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21 February 2001 Page 1 of 90 WEDNESDAY, 21 FEBRUARY 2001 ____ PROCEEDINGS OF THE NATIONAL ASSEMBLY ____ The House met at 14:00. The Speaker took the Chair and requested members to observe a moment of silence for prayers or meditation. ANNOUNCEMENTS, TABLINGS AND COMMITTEE REPORTS - see col 000. APPROPRIATION BILL (Introduction) The MINISTER OF FINANCE: Madam Speaker, President Thabo Mbeki, Deputy President Jacob Zuma, Cabinet colleagues, hon members, hon MECs, Governor and Deputy Governors of the Reserve Bank, Your Excellencies, ambassadors and high commissioners, 21 February 2001 Page 2 of 90 distinguished guests, fellow South Africans, one of Africa's great poets, David Diop, writes: Africa tell me Africa Is this you this back that is bent This back that breaks under the weight of humiliation This back trembling with red scars And saying yes to the whip under the midday sun But a grave voice answers me Impetuous son, that tree young and strong That tree there In splendid loneliness amidst white faded flowers That is Africa your Africa That grows again patiently and obstinately And its fruits gradually acquire The bitter taste of liberty. [Applause.] The bitter taste of liberty? Does the lemon always ripen before the sweet plum? Or do we have it in our power to determine for ourselves the quality of the liberty we earn from struggle? 21 February 2001 Page 3 of 90 The Budget we table before this House today is the story of an irrevocable and powerful transformation. It is the story of a nation which has worked without rest to build a new history for its children. Like Diop's young tree at the edge of the ancestral savannah, ours is a story of patience and obstinacy, of determination and hope, of activism, not atavistic tolerance, of choice, not fate. We have sought to remove the thorns of neglect and inhumanity, to restore pride and dignity, to lift the crushing weight of poverty and disempowerment. We have sought to heal the scars and nurture the tree. We have sought to show our children that we have the power to enjoy the sweet fruit of liberty. The Budget we table today is testimony to the success of our transformation policies. These processes of transformation are not complete - the redress of past impoverishment and injustice will take time. But they are firmly rooted in our society and economy. We can now embrace a more confident and expansionary vision. This Budget tells the story of the choices and decisions we 21 February 2001 Page 4 of 90 have made and which have advanced the transformation of our country and its economy to the point where we can now begin to enjoy the fruit. It tells the story of a young and proud democracy hard at work to improve the lives of all its people. The 2001 Budget brings to this House the fruit of the macroeconomic transition we have undergone. Our 1996 strategy was designed to achieve stability, fiscal reprioritisation and consolidation to create the basis for sustainable growth and development. It focused on reversing the growth of debt, unsustainable deficits and the rising burden of interest payments, which threatened our young democracy. It was designed to ensure that a greater share of resources went to key priority areas such as education, health and social welfare targeted at the poor. It aimed to put the economy on a sound footing, improve competitiveness and strengthen access to global markets. Today we can say that macroeconomic stability and fiscal consolidation have been achieved and we can move to the next phase of economic reforms. 21 February 2001 Page 5 of 90 It is instructive to reflect on how different things might have been. Debt service costs rose during the 1990s from 15% to over 20% of the Budget in 1998-99, steadily eroding the resources available for the delivery of services. If the trend had continued the headlines for today's Budget might well have been: ``Interest on debt now R10 billion more than spending on education and rising.'' But we reversed that trend. In the Budget we put before this House we will spend R10 billion more on education than on debt. [Applause.] And by the third year of the Medium-Term Expenditure Framework, that figure will be R15 billion. Interest on debt in three years' time will have decreased to but 16,4% of consolidated spending. In order to reverse the rising debt trend, we have been prudent about overall spending, putting the emphasis firmly on reprioritisation and better quality of expenditure. Now we can reinforce Public Service delivery without threatening fiscal sustainability, and our children and grandchildren can look forward to a future unencumbered by debt. 21 February 2001 Page 6 of 90 Eli lixesha lokuba sonke sixhamle ubumnandi beziqhamo zenkululeko. [Kwaqhwatywa.] [Now is the time for us to enjoy the sweet fruit of liberty. [Applause.]] We are saying that the tree bears not the bitter but the sweet fruit of liberty. The Budget here today heralds the beginning of a new cycle. It is not the abandonment of anything. We have built a foundation, and the most menial of builders in the community will tell you that you cannot build a foundation in one place and a house in another place. You build on the foundation that you have laid. [Applause.] What this Budget does is to set out a growth- oriented agenda of improved spending, significant increases in infrastructure allocations and ongoing tax reform within the sound framework of fiscal management established over the past five years. It signals a shift from macroeconomic stabilisation to microeconomic reform. And in the new format of the Estimates of National Expenditure we are tabling here today, we signal not just substantial increases in spending allocations, but a new 21 February 2001 Page 7 of 90 approach to accountability and management of the resources that this House will appropriate for public purposes. International developments Our economic prospects are inextricably linked to developments in the global economy. Global economic growth peaked in the first half of last year. There is now considerable uncertainty about the likely severity of the slowdown in world growth and how long it will last. This will depend in part on the reaction of the economy of the United States of America to the interest rate cuts effected earlier this year and monetary developments in Europe and Japan. At this stage it is expected that growth in the major industrialised economies will be in the region of 2,8% for this year, rising marginally to 3% next year. The large current account imbalances in the US and the prospect of lower growth in Europe mean that continued euro and US dollar volatility remains a risk for the global economy. Implications for South 21 February 2001 Page 8 of 90 Africa and other small emerging economies are hard to assess. Ours is more than just a cursory interest in the growth statistics of the global economy for this year. There are broader goals we share with many other nations: to ensure that developing countries share equitably in the benefits of globalisation, to adopt more effective collective strategies for overcoming the scourge of poverty, and to place these issues prominently on the agenda of the multilateral financial institutions, the World Trade Organisation and the consultative international groups with which we engage. At the annual meetings of the International Monetary Fund and the World Bank held in Prague in September last year we drew attention to the rising threat that growing inequality poses for the long- term prosperity of the global economy. We raised the importance of ensuring that the commitments made by the G7 nations to highly indebted poor countries should be met in full, and that more 21 February 2001 Page 9 of 90 effective and secure aid flows need to accompany debt reduction. Fair trade and access to markets are fundamental to sustainable growth and development. It is shameful indeed that so many of the wealthiest countries in the world persist with barriers to trade and protective subsidies, effectively excluding millions of producers in poor countries from the benefits of global trade. It is estimated that the value of their tariff protection is something like US$1 billion a day now, which is larger than the combined GNP of all of the African continent. This cannot be correct! The common agricultural policy of the European Union and similar protectionist measures are exceedingly damaging for developing countries. It is now critical that the next multilateral trade round should get under way, and should address these injustices decisively. As we have a shared interest in international stability and economic progress, we have to attend to the governance structures through which international reforms are pursued. The developing 21 February 2001 Page 10 of 90 countries, which constitute both clients of and shareholders in the International Monetary Fund and the World Bank, should have a greater voice in these institutions. We will continue to seek a common ground with other nations in democratising the institutions on which responsibility for international collaboration rests. On our own continent, President Mbeki and Presidents Obasanjo and Bouteflika are spearheading a partnership which will bring African governments, the private sector and civil society together in new ways, as we face our challenges honestly and seek to mobilise our own resources more effectively. The Millennium Africa Plan signals our commitment to seeking solutions that will stand the test of time, a way forward that recognises the inextricable links between democracy, resolving conflict and building the economy. The President has just returned from Bamako in Mali this morning where he attended until late last night a meeting with other heads of state and with Mr James Wolfensohn, president of the World Bank, 21 February 2001 Page 11 of 90 and Horst Köhler, managing