to remained subdued in 1999. However, capital equipment imports are expected to continue to grow due to demand from public corporations extending infrastructure investment. For 1999, the current account deficit is expected to be 1 per cent of GDP.
Gross foreign reserves increased in the first half of 1998 as a result of capital inflows. After falling from June to November, gross official reserves at the end of January 1999, were R32,6 billion, enough to cover 2,4 months worth of imports. Net official reserves were $2,4 billion at the end of January 1999.
Inflation has remained subdued, despite the weakening of the rand last year. After falling to 6,9 per cent in 1998 - its lowest level in 25 years - consumer price inflation is expected to fall steadily further in the next three years. This reduction in inflation safeguards the purchasing power of working people's wages.
The economy is projected to grow by 1,8 per cent in the 1999 fiscal year and by 3,2 and 3,8 per cent in 2000 and 2001 respectively.
A Budget for sustained social development
The overall objective of government's fiscal policy continues to be effective and balanced spending on public services, an efficient tax system, and a moderate level of borrowing.
Our focus has been on reprioritising expenditure within the Budget. In practical terms this has meant protecting provincial spending on social services and ensuring steady improvements in provisions for the justice system.
1998 Budget Outcome
Madam Speaker I have already stated that economic growth for the 1998/99 fiscal year was much slower than we had expected. However, despite the slower growth, ordinary revenue increased by 9,6 per cent to R179 billion, exceeding the Budget estimate by R2,3 billion. Including grants and repayments, revenue is expected to be R180 billion.
The revised estimate of national expenditure in 1998/99 is R204,3 billion, a 7,2 per cent increase on 1997/98. At the time of tabling the Adjustments Estimate we revised our deficit to 3,9 per cent of GDP. We now estimate that the deficit for 1998/99 will be R24,3 billion or 3,7 per cent of GDP.
Sound fiscal management has been a defining characteristic of provincial finances in the current fiscal year. The most visible measure of this is that the consolidated government deficit in 1998/99 (including national and provincial accounts) is expected to be 3,6 per cent of GDP - down from 5,4 per cent in 1997. The consolidated deficit is expected to decline to below 3 per cent in 2000. By bringing their spending under control provinces have created an environment for improved delivery of social services over the coming years.
Our commitment to improving the lives of all our people finds expression in the fact that despite an exceedingly tough year for the economy we have protected our commitments to education, health, social welfare, housing, water provision and poverty relief. We have maintained these expenditures because they are the core commitments of our social and economic transformation.
The 1999 Budget framework
The 1999 Budget provides for total expenditure next year of R216,8 billion, increasing to R247,2 billion in 2001. National budget spending will increase by an average of 6,6 per cent a year over the next three years. As in 1998, the budget framework includes an increasing reserve set aside for contingencies.
The 1999 Budget provides for revenue of R191,7 billion, including grants and recoveries, and thus a budget deficit of R25,1 billion.
The slowdown in economic growth and the impact of high interest rates on debt costs led us to revise our deficit target for fiscal year 1999. In the Medium Term Budget Policy Statement in November 1998, we announced that the planned reduction in the deficit to 3 per cent of GDP would be deferred by a year. Consistent with the framework set out in the 1998 Medium Term Budget Policy Statement, our budget deficit will be 3,5 per cent in 1999, coming down to 3 per cent in 2000 and 2001.
Like any household government cannot spend what it does not have, and increasing the level of indebtedness will simply make us vulnerable and threaten our transformation agenda. Already we spend too much on debt service costs. Reducing the overall burden of debt so as to release more resources for development remains a key objective of Government.
Our approach to fiscal policy has also contributed positively to lowering inflation, keeping basic goods affordable and protecting the incomes of the poor.
Poverty relief and job creation
At the Presidential Job Summit we committed ourselves as a nation to a strong programme of action for job creation. The 1999 Budget includes R1,0 billion for poverty relief and employment projects, increasing to R1,5 billion in 2001. The "working for water" programme, community based public works projects, rural infrastructure investment and development projects managed by non-governmental organisations will all receive increased allocations from these funds.
In total almost R3 billion on the Budget is linked directly to job creation programmes. This includes spending on working for water, the municipal infrastructure programme, rural water supply and sanitation, community-based public works programmes, income-generating welfare programmes, training for the unemployed and employment services.
Once demutualisation is completed in the latter part of this year the Umsobomvu Fund is expected to have in the order of R1 billion of capital and will be in a position to start investing in training and development programmes for young people.
We also applaud the initiative taken by Labour at the Jobs Summit to pledge one day's wages to a special fund for job creation and business sectors' R1 billion contribution.
Social spending
Recognising a legacy of under-investment in people and past discrimination in social services, spending on education, health and welfare has increased strongly since 1995.
Education expenditure increased by over 35 per cent between 1995 and 1998. It will grow from R48,5 billion in 1999 to R54,1 billion in 2001.
