Budget 2001 continues the theme of increased spending and a lower revenue-to-gross domestic product (GDP) ratio over the projections made in budget 2000, as announced in the medium-term budget policy statement in October 2000. It also signals a fiscal policy shift from macroeconomic stability concerns to microeconomic reform.
The increased spending is based on a revised economic outlook that has projected faster GDP growth of:
l 3,7% in 2001/02 (0,5 percentage points more over the budget 2000 projections);
l 3,5% in 2002/03 (0,2 percentage points more) and;
l 3,3% in 2003/04.
It is also the result of a reduction in debt service costs due to lower deficits, lower interest rates and the proceeds of restructuring state assets.
The projected changes in debt service costs can largely be contributed to an R8-billion increase over projections in the medium-term budget policy statement of the expected proceeds from the sale of state assets (from R10-billion to R18-billion). These would support a reduction in the budget borrowing requirement and therefore in debt. This is despite 44% lower-than- expected proceeds from the restructuring carried out in 2000/01.
The deficit of 2,5% of GDP in the main budget for 2001/2 falls to 2,1% in 2003/04.
Revenue
The revenue proposals are focused on providing a stimulus for growth through tax relief on personal income and a range of tax proposals aimed at stimulating the development of certain sectors. The proposals also include R600-million for a wage tax credit and a proposal to zero-rate paraffin.
l The budget provides for R8,3-billion in tax relief. The main reductions go to those earning less than R80 000 a year. Those earning below R23 000 will pay no tax. A worker earning R70 000 pays 12% less tax; this means, more or less, an extra R140 a month.
l Tax privileges for small businesses have been extended.
l The introduction of capital gains tax is postponed from April 1 2001 to October 1 2001.
l The budget devotes some attention to the closing of tax loopholes for banks.
l Sin taxes: beer and cider are up 2,3c a can (6%); sorghum beer duties rise by 5%; all other alcohol duties are up by 10%; and tobacco tax rises between 11,8% and 20,2%. A pack of 20 thus goes up by 33,8c.
l The fuel levy rises by 2,5%, representing a 2,4c hike on leaded and unleaded petrol and 1,9c a litre rise on diesel.
l The levy on petrol increases by 2c a litre to support the Road Accident Fund.
Expenditure
A total of R26,2-billion extra has been made available over the next two years for expenditure. While this increase is partly due to higher inflation projections, it does represent real growth in expenditure of 3,8% a year over the next three years. Of these increases:
l R7,8-billion is for infrastructure development.
l R4-billion goes to the criminal justice sector.
l R16-billion goes to provinces.
l R2,6-billion goes to local government.
National government receives 38%, provincial government 56% and local government 6% of the extra money available over the medium term.
Composition of expenditure and real expenditure growth
Insofar as the division of revenue between the spheres of government goes, national government’s share increases from 39,4% for 2000/01 to 40% in 2003/04. Provincial shares decrease from 57,6% for 2000/01 to 56,7% in 2003/04, while local government shares increase from 3% to 3,3%. The transfers to provincial government increase in real terms by an average of 2,63% over the medium term, while the transfers to local government increase in real terms by on average 5,8%.
Where the composition of spending between different sectors is concerned:
l Spending in the social sector (health, welfare, education and housing) is to decline by 1,2 percentage points as a percentage of non-interest expenditure, but increase in real terms by an average of 2,3% a year.
l Spending in the protection sectors (defence, police, prisons and justice) is to remain stable as a percentage of the budget, and increase in real terms by 3,2% on average a year.
l Spending in the economic sector (water schemes, fuel and energy, agriculture, fishing and forestry, mining and transport) is to remain stable as a percentage of the budget, but increase in real terms on average of 4,7%.
Over the three years of the medium-term expenditure framework, the contingency reserve increases; this is to allow for policy changes and greater uncertainty.
As far as the economic composition of spending is concerned:
l Recurrent spending is set to increase by 1,05% in real terms over the next three years.
l Spending on personnel is set to increase by 0,79% in real terms over the next three years.
l Capital spending is set to increase by 15% in real terms over the next three years.