FULL SPEECH: South African Budget 2021

By South African Finance Minister Tito Mboweni

It is my singular honour and privilege to present the 2021 Budget. Today I table before this House: 

  1. 2021 Appropriation Bill 
  2. 2021 Special Appropriation Bill  
  3. 2021 Division of Revenue Bill  
  4. The Budget Review 
  5. The Estimates of National Expenditure (ENE)  

Madam Speaker last year we outlined a strategy to becoming a winning  country.

Since then, we have mourned the passing of nearly 50 000 of our fellow South  Africans as a result of the Covid-19 pandemic. The damage caused by Covid-19  runs deep and we share in the collective pain of many South Africans who have lost their jobs.

All this notwithstanding Madam Speaker, we are not without hope. Our national icon, the Nobel Laureate, Archbishop Emeritus Desmond Tutu  reminded us that: “Hope is being able to see that there is light despite all of  the darkness”. He observed that sometimes we forget that just beyond the  clouds the sun is shining.

The brave and fearless sacrifices of our frontline workers continue to save thousands. We salute all our health care and essential service workers who  remain standing at the front line of our fight against Covid-19. We also salute  the many South Africans who rallied to help others survive.

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These acts of human solidarity and sacrifice reflect a patriotic spirit that  inspires us. Often, we speak about how we must leave this earth better than  we found it for future generations. Today I want to leave you hopeful and  outline how we will leave this economy in better shape for those who come  after us.

  1. THE FISCAL FRAMEWORK

Under the leadership of our President, we have crafted a Fiscal Framework  that extends support to the economy and public health services in the short term, while ensuring the sustainability of our public finances in the medium  term. This is our first reason for hope.

The fiscal framework we table today entails the following: 

  • Main budget revenue is projected to be R1.35 trillion, or 25.3 per cent as  a share of Gross Domestic Product (GDP) in 2021/22. This rises to  R1.52 trillion in the outer year (2023/24) of the Medium-Term  Expenditure Framework (MTEF). 
  • At the same time, non-interest spending will remain steady at  approximately R1.56 trillion over the next three years but will decline as  a share of GDP from 29.2 per cent in 2021/22 to 26.2 per cent of GDP in  2023/24. 

I requested tips from the public to help craft this Budget. Many tips spoke  about the limits to increased taxation. We agree that tax increases must be  kept to a minimum as we stabilise our public finances. We have chosen not to  introduce the tax measures initially proposed in the October Medium Term Budget Policy Statement (MTBPS). 

With this framework we provide the budget for South Africa’s vaccination  campaign. This campaign allows us to emerge from the restrictions to  economic activity. We are allocating more than R10 billion for the purchase  and delivery of vaccines over the next two years. 

We increase the contingency reserve from R5 billion to R12 billion to make  provision for the further purchase of vaccines and to cater for other  emergencies. 

With this framework we are on track to achieve our goal of closing the main budget primary deficit. We shall achieve a primary surplus on the main budget  in 2024/25. This important achievement will coincide with the end of this sixth  Parliament.  

Most importantly, we will stabilise government debt at 88.9 per cent of GDP in  2025/26 and the ratio will decline thereafter. This is a significant improvement  to the framework we presented in October last year and creates a sound  platform for sustainable growth.  

Total consolidated spending amounts to R2 trillion each year over the medium  term, the majority of which goes towards social services.  

Honourable members, getting our fiscal house in order is the biggest  contribution we can make to support our Economic Reconstruction and  Recovery Plan. Continuing on the path of fiscal consolidation during the  economic fallout was a difficult decision. However, on this, we are resolute.  We remain adamant that fiscal prudence is the best way forward. We cannot  allow our economy to have feet of clay. 

High government debt levels increase the cost of borrowing across the  economy. The rising debt leads to higher future taxation and uncertainty. Servicing this rising debt takes away resources that could have been invested in infrastructure and frays our social solidarity. 

  1. ECONOMIC OUTLOOK 

Madam Speaker, my second reason for hope stems from a much-improved economic outlook. 