director of the IMF, to discuss precisely these issues. This is not a World Bank and IMF initiative, but an African initiative spearheaded by three presidents involving the rest of the continent, determining the pace and ensuring that we can lock in all of ourselves as Africans into a different set of outcomes. [Applause.] This initiative contributes to building a future of which our children can be proud. We are saying: Re batla gore peo ya kgololosego e re beele maungo a a botshe [We want the seed of freedom to bear us sweet fruit], meaning that we want our children to taste not the bitter but the sweet fruit of liberty. Macroeconomic performance The economy grew by 3,0% last year. This was the fastest rate of growth since 1996. It was buoyed by a strong recovery in household consumption spending and an increase in exports of over 7% in real terms. Strong growth occurred in agriculture and in several specialised manufacturing industries, 21 February 2001 Page 12 of 90 financial services and telecommunications. Over the next three years, we expect growth to average 3,5% a year, underpinned by a steady recovery in gross fixed capital formation and continued robust trade performance. In the path we have followed since tabling a macroeconomic strategy in 1996, our focus has been firmly on building the foundations for sustainable long-term growth. Taking account of the global environment, economic growth is expected to continue strengthening across most sectors next year. For improved long-term growth, we need to foster higher levels of savings and investment. Over the past year, the level of household debt has eased and Government dissaving has been reduced. These are both favourable developments in turning around our disappointing saving performance. Several measures in this Budget, together with the favourable outlook for interest rates, will contribute to strengthening investment over the years to come. Within the wider public sector, our 21 February 2001 Page 13 of 90 restructuring efforts in the communications, transport and energy sectors include substantial new modernisation and capacity-building investments. Inflation and exchange rate trends Price stability is an important part of the economic landscape. Inflation erodes the purchasing power of the poorest and most vulnerable in our society. It introduces uncertainty into decision- making and colludes with debt to entrench poverty. It was for this reason that we decided last year to set the SA Reserve Bank an inflation target of 3% to 6% for the year 2002. Despite the sharp rise in international oil prices last year, consumer price inflation in South Africa remained moderate. The rise in oil prices and the prices of imported goods led to an increase in the CPIX inflation measure, that is, consumer prices excluding mortgage interest, to 8,2% for the year to October last year. By December CPIX had fallen 21 February 2001 Page 14 of 90 to 7,6% and we expect a steady decline during the course of 2001. These developments provide a strong indication of a structural reduction in the country's inflation pattern and the long-term downward inflation trend. Lower inflation expectations in turn have contributed to the decline in capital market interest rates. Yields on medium-term government bonds reached a seven-year low of 11,2% just a few days ago. Interest rate reductions in the United States and in Europe are also contributing to the prospects for further easing of interest rates. However, the rand came under considerable pressure last year, depreciating by about 9,5% in real terms during the year. International uncertainty has contributed to capital outflows and currency weakness in many emerging markets in recent years. South Africa has actually adjusted well to these pressures, partly because we have deep and well- functioning financial markets. Over the year ahead the exchange value of the rand is expected to stabilise. 21 February 2001 Page 15 of 90 International economic relations Our economic restructuring has been particularly dramatic in our engagement with the international economy. Nongold merchandise exports rose from 11,5% of GDP in 1990 to nearly 19% last year, testimony to the success of our trade policies in stimulating exports in a wide range of industries traditionally dominated by developed countries. A rising contribution is also being made to our export earnings by tourism and related service sectors. Despite the strong recovery of growth last year, the deficit on the current account of the balance of payments remained low - less than 0,5% of GDP. In the current international environment, where financial flows to emerging markets remain both subdued and unstable, this clearly is a considerable strength. South Africa experienced large swings on the financial account last year: a deficit of nearly R6 billion in the first half of the year, followed by a surplus of R10 billion between July and December. In this context the 21 February 2001 Page 16 of 90 improvement in reserves recorded by the Reserve Bank and, in particular, the continued reduction in the uncovered foreign exchange forward position of the bank are significant achievements. Against this background we are able to take several further steps towards the removal of controls on foreign exchange transactions. The restructuring of our financial relations with the rest of the world in recent years has been rapid. Both the bond and equities markets have seen substantial flows of investment from abroad. At the same time, South African firms and individuals have diversified their investments, raising the level of foreign assets held from about 15% of GDP to over 40% today. This diversification attracts the headlines when it involves major corporate mergers or acquisitions, but it also contributes to reducing the risks ordinary people face in their pension funds or life savings and broadening the markets within which our industries do business. Exchange control liberalisation has played a role in promoting this diversification. 21 February 2001 Page 17 of 90 We have now reached a point where the foreign asset holdings of the major financial institutions are reaching levels in line with appropriate prudential limits. With this in mind, the current limits on the foreign asset holdings of institutional investors are to be retained as part of a broader shift to prudential regulation. These limits are 15% of total assets for long-term insurers, pension funds and fund managers, and 20% of total assets for unit trusts. The institutional asset-swap mechanism has served a useful purpose in the past in facilitating a fairly rapid portfolio rebalancing after many years of exclusion from foreign investment. However, it suffers from a lack of transparency and is no longer appropriate in the context of normalised diversification levels. The asset-swap mechanism pertaining to institutions is therefore to be terminated. However, institutions will continue to be able to invest in foreign portfolio assets, up to the defined foreign asset limits, through cash transfers based on a prescribed percentage of the previous year's net inflow of funds. Details will 21 February 2001 Page 18 of 90 be provided by the SA Reserve Bank in a statement issued today. The global expansion of South African firms holds significant benefits for the economy: expanded market access, increased exports and improved competitiveness. In order to support this expansion from a South African base, the limit on the use of South African funds for new approved foreign direct investment is increased from R50 million to R500 million. As part of Government's commitment to African economic recovery, South African firms will be permitted to utilise up to R750 million of local cash holdings for new approved foreign direct investments in Africa. [Applause.] In addition, firms will continue to be able to use local cash holdings to finance up to 10% of the remaining investment outlay. Shift from macroeconomic stabilisation to microeconomic reform Ten einde ekonomiese groei te versnel sal ons verder moet gaan as die makro-ekonomiese 21 February 2001 Page 19 of 90 stabiliteit wat ons reeds bereik het. Hierdie Begroting bevat dan ook 'n aantal fiskale beleidsmaatreëls ter ondersteuning van sodanige breë ekonomiese hervorming wat ons wil bereik - maatreëls wat die aantal en gehalte van beleggings sal laat toeneem, wat werkskepping en vaardigheidsontwikkeling sal aanmoedig asook maatreëls wat die doeltreffendheid van bate- aanwending sal verbeter. (Translation of Afrikaans paragraph follows.) [In order to accelerate economic growth, we will have to move beyond the macroeconomic stability that we have already achieved. This Budget also contains a number of fiscal policy measures in support of the broad economic reforms which we seek - measures that will improve the number and quality of investments, encourage job creation and the development of skills, as well as improve the effectiveness of asset utilisation.] In support of investments we are proposing: 21 February 2001 Page 20 of 90 - A new tax incentive is proposed for companies embarking on approved strategic industrial projects. - The tax depreciation rules applicable to small businesses in the manufacturing sector will be favourably amended. - Substantially increased allocations for capital spending by national and provincial departments are proposed. Our investment in people remains the cornerstone of our long-term growth strategy. Education, health and welfare services remain the largest functions in the consolidated budgets of national Government and provinces. The skills levy goes up from 0,5% to 1% of payroll. Already 27 sector education and training authorities have been established and we expect to see a range of new learnership programmes get under way this year. In this Budget a new wage incentive is proposed to be administered through the income tax system. 