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Budget Review
2015
National Treasury
Republic of South Africa
25 February 2015
ISBN: 978-0-621-43286-2
RP:
09/2015
The Budget Review is compiled using the latest available information from departmental and
other sources. Some of this information is unaudited or subject to revision.
To obtain additional copies of this document, please contact:
Communications Directorate
National Treasury
Private Bag X115
Pretoria
0001
South Africa
Tel: +27 12 395 6697
Fax: +27 12 407 9055
The document is also available on the internet at: www.treasury.gov.za.
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Foreword
The South African economy faces a difficult few years ahead. Some of the difficulties are the result of a
weak global outlook, while others have to do with the structure of our economy. But the net result is that
economic growth is likely to remain subdued over the medium term, rising from a projected 2 per cent
of GDP in 2015 to 3 per cent of GDP in 2017.
Slow growth means that the economy does not generate the tax revenue needed to balance our budget.
To continue increasing our stock of debt, and the interest payments that will consume R420.8 billion
over the next three years, would jeopardise the sustainability of the public finances. This requires
government, as the custodian of public money, to take deliberate steps to narrow the budget deficit.
The 2015 Budget proposes revenue and spending measures needed to stabilise the public finances.
On the revenue side, government proposes a one percentage point increase in personal income tax rates
for all but the lowest income bracket, along with increases in the fuel levies. On the spending side,
budgeted expenditure over the next two years has been reduced by R25 billion across national,
provincial and local government.
The fiscal constraints we face will affect the pace and breadth of government’s contribution to national
development in the medium term. But core social and economic programmes will be maintained.
Progress has been made in containing costs and improving the composition of expenditure. Over the
next three years, capital is the fastest-growing category of non-interest spending. Much more work
remains to be done to improve the value derived from every rand spent on the public’s behalf, and a
range of new initiatives will improve cost containment and strengthen expenditure planning. We aim to
reach a fair, sustainable public-sector wage agreement that protects the purchasing power of public
servants.
Today the economy is receiving a short-term boost from low oil prices, which reduce inflation and
increase buying power. But the present electricity supply constraint is a serious hurdle to be overcome.
Government is working to reduce the effects of electricity outages today, while ensuring that in the years
ahead, there will be sufficient supply from a wider range of sources to power South Africa’s factories
and mines, schools and households.
Slow economic growth puts our society and our long-term socioeconomic transformation project at risk.
Beyond the short term, the 2015 Budget is about making the necessary adjustments to put the country on
a path towards faster growth. This means shifting to a growth trajectory led by investment, not
consumption, as proposed in the National Development Plan.
Projected public-sector investment totals R813.1 billion over the next three years. Reforms under way
through the medium-term expenditure framework will put our economy on a higher growth path.
Government has rolled out a wide array of initiatives to promote energy efficiency, bolster
competitiveness, boost skills and job creation, cut red tape and improve business confidence.
Government is also stepping up its work with municipalities, in partnership with the private sector, to
reshape South Africa’s cities and improve their contributions to economic growth.
I am grateful to Cabinet, the Portfolio Committee on Finance and the Ministers’ Committee on the
Budget, and Minister of Finance Nene and Deputy Minister Jonas for their guidance and leadership. And
I owe special thanks to my dedicated and hardworking colleagues at the National Treasury and
throughout government, who have helped us to prepare a budget that responds to the challenges we face.
Lungisa Fuzile
Director-General: National Treasury
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Contents
Chapter 1
Rebalancing the economy for growth .............................................................................. 1
Introduction ........................................................................................................................... 1
Balancing revenue and expenditure ..................................................................................... 3
Building an economy for the future ...................................................................................... 5
Overview of the 2015 Budget ............................................................................................... 10
Chapter 2
Economic outlook ..............................................................................................................
Overview ..............................................................................................................................
Global outlook ......................................................................................................................
South Africa: economic outlook and trends .........................................................................
Raising growth potential .......................................................................................................
The economy and the fiscus .................................................................................................
15
15
16
19
26
28
Chapter 3
Fiscal policy ........................................................................................................................
Fiscal outlook ......................................................................................................................
Fiscal framework ..................................................................................................................
Elements of the consolidated budget....................................................................................
Debt outlook ........................................................................................................................
Risks to the fiscal outlook .....................................................................................................
29
29
34
35
38
39
Chapter 4
Revenue trends and tax policy..........................................................................................
Overview .............................................................................................................................
Budget revenue collection and outlook .................................................................................
Growth, revenue trends and tax policy reforms ....................................................................
Tax proposals .......................................................................................................................
Revenue impact of tax proposals .........................................................................................
41
41
42
44
47
52
Chapter 5
Consolidated government spending plans .....................................................................
Overview ..............................................................................................................................
Consolidated government expenditure .................................................................................
Revised medium-term expenditure plans .............................................................................
55
55
56
60
Chapter 6
Provincial and municipal expenditure ..............................................................................
Division of revenue ...............................................................................................................
Funding provinces ...............................................................................................................
Funding local government ...................................................................................................
73
73
75
78
Chapter 7
Financing government’s borrowing requirement ...........................................................
Overview ..............................................................................................................................
South African debt markets .................................................................................................
Medium-term borrowing strategy ..........................................................................................
Risk considerations ..............................................................................................................
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83
84
86
91
Chapter 8
Financial position of public-sector institutions .............................................................. 93
Overview .............................................................................................................................. 93
Financial health and national development .......................................................................... 94
State-owned companies ....................................................................................................... 95
Development finance institutions .......................................................................................... 100
Social security funds............................................................................................................. 103
Government Employees Pension Fund ................................................................................ 105
Summary .............................................................................................................................. 105
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Annexure A
Report of the Minister of Finance to Parliament .....................................................................
109
Annexure B
Public-sector infrastructure update .........................................................................................
121
Annexure C
Additional tax amendments......................................................................................................
133
Annexure D
Financial sector regulatory reforms .......................................................................................
151
Annexure E
Summary of Budget ..................................................................................................................
155
Glossary ..............................................................................................................................................................
159
Statistical tables .................................................................................................................................................
175
Two annexures are available on the National Treasury website (www.treasury.gov.za):
W1
Explanatory memorandum to the division of revenue
W2
Structure of the government accounts
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Tables
1.1
1.2
1.3
1.4
1.5
1.6
1.7
Electricity intensity, employment and output.....
Macroeconomic outlook – summary .................
Consolidated government fiscal framework ......
Summary of tax proposals ................................
Consolidated government expenditure by
function ..............................................................
Division of revenue............................................
Projected state debt and debt-service costs .....
Annual percentage change in GDP and
consumer price inflation in selected regions/
countries ............................................................
2.2 Macroeconomic performance and
projections (1) ...................................................
2.3 Macroeconomic performance and
projections (2) ...................................................
2.4 Sector growth trends .........................................
2.5 Major export destinations for South African
products ............................................................
2.6. Investments in Africa .........................................
6
10
11
11
6.1
6.2
6.3
6.4
Division of nationally raised revenue ...................
Provincial equitable share ....................................
Conditional grants to provinces............................
Transfers to local government .............................
74
75
77
80
12
13
13
7.1
7.2
85
17
7.3
7.4
7.5
7.6
7.7
7.8
Ownership of domestic government bonds .........
Financing of national government borrowing
requirement ..........................................................
Domestic short-term borrowing ............................
Domestic long-term borrowing .............................
New domestic government bonds........................
Interest rates in RSA retail bonds ........................
Change in cash balances .....................................
Performance against strategic portfolio risk
benchmarks..........................................................
2.1
3.1
3.2
3.3
3.4
3.5
3.6
3.7
3.8
3.9
Consolidated fiscal framework ..........................
Main budget non-interest expenditure ..............
Selected items of goods and services:
national and provinces ......................................
Consolidated operating and capital accounts ...
Main budget framework ....................................
National government debt-service costs...........
Revisions to main budget revenue and
expenditure estimates .......................................
Consolidated budget balance ...........................
Public-sector borrowing requirement ................
4.1
4.2
4.3
4.4
Tax revenue performance .................................
Budget estimates and revenue outcomes ........
Budget revenue .................................................
Personal income tax rate and bracket
adjustments .......................................................
4.5 Estimates of individual taxpayers and taxable
income ...............................................................
4.6 Turnover tax regime ..........................................
4.7 Changes in specific excise duties .....................
4.8 Transfer duty rate adjustments .........................
4.9 Total combined fuel taxes on petrol and diesel
4.10 Impact of tax proposals on 2015/16 revenue....
Consolidated government expenditure by
function ..............................................................
5.2 Consolidated government expenditure by
economic classification .....................................
5.3 Economic affairs expenditure ...........................
5.4 Local development and social infrastructure
expenditure .......................................................
5.5 Post-school education and training expenditure
5.6 Basic education expenditure .............................
5.7 Social protection expenditure ...........................
5.8 Social grants values ..........................................
5.9 Health expenditure ............................................
5.10 Defence, public order and safety expenditure ..
5.11 General public services expenditure .................
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24
25
30
31
32
34
36
36
37
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39
42
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44
8.1
8.2
8.3
8.4
8.5
8.6
8.7
8.8
5.1
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68
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70
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101
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105
Figures
1.1
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50
51
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53
Combined financial position of selected
categories of public institutions ............................
Selected state-owned companies’ capital
expenditure programmes .....................................
Combined balance sheets of state-owned
companies ............................................................
Combined borrowing requirement of selected
public-sector institutions .......................................
Guarantee exposure to major state-owned
companies and development finance institutions
Consolidated balance sheets of development
finance institutions................................................
Combined balance sheet of social security funds
Government Employees Pension Fund actuarial
valuation ...............................................................
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87
88
89
89
91
2.1
2.2
Real investment spending by general
government and public corporations ....................
7
2.3
2.4
Commodity prices ................................................
Growth in gross fixed capital formation by
sector....................................................................
Components of the current account .....................
Contributions to headline CPI ..............................
23
24
26
3.1
3.2
3.3
3.4
Spending growth by economic classification .......
National and provincial headcount growth ...........
National government net debt outlook .................
Public-sector debt as percentage of GDP ...........
32
33
38
39
4.1
4.2
Nominal growth in gross tax revenue and GDP... 45
Effective tax rates................................................. 46
5.1
Nominal expenditure growth by function.............. 57
7.1
7.2
Fixed-rate bond yield curve movement ................ 84
Non-resident domestic government bond
holdings ................................................................ 85
Domestic government bond maturities ................ 86
7.3
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