Global economic growth is expected to rebound to 5.5 per cent in 2021 before  moderating slightly to 4.2 per cent in 2022, buoyed by the expected rollout of  Covid-19 vaccines and other additional policy initiatives. 

China is expected to grow at 8.1 per cent in 2021, while India will achieve a  growth rate of 11.5 per cent in 2021.  

Sub-Saharan Africa is forecast to grow by 3.2 per cent. 

In this context, the South African economy is expected to rebound by 3.3 per  cent this year, following a 7.2 per cent contraction in 2020 and average 1.9 per  cent in the outer two years.  

  1. PROGRESS ON ECONOMIC REFORMS 

Madam Speaker, honourable members, I am also hopeful because we are  making meaningful progress in the implementation of our structural economic  reforms. Our structural weaknesses limit the rate at which our economy can grow. Our structural reform agenda, as articulated in the Economic  Reconstruction and Recovery Plan, is aimed at removing these brakes on  growth.  

Operation Vulindlela, which I introduced to you last year, has already made  demonstrable progress in accelerating the pace of implementation of high  impact structural reforms. 

Much of this progress was outlined in the State of the Nation Address (SONA).  I want to thank my Cabinet colleagues for their support of Operation Vulindlela  and assure members that Deputy Minister Dr David Masondo and the team  from the Presidency and National Treasury remain hard at work with the  relevant departments to ensure that implementation of the remaining reforms  is appropriately funded and accelerated.  

We will not rest until we have fundamentally altered the structure of this economy by lowering barriers to entry, raising productivity and lowering the  cost of doing business.  

We face many challenges as a developing country. We are confronting these  head-on. Our country has a network of highways and byways which are the  envy of many. The mighty N1 from Cape Town to Beitbridge, the scenic R71  that meanders through the misty mountains of Makgoebaskloof and delivers  us to the Kruger National Park, and the expansive N4 that stretches from  Botswana across our country into Mozambique. They are part of the lifeblood of the region. Our great dams, bridges and railway lines have supported our  economy for decades. However, much of this infrastructure now needs repair  or replacement. 

Government has committed to a R791.2 billion infrastructure investment drive to this end. We are already partnering with the private sector and other players  to rollout infrastructure through initiatives such as the blended finance Infrastructure Fund. 

However, all these efforts to expand infrastructure will be wasted if the end  user does not pay a cost-reflective tariff for usage. 

  1. MEDIUM TERM SPENDING PLANS AND JOB CREATION 

Madam Speaker, my fourth reason for hope is that this Budget explicitly  supports economic transformation and job creation. 

Our R6.2 trillion spending envelope over the Medium-Term Expenditure  Framework gives expression to the Economic Reconstruction and Recovery  Plan. This is not an austerity Budget. Our fastest-growing area of spending is  our investment in the future-capital payments.  

The Minister for the Department of Public Service and Administration, Minister  Senzo Mchunu, is working with our partners in organised labour to achieve a  fair public-sector compensation dispensation when negotiations on a new  multi-year wage settlement begin later this year.

We have cumulatively made R83.2 billion available for the public employment  programmes since the 2020 Special Adjustments Budget. We are now  augmenting this by R11 billion for the Presidential Youth Employment  Initiative, taking the total funding for employment creation to nearly R100 billion. This is in response to the job creation targets for young people.  outlined by the President. 

Government plans to finalise 1409 restitution claims at a cost of R9.3 billion  over the next three years to achieve redress and equitable access to land. The  Department of Agriculture, Land Reform and Rural Development has also set  aside R896.7 million for post-settlement support. This will include the  recruitment of approximately 10 000 experienced extension officers. 

A total MTEF allocation of R7 billion is made to the Land Bank. This allocation  will help to resolve the bank’s current default and re-establish the  development and transformation mandate. This amount will not affect the  expenditure ceiling but will be offset through an expenditure reprioritisation  process. Any support to state-owned companies and public entities will have  to be done through budget reprioritisation as outlined in the 2020 MTBPS. 

The Department of Small Business Development has allocated R4 billion over  the medium term to township and rural enterprises, including blended finance  initiatives.

The Department of Tourism has reprioritised R540 million over the medium  term to establish the Tourism Equity Fund (TEF) as one of the measures to  support the tourism sector recovery. The fund will acquire equity stakes in  existing tourism enterprises, support expansion of operations and  development of new operations. 

I have outlined a few of the reasons we have to be hopeful but also  acknowledge that much work remains to be done. 

  1. DEBT OUTLOOK  

Honourable Members, an incorrect notion has taken hold that government  is “swimming in cash”. Certainly, compared to last October, we are in a  better place. But our assessment from the Supplementary Budget in June last  year still stands: our public finances are dangerously overstretched. 

Our borrowing requirement will remain well above R500 billion in each year of  the medium term despite the modest improvements in our fiscal position.  

Consequently, gross loan debt will increase from R3.95 trillion in the current  fiscal year to R5.2 trillion in 2023/24. 

We owe a lot of people a lot of money. These include foreign investors, pension  funds, local and foreign banks, unit trusts, financial corporations, insurance  companies, the Public Investment Corporation and ordinary South African  bondholders. 

We must shore up our fiscal position in order to pay back the massive  obligations we have incurred over the years. 

  1. TAX POLICY CHANGES 

We must advise this House that we now expect to collect R1.21 trillion in taxes during 2020/21, which is about R213 billion less than our 2020 Budget expectations. This is the largest tax shortfall on record. 

In 2021/22 government expects to collect R1.37 trillion, provided our  underlying assumptions on the performance of the economy and tax base hold.  I would like to take this opportunity to thank those South Africans who  diligently continue to pay their taxes.  

In this Budget we make the following tax policy proposals. 

  1. The corporate income tax rate will be lowered to 27 per cent for  companies with years of assessment commencing on or after 1 April  2022. This will be done alongside a broadening of the corporate income  tax base by limiting interest deductions and assessed losses. We will give  consideration to further rate decreases to make our tax system more  attractive. We will do this in a revenue-neutral manner. We also intend  to leverage the insights of the Davis Tax Committee as we undertake this  reform. 
  2. The personal income tax brackets will be increased by 5 per cent, which  is more than inflation. This will provide R2.2 billion in tax relief. Most of  that relief will reduce the tax burden on the lower and middle-income households. This means that if you are earning above the new tax-free  threshold of R87 300, you will have at least an extra R756 in your pocket  after 1 March 2021.
  3. Fuel levies will be increase by 27 cents per litre, comprising 15 cents per  litre for the general fuel levy, 11 cents per litre for the Road Accident Fund  levy and 1 cent per litre for the carbon fuel levy.  
  4. An 8 per cent increase in the excise duties on alcohol and tobacco  products.  

From today: 

  1. a 340ml can of beer or cider will cost an extra 14c 
  2. a 750ml bottle of wine will cost an extra 26c 
  3. a 750ml bottle of sparkling wine an extra 86c 
  4. a bottle of 750 ml spirits, including whisky, gin or vodka, will  increase by R5.50 
  5. a packet of 20 cigarettes will be an extra R1.39c 
  6. 25 grams of piped tobacco will cost an extra 47c  
  7. And a 23 gram cigar will be R7.71 more expensive 

It is clear that excessive alcohol consumption can lead to negative social and health outcomes. Consumers do react to price increases, and higher prices should lead to lower consumption of alcohol products with positive spinoffs. 

SARS has started to deepen its technology, data and machine learning capability. It is also expanding specialised audit and investigative skills in the  tax and customs areas to renew its focus on the abuse of transfer pricing, tax  base erosion and tax crime.  

In this coming fiscal year, SARS will establish a dedicated unit to improve compliance of individuals with wealth and complex financial arrangements.  This first group of taxpayers have been identified and will receive communication during April 2021. In support of these efforts, we request that  this House approve an additional spending allocation to SARS of R3 billion over the Medium term.  

  1. DIVISION OF REVENUE 

Madam Speaker, let me turn to the division of revenue. 

The 2021/22 Division of Revenue stands as follows: 48.7 per cent of nationally  raised funds are allocated to national government, 41.9 per cent to provinces  and 9.4 per cent to local government. This is after providing for debt-service  costs, the contingency reserve and provisional allocations. 

The provincial equitable share will be augmented by R8 billion for provincial  health departments in 2021/22 to deal with Covid-19. Of the R10.3 billion for  vaccines, R2.4 billion is allocated to provincial departments of health to  administer the Covid-19 vaccine programme. Government will also put in place  a no-fault compensation fund to cover claims in the unlikely event of any  severe vaccine injuries, allocations to which will be announced in due course. 

The local government equitable share is set to increase to 9.7 per cent of the Division of Revenue in 2023/24. We are aware that financial governance  remains a challenge for many municipalities. Therefore, the Municipal Systems  Improvement Grant is extended for the rollout of the District Development Model. 

We must encourage collaboration and partnerships between municipal  councils, labour, communities and the private sector around the principles of  shared risk and shared reward. There needs to be a transition to smart local  government and innovation for local development. At the same time, well functioning municipalities require that residents pay for services rendered.  

  1. SOCIAL DEVELOPMENT 

Provinces will receive R3.5 billion from the Department of Social Development to improve access to early childhood development services.  R6.3 billion is allocated to extend the special Covid-19 social relief of distress grant until the end of April 2021. In addition, R678.3 million is earmarked for  provincial departments of social development and basic education to continue rolling out free sanitary products for learners from low-income households.

Regular social assistance grants are adjusted as follows:  

  1. A R30 increase for the old age, disability and care dependency grants to R1890. 
  2. A R30 increase in the war veterans grant to R1910. 
  3. A R10 increase in the child support grant to R460. 
  4. A R10 increase for the foster care grant to R1050. 

Government remains committed to ensuring that deserving students are  supported through higher education. The National Treasury is working with the  Department of Higher Education and Training to work on policy and funding options that will be detailed in the MTBPS. 

10.AFRICAN AND REGIONAL ECONOMIC POLICY 

Madam Speaker, 

This Budget takes seriously our commitment to the continent of which we are  a part. Payments to the Southern African Customs Union (SACU) have been  revised upwards by R1.9 billion in 2022/23 and R15.5 billion in 2023/24 to  R137.3 billion over the medium term.  

The African Renaissance and International Cooperation Fund will over the  MTEF support projects that enhance African trade, economic development and  integration. An allocation of R148.1 million is set aside for this purpose.  

The Africa Continental Free Trade Agreement (AFCTA), part of which came into  effect earlier this year, presents the opportunity to deepen our trade and  financial linkages with the Continent. Following last year’s Budget announcement on supporting the African Continental Free Trade Agreement  through a more modern risk-based capital management flow system, much  progress has been made to implement the new system, and new regulations  will be published by the Reserve Bank shortly. 

National Treasury also continues to work with industry bodies to promote  South Africa as a financial hub for Africa. From 1 March 2021, companies with  a primary listing offshore, including dual-listings, will be aligned to current  foreign direct investment rules, which the Reserve Bank will oversee.  

In order to improve access to African markets, our six busiest border posts will  be upgraded and expanded. These will be significant infrastructure  interventions using the PPP model. Starting with Beitbridge, which was built in  1929 and last upgraded in 1995, these One-Stop-Border-Posts will harmonise the crossing of border by people and goods, eliminating the dreadful scenes  we witnessed recently. 

Though we face many difficulties, we must not lose sight of our place in the  world, as well as our potential and responsibilities. Twenty-five years ago, on 8  May 1996, the occasion of the adoption of the South African Constitution,  former President Thabo Mbeki delivered his seminal “I am an African” address  at this podium. 

President Mbeki reminded us that there are moments in time when we must  define what we want to be. 

Together with the best in the world, we too are prone to pettiness, petulance,  selfishness and short-sightedness. But it seems to have happened that we  looked at ourselves and said the time had come that we make a super-human  effort to be other than human, to respond to the call to create for ourselves a  glorious future, to remind ourselves of the Latin saying:  

Gloria est consequenda – Glory must be sought after!” 