Expenditure on health has increased by almost 45 per cent since 1995 and is budgeted to reach R24 billion in 1999 and R28,3 billion in 2001.
Welfare services and social grants increased by more than 30 per cent over the last three years and will amount to R19,8 billion in 1999, rising to R21,6 billion in 2001.
Social Infrastructure
Local government is undergoing a dusty rebirth. Towns and cities are becoming construction sites. Expenditure on housing and water schemes increased by over 25 per cent a year between 1995 and 1998 and will continue to grow steadily over the next three years.
Improved policing and justice
Spending on prisons and justice has grown by 25 per cent a year since 1995, reflecting both increases in prisoner numbers and improved prison standards. Expenditure on police services has grown by over 12 per cent a year since 1995. Combined spending on these functions has increased to R23,5 billion in 1999 and will rise to R26,4 billion in 2001.
Economic services
Spending on agriculture, industry, transport and communication has grown by between 4,7 and 7,7 per cent a year since 1995. Spending on these economic functions is projected to grow modestly over the next three years.
Defence
Defence and intelligence spending fell by 1,8 per cent a year between 1995 and 1998. Defence spending will grow moderately over the next three years recognising the need to replace and upgrade ageing capital equipment. The defence procurement programme is to be spread over a 15-year period. This programme has been linked to a number of industrial development projects which will boost foreign direct investment and job creation.
Personnel costs
It would be remiss of us not to note our concern at the growth in the public sector wage bill. Personnel costs increased by 12,2 per cent a year between 1995 and 1998, rising particularly sharply in 1996. In 1999 personnel costs will account for some 51 per cent of non-interest spending.
Government's ability to increase spending on social services and infrastructure is severely limited by rising personnel costs. We cannot afford rising wage costs, improve on the quality of services rendered and maintain the current size of the public service. The further restructuring of the public service in line with the needs and requirements of our country and our development programme is now urgent.
Overhaul of financial management
Government has initiated a financial management improvement programme to improve the quality of managers and accountability in the public sector. It includes the monitoring of expenditure on a monthly basis, improving financial reporting, appointing qualified personnel, training financial managers, and improving software systems. Underlying all these reforms will be the coming Public Financial Management Bill.
Capital spending
Although capital budgets remain modest they are projected to increase. Moreover, they reflect increased partnerships between government and the private sector. These partnerships are extremely valuable since they allow us to tap private sector savings to fund infrastructure, they also open up many opportunities for small and medium-sized business and can add significantly to job creation over the medium term.
Delivery of RDP commitments
Madam Speaker, we stated earlier that the Budget now embodies the RDP. Let me now illustrate why we say this.
Providing safe drinking water to millions of South Africans
Since 1994 the Department of Water Affairs and Forestry has brought 25 litres of potable water per person to over three million people and has created 100 000 jobs every year. Over 55 per cent of these jobs went to women and more than 25 per cent to work-seekers between 16 and 25 years. There are 1 025 projects which are underway, expected to serve 4,9 million people. Sanitation services will be provided to another 50 000 households by the end of 1999.
Working for Water
Over 900 projects have been implemented creating some 40 000 jobs in 1998 under the Working for Water programme, curtailing the spread of alien plants in water catchment areas. Over half of the jobs on this programme go to women.
Providing access to land
Land reform is gathering momentum. By the end of 1998, 3 623 households had regained their rights to land. Under the land redistribution programme 179 088 hectares of land had been transferred to 33 366 households.
Extending learning opportunities to all
Educational enrolment has increased by over 1,5 million since 1994, while the average number of learners per teacher has decreased from 40 to 34. Improved grade 12 examination results in 1998 signal a turnaround in school performance. Key initiatives are in progress to improve management in schools and strengthen learning and teaching skills. In support of access to higher education, Government funds a National Student Financial Aid Scheme and targets assistance at development and redress in universities and technikons.
Skills development
Developing skills is a responsibility Government shares with its social partners. Agreement has been reached on the way forward. Preliminary organisational work is underway for the creation of education and training authorities and introduction of learnerships as part of a joint strategy for extending improved learning opportunities to all.
The introduction of the skills development levy-grant scheme in April 2000 will yield an estimated R1 billion for training and development in 2000 rising to R2 billion in 2001. Eighty per cent of receipts will go to sector education and training authorities nominated by employers, while 20 per cent will go to a National Skills Fund. This is a key initiative in strengthening learning and productivity throughout the South African economy.
Welfare programmes and social grants
The provincial Welfare departments distribute grants of approximately R16 billion to nearly 3 million beneficiaries of which two-thirds are old age pensioners. About two-thirds of the recipients are women.
Government also channels subsidies of over R1,5 billion a year to about 1 400 non-governmental organisations, focused on developmental welfare services, support for the unemployed and meeting the needs of women and children.
A new social grant was introduced in April 19