21 February 2001 Page 21 of 90 In promoting more effective use of assets, several wide-ranging initiatives are in progress. - The restructuring of public enterprises will reach a notable milestone this year with the initial public offer of shares in Telkom. - The Treasury's Public-Private Partnership Unit now has 38 projects of both national and provincial departments under review, from ecotourism parks and toll roads to hospital equipment and prison management. - Perhaps most important of all, we have taken the first steps today in the Estimates of National Expenditure - it is a large document of about 750 pages - to give effect to the requirement of the Public Finance Management Act that by the 2004 Budget, the main divisions of expenditure appropriated by this House should be accompanied by ``measurable objectives'', so that departments are properly held accountable and their service delivery 21 February 2001 Page 22 of 90 performance is open to public scrutiny. [Applause.] Improved economic performance is, of course, the outcome of a wider set of public policies than those represented in the annual Budget papers. The initiatives of Cabinet colleagues in many diverse areas are as important: - Promoting competition and appropriate regulatory oversight of public utilities. - Restructuring municipal governance so that household services can be effectively managed and financed. - Ensuring an appropriate balance between the rights of employees and market adaptability in the labour environment. - Encouraging the research and technology advances that will keep our industries competitive. 21 February 2001 Page 23 of 90 - Extending land ownership and agricultural market access to those historically denied these opportunities. We do these things to ensure, as we say: Eli lixesha lokuba sonke sixhamle ubumnandi beziqhamo zenkululeko. [Kwaqhwatywa.] [This is the time for us all to enjoy the sweet fruit of liberty. [Applause.]] For those not familiar with Xhosa, we say that we do all these things so that we may all taste the sweet fruit of liberty. In these, amongst many other aspects of public policy, it is frequently the details of legislation, procedures, regulations or market structure that are decisive if long-term growth and competitiveness are to be assured. Public-private partnerships can contribute significantly to the extension and quality of services, for example, while transferring a substantial portion of project life risk to the private sector. However, these benefits are not automatic. They have to be earned by tough performance agreements, appropriate pricing rules and accounting standards, competitive 21 February 2001 Page 24 of 90 tender processes, strong management of contracts, and an appropriate assignment of risk and rewards. In other words, we are saying you cannot just outsource and walk away from it. There are a lot of tough negotiations to ensure that the downside risks are shared by the private sector and that we can in fact ensure a better quality of service rendered at the best possible price. Outcome of the 2000-01 Budget Before outlining proposals for next year, a few remarks on the outcome of the 2000-01 Budget are in order. Revenue exceeded the main Budget estimate by R7,7 billion in the budget year that ended on 31 March 2000, and is expected to outperform the Budget this year by about R3 billion. [Applause.] It seems as if hon members here are not too happy when we collect more taxes than we have planned! [Laughter.] Both company tax and secondary tax on companies are expected to exceed projections, as are value-added tax and customs revenue. The revised revenue estimate for the present fiscal year is 7,5% more than last year's receipts. 21 February 2001 Page 25 of 90 Expenditure in 1999-2000 was R830 million above the original Budget estimate - less than 0,5% - bringing the deficit down to R16,2 billion, or 2,0% of GDP. This year, after taking account of appropriations approved in the Adjustments Budget, expenditure is projected to be R1,6 billion above the Main Estimate, bringing the budget deficit to R21,7 billion, which is 2,4% of GDP. We should bear in mind that the bulk of the additional expenditure this year has been committed to flood-ravaged infrastructure resulting from the floods in the early part of last year. The revised estimates indicate a saving of R304 million on state debt costs this year. At this stage, departmental savings of R1,7 billion are anticipated and disbursements of skills levy receipts will be about R430 million less than budgeted. These funds remain earmarked for skills development and will flow once sectoral and other programmes are in place. Nationally and in the provinces, the outcomes for the past two years indicate more careful budgeting 21 February 2001 Page 26 of 90 and improved spending discipline, to the credit of both Ministers and MECs and their accounting officers. 2001 Budget framework We turn now to the framework and proposals for the 2001 Budget. The Budget is always about finding a balance between several broad objectives: - Providing for social and developmental expenditure to overcome poverty and provide safety and security. - Enhancing investment in infrastructure and the maintenance of Government's capital stock. - Reducing the overall burden of tax, so as to lower the costs of investment and job creation, and release household spending power. - Stabilising the level of debt and reducing the budget deficit to contribute to lower interest rates and fiscal sustainability. 21 February 2001 Page 27 of 90 I could have used the phrases ``on the one hand,'' and ``on the other hand,'' but there are four issue we have had to measure up, so I should say ``on the one hand and the other hand,'' and ``on the one leg and the other leg,'' but those are the four issues we have considered. This year, the balance shifts decidedly towards promoting growth and strengthening investment. The Main Budget provides for expenditure of R258,3 billion in 2001/02, increasing to R297,5 billion in 2003/04. Revenue increases from R233,4 billion to R273,1 billion over the same period. A deficit of 2,5% of GDP is anticipated on the Main Budget in 2001-02, falling to 2,1% of GDP in the third year of the Medium-Term Expenditure Framework. Including social security funds and foreign technical co-operation, consolidated national expenditure of R267,1 billion is projected for 2001-02, or 27,1% of GDP and 9,6% more than the revised estimate for 2000-01. The revised economic outlook allows Government to increase allocated spending on public services by R10,2 billion in the 21 February 2001 Page 28 of 90 new fiscal year, and R16,0 billion in the year thereafter, above the levels that we projected when we stood here last year to table the Medium-Term Expenditure Framework. These adjustments compensate for somewhat higher anticipated inflation and raise real noninterest expenditure growth to 3,8% a year over the next three years. Provinces receive 56% of the available additional resources, national departments 38% and the local sphere 6%. Provision for state debt commitments amounts to R48,1 billion in the first year. Interest on debt was 5,5% of GDP in the year 1999-2000, and will fall to 4,4% of GDP in the fiscal year ending on 31 March 2004. As in the past, the budget framework for the next three years includes a contingency reserve to allow for future uncertainty and unforeseeable spending commitments. An amount of R2 billion is set aside in the first year, rising to R8 billion in 2003-04. Somlomo, Mongameli, malungu ePalamente abekekileyo, zine iziphakamiso ezibalulekileyo kolu hlalo- lwabiwo-mali. 21 February 2001 Page 29 of 90 Kwiminyaka emine edlulileyo siphumelele ekulithobeni ityala likaRhulumente. Inzala kwimali- mboleko ihlile. Namhlanje siyabona ukuba inene ekunyamezeleni kukho umvuzo. [Kwaqhwatywa.] Ngoku, sinemali yokuba sakhe izikolo, iindlela, amaziko ezempilo, izikhululo zamapolisa neenkundla zomthetho, neyokuba sinyuse inkam-nkam. [Kwaqhwatywa.] Sinazo neziphakamiso ezincumisayo kwirhafu. Sithoba irhafu kubantu abanemivuzo ephantsi ... [Kwaqhwatywa.] siphelisa irhafus kwipalafini, sithoba idizili ... [Kwaqhwatywa.] ... sikhuthaza namashishini ukuba adale amathuba emisebenzi. [Kwaqhwatywa.] Ukusukela kulo nyaka oomasipala abatsha baza kufumana isabelo esithe nyi ukuze banikeze iinkonzo ezithile fele-fele. [Kwaqhwatywa.] 21 February 2001 Page 30 of 90 Zonke ezi zinto zincedisa ukwakha ubomi obungcono kuluntu lonke.] (Translation of Xhosa paragraphs follows.) [Madam Speaker, Mr President and hon members, this Budget accommodates four very important proposals. In the last four years we have managed to reduce the state debt. Interest on state debt has been reduced. Today we can see that indeed perseverance prevails. [Applause.] Now, we have funds that allow for more schools to be built, road construction and maintenance, more health care centres, courts and police stations and increased pension grants. [Applause.] We also have some favourable income tax proposals. Personal income tax has been reduced significantly for workers earning low wages ... [Applause.] Paraffin will be reduced, diesel will be reduced ... [Applause] ... and companies will be encouraged to provide new job opportunities. [Applause.] 21 February 2001 Page 31 of 90 From this year new municipalities will have their allocation increased so as to allow them to provide certain free basic services. [Applause.] All this contributes towards ensuring a better life for all the people of the country.] Expenditure proposals The revised budget framework allows for substantial additions to baseline projections for the next three years: - Additional allocations of R16 billion are proposed for provinces to strengthen social service delivery and other priority needs. - More than R4 billion is allocated to the criminal justice sector for increased personnel, additional vehicles and an improved salary dispensation for police. [Applause.] Is that all right? 