Following are the main points of the South African government’s 2003-04 budget as detailed by Finance Minister Trevor Manuel on Wednesday.
ECONOMIC CONDITIONS
Manuel said the government had forecast CPIX inflation (headline consumer inflation less mortgage interest rates) at 7,7% y/y for 2003, down from 10% y/y in 2002 but still above the South African Reserve Bank (SARB)’s 3-6% target.
CPIX would finally reach an average within the target by 2004, expected to fall to 4,8% y/y in 2004 and reach 5,2% in 2005. It will announce its new 2005 GDP target in October.
The government revised downward its GDP growth target for 2003 to 3,3% y/y from 3,5% previously expected, but nominal GDP is expected to rise due to inflation. It is also expecting South Africa to post a current account surplus of 0,1% of GDP in 2002, but this is likely to worsen to a small deficit in 2003 of about -0,5% of GDP due to the stronger rand.
BUDGET DEFICIT
The South African government’s budget deficit for 2002-03 is set to fall to only 1,4% of GDP, a level unequalled in many developed countries. This is set to rise to 2,4% of GDP in both 2003-04 and 2004-05 as spending gathers speed for both social grants and infrastructure. Debt at March 2003 was estimated at R431-billion, or 38,5% of GDP.
The government is set to borrow more in 2003-04, thus providing a boost to
the local bond market. New 2008 and 2104 bonds will be issued, as well as new
30-year CPI-linked paper. Net domestic bond issuance is estimated at R9,3-billion, compared to bond repurchases totaling R3,1-billion in 2002-03.
BUDGET SPENDING
Manuel said the government was set to spend a total of R334-billion in the upcoming year, a 14,4% rise on the R291,8-billion spent in 2002-03. Capital spending for infrastructure development and job creation is a significant part of this at R32,7-billion, a 30% increase from the R25-billion allocated last year.
The government will set aside R10-billion over the next five years to support the funding of new black economic empowerment (BEE) ventures, as well as provide an additional R3,3-billion over the next three years for prevention and treatment programs for HIV/Aids victims.
The government’s employee bill at both the provincial and national levels rises by just under 10% or R11-billion last year to R122,5-billion rand — but will drop as an overall percentage of consolidated expenditure.
Education remains the largest category of expenditure in this year’s Budget at 23,2% of non-interest spending in 2003/04. However, health, welfare and housing will continue to grow more strong, reflecting the broadening of social service priorities, according to the Budget review.
Social services — into which education falls — takes up R173-billion of the consolidated national and provincial government budget of R351,3-billion. Education will receive R69-billion in the coming year — 2003/04 — up from R62-billion in 2002/03.
Health rises from R34,9-billion in 2002/03 to R39-billion while welfare rises from R41,9-billion to R48,6-billion. The sharpest growth goes to welfare with social security services increasing to R63-billion rand by 2005/06. This represents a 14,5% growth between 2002/03 and 2005/06.
BUDGET REVENUE
Spending in 2003-04 is underpinned by the R10,5-billion in revenue overruns experienced by the government in 2002-03, 4% higher than originally budgeted due largely to the effects of inflation on incomes and spending. Such strong revenue performance has allowed the Treasury to return R13,3-billion to taxpayers in the form of lower income taxes, 79% of which will go to people earning less than R240 000 per year.
Robust revenues have also allowed the Treasury to reduce the tax on retirement funds from 25% to 18%, and to introduce a series of tax breaks for small and medium businesses. Among the most important of these has seen the turnover limit for small companies to receive tax breaks rise to R5-million from R3-million previously.
However, no breaks were given to companies in the form of lower company tax or secondary tax on companies (STC). Consumers could also be hurt by the rises in the fuel levy, which is going up by 3 cents a litre for petrol (as much as 9 cents for unleaded) and 4 cents for diesel. The Road Accident Fund levy is also set to increase by 3 cents per litre.
The 2003 Budget documents are available at: www.treasury.gov.za – I-Net-Bridge