26 February 2015
Compiled by:
Research and Information Department
Project and Corporate Finance Department
National Budget 2015:
Addressing fiscal imbalances in a challenging economic
environment
2
Contents
• Economic and fiscal developments
• National Budget 2015: Tax proposals
• National Budget 2015: Expenditure
• Budget Review 2015: Select issues
• Concluding remarks
3
Economic and fiscal developments:
SA economic growth to recover modestly in 2015
• SA is experiencing a very difficult economic environment.
• Growth is not only extremely weak (a mere 1.5% in 2014), but has been on a declining trend.
• A modest recovery is anticipated, with GDP growth projected by NT at 2% for 2015, rising gradually in subsequent years.
• Domestic demand to remain subdued, with moderate rates of growth projected for consumer spending and investment.
• Government consumption spending forecast to expand, on average, by only 1% in real terms over MTEF.
• Exports still expected to take some strain in 2015, rising thereafter.
-2
-1
0
1
2
3
4
5
6
2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017
% C
han
ge (
y-o
-y)
Real GDP growth and outlook
Source: Stats SA, NT forecast
Forecast
4
• Weak economic growth has resulted in a large imbalance between government revenue and expenditure - tax revenue in the current fiscal year is estimated to be some R14.7 bn lower than budgeted in 2014.
• Budget deficit ratio has been fairly stable around 4% of GDP over the past 5 years.
• Government is committed to keeping spending under control -budgeted to grow by just 2.3% in real terms (7.9% p.a. in nominal terms) over next 3 years.
• Revenue projected to expand by nominal 9.7% p.a. over MTEF.
• Budget deficit now expected to decline from 3.9% of GDP in 2014/15 to 2.5% by 2017/18.
Economic and fiscal developments:
Fiscal deficit ratio set to narrow
-8
-6
-4
-2
0
2
4
6
% o
f G
DP
The budget balance
Budget balance Primary balance
Source: IDC, compiled from Budget Reviews
Primary balance measures the
difference between revenue and
non-interest expenditure.
Budget estimate
5
-8
-7
-6
-5
-4
-3
-2
-1
0
1
% o
f G
DP
The budget balance in 2014 and 2017
2014 2017
Source: IDC, compiled from IMF data, National Treasury data for SA
Economic and fiscal developments:
SA budget balance within the global context
• Although SA’s budget deficit ratio is expected to improve, it does not compare favourably with the average for emerging/developing economies.
Average budget deficit for
emerging/developing
economies in :
2014 = -2.1%
2017 = -1.9%
6
Economic and fiscal developments:
SA debt rising further
• Government debt has almost
doubled from R990 bn in FY
2011 to an estimated R1 800 bn
for FY 2015.
• Curbs in expenditure are being
proposed to stabilise debt at
manageable levels and ensure
fiscal sustainability.
• Despite government initiatives to
control spending and raise
revenue to reduce the fiscal
deficit, debt levels will rise by a
further R550 billion to a projected
R2.3 trillion by FY 2018.
• Total debt-to-GDP ratio forecast
to increase to 47.6% in FY 2018,
from 46.2% in FY 2015.
0
20
40
60
80
100
0
500
1 000
1 500
2 000
2 500
1990 1992 1994 1996 1998 2000 2002 2004 2006 2008 2010 2012 2014 2016 2018
% o
f G
DP
R B
illi
on
Total government debt
Foreign debt (Lhs)
Domestic debt (Lhs)
Total debt as % of GDP (Rhs)
Source: IDC, compiled from SARB, Budget Review dataFiscal year ending 31 March
Budget
estimate
7
Economic and fiscal developments:
SA debt within the global context
• SA government debt as a % of GDP is expected to rise over the outlook period.
• This contrasts to an anticipated moderation in the world’s most advanced economies and a stable trend for developing economies.
20
30
40
50
60
70
80
90
100
110
120
20
00
20
01
20
02
20
03
20
04
20
05
20
06
20
07
20
08
20
09
20
10
20
11
20
12
20
13
20
14
20
15
20
16
20
17
% o
f G
DP
Gross government debt
South Africa
Advanced economies
Developing economies
Source: IDC, compiled from IMF data, National Treasury data for SA forecast
Forecast
8
Contents
• Economic and fiscal developments
• National Budget 2015:
Tax proposals
• National Budget 2015: Expenditure
• Budget Review 2015: Select issues
• Concluding remarks
9
National Budget 2015:
Main tax proposals
• Marginal rate of tax for individuals with
annual income > R181 900 will increase
by 1%; income tax brackets and
rebates raised by 4.2% due to fiscal
drag.
• Tax rate for Trusts to increase from 40%
to 41% (effective March 2015).
• More generous turnover regime for
small businesses.
• Fuel levy rockets 30.5c/l and Road
Accident Fund levy by 50c/l.
• Electricity levy increases from 3.5c/kWh
to 5.5c/kWh.
• Energy-efficiency savings tax incentive
rises from 45c/kWh to 95c/kWh.
• Further refinement on 3rd party backed
shares to be introduced.
• Several anomalies in legislation to be
reviewed.
-20 -15 -10 -5 0 5 10 15 20
Company taxes
Customs duties
VAT
Electricity levy
Other taxes
Personal income tax
Total tax revenue
Rand Billions
Change in tax collections in 2014/15 vs 2014 Budget
Overall tax shortfall = R14.7 bn
10
National Budget 2015:
Income tax on individuals
Rebates:
• Primary: R13 257 (2014: R12 726 )
• Secondary: R7 407 (2014: R7 110 )
• Tertiary rebate: R2 466 (2014: R2 367 )
Tax-free threshold:
• Age < 65: R73 650 (2014: R70 700 )
• Age 65 and over: R114 800 (2014: R110 200 )
• Age 75 and over: R128 500 (2014: R123 350 )
Tax-free interest-income annual threshold:
• Age < 65: R23 800 (2014: R23 800)
• Age 65 and over: R34 500 (2014: R34 500)
11
National Budget 2015:
Progressive income tax on individuals
Income tax payable in 2015/16 (taxpayers below age 65)
Taxable income
(Rand)
2014/15 rates
(Rand)
Proposed
rates
(Rand)
Tax reduction
(Rand)
% change
(current year)
% change
(prior year)
85 000 2574 2043 -531 -20.6% -20.1%
90 000 3474 2943 -531 -15.3% -15.7%
100 000 5 274 4 743 -531 -10.1% -10.9%
120 000 8 874 8 343 -531 -6.0% -6.8%
150 000 14 274 13 743 -531 -3.7% -4.3%
200 000 25 056 24 191 -865 -3.5% -4.8%
250 000 37 556 37 191 -365 -1.0% -3.3%
300 000 51 421 50 986 -435 -0.8% -3.7%
400 000 82 549 82 326 -223 -0.3% -3.4%
500 000 117 549 118 326 778 0.7% -2.4%
750 000 213 247 215 297 2050 1.0% -2.0%
1 000 000 313 247 317 797 4550 1.5% -1.4%
Source: Budget Review 2015
12
National Budget 2015:
Income tax on individuals
Medical tax credits:
• Monthly medical tax credits for medical
scheme contributions will increase to R270
(2014: R257) for first 2 beneficiaries and
R181 (2014: R172) for each additional one
(effective 1 March 2015).
• Medical tax credits to be taken into account
for both PAYE and provisional tax for
employees over 65.
Bus rapid transit payments:
• Tax treatment of payment (compensation for
loss of income) to affected taxi operators will
be reviewed.
13
National Budget 2015:
Income tax on individuals
Employee share schemes:
• Taxation of directors and employees on
vesting of equity instruments will be
reviewed in light of the anomalies that
exist in the application of section 8C of
the Income Tax Act (ITA) in relation to the
attribution of capital gains, income tax
exemption of dividends and the provision
related to the return of capital.
Retirement
• Non-residents who have worked in SA for
a fixed term of employment and
contributed to a Retirement Annuity (RA)
will be allowed to withdraw their RA once
they return to their home countries.
14
National Budget 2015:
Income tax on individuals
• The taxation of contributions and the
rules on compulsory annuitisation for
pension funds, provident funds and
retirement annuity funds will change
from 1 March 2016.
• Deductible contributions will be limited
to 27.5% of the greater of taxable
income or remuneration per year.
• From 1 March 2015 a retirement fund
member will be able to defer the
drawings of their retirement income until
after their retirement date (if the
retirement fund allows it). A maximum
age at which withdrawals must be taken
will be introduced.
15
National Budget 2015:
Income tax on individuals
Estate duty:
• Section 25 of the ITA provides that no income
or disposal is triggered in the deceased’s
hands upon death, but that income may be
recognised in the hands of the deceased
estate, heir or legatee.
• Paragraph 40 of schedule 8, however,
recognises capital gains and losses upon
death. To address the anomalies created
when the two regimes interact, the provisions
will be examined and amendments maybe
proposed.
• To eliminate the possibility for estate duty
avoidance, government proposes that an
amount equal to the nondeductible
contributions to retirement funds be included
in the dutiable estate when a retirement fund
member passes away.
16
National Budget 2015:
Corporate tax
Corporate re-organisation rules:
• Relief to be provided to township developers
to transfer their township development
allowance in terms of the section 45 of the
ITA.
• Asset for share transaction: current anti-
avoidance measure in section 42(5) of the ITA
will be clarified.
• Cross-border intra-group transactions:
proposed that this sub-paragraph be
amended to clarify that the provisions of this
section refer to the same group of companies
as defined in section 1 of the ITA.
Section 9C – shares held for 3 years
• The “return of capital” and meaning of
“disposal” will be reviewed.
17
National Budget 2015:
Corporate tax
Third-party backed shares:
• In 2014, changes were made in the ITA
regarding the refinancing of 3rd-party-backed
shares for qualifying transactions and limited
pledges. Further refinements are needed to
clarify the requirements or meaning of
“qualifying purpose” to further the provisions’
objectives.
REITS (Real Estate Investment Trusts):
• Unlisted property-owning companies do not
qualify for the same special tax dispensation
as listed real estate investment trusts.
Government proposes that unlisted property-
owning companies should qualify for the
same tax treatment if they become regulated.
A regulatory framework for unlisted property-
owning companies will be developed.
18
National Budget 2015:
Corporate tax
Industrial policy projects:
• Section 12I incentive will be extended to 31 December 2017.
Depreciation allowance for hydropower generation
• The restriction of 30 megawatt for electricity generation will be
reconsidered if the environmental concerns are addressed.
Hedge funds:
• Hedge funds to be declared “collective investment schemes”,
subjecting them to similar rules in terms of the Collective
Investment Schemes Control Act (2002).
• Tax amendments will be considered to minimise any inadvertent
tax consequences that may arise from the restructuring.
Securities lending arrangements:
• Current tax treatment of securities’ lending arrangements will be
reviewed.
• Tax treatment of the transfer in beneficial ownership of collateral
will be reviewed to account for corporate actions during the term
of such arrangements.
19
National Budget 2015:
Corporate tax
Urban development zone incentive (UDZ):
• Consideration will be given to allow
municipalities to demarcate 2 or more UDZs
per municipality with an overall limit of the
area of the UDZs.
Research and development:
• The backlog in approvals of applications by
the adjudication committee will be addressed
to ensure that businesses who have to wait
months are not disadvantaged.
• The issue of third-party funding for R&D
activities will be considered.
Government grants:
• Tax treatment of government grants to be
reviewed.
20
National Budget 2015:
Corporate tax
Right of use of transmitting electronic
communications outside SA territorial
waters:
• Review of the deduction for premiums, or
consideration paid for the “right of use” of
transmission lines or cables used to transmit
electronic communications outside SA
territorial waters, where the term of the right
of use is 20 years or more.
Film incentive:
• Government will refine film incentives in
section 12O of the ITA to remove anomalies
arising as a result of the interaction of its
provisions with other provisions in the Act.
• Excise duty on digital cinema projector
costing > R250 000 will be abolished to
promote commercial usage.
21
National Budget 2015:
Corporate tax
Section 12C manufacturing asset allowance:
• Due to changes in the business models of
some manufacturing activities, government
will review the conditions of the granting of
this allowance.
Special Economic Zones (SEZs):
• The risk that profits may be artificially shifted
from fully taxable connected persons to the
qualifying SEZ company will be mitigated.
Government proposes that a company be
disqualified from the tax benefit if more than
20% of its expenditure or gross income arises
from transactions with connected persons.
Turnover tax regime for micro businesses:
• Government proposes to adjust the rates and
thresholds to make the turnover tax more
attractive.
22
National Budget 2015:
International tax
Foreign tax credits for service fees:
• The special foreign tax credit for withholding
taxes imposed on SA residents by foreign
countries for services rendered in SA for
clients who were residents in those countries
will be withdrawn.
Capital gains tax implications on cross-
issue of shares:
• If a SA resident company issues shares as a
consideration for an acquisition of shares in a
foreign company, it will result in a capital gain
for the resident company. Government will
consider relaxing the provision, as it curtails
the growth and expansion of SA
multinationals.
23
National Budget 2015:
International tax
Controlled foreign company rules (CFC):
• Certain CFC legislation to prevent the shifting
of income offshore through the sale of goods
by a CFC to a connected resident will be re-
introduced following their removal with the
application of the transfer pricing rules in 2011.
Sale of immovable property by non-residents:
• Section 35A of the ITA states that a purchaser
does not need to withhold tax from a deposit
until the agreement for that disposal has been
entered into. It is proposed that the wording
should be amended to clarify the timing of the
withholding.
• The definition of “immovable property” will be
reviewed.
24
National Budget 2015:
International tax
Withholding tax on interest and services:
• “Interest” for withholding tax purposes will be
defined to avoid confusion with other
definitions of interest in the ITA.
• Interest paid to a non-resident for debt owed
by another non-resident will be exempted
unless the other non-resident was present in
SA for a period exceeding 183 days or the
debt is effectively connected to a permanent
establishment in SA.
• Withholding tax on services will be reviewed
to clarify definitions and remove any
anomalies.
Base erosion and profit shifting
• Government will propose amendments to
improve transfer-pricing documentation and
reporting.
25
National Budget 2015:
Indirect taxes
Fuel levies:
• General fuel levy to increase by 30.5c/l.
• Road Accident Fund levy to rise by 50c/l.
Excise duties on tobacco and alcohol:
• Excise duties on alcoholic beverages increase
between 4.8% and 8.5%.
• The excise duties on tobacco products increase
between 5% and 7%.
• To level the paying field, an additional excise duty
category is proposed for grain-based fermented
beverages (flavoured alcoholic beverages using
100% unconverted grains).
26
National Budget 2015:
Indirect taxes
Electricity levies:
• Set to increase from 3.5c/kWh to 5.5c/kWh to
fund energy-efficiency savings tax incentive.
Value Added Tax:
• The current exempt status for “educational
services” will be reviewed.
• The threshold of R2,5m for natural persons and
unincorporated bodies registered on the payment
basis rather than on the accrual basis may
increase and the scope may be broadened to
include incorporated businesses.
• The regulations on foreign electronic services will
be updated to include software and other
electronic services.
27
National Budget 2015:
Indirect taxes
• The threshold requirements of an establishment that
provides “commercial accommodation” will be
reviewed to limit potential abuse.
• The corporate relief granted in applying the corporate
reorganisation rules (section 8(25) of the VAT Act)
does not currently apply to joint ventures and
partnerships. The VAT Act will be amended to allow
reorganisation for all vendors.
• The time of supply rules will be amended to clarify the
time and value of supply where the supply cannot be
determined until a future date.
• Section 11(1)(q) of the VAT Act provides for the zero-
rating of goods supplied to a non-resident recipient
that are delivered to the recipient’s customer in SA. It
is proposed that a comparable provision be included in
the VAT Act to cater for such transactions where the
supply is of services only and they do not relate to any
goods situated in SA.
28
National Budget 2015:
Environmental tax
Tyre levy:
• Government has designed additional environmental levies on a range of waste
streams to help divert waste away from landfills towards reuse, recycling and
recovery. Government proposes a tyre levy, with effect from the last quarter of 2015,
to be implemented through the Customs and Excise Act and collected by SARS.
Carbon tax:
• The draft Carbon Tax Bill will be published later in 2015 and will allow for a further
period of consultation. This will also allow for the tax to be aligned with the proposed
carbon budgets and the required amendments to the Customs and Excise Act to
provide for the administration of the carbon tax.
Diesel refund system:
• The implementation of the diesel refund system has experienced technical and
administrative challenges and will be comprehensively reviewed.
Energy-efficiency savings tax incentive:
• Increase from 45c/kWh to 95c/kWh (to be funded from carbon tax).
29
National Budget 2015:
Miscellaneous taxes
Transfer Duty Act amendments and rate adjustments:
• The definitions of “date of acquisition” and “property” in the Transfer Duty Act
need to be reviewed to align it with other legislation.
Transfer duty rate adjustments 2014/15 – 2015/16
2014/15 2015/16
Property value (R) Rates of tax Property value (R) Rates of tax
R0 - R600 000 0% of property value R0 - R750 000 0% of property value
R600 001 - R1 000 000
3% of property value above
R600 000 R750 001 - R1 250 000
3% of property value above
R750 000
R1 000 001 - R1 500
000
R12 000 + 5% of property
value above R1 000 000
R1 250 001 - R1 750
000
R15 000 + 6% of property
value above R1 250 000
R1 500 001 +
R37 000 + 8% of property
value above R1 500 000
R1 750 001 - R2 250
000
R45 000 + 8% of property
value above R1 750 000
R2 250 001+
R85 000 + 11% of property
value above R2 250 000
30
National Budget 2015:
Miscellaneous taxes
National gambling tax bill:
• The bill will be processed in 2015.
Tax administration:
• Move towards self-assessment system for income tax is
proposed.
• Appeal and dispute resolution procedures for customs
and excise: Uniform appeal and dispute resolution
procedures for taxes administered by SARS are
proposed by aligning the procedures under the Customs
Control Act (2014), the Customs Duty Act (2013) and the
Customs and Excise Act (1964) with dispute resolution
procedures under the Tax Administration Act (2011).
31
Contents
• Economic and fiscal developments
• National Budget 2015: Tax proposals
• National Budget 2015:
Expenditure
• Budget Review 2015: Select issues
• Concluding remarks
32
National Budget 2015:
Government’s commitment to fiscal discipline
• Government to reduce expenditure ceiling by
an aggregate of R25 billion over the coming 2
years.
• These reductions will emanate largely from
budgetary cuts, lower or conditional
allocations, reduced wasteful expenditure and
the implementation of cost-effective service-
delivery models.
• These include:
– National departments’ budget cuts on non-
core goods and services;
– Expenditure cuts on non-critical items of
machinery and equipment;
– Reductions in allocations to public entities
and transfers to provinces;
– Conditional allocations to local
government.
33
Procurement of goods and services:
• Following cost containment measures introduced for
items such as accommodation, flights, car rentals
and consultants, NT will expand (by June 2015)
these to categories such as conferences and
workshops.
• National price-referencing system (providing price
ranges of goods and services commonly used by
the state) to be rolled out from 1 April 2015.
• eTender portal:
– Will be available for use by national and
provincial govt. depts. from 1 April 2015 (must
publish all tenders > R500 000) and for local
govt. from 1 July 2015 (tenders > R200 000).
– It will widen state’s access to potential
suppliers, increase transparency in bid
evaluation and do away with tender viewing
costs for small businesses.
Budget Review 2015:
Public sector cost containment and tenders
34
Public sector wage bill:
• Study conducted by NT in
2014 estimated that most
public sector workers were
within top 30% of wage
earners nationally.
• Comprehensive assessment of
employee compensation
budgets will be launched by NT
in 2015 to tighten control over
public sector wage bill.
• Moratorium on new
appointments unless funded
from existing budget
reallocation.
Budget Review 2015:
Public sector cost containment
0
100
200
300
400
500
600
20
24
28
32
36
40
2010 /11 2011 /12 2012 /13 2013 /14 2014 /15 2015 /16 2016/17 2017 /18
Ran
d b
illi
on
% S
hare
of
exp
en
dit
ure
Expenditure on compensation of employees
% of Expenditure (Lhs)
Compensation (R bn)
Source: IDC, compiled from Budget Review data
35
National Budget 2015:
Government spending with emphasis on development impact
• Consolidated non-interest spending will
increase from R1.1 trillion in 2015/16 to
R1.4 trillion by 2017/18.
• Social spending accounts for the bulk of
government spending to address social
security gaps.
– Health department to increase its
HIV/AIDS treatment and prevention
programme.
– Basic education to improve school
infrastructure, curriculum delivery
and ensure adequate supply of
quality teachers.
– Social assistance grants account for
94.2% of the Social Development
budget over the MTEF period, with
about 17.5 million beneficiaries
receiving assistance grants over the
same period.
36
National Budget 2015:
EDD’s allocations
0
100
200
300
400
500
600
700
800
900
2015/16 2016/17 2017/18
R M
illio
n
Economic Development Department expenditure
Administration Growth Path and Social Dialogue
Investment,Competition & Trade
Source: IDC, based on Estimates of National Expenditure 2013 data
• EDD allocation will decrease from
R885.8 million in 2015/16 to R685.7
million the following year, rising to
R727.9 million in 2017/18.
• Compensation of employees is set to
be reduced by R41.5 million over the
MTEF period, relative to 2014 budget
due to scrapping of some vacancies.
• Transfers to entities account for the
bulk of the allocations, with sefa’s
budget estimated at R843.3 million (or
36.7%) of EDDs overall budget
estimates over the MTEF period.
• Competition Commission’s respective
share stands at R650.5 million (or
28.3% of total).
37
National Budget 2015:
DTI’s allocations
0
1
2
3
4
5
6
7
2015/16 2016/17 2017/18
R B
illio
n
Department of Trade and Industry expenditure
Incentive development and administrationIndustrial developmentTrade and Investment South AfricaOther
Source: IDC, based on Estimates of National Expenditure 2013 data
• The dti’s allocation is set to increase from
R9.6 billion in 2015/16, to R10.5 billion in
the subsequent year before easing to
R9.5 billion in 2017/18.
• Incentives for manufacturing
development (incl. APDP and MCEP)
projected at R10.7 billion over the MTEF
period to promote production expansions,
enhance competitiveness, create/retain
jobs.
• Customised Sector Programme (CSP)
has been allocated R490 million over the
MTEF.
• Clothing & Textile Production Incentive
(CTPI): R2.6 billion.
• Industrial Development Zones: R120
million.
• Special Economic Zones: R3.5 billion.
• Expenditure on localisation projected at
R6.2 billion over the coming 3 years.
38
Contents
• Economic and fiscal developments
• National Budget 2015: Tax proposals
• National Budget 2015: Expenditure
• Budget Review 2015:
Select issues
• Concluding remarks
39
• Review of SOEs undertaken in 2011 to determine how
well they execute their mandates. Report’s
recommendations considered at Cabinet Lekgotla
2015, with following interventions under consideration:
– Establishment of inter-ministerial committee to
improve alignment/coordination;
– Identification of SOEs deemed integral to
national development, followed by delineating
approach to acquisition/disposal of public assets
based on strategic requirements;
– Overarching legislation to govern SOEs;
– Financial implications of developmental
mandates to be more clearly set out in
shareholder compacts;
– Explore alternative options to strengthen balance
sheets (e.g. private investment) and open up
opportunities for private investment in sectors
dominated by SOEs (e.g. REIPPPP).