21 February 2001 Page 32 of 90 - A R7,8 billion supplementary infrastructure investment and maintenance programme is proposed, part of which will go to repair flood damage in poor areas. - More than R2 billion will go to key administrative services, including the SA Revenue Service, for improved tax administration and the Department of Home Affairs ... [Interjections] ... sorry, the Department of Foreign Affairs ... [Laughter] ... for its extended diplomatic responsibilities. Just checking, Shenge! [Laughter.] - An additional R2,6 billion is proposed in support of local government restructuring and the delivery of basic services. [Applause.] Details of the Main Budget spending proposals are set out in this heavy tome called the Estimates of National Expenditure, which includes relevant policy developments and proposed outputs and service delivery indicators for the programmes or 21 February 2001 Page 33 of 90 main divisions of each Vote. Parliament is invited to agree to these proposals, as set out in the 2001 Appropriation Bill. Supplementary allocations The budget framework also accommodates several spending proposals not yet allocated to departmental Votes: - A further R85 million in 2001-02 and R100 million in the year thereafter for repairs to flood-damaged infrastructure of national departments. - R1,2 billion for rehabilitation of flood- damaged provincial infrastructure, of which R600 million is expected to be spent in the new fiscal year. - R120 million in 2001-02 for short-term poverty relief measures, including interventions in response to cholera outbreaks. 21 February 2001 Page 34 of 90 - Amounts of R300 million in 2002-03 and R313,5 million in the year thereafter for targeted HIV/Aids interventions. - An amount of R3,75 billion for provincial infrastructure spending over the next three years - road construction and maintenance, school building, hospitals and clinics and rural development. [Applause.] - R2,5 billion for infrastructure projects of national departments over the next three years. Spending in 2001-02 from these supplementary allocations will be brought to the Assembly in the Adjustments Estimate, once likely project disbursements have been finalised. Of the supplementary amounts available to national departments over the next three years for infrastructure: - R863 million is set aside for police stations, courts and prisons. Clearly, I am trying to get 21 February 2001 Page 35 of 90 on the right side of Minister Tshwete! [Laughter.] - R580 million will go to water supply and sanitation projects, particularly in areas affected by cholera. [Applause.] - R390 million is for key infrastructure projects in support of industrial development. - R100 million is for the refurbishment of SA Rail Commuter Corporation rolling stock. - R50 million will go to complete the new Lubombo road linking northern Kwazulu-Natal, Swaziland and Mozambique. [Applause.] - R80 million is allocated for the development of emergency call centres by the Department of Communications. Spending policy objectives 21 February 2001 Page 36 of 90 In formulating spending plans for the 2001 Medium- Term Expenditure Framework, Government has sought to balance a number of broad policy objectives: - Economic growth - Job creation - Equity and social development - Strengthening the safety and justice sector Promoting growth and employment By setting aside substantial supplementary resources for infrastructure investment and maintenance, we seek to broaden access to opportunities, lower the costs of transport and communications, and improve standards of living in poor communities. In implementing this investment programme, Government will also contribute directly to the creation of jobs. In addition, R1,5 billion a year is being allocated to a range of targeted poverty relief programmes, many of which contribute 21 February 2001 Page 37 of 90 to employment and construction in support of local economic development. Government's rural development, land reform and agricultural policies are also designed to reduce rural poverty by supporting access to land, investing in rural infrastructure and broadening access to markets. Poverty reduction priorities are evident in the provision of resources to subsidise basic services. Funds for low-cost housing and subsidisation of public transport reduce the costs of these household requirements. Government's approach to financing local government and pricing of basic services recognises that some municipal services should be available to poor households free of charge. Social development The social services - education, health and welfare - take up about 58% of the consolidated national and provincial noninterest allocations, and will grow steadily over the MTEF period. The largest single redistributive programme of Government is 21 February 2001 Page 38 of 90 the system of social grants delivered by provincial welfare departments. These include the old age, disability and child support grants and provide support to more than 3 million South Africans every month. Kulo nyaka izimpesheni zabadala nezabakhubazekile zikhushuliwe kusuka ku-R540 ngenyanga kuya ku-R570 kusukela mhla ka-1 Julayi. [Ihlombe.] Nemali yokondla izingane ikhuphukile ukusuka kwi-R100 kuya kwi-R110 ngenyanga. [Ihlombe.] Eminyakeni emithathu ezayo lezi zimali zizokhuphuka ngokuhambisana nezinga lokwehla kwamandla emali. (Translation of Zulu paragraph follows.) [On 1 July 2001 old age pensions will be increased from R540 to R570. [Applause.] Even the child support grant will be increased from R100 to R110 a month. [Applause.] Over three years these moneys will be increased in proportion to the inflation rate at the time.] 21 February 2001 Page 39 of 90 Wat ons sê, is dat die maksimum toelae vir bejaarde en gestremde persone met ingang van 1 Julie vanaf R540 na R570 per maand verhoog word, en die kinderonderhoudstoelae sal van R100 na R110 per maand verhoog word. Hierdie toelaes sal oor die volgende drie jaar met ten minste die inflasiekoers aangepas word. (Translation of Afrikaans paragraph follows.) [What we are saying is that with effect from 1 July the maximum grant for elderly and disabled people will be increased from R540 to R570 per month, and that the child support grant will be increased from R100 to R110 per month. Over the next three years these grants will be adjusted by at least the inflation rate.] The maximum old age and disability grants will increase from R540 to R570 a month in July this year, and the child support grant will increase from R100 to R110 a month. The MTEF allows for inflation-related adjustments to social grants in subsequent years. 21 February 2001 Page 40 of 90 Justice and protection services This Budget recognises that the services of the integrated justice sector are critical to the quality of life of all our people. Raising spending capacity and improving its quality in the justice system are clear priorities of Government. Additional allocations go to the Safety and Security Vote in support of the restructuring of its specialist units and the strengthening of operational activities at police stations throughout the country. The more streamlined operation of the Legal Aid Board is recognised in its increased funding level and additional allocations are made for the prosecution service and special investigations. Members of this House will know that we have unfinished business in relation to the recommendations on reparations of the Truth and Reconciliation Commission. Allocations to the President's Fund on the Justice and Constitutional Development Vote for 2001-02 and the year thereafter will bring the amount available for 21 February 2001 Page 41 of 90 final reparations to about R800 million. These will be paid in once-off settlements and the Budget allows the programme to be concluded over the next two years. Measuring improved service delivery Once-off allocations are also being made on the Statistics SA Vote to provide for the 2001 census, and I would like to take this opportunity, echoing the President's words of last week, to ask all South Africans to participate voluntarily in Census 2001 to be conducted in October of this year to ensure that we can more accurately know the profile of South Africa and its people and be able to target resources in that direction. This in itself is an important step in developing our capacity to measure progress in the social and economic challenges this Budget seeks to address. Changing the way in which Government operates is a key element of improved service delivery and better value for money in the purchase of goods and 21 February 2001 Page 42 of 90 services outlined in the Budget. Improving service delivery means confronting poor management: - Getting teachers to teach with enthusiasm is partly about strengthening discipline in the classroom, but it is also about diligence in the school district office. - Reinforcing the ethic of care and compassion in our clinics and hospital wards is also about combating theft of medicines and imposing a cost-effective laundry or building maintenance regime. [Applause.] - Respect for the rights of both the victims and the accused means that court backlogs must be shortened and the criminal justice system modernised. The 2001 Budget substantially increases the resources available for Public Service delivery over the next three years. It does so without fear of the crushing burden of debt. And, in doing so, it challenges us to focus more keenly on ensuring 21 February 2001 Page 43 of 90 that the funds we appropriate impact on the quality of people's lives: that more infants live past their first birthday, that more children pass successfully through our schools, that our roads become safer and that every family should have access to clean water. [Applause.] The form and content of the new Estimates of National Expenditure invite all of us in this House and all South Africans to be vigilant in ensuring that we meet the goals we set ourselves. And we do so to ensure that the tree bears not the bitter but the sweet fruit of liberty, or as we say: Gore peo ya kgololosego e re beele maung a a botshe. [So that the seed of freedom bears us sweet fruit.] Provincial and local government finance Improved provincial finances Turning to provincial and local government finances, our Constitution provides for three 21 February 2001 Page 44 of 90 spheres of government. For the tree to grow strong all three branches have to be healthy. The equitable share to provinces rises by 7,7% a year for the next three years, providing for significant real growth in critical spending. This is supplemented by a variety of grants, bringing the total provincial share of noninterest allocations on the national Budget to 56,4% in the new year. Provincial governments have made striking progress in improving financial management. It is easy to forget now that in 1997 a number of provinces faced serious financial difficulties. The overdraft problems in the Eastern Cape and KwaZulu-Natal have been dealt with, and the need to set aside funds to deal with the debt overhang is no longer holding provincial spending plans back. [Applause.] In Gauteng alone, over R1 billion has been reserved for major capital projects, and in all provinces the next three years will see growth in both the main social services and targeted investments in social and economic infrastructure. 21 February 2001 Page 45 of 90 The sound state of provincial finances is testimony to the commitment of the Budget Council to working together as a team. With patience and clarity of vision, much can be achieved, even over a three- year time horizon. The nine MECs of finance will sit next to one another, and, again, we would like to commend them for that sterling effort. [Applause.] Local government challenges For local government, the challenges of transformation largely lie ahead. We have to merge different local authorities with diverse needs, financial systems and procedures, and we must build a new ethos of financial responsibility. As Team Finance, we stand ready to work with local government to manage this complex and challenging transition. The aim is to nurture this branch, so that the whole tree can bear sweeter fruit. Local government is responsible for providing many basic services such as water, electricity, sanitation, refuse collection and basic household 21 February 2001 Page 46 of 90 infrastructure, all of which impact directly on the lives of people. The local government elections in December last year marked the completion of the process of rationalising the number of municipalities from 843 to 284, laying the foundations for the emergence of better-managed and delivery-focused organisations. The process of merging municipalities will take time to complete. The financial viability of some municipalities is not secure at this stage, and the pressing need to provide universal access to basic municipal services remains. However, our metropolitan and bigger cities have considerable capacity and have already taken significant steps on the road to stabilising their finances. This can be seen in the transformation of Johannesburg, which is moving away from crisis management and beginning to find the resources for capital spending once again. It can be seen in Durban, which is demonstrating how to provide free basic services like water to the poor. 21 February 2001 Page 47 of 90 To support municipalities in addressing the challenge of providing free basic services, the national Government is increasing the equitable share to local government significantly. The allocation now rises to R2,6 billion, and is projected to increase to R3,6 billion over the period to 2004. This represents an average annual increase of 11% over the period. The equitable share formula favours poor municipalities with limited revenue-raising capacity. But that is only part of the story. Total revenues to local government rise from R6,5 billion in 2001- 02 to R7,8 billion in 2003-04. These funds include R2,2 billion in allocations specifically for the extension of basic municipal infrastructure to poor households. The primary source of financing for local government remains local taxes and other revenues levied and collected by municipalities themselves, including property taxes, levies and user charges. The equitable share and other transfers that go to local government supplement these revenues and are 21 February 2001 Page 48 of 90 targeted at the poorest municipalities whose local tax base is limited. The additional allocations to municipalities and the provincial infrastructure grants underpin Government's commitment to urban renewal and integrated rural development. Municipalities in the nodal points identified by the President in his state of the nation address will, for the first time, be able to budget for the full extent of resources at their disposal, and provide national and provincial departments with a focal point for the co-ordination of development projects. Moreover, the improved reporting systems proposed in the Division of Revenue Bill that we are tabling today will enable all spheres of government regularly to monitor progress in these nodal points. It is important, however, not to think of the challenges ahead only in fiscal or monetary terms. There is a larger challenge of developing capacity and governance systems, for which I am sure Minister Mufamadi is gearing up more strongly. 21 February 2001 Page 49 of 90 Improving the credibility of municipal budgets, adapting strategies to meet local needs and enhancing the quality of service delivery within affordable bounds are immense projects. We must think of innovative ways of strengthening the capacity of local government and tap into experiences elsewhere in the world. An example of this is a project that the World Bank is running with about 150 mayors of cities and towns in Latin America who meet in Internet conversations every Saturday morning to deal with a whole series of issues relating to local government - from how to collect taxes, how to provide refuse collection, how to ensure that they spend on infrastructure, to running efficient fire brigades. All of these kinds of experiences are shared - not inputed by the World Bank - but shared among these mayors who meet in this way every Saturday morning, sitting in their respective offices in their respective cities. It is this kind of experience that we need to draw on to build the capacity that will make a difference, because local government touches our people in a very direct way. 21 February 2001 Page 50 of 90 Revenue issues and tax proposals Over the past five years, considerable attention has been given to improving the structure of the South African tax system and the system of revenue administration, which are critical to Government's fiscal and macroeconomic policy initiatives. The income tax changes introduced in the Budget last year were the cornerstone of a general tax reform process that enhances the equity, efficiency and international competitiveness of the South African tax system. These are important building blocks on the path to sustainable economic development and a better life for all South Africans. Since 1995, personal and corporate income taxes have been reduced significantly. Before this year's tax proposals, we had put R25 billion back into the pockets of South Africans. Today, we are giving more back. A further R8,3 billion in personal income tax relief is being devoted to ensuring that all South Africans share in the successes of fiscal discipline we have achieved. [Applause.] But, perhaps more importantly, we are making good on the 21 February 2001 Page 51 of 90 pledge we have made here before, a pledge to taxpayers: ``Pay your taxes now, and everyone will pay less in the future.'' [Applause.] The package of tax reforms announced here complements other economic reform initiatives by releasing fiscal resources for investment, economic development and job creation. Income tax proposals Ditshitshinyo tsa lekgetho la badiri ba ba amogelang lotseno lo lo kwa tlase ga R80 000 ka ngwaga le tlaa fokodiwa. Badiri ba lotseno lo lo kwa tlase ga R23 000 ka ngwaga ga ba kitla ba duela lokhetho. [Legofi.] Modiri wa lotseno lwa R70 000 ka ngwaga o tlaa bona poelo ya R140 ka kgwedi. [Legofi.] Lekgetho la tlaleletso mo leokwaneng la parafene le tlaa fokodiwa ka disente di le 40 litara. Phokoletso eo e tla thusa bao ba leng dikobo di magetleng. [Legofi.] 