Pravin Gordhan’s announcement that e-toll fees will not be scrapped, but rather reduced and capped was met with anger.

Thank you for the toll fee cut, Mr Finance Minister, now you have given us no choice but to continue the fight against toll roads.

This was the sentiment expressed by Cosatu and motoring organisations on Wednesday after Pravin Gordhan’s announcement that e-toll fees will not be scrapped, but rather reduced and capped.

“We are not cash cows that can be held up on behalf of foreigners who want to make money off us by using our public goods,” Cosatu general secretary Zwelinzima Vavi said.

“The strike continues (on March 7) and we probably will have another strike by (April 30) – the day he (Gordhan) says they will start introducing, or enforcing, this e-toll gate in Gauteng. We will not compromise.”

Gordhan said in his Budget speech that the Treasury would give R5.75 billion towards roads that had been built.

The toll fees would be reduced to 30c/km for ordinary vehicles, down from 40c/km, and motorcycles would pay 20c/km. Non-articulated trucks would pay 75c/km and articulated trucks R1.51/km.

Toll fees would be capped for regular road users at R550 a month, and there would be a 15 percent discount in rates after toll fees reached R400 a month. Tolling will begin on April 30.

Gordhan did not say what the amount would be without an e-tag.

Paul Pauwen, of the SA Vehicle Rental and Leasing Association (Savrala), the DA and the Automobile Association intend to launch legal action against e-tolling.

Pauwen said Savrala was disappointed with the decision to proceed with e-tolling, despite studies handed to the Treasury which show that if the roads were paid for through the fuel levy, motorists would have to pay only an extra 8c/litre to pay for Gauteng’s roads and 25c/litre to pay for road infrastructure nationwide.

“E-tolling is eight times too expensive,” said Pauwen.

“If they don’t provide an alternative form of public transport, how dare they tell us we have to pay.”

Spokesman Gary Ronald said the AA was convinced that despite the fee reduction, the cost to the consumer “as far as the Gauteng tolls are concerned is going to hit home hard when commodity prices and transport costs increase”.

Chris Gilmour, of Absa Asset Management Private Clients, said: “Although significantly reduced from the original plan, the fees will still have a negative impact on consumer spending.”

The DA’s Jack Bloom said the money given to pay for the roads made the case against the e-toll collection system stronger, “as it will cost about R1 billion a year to collect a smaller amount”.

National Association of Automobile Manufacturers of SA president David Powels said: “The automotive industry would have preferred to see freeway improvement programmes being financed through an administratively more efficient and less costly fuel levy.”

Cliff Watson, executive tax manager at Grant Thornton Joburg, said:

“It should be taken into account that a motorist with an e-tag would need to travel approximately 1 833km a month, or 46km a day one way on the toll road, to reach the cap of R550 a month.” - The Star

New taxes for the wealthy, some tax relief for low to middle-income earners, and a big boost for small business.

New taxes for the wealthy, some tax relief for low to middle-income earners, and a big boost for small business owners.

That’s the broad thrust of the tax plans unveiled on Wednesday by Finance Minister Pravin Gordhan, who also announced that a dedicated ombud would be appointed to deal with tax matters that couldn’t be resolved by Sars.

Although Gordhan left personal income tax rates unchanged, he announced a whopping 28 cents a litre increase in the price of petrol and diesel from April 4, when the general levy on fuel goes up by 20c a litre and the Road Accident Fund levy by 8c to 88c a litre. The electricity levy will go up by one cent a kilowatt hour from July 1.

Gordhan announced R9.5 billion in personal income tax relief, more than half of which will go to people earning up to R22 000 a month to help offset the effects of inflation on earnings.

Tax credits for medical aid contributions will kick in from March 1 at a rate of R230 a month for the first two beneficiaries and R154 each for additional ones.

And to encourage people to save more – over and above retirement savings – it will be possible to put away R30 000 a year up to a lifetime limit of R500 000 and pay no tax on interest, dividends and capital gains.

The rich, however, will have to cough up when withholding tax on dividends from investments, at a rate of 15 percent, is implemented from April 1.

The capital gains inclusion rate for individuals and special trusts goes up from 25 to 33.3 percent on March 1, while for companies and other trusts it will increase from 50 to 66.6 percent.

Middle-income earners will be protected by the raising of exclusion thresholds.

Small business owners and entrepreneurs win big, with the tax-free threshold being raised to R63 556, above which – up to R350 000 – the 10 percent tax rate drops to 7 percent, offering welcome relief to micro enterprises and start-ups. Above R350 000, the 28 percent corporate tax rate applies.

Micro businesses with an annual turnover of less than R1 million will struggle with far less red tape by being able to pay turnover tax, VAT and employees’ tax twice a year – instead of submitting returns 18 times a year.

New tax incentives in- clude relief for housing developers and employers who provide homes costing less than R300 000 and for businesses that invest in planned special economic zones.

Tax dodgers, especially in the construction industry – and complex trusts – are to come under closer scrutiny.

Gordhan shocked MPs when he said some of the 34 000 tax advisers owed more than R260m in back taxes, with more than 18 000 of their income tax returns outstanding.

“If that is their attitude to their own tax compliance, one shudders to think what advice they are giving to their clients,” the former Sars commissioner said.

In the financial year ending March 31, more than 230 taxpayers had been successfully prosecuted and sentenced to a combined 370 years and nearly R5m in fines.

“A further 1 500 tax-related cases are awaiting prosecution with the National Prosecuting Authority,” Gordhan said.

Sars had slapped penalties on more than 700 000 taxpayers for failing to submit their returns on time.

The recent voluntary disclosure programme had drawn 18 000 applications, yielding almost R1bn in extra tax and providing “useful insights into areas of non-compliance that will receive focused attