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Budget 2011: 'working harder, smarter'

24 February 2011

South Africa's 2011/12 Budget is about helping to make the country work smarter, harder and differently, Finance Minister Pravin Gordhan told Parliament in Cape Town on Wednesday.

For the poor, the Budget expanded spending on housing, rural development, better community services and social assistance grants, he told the National Assembly.

For workers, it emphasised job creation and spending on the "social wage", including access to health services, education, social security, transport and municipal infrastructure.

For the business sector, it expanded investment in modernising infrastructure and transport logistics, accelerating further education and skills development, and supporting research, technology and industrial investment.

For the small business sector, there were targeted financial and enterprise development programmes, and tax relief measures.

And, for the youth, there was expanded access and financial assistance for further education, and a range of initiatives aimed at expanding job opportunities, Gordhan said.

Economic forecasts

Real GDP growth was projected to reach 3.4 percent in 2011, 4.1 percent in 2012 and 4.4 percent in 2013.

Steady employment gains – of about two percent a year – would raise disposable incomes, supporting household consumption and investment.

Real growth in exports was expected to average 6.5 percent a year over the medium-term as commodity exports benefited from strong demand and high prices.

Inflation was forecast to remain within the target range of three to six percent, edging towards the upper end of the range in 2013, as the economy strengthened.

But, increasing food and oil prices represented risks to the inflation outlook, Gordhan warned.

Fiscal and monetary policy

Fiscal and monetary policy would continue to work in partnership.

"Monetary policy, operated by the SA Reserve Bank, will continue to be focused on controlling inflation, and we will continue to ensure that fiscal policy is countercyclical within a sustainable long-term framework."

Government would continue to assist the SARB to accumulate foreign exchange reserves when market conditions were favourable and engage in foreign currency swaps to moderate the effect of capital flows on the exchange rate.

"Overly rapid currency depreciation carries risks to macro-economic stability, however, and so we expect the governor of the Reserve Bank to be vigilant in monitoring inflationary pressures and ensuring that monetary policy is effective in meeting our inflation targets."

The credibility of monetary policy in achieving the target inflation range, combined with a commitment to fiscal discipline, were important foundations for moderating exchange rate volatility.

Gordhan said proposed reforms to the financial sector included a shift to a "twin peak" system of financial regulation, with market conduct under the Financial Services Board, and prudential regulation in the Reserve Bank.

Tax matters

On the taxation side, individuals would benefit from R8.1 billion in personal income tax relief.

Among others, from March 2011, tax would be payable only on income above R59 750 for taxpayers below age 65, and R93 150 for those 65 and older.

The tax-free lump sum benefit upon retirement would increase from R300 000 to R315 000.

With effect from April 2012, all gambling winnings above R25 000, including pay-outs from the National Lottery, would be subject to a final 15 percent tax.

A packet of 20 cigarettes would cost 80 cents more, a 750ml bottle of spirits R2.86, a 340ml can of beer 6.4 cents, and a bottle of wine 13.5 cents more, effective immediately.

The general fuel levy will increase by 10 cents a litre and the Road Accident Fund (RAF) levy by eight cents a litre, effective April 6.

Changes to the tax treatment and administration of contributions to retirement funds were also proposed.

From March 2012, an employer's contribution would be treated as a taxable fringe benefit, and employees would be allowed to deduct up to 22.5 percent of taxable income for contributions to approved retirement funds.

A maximum of R200 000 a year would be deductible.

Options for funding the proposed national health insurance included a payroll tax (payable by employers), an increase in the VAT rate and a surcharge on individuals' taxable income.

Government and state-owned enterprises would spend more than R800-billion over the next three years on new power stations, road networks, dams and water supply pipelines, rail and ports facilities, schools, hospitals and government buildings, Gordhan said.

Lion's share for social services

The bulk of the 2011/12 consolidated budget of R979.3-billion (projected revenue R824.5-billion) went to social services – R577.3-billion.

The education budget rose by 9.7 percent to R189.5-billion, with the basic education allocation going up by 10.6 percent to R145.5-billion, and tertiary education by 6.8 percent to R26-billion.

Social protection followed with a budget of R146.9-billion, reflecting an increase of 10.7 percent; housing and community amenities R121.9-billion (up by 19.5 percent); and health R112.6-billion (by 9.8 percent).

The public order and safety budget allocation rose by 8.2 percent to R90.9-billion – police R60.7-billion (up 8.5 percent), prisons R16.5-billion (8.6 percent), and justice R13.7-billion (6.2 percent).

Transport got R65.6-billion (up 8.4 percent) and defence R38.4-billion (up 13.2 percent).

There was an unallocated contingency reserve of R4.1-billion.

The projected deficit of 5.3 percent was expected to drop to 4.8 percent in 2012/13, and to 3.8 percent in 2013/14.

With effect from April, the old age pension, disability and care dependency grants would increase by R60 a month, to R1 140.

Foster care grants rose by R30 to R740 a month, and the child support grant from R250 to R260 in April, and to R270 in October.

Sapa