11.PUBLIC PROCUREMENT AND ZERO-BASED BUDGETING 

Honourable members, our fiscal path requires that we better leverage  government’s status as the largest purchaser of goods and services in the  economy. 

Finalisation of the Public Procurement Bill is urgent. The National Treasury is  fast tracking it. The bill addresses fragmentation in procurement legislation. We aim to table this reform before Cabinet before the end of this year. 

Many of the tips I received spoke of the importance of zero-based budgeting. National Treasury is finalising the framework to implement zero-based budgeting across government. This will be done through spending reviews  which have been used internationally to achieve spending efficiencies. These  reviews are already underway and will shape this framework. 

The Department of Public Enterprises and the National Treasury will be first to  pilot a new budgeting methodology. The intention is to produce significantly  re-costed budgets from 2022/23. 

12.ADDRESSING CORRUPTION 

The Department of Justice and Constitutional Development is allocated R1.8  billion to improve business processes. This allocation will support our brave law  enforcement agents in the fight against crime and corruption. We are bringing  the long arm of the law into the digital age through the Justice Modernisation  Programme. 

SARS, SARB and the Financial Intelligence Centre (FIC) are working jointly on  combating criminal and illicit cross-border activities through an inter-agency  working group. This group has completed 117 investigations, and found R2.7  billion for our fiscus. Customs and excise operations are reducing the illicit  movement of goods across borders, assisted by specialised cargo scanners, resulting in 3 393 seizures valued at R1.5 billion for the fiscal year to January  2021. 

13.RETIREMENT FUND REFORM 

We announced in the MTBPS the historic agreement with all NEDLAC  constituencies for the annuitisation of provident funds. This will enable all workers to continue to enjoy tax deductions on their contributions. 

The NEDLAC constituencies also agreed to accelerate the introduction of  autoenrolment for all employed workers, and the establishment of a fund to cater for workers currently excluded from pension coverage, as an urgent  intervention towards a comprehensive social security system.  

I can announce that annuitisation for provident funds takes effect from 1  March 2021, and provident fund members will continue to enjoy a tax  deduction on their contributions. In addition, the National Treasury will this  week publish draft amendments to Regulation 28 for public comment. The  proposed amendments to Regulation 28 seek to make it easier for retirement  funds to increase investment in infrastructure. 

14.SUMMARY OF THE PRESENTATION ON THE FISCAL STRATEGY

This 2021 budget framework puts South Africa on course to achieve a primary surplus. By doing this, government debt will stabilise at 88.9 per cent of GDP in  2025/26.  

The path is challenging but achievable. It is the most prudent way to achieve  higher levels of prosperity and avoid a sovereign debt crisis. 

Madam Speaker, Honourable Members, when the Constitution was adopted  25 years ago, the words “Nothing can stop us now!” resonated in this House.  

As we affirm our commitment to sustainable public finances and the  supremacy of our Constitution, we must again become resolute in the mission  to recover and shape our destiny. 

15.CONCLUSION AND THANKS  

Madam Speaker, I thank the President and Deputy President for their courageous leadership during these testing times. A word of appreciation to  the Deputy Minister of Finance, Dr. David Masondo. Thanks to the Director General Mogajane and his dedicated team at the National Treasury.  

My thanks also go to the Commissioner of the South African Revenue Service,  Mr. Edward Kieswetter and his hard-working colleagues for the tremendous  job they are doing. My gratitude to the Governor of the South African Reserve  Bank Mr. Lesetja Kganyago and the outstanding staff of the Bank. 

I particularly appreciate my colleagues in Cabinet and the wisdom of the Ministers’ Committee on the Budget. I also thank my colleagues in the Budget  Council. I am grateful to the Parliamentary Committees who also work tirelessly on the budget. 

Finally, to the millions of South Africans who faced, and continue to face, enormous difficulties and challenges, we ask you to take courage, persevere  and walk with us. Above all, let us heed the counsel of Archbishop Tutu: See  that there is light despite all of the darkness. 

A prosperous future is possible for our beautiful country. Gloria est consequenda – Glory must be sought after! 

I thank you.

Place summary of National Budget table here

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