Budget Review 2015:
Enhance contribution of SOEs to development
40
• Development finance institutions (DFIs) have increased their lending activity rapidly in
support of NDP (loan books grew from R40.5 bn in 2008/09 to R108.7 bn in 2013/14).
• Combined loan portfolios set to expand to R178.3 bn by 2016/17.
• To ensure sustainability, risks associated with lending activities must be managed
prudently.
• Review of Land Bank, aimed at restructuring it for improved operational efficiencies,
scheduled for 2015.
Budget Review 2015:
DFIs in support of economic development
Aggregate assets of SA’s DFIs in 2013/14:
R249.1 bn out of combined SOE total of R903.6 bn
IDC56%
DBSA25%
Land Bank15%
Other DFIs4%
Other SOEs72%
DFIs28%
41
Budget Review 2015:
Infrastructure development
Electricity infrastructure:
• RE projects have added 1 522 MW by December 2014, 3 725 MW in new generation capacity is expected by 2017, with a further 14 550 MW of PV, CSP and wind capacity will be procured in future.
• A further 810 000 households will be provided with access to on-grid electricity and 65 000 households with non-grid electrification.
• Government’s “War room” is working on:
– Resolving funding, maintenance and diesel supply concerns;
– Speeding up the construction of Medupi and Kusile (Completion of Medupi’s 1st unit expected in the second-half of 2015, that of Kusile in a year later);
– Increasing co-generation capacity by around 800MW in the short-term;
– Switching Eskom OCGT from diesel to natural gas, with an additional 3 126MW of gas generation expected to be available by 2020;
– Procuring up to 2 500MW from coal IPPs by 2020.
• Electricity tariff increases expected to be higher than previously determined by Nersa to support Eskom revenue generating ability.
.
42
Budget Review 2015:
Infrastructure development
Transport infrastructure:
• Both Transnet and PRASA are upgrading and acquiring locomotives and rolling stock, whilst Transnet is expanding capacity on its manganese, iron ore and coal lines and/or terminals.
• Transnet continued to sustain profitability as revenue increased, on the back of higher mineral volumes and rising container traffic. Substantial cost savings were realised.
• Transnet lowered its capital expenditure plans as a result of continued disappointing global growth, weaker demand and lower commodity prices.
Government spending on infrastructure:
• National, provincial and local governments are expected to increase infrastructure spending by 21.4% to R362.4 billion over the next three years, focussing on human settlements, health, water and education infrastructure.
43
Budget Review 2015:
Infrastructure development
• Nominal spend on public sector infrastructure expected to peak in the 2015/16 fiscal year
(in real terms the peak is reached in current 2014/15 fiscal year).
• Despite the reducing public sector expenditure on infrastructure going forward, spending
of R813.3 bn over next 3 years will exceed that of prior 3-year period by 15%.
• R362.2 billion (44.5% of total) will be spent by SOEs, mainly Eskom, Transnet and to a
lesser extent SANRAL (together accounting for R309.5 bn over MTEF).
Source: Adapted from Budget Review 2015
2014/15 2015/16 2016/17 2017/18 MTEF total
Estimate R billion R billion
Energy 69.2 71.1 56 39.2 166.3 20.5
Water and sanitation 34.8 37.3 39.8 40.3 117.4 14.4
Transport and logistics 93.7 104.3 113.5 121.3 339.2 41.7
Other economic services 17.5 15.4 15.5 14.7 45.6 5.6
Health 9.7 9.3 9.9 10.3 29.5 3.6
Education 13.5 14.5 14.5 14.8 43.7 5.4
Other social services 11.5 10.6 11.3 11.6 33.5 4.1
Justice and protection services 3.9 4.5 5.2 5.5 15.2 1.9
Central government services 8.6 6.9 7.7 8.2 22.7 2.8
Total 262.4 274 273.3 265.8 813.1 100
% change on previous year 4.40% -0.60% -2.70%
Public-sector infrastructure expenditure: 2014/15 – 2017/18
Investment area MTEF total %MTEF Forecasts R billion
44
Budget Review 2015:
Infrastructure development
• SOE adherence to infrastructure spending plans has improved (98% actual spend vs.
budget ratio in 2013/14, from 80% in 2012/13).
• The improved performance could be related to improved budgeting in recent times, as
capital expenditure projections have been revised lower over consecutive years.
0
50
100
150
200
250
300
350
2006/07 2007/08 2008/09 2009/10 2010/11 2011/12 2012/13 2013/14 2014/15 2015/16 2016/17 2017/18
R B
illi
on
Public sector infrastructure expenditure
Budget 2010 Budget 2011
Budget 2012 Budget 2013
Budget 2014 Budget 2015
Source: IDC, compiled from Budget Review data
3-year outlook
45
Budget Review 2015:
Funding plans of SOEs
• Financial support to SOEs in distress
envisaged to be budget-balance
neutral (e.g. R23 bn allocation to
Eskom raised through sale of non-
core state assets), but will impact
government liabilities (e.g. guarantees
to SAA, SAPO).
• Options include the disposal of
direct/indirect shareholdings in listed
companies, non-strategic
shareholdings in SOEs, property, as
well as surplus cash-holdings in
SOEs.
• Governmental support will be
combined with monitoring to ensure
the delivery on government priorities,
commercial performance and fiscal
targets
Source: Adapted from Budget Review 2015
2014/15 2015/16 2016/17 2017/18
Revised R billion
Domestic loans 69.5 71.1 81.9 75.4
Short-term 29.8 26.8 26.5 29.1
Long-term 39.7 44.3 55.4 46.3
Foreign loans 43.8 51 39.6 38.7
Of which
Export credit agency 8.5 5 5.5 5.2
Multilateral institutions 17.4 15.7 26.9 25
Total 113.3 122.1 121.5 114.1
Percentage of total:
Domestic loans 61% 58% 67% 66%
Foreign loans 39% 42% 33% 34%
Sources of funding for SOCs: 2014/15 – 2017/18
Investment areaMTEF estimates R billion
Sources of funding for SOEs: 2014/15 – 2017/18
46
Contents
• Economic and fiscal developments
• National Budget 2015: Tax proposals
• National Budget 2015: Expenditure
• Budget Review 2015: Select issues
• Concluding remarks
47
Concluding remarks
• Budget 2015 aims to address fiscal imbalances in a challenging economic environment.
• Government spending projections may appear to be growth supportive, but this is confined to FY 2015/16, as it tapers off in subsequent years.
• Furthermore, growth in capital expenditure falls sharply from 2016/17 onward.
• Major portion of government expenditure is dedicated towards social services and poverty alleviation.
• Higher tax burden to raise government revenue, both through direct (e.g. income tax) & indirect measures (e.g. levies, duties), will adversely affect economic growth.
• Steep reduction in budget deficit to 2.6% as early as 2016/17 (from 3.9% in projected for 2015/16) may prove ambitious.
• It is also highly dependent on prevailing economic conditions, improved public sector efficiencies and success in containing non-essential spending.
0
2
4
6
8
10
12
2011 /12 2012 /13 2013 /14 2014 /15 2015 /16 2016/17 2017 /18
% C
han
ge (
y-o
-y)
Current expenditure
Capital expenditure
Total expenditure
Real government expenditure by type of spending
48
Concluding remarks
• Government’s gross debt to rise by a further R550
billion, with the debt-to-GDP ratio increasing to
47.6% by the end of the MTEF period. Debt largely
sourced domestically.
• Rating agencies will continue to monitor fiscal
developments closely.
• Some of the tax reform proposals have now
incorporated, such as taxation of small
businesses.
• However, reports on various other issues are yet
to be published by Davis Tax Committee (e.g.
overall tax system, VAT, estate duty, wealth,
mining taxes).
• Several measures in support of government’s
immediate priorities, as captured in 9-point plan
announced by President Zuma in the SONA, are
highlighted in the Budget Review 2015.