21 February 2001 Page 52 of 90 Phokoletso ya lekgetho e tla tsenngwa tirisong go dikgwebo-potlana tse di itlamelang, go tlhofofaletsa dikgebo tseo go itirela didiriswa tse di maleba. Kokeletso ya lotseno lo lo kwa tlase e tla tsenngwa tirisong go simolola ka 1 Diphalane 2001, go ka thusa ka tlhongo ya ditiro. Leokwane la disele, leo le dirisiwang ke balemirui, le tlaa fokodiwa ka disente di le 42 litara go simolola ka 4 Phukwi 2001. [Legofi.] (Translation of Setswana paragraphs follows.) [Income tax for workers earning below R80 000 a year will be decreased. Workers who earn below R23 000 a year will no longer pay income tax. [Applause.] A worker who earns R70 000 a year will receive a return of R140 a month. [Applause.] Additional tax on paraffin will be decreased by 40c a litre. This decrease will help the poorest of the poor. [Applause.] A tax decrease will be effected for independent small businesses, so as to lighten the production 21 February 2001 Page 53 of 90 costs of their particular products. A low income increase will be effected as of 1 October 2001, to help job creation. The price of diesel, which is used by farmers, will be decreased by 42c a litre as from 4 July 2001. [Applause.]] Regarding the income tax proposals, personal income tax reductions accrue mainly to workers earning below R80 000 a year and improve the equity of the overall tax system. This has been achieved by raising the primary rebate by 8,9% and changing the tax brackets, ensuring sizeable benefits for lower and middle-income taxpayers. Workers earning less than R23 000 a year will now pay no personal income tax ... [Applause] ... and a worker earning R70 000 will pay about 12% less tax, increasing her take- home pay by about R140 a month. [Applause.] In his address at the opening of Parliament, the President indicated that Government would explore the feasibility of ``reducing the cost of labour without reducing workers' wages''. In the 2001 21 February 2001 Page 54 of 90 Budget, R600 million is set aside for a wage incentive to encourage job creation by reducing the cost of hiring new workers and offering learnerships. Over the next couple of months, Sars and the national Treasury will develop a tax measure that is both economically efficient and simple in administration and compliance. It is envisaged that this will be introduced from 1 October this year. The tax exemption on interest and dividend income is raised by R1 000 to R4 000 for people under 65 and R5 000 for taxpayers aged 65 and over. This provides further tax relief to those living on modest fixed-interest and dividend incomes. Investment in strategic industrial projects that promise significant direct and indirect benefits to the South African economy are critical to placing South Africa on a higher sustainable growth path. I have agreed with my colleague, the Minister of Trade and Industry - under duress, Alec - that R3 billion be set aside over the next four years for incentives targeted at strategic industrial 21 February 2001 Page 55 of 90 projects which meet agreed criteria, and one of which is, of course, very importantly, job creation. An allowance of either 50% or 100% of an approved investment will be granted to companies undertaking strategic projects. The allowance will be calculated with reference to the cost of the investment undertaken. The national Treasury, Sars and the Department of Trade and Industry will finalise the details of these incentives before the end of March, including the stringent criteria against which projects must be assessed. Government continues to support small businesses, which are key engines of job creation. In the Budget we tabled here last year, a reduced tax rate of 15% of the first R100 000 of taxable income was introduced for certain small businesses. The tax privileges for small businesses are extended in this Budget to allow for the immediate deduction of investment expenditure in manufacturing assets in the year in which the investment is made. This will cost R40 million. 21 February 2001 Page 56 of 90 So the fruits are truly much sweeter. I think by this time everybody knows what they have got the apples for. These are very sweet apples - sweet fruits - that we have earned from the tough decisions we have taken in the past. Structural reforms to the tax system In the 2000 Budget several proposals were introduced with prospective effect, including residence-based income taxation and the capital gains tax. The residence-based income tax came into operation on 1 January this year. This structural change to the income tax is necessary to ensure that the South African tax system keeps pace with globalisation and the integration of South Africa with the world economy. Capital gains tax, estate duty and donations tax Capital gains tax was to be introduced with effect from 1 April this year. Government has listened carefully to the proceedings of Parliament's Joint Committee on Finance, which has held public 21 February 2001 Page 57 of 90 hearings on the draft legislation. While it is imperative that this fundamental change be made, it is proposed that the implementation be deferred to 1 October 2001. This will give the private sector - the financial services sector in particular - ample time to amend its management information systems to ensure effective implementation. I would like to stress to the President that the commitment we made here that Sars would be ready by 1 April has been kept. So we are ready to roll. But it is important that we allow the financial services sector time to get their systems in order so that the tax works effectively. A key strength of the proposed capital gains tax is that it is levied when the owner of an asset dies or the asset is donated. To counter any perceived double taxation of these assets, it is proposed to reduce the estate duty and donations tax rates to 20%. Closing tax loopholes 21 February 2001 Page 58 of 90 Our ongoing tax reform programme aims to widen tax bases and reduce statutory rates. As in the past, this will include identifying and closing potential loopholes in the company income tax. Items to be investigated include: - Section 24C of the Income Tax Act, which allows for the immediate deduction of future expenditure. - Provisions allowing deductions for contingency reserves of short-term insurers. - The taxation of intangibles. - The possibility of bringing all company directors into the pay-as-you-earn (PAYE) income tax system. Unbundling transactions Unbundling provisions were introduced to facilitate the dismantling of South African corporate structures. The internationalisation of the South 21 February 2001 Page 59 of 90 African economy means that non-South African residents are benefiting from these provisions. Sars and the national Treasury will therefore review the unbundling provisions to ensure they are still appropriate in the current business environment. Review of tax on banks Government is concerned about the low effective tax rate on banks. Banks are able to defer and avoid tax by using derivative financial products and structured, asset-based finance techniques, amongst other devices. In 2001 Government will engage with the industry to address this. The initial focus will be on increased audit and possible legislative changes, including clarifying the distinction between capital and ordinary income for the sale of financial instruments, reviewing the tax rules regarding financial leases and ensuring the immediate accrual of certain income receipts that are postponed through artificial contingencies. 21 February 2001 Page 60 of 90 A number of countries have limited the scope for banks to avoid tax by introducing alternative minimum taxes or presumptive taxes on easily identifiable and audited tax bases, for example on gross assets. We will engage with the banks on the appropriateness of this measure for South Africa. Indirect tax proposals Vat zero-rate on illuminating paraffin Illuminating paraffin is an important energy source for low-income households in this country, especially in rural areas. As with other fuels, the price of illuminating paraffin has increased dramatically over the past year or two. To alleviate the plight of these poor households, Government is zero-rating paraffin for VAT purposes from 1 April 2001. [Applause.] This will reduce the price by about 40 cents a litre. We trust that the R400 million we are giving up will be passed on to consumers, thereby providing tax relief to the intended beneficiaries. Let me appeal to all of us to be vigilant about ensuring that the benefits 21 February 2001 Page 61 of 90 accrue to the very poor who use paraffin in their everyday lives. [Applause.] Specific excise duties Revenues from specific excise duties have been a buoyant source of revenue. Changes to specific excises, informed by revenue and health considerations, include: - Beer and cider taxes are raised by 6% or 2,3 cents a can, in line with inflation. [Applause.] - I know I am going to get into trouble for this: Sorghum beer and sorghum flour duties are raised by 5%, which is below the rate of inflation. [Interjections.] [Laughter.] Duties on these products have - under protest from the Minister of Home Affairs - not been raised for two years now. - Duties on all other alcoholic beverages are raised by 10%. [Applause.] 21 February 2001 Page 62 of 90 - Taxes on tobacco products are raised by between 11,8% and 20,2% to maintain the 50% tax incidence. This increases the price of a packet of 20 cigarettes by 33,8 cents. [Applause.] - Duties on soft drinks and mineral water are reduced by 25%, or 2 cents a litre. These measures will raise estimated revenue by R779 million. This is not so sweet! In terms of section 58 of the Customs and Excise Act of 1964, I lay on the Table for consideration by the House the proposals in respect of customs and excise duties. Fuel levy Fuel prices have increased considerably over the past two years. Government is aware of the pressure this has placed on the disposable income of household and business budgets. 21 February 2001 Page 63 of 90 Fuel taxes serve a variety of purposes. First, they are a significant source of general Government revenue. Second, they play an important role in limiting the demand for fuel products, which has important environmental and balance of payments benefits. Given that the fuel levy is a specific excise tax, it is imperative for the sake of consistent tax policy that it be reviewed in the annual Budget, in line with macroeconomic projections of the inflation rate. In this context and recognising the impact of rising fuel prices on the economy, we are proposing to raise the fuel levy by less than inflation. The following increases in the general fuel levy are proposed: - 2,4 cents a litre on leaded and unleaded petrol; and - 1,9 cents a litre on diesel. These represent increases of only 2,5% on the tax rate, which is well below the anticipated inflation 21 February 2001 Page 64 of 90 rate. These increases will be implemented with the normal price adjustments on 4 April 2001 and will raise an additional R363 million. Since the octane levels of leaded and unleaded petrol were equalised, there has been an equalisation levy of 3 cents a litre on unleaded petrol. It is proposed that from 4 April 2001 this be included in the general fuel levy. Thus, the general levy on unleaded petrol is raised by an additional 3 cents a litre and the equalisation levy is reduced by 3 cents a litre, with no net impact on the overall levies and, hence, the pump price. Road Accident Fund To meet the ongoing liabilities of the Road Accident Fund, the levy on petrol will be increased by 2 cents a litre from 4 April 2001. When the diesel concessions which I referred to earlier and will elaborate on shortly are introduced on 4 July 2001, the Road Accident Fund levy on diesel will be brought in line with that on petrol at 16,5 cents a 21 February 2001 Page 65 of 90 litre. These measures will increase revenue to the Road Accident Fund by R437 million. Diesel fuel concession for primary production In the Budget last year, a diesel fuel concession was reintroduced for fishing and coastal shipping. Government committed itself to exploring the possibility of extending this to other primary producers, contingent on developing an administrative regime to minimise the risk of fraud and ensuring that the concession is affordable within the broader fiscal framework. The bulk of diesel fuel used in farming, forestry and mining is used off road. Given this, and to encourage the international competitiveness of especially our farmers, foresters and miners, the following diesel fuel concessions are proposed: - 25,6 cents a litre of the general fuel levy on qualifying consumption; and 21 February 2001 Page 66 of 90 - the full 16,5 cents a litre Road Accident Fund levy on qualifying consumption - that is 42 cents a litre. Qualifying consumption will be 80% of total consumption. Diesel concessions will be implemented on 4 July 2001 and will cost us R417 million a year. Furthermore, the following additional concessions are proposed: - Offshore mining and the National Sea Rescue Institute will receive a 100% concession of the general fuel levy and the Road Accident Fund Levy. - Spoornet will receive a 100% concession of the Road Accident Fund levy. Ad valorem excises The national Treasury and Sars have reviewed the administrative system for ad valorem customs and 21 February 2001 Page 67 of 90 excise duties. It is evident that considerable savings will result from reforming this system. From 1 July this year the value-determination formula for domestically produced goods will be eliminated and duties will be levied on the invoice price of dutiable items. In addition, the maximum statutory rate will be decreased from 10% to 7% and the duty rate on cosmetics will be reduced from 10% to 5%. This will result in a revenue loss of R210 million. Tax administration It is also important to deal with issues of tax administration. The SA Revenue Service is committed to improving tax administration and nurturing a climate of voluntary compliance with the objective of broadening the tax base so as to reduce the tax burden on all our citizens. As citizens, meeting our tax obligations and acting within the letter and spirit of the law are not optional. They are part of understanding that, in a democracy, rights and obligations are two sides of the same coin. [Applause.] 21 February 2001 Page 68 of 90 Corporate and private citizens who evade the law are committing a crime and depriving the Government of the resources needed to address poverty, fight crime and achieve other social and economic objectives. [Applause.] Tax evasion also undermines investor confidence and increases the burden of ordinary taxpaying citizens. I want to commend the actions taken by Sars to curb tax evasion and fraud in the past year, including efforts to root out corruption within the organisation itself. We must signal that we will not tolerate this type of criminal activity anywhere. [Applause.] Sars is also committed to making it easier for our people to meet their tax obligations, by providing a better service. The groundwork for a new taxpayer charter has been laid, giving us important feedback about taxpayers' needs and concerns. The survey results have informed a major restructuring project, which has now entered its implementation phase. KwaZulu-Natal taxpayers will benefit first from Sars's new way of doing business with the opening in October this year of a processing centre to improve turnaround times. This centre will be 21 February 2001 Page 69 of 90 supported by a compliance centre and service centres. Other initiatives include electronic submission of certain tax returns, such as provisional tax and pay-as-you-earn, and a call centre focused on recovering outstanding debts. More than 17 000 taxpayers were contacted in the call centre's first week of operation and more than a million taxpayers can expect a call from us this year. Sars's budget will be supplemented over the next three years to enable us to provide better services to taxpayers and to reduce tax evasion and avoidance. Also, in the context of the reorganisation of Sars, we will be concentrating on better port and border post administration to ensure that illegal goods do not enter our country, that back-door routes are shut down, and that jobs in South Africa are protected from the illegal activities of smugglers. [Applause.] Financing proposals 21 February 2001 Page 70 of 90 After taking account of our spending proposals and revenue estimates, there is a budget deficit of R24,9 billion to finance next year, or 2,5% of GDP. We expect to finance the deficit largely through restructuring proceeds. To date, total investment of R19 billion has been raised through the restructuring of state assets, mainly from international equity partners, of which R12,4 billion has been used to reduce debt. Given the accelerated pace of implementation, some R18 billion from the restructuring of public enterprises is expected in the new fiscal year - is that right, Minister Radebe? - decreasing the net borrowing requirement to R7,5 billion. We propose to raise R3,5 billion in short-term loans next year, contributing further to the liquidity of this market. Net foreign borrowing to the value of R11,3 billion is proposed. This will allow domestic long-term debt to be reduced by about R7,4 billion. In effect, we propose to repay about R7,5 billion in long-term rand-denominated debt next year. 21 February 2001 Page 71 of 90 At the end of 2000-01, total net loan debt will amount to R397,5 billion, or 44,3% of GDP, down from over 48% four years ago. Debt will steadily decline as a share of GDP to a projected 39,1% by the end of 2003-04. We say again: Eli lixesha lokuba sonke sixhamle ubumnandi beziqhamo zenkululeko. [Kwaqhwatywa.] [This is the time for us to enjoy the sweet fruit of liberty. [Applause.]] It is clear that the fruits of our decisions gradually acquire the sweet taste of liberty. Conclusion Before concluding I have two tasks to perform. The first is to lay the following documents on the Table: (1) Budget Speech - 21 February 2001 [RP 28-2001]. (2) Estimate of National Revenue 2001 [RP 34-2001]. (3) Taxation proposals: Income Tax. 21 February 2001 Page 72 of 90 (4) Taxation proposals in respect of specific excise duties (customs and excise) [tabled at 15:12]. (5) Division of Revenue Bill [B 11-2001]. (6) Budget Review 2001, including ``Annexure E: Explanatory Memorandum on the Division of Revenue Bill'' tabled in terms of section 10(5) of the Intergovernmental Fiscal Relations Act, 1997 (Act No 97 of 1997) [RP 27-2001]. (7) Estimates of National Expenditure, 2001 [RP 30- 2001]. (8) Appropriation Bill [B10-2001]. I would also like to take a moment to pay tribute to about 500 South Africans who probably are not in this House today, people who participated in a wide programme called ``Tips for Trevor'' through the departmental website, radio stations, newspapers, and who offered their bits of advice. South Africans from the widest possible cross section - 21 February 2001 Page 73 of 90 from somebody who describes himself as a humble traffic officer, to people who have jobs, such as radio station talk show hosts; from individuals who are employees somewhere and stole a moment of Internet time to communicate with us, to people who are pensioners and borrowed e-mail facilities from their children; from tax professors and workers - spoke to us about what they wanted. Many of them spoke about tax proposals. I am sure that they will find that their views are expressed in the decisions that we are placing before this House today. Others will find that we are in disagreement with the fundamentals of what they proposed. On the expenditure side, many would be happy with the kinds of decisions that we are placing before this House today. Yet others raised matters that are outside of the Budget but important for us to be alive to, such as the amount that South Africans spend on gambling in casinos, on Lotto and so on, asking that we examine and re- examine these kinds of issues to ensure that we all have a better quality of life. To all of those South Africans, too many to name, I want to say 21 February 2001 Page 74 of 90 thank you. I want to give them the assurance that I have personally read every message they have sent to me, and I am very grateful for the time and effort that they took to talk to us in this way. [Applause.] Madam Speaker, allow me to express my profound appreciation to: - President Mbeki for his leadership and the challenges he puts before us - he does not let us get off easy - and for the challenges he placed before all of us in this House in his opening of Parliament address, and for the work he is doing on the continent that continues to draw us into a continually expanding view of what our responsibilities are as Africans involved in Government. [Applause.] - Deputy President Zuma and my Cabinet colleagues, particularly the members of the Ministers' Committee on the Budget - however much some of them whinge, Essop [Laughter.] - for their initiative in bringing forward budget 21 February 2001 Page 75 of 90 suggestions and their good humour when these could not be accommodated. - Of course, to Deputy Minister Mandisi ``Sipho'' Mpahlwa for sharing the duties we carry and for friendship. - My Team Finance - the MECs for finance - who have led with courage and professionalism, and, I think, the fruits of their efforts will be very sweet in the provinces as well. Our task has been greatly facilitated by several others: - Governor Tito Mboweni and his team at the SA Reserve Bank; - Murphy Morobe and members of the Financial and Fiscal Commission; - Philip Dexter and Nedlac; - Prof Michael Katz and the tax commission; 21 February 2001 Page 76 of 90 - Ms Barbara Hogan and Ms Qedani Mahlangu, chairpersons of the Portfolio and Select Committee on Finance in Parliament, respectively. [Applause.] This Budget is largely the fruit of the efforts of the national Treasury and the SA Revenue Service. [Laughter.] Special thanks are due to Maria Ramos and Pravin Gordhan for the leadership they have given. [Applause.] I would also like to thank my family for their support, the Mpahlwa family for continuing to keep Sipho in good spirits, and perhaps last but not least, the staff of the Ministry who tolerate us with such good cheer. [Applause.] The SPEAKER: Order, hon members. The Appropriation Bill and the papers tabled ... The MINISTER OF HOME AFFAIRS: Madam Speaker, I am the only one who did not get an apple. I did not get an apple. [Laughter.] 21 February 2001 Page 77 of 90 The SPEAKER: Minister, I will intercede on your behalf. The Appropriation Bill and the papers tabled will be referred to the Portfolio Committee on Finance for consideration and report in terms of Rule 291. Hon members, the Minister has been very generous, but obviously not generous enough with his gifts today. As hon members are all aware, we have a code of conduct. Now I am investigating whether I can make a declaration on Parliament's behalf for the apples, or whether you each have to declare your apple. [Laughter.] [Applause.] The House adjourned at 15:28. __________ ANNOUNCEMENTS, TABLINGS AND COMMITTEE REPORTS ANNOUNCEMENTS: National Assembly and National Council of Provinces: 21 February 2001 Page 78 of 90 1. The Speaker and the Chairperson: (1) The Minister for Justice and Constitutional Development on 19 February 2001 submitted a draft of the High Court Amendment Bill, 2001, and a memorandum explaining the objects of the proposed legislation, to the Speaker and the Chairperson in terms of Joint Rule 159. The draft has been referred by the Speaker and the Chairperson to the Portfolio Committee on Justice and Constitutional Development and the Select Committee on Security and Constitutional Affairs, respectively, in accordance with Joint Rule 159(2). TABLINGS: National Assembly and National Council of Provinces: Papers: 1. The Speaker and the Chairperson: 21 February 2001 Page 79 of 90 Report of the Auditor-General on the Financial Statements of Vote No 15 - Health for 1999-2000 [RP 124-2000]. 2. The Minister of Finance: (1) The Budget Speech of the Minister of Finance [RP 28-2001]. (2) Estimate of National Revenue for 2001-2002 [RP 34-2001]. (3) Taxation Proposals: Income Tax. (4) Taxation proposals in respect of custom and excise duties laid upon the Table at 15:12. (5) Division of Revenue Bill [B 11 - 2001] tabled in terms of section 10(1) of the Intergovernmental Fiscal Relations Act, 1997 (Act No 97 of 1997). (6) Budget Review 2001 [RP 27-2001], including "Annexure E: Memorandum to accompany the 21 February 2001 Page 80 of 90 Division of Revenue Bill", tabled in terms of section 10(5) of the Intergovernmental Fiscal Relations Act, 1997 (Act No 97 of 1997). (7) Appropriation Bill [B 10 - 2001]. (8) Estimate of National Expenditure 2001 [RP 30-2001], which includes: 1. Memorandum on Vote No 1 - "Presidency", Main Estimates, 2001-2002; 2. Memorandum on Vote No 2 - "Parliament", Main Estimates, 2001-2002; 3. Memorandum on Vote No 3 - "Foreign Affairs", Main Estimates, 2001-2002; 4. Memorandum on Vote No 4 - "Home Affairs", Main Estimates, 2001-2002; 21 February 2001 Page 81 of 90 5. Memorandum on Vote No 5 - "Provincial and Local Government", Main Estimates, 2001-2002; 6. Memorandum on Vote No 6 - "Government Communication and Information System", Main Estimates, 2001-2002; 7. Memorandum on Vote No 7 - "National Treasury", Main Estimates, 2001-2002; 8. Memorandum on Vote No 8 - "Public Enterprises", Main Estimates, 2001- 2002; 9. Memorandum on Vote No 9 - "Public Service and Administration", Main Estimates, 2001-2002; 10. Memorandum on Vote No 10 - "Public Service Commission", Main Estimates, 2001-2002; 21 February 2001 Page 82 of 90 11. Memorandum on Vote No 11 - "South African Management Development Institute", Main Estimates, 2001-2002; 12. Memorandum on Vote No 12 - "Statistics South Africa", Main Estimates, 2001- 2002; 13. Memorandum on Vote No 13 - "Arts, Culture, Science and Technology", Main Estimates, 2001-2002; 14. Memorandum on Vote No 14 - "Education", Main Estimates, 2001-2002; 15. Memorandum on Vote No 15 - "Health", Main Estimates, 2001-2002; 16. Memorandum on Vote No 16 - "Housing", Main Estimates, 2001-2002; 17. Memorandum on Vote No 17 - "Social Development", Main Estimates, 2001- 2002; 21 February 2001 Page 83 of 90 18. Memorandum on Vote No 18 - "Sport and Recreation South Africa", Main Estimates, 2001-2002; 19. Memorandum on Vote No 19 - "Correctional Services", Main Estimates, 2001-2002; 20. Memorandum on Vote No 20 - "Defence", Main Estimates, 2001-2002; 21. Memorandum on Vote No 21 - "Independent Complaints Directorate", Main Estimates, 2001-2002; 22. Memorandum on Vote No 22 - "Justice and Constitutional Development", Main Estimates, 2001-2002; 23. Memorandum on Vote No 23 - "Safety and Security", Main Estimates, 2001-2002; 21 February 2001 Page 84 of 90 24. Memorandum on Vote No 24 - "Agriculture", Main Estimates, 2001- 2002; 25. Memorandum on Vote No 25 - "Communications", Main Estimates, 2001- 2002; 26. Memorandum on Vote No 26 - "Environmental Affairs and Tourism", Main Estimates, 2001-2002; 27. Memorandum on Vote No 27 - "Labour", Main Estimates, 2001-2002; 28. Memorandum on Vote No 28 - "Land Affairs", Main Estimates, 2001-2002; 29. Memorandum on Vote No 29 - "Minerals and Energy", Main Estimates, 2001-2002; 30. Memorandum on Vote No 30 - "Public Works", Main Estimates, 2001-2002; 21 February 2001 Page 85 of 90 31. Memorandum on Vote No 31 - "Trade and Industry", Main Estimates, 2001-2002; 32. Memorandum on Vote No 32 - "Transport", Main Estimates, 2001-2002; 33. Memorandum on Vote No 33 - "Water Affairs and Forestry", Main Estimates, 2001-2002. National Assembly: 1. The Speaker: The President of the Republic submitted the following letter, dated 19 February 2001, to the Speaker informing Parliament of the employment of the South African National Defence Force: EMPLOYMENT OF THE SOUTH AFRICAN NATIONAL DEFENCE FORCE IN COMPLIANCE WITH THE INTERNATIONAL OBLIGATIONS OF THE REPUBLIC OF 21 February 2001 Page 86 of 90 SOUTH AFRICA TOWARDS THE GOVERNMENT OF THE REPUBLIC OF MOZAMBIQUE FOR HUMANITARIAN ASSISTANCE DURING WIDESPREAD FLOODING This serves to inform the National Assembly that the President authorised the employment of South African National Defence Force (SANDF) personnel to fulfil the international obligations of the Republic of South Africa towards the Government of the Republic of Mozambique for humanitarian assistance during widespread flooding in the Zambezia Province. This employment was authorised in accordance with the provisions of Section 82(4)(b)(ii) read with Section 227(1)(d) of the Constitution of the Republic of South Africa, 1993 (Act No 200 of 1993), [which Sections continue to be in force in terms of Item 24(1) of Schedule 6 to the Constitution of the Republic of South Africa, 1996 (Act No 108 of 1996)], read further with Section 3(2)(a)(iv) of the Defence Act, 1957 (Act No 44 of 1957). 21 February 2001 Page 87 of 90 (a) Personnel. A total of 13 personnel have been deployed to Mozambique: 3 x pilots, 2 x navigators, 2 x flight engineers, 3 x air loadmasters, 1 x interpreter and 2 x medical personnel. (b) Aircraft. 1 x C-130 cargo aircraft and 2 x medical personnel aircraft. The SANDF members were deployed for a total of three days over the period 10 February 2001 to 12 February 2001. FINANCIAL IMPLICATIONS The estimated financial implications are as follows: (a) 18 hrs Flying Time @ R26 641 per hourR479 538 (b) Fuel required is 53 000 litres @ R3.00 per litreR159 000 21 February 2001 Page 88 of 90 (c) Subsistence and Travelling Allowance for 13 personnel at US $62.00 per day per person @ R7.90 to a US$R19 102 (d) Accommodation @ US $100.00 per day per personR30 810 (e) Total cost of a 3 day deploymentR688 450 The cost indicated above does not include landing, parking, navigational, ground support equipment and lighting surcharge fees. The Department of Foreign Affairs is responsible for the costs of this Deployment. I will also communicate this report to the Members of the National Council of Provinces, and wish to request that you bring the contents of this report to the notice of the National Assembly. Regards 21 February 2001 Page 89 of 90 S V TSHWETE ACTING PRESIDENT Dr F N Ginwala, MP P O Box 15 CAPE TOWN 8000 COMMITTEE REPORTS: National Assembly: 1. Report of the Portfolio Committee on Arts, Culture, Science and Technology on the National Council for Library and Information Services Bill [B 44B - 2000] (National Assembly - sec 75), dated 21 February 2001: The Portfolio Committee on Arts, Culture, Science and Technology, having considered the National Council for Library and Information Services Bill [B 44B - 2000] 21 February 2001 Page 90 of 90 (National Assembly - sec 75), recommitted to it, reports the Bill without amendment.
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