Pravin Gordhan enjoyed playing to the parliamentary crowd in his first annual budget speech. Will ordinary South Africans be as receptive? This is Gordhan, in his own words, minus the jokes.
The challenge
One in four adults seeking work is unemployed, and almost half our young people have not found work. Half our population survives on 8% of national income. We confront several social challenges: an HIV and TB pandemic, unacceptably high rates of crime, angry communities and dysfunctional schools.
Global economic outlook
The world economy has gone through its deepest recession in over 70 years. An estimated 34m people have lost their jobs. After declining by 0,8% in 2009, the economy is expected to grow by 3,9% this year, driven largely by the momentum of China's industrial expansion, urbanisation and modernisation. [But] employment creation in developed countries remains weak. Large fiscal deficits and emerging asset price bubbles in Asia signal that the recovery is still fragile.
Pravin Gordhan - One in four jobless
The SA outlook
Our economy shrank by an estimated 1,8% last year. Mining output fell about 7%, manufacturing by over 12%. Consumption and private investment contracted. About 900 000 people lost their jobs.
In October, we projected that growth this year would be 1,5%. Our growth expectation for 2010 is now 2,3%, rising to 3,6% by 2012.
Consumer price inflation is expected to remain around 6%.
Jobs for the boys (and girls)
We propose a subsidy that will lower the cost of hiring young people without work experience. Under consideration is a cash reimbursement to employers for a two-year period. It will be available to tax-compliant businesses, non governmental organisations and municipalities. Our preliminary estimate is that about 800 000 people will qualify.
Monetary policy
The Reserve Bank will continue to pursue a target for CPI inflation of 3%-6%. We need a stable and competitive real exchange rate, though in today's world this cannot be translated into a straightforward fixed price of the rand. We have agreed with the Reserve Bank that we will continue to take steps to counter the volatility of the exchange rate and to lean against the wind during periods of rapid capital inflows, including reserve accumulation and further exchange control reform.
Debt and deficit
The budget balance has swung from a surplus of 1% of GDP in 2007/2008 to a deficit of 7,3% in two years. Our public debt is expected to rise from 23% of GDP in 2008/2009 to about 40% in 2013, and will stabilise only in 2015.
Revenue shortfalls
We expect to raise R69bn less in tax this year than we budgeted. Consolidated revenue will be R658bn in 2009/2010, which is R32bn less than in the past fiscal year. Value-added tax will be R22bn less than the February budget estimate and 5,1% lower than last year. Corporate income tax will be R30bn less than expected, and over 20% less than the amount we collected in 2008/2009. Customs duties will be R6bn below target, personal income tax R4bn lower and secondary tax on companies R3bn less.
Tax relief
Income tax relief for individuals will amount to R6,5bn. Most of the relief is provided to taxpayers in lower-income brackets. The annual tax-free interest income will be increased from R21 000 to R22 300 for individuals under 65 years old and from R30 000 to R32 000 for individuals 65 years and older.
Targeting motorists
The 2009 budget announced an ad valorem carbon emissions tax on new cars. It is recommended that the original proposal be converted into a flat-rate emissions tax effective from September 1 2010. It is proposed to increase taxes on fuel by 25,5c/. This includes a 7,5c/ increase to contribute to funding a new petroleum pipeline between Durban and Gauteng, and an increase of 8c/ in the road accident fund levy.The wages of sin
While excise duties on tobacco and alcoholic products will be increased in accordance with the present policy stance, we wish to signal a stronger stance in our efforts to combat the abuse of alcohol. The tax burden benchmarks for alcoholic beverages will be reviewed.
I propose to review the treatment of winnings in the hands of gamblers as exempt from personal income tax.
Tax administration
Government will take further steps to reduce tax avoidance and tax structuring by tightening company car and other fringe benefit rules, and through measures to ensure that employer deductions are fully reflected in the gross income of employees. Steps will be taken against several sophisticated tax avoidance arrangements, such as the use of transfer pricing and cross-border mismatches.
Total spending
The consolidated budget of government for next year is R907bn and, over the next three years, we will spend R2,9 trillion. Real growth in public spending over the three years is about 2%/ year.
HIV/Aids
In October, government announced an additional R5,4bn for spending on the HIV/Aids programme to improve the effectiveness of treatment programmes. A further R3bn is allocated in this budget. About 920 000 people are on anti retroviral treatment. The budget provides for the number to rise to 2,1m in 2012/2013.
Cars and clothes
An additional R3,6bn is allocated to the department of trade & industry for industrial policy interventions. In particular, these funds go to support investment and production in the automotive components and clothing & textile industries.
Municipal spending
Total allocations to municipalities rise from R55bn in 2009/2010 to R78bn in 2012/2013. Though transfers to municipalities have increased strongly over the past five years, service delivery problems persist. We are working with the minister of co-operative governance & traditional affairs to resolve these problems.
Public works programmes
Over the 2009-2014 period, the second phase of the expanded public works programme aims to create 4,5m short-term job opportunities. An estimated total of R52bn is available for expanded public works projects over the next three years.
WHAT IT MEANS
 Inflation targeting will continue
Huge shortfalls in planned revenue
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Social grants
In 2010/2011, R89bn will be spent on social grants. Provision has been made for the phased extension of the child support grant up to a child's 18th birthday. The state old-age pension and the disability grant rises by R70 to R1 080/ month. The child support grant increases by R10 to R250/ month.
Public-sector infrastructure
Over the next three years, the public sector aims to spend R846bn on its infrastructure programme. Eskom's construction of power plants makes up about a third of the total. Upgrading our transport infrastructure and water supply capacity makes up much of the balance.
Bolting the stable door
Greater transparency and accountability in procurement will be a key focus of reform. Relevant government departments have intensified efforts to bring perpetrators of tender fraud to book. An inter ministerial committee on corruption has been established.
Financial-sector oversight
Government has finalised reporting measures for prudential foreign exposure limits on banks, which will be introduced at 25% of their total liabilities. National treasury will shortly release a framework document to facilitate consultations on reforming exchange control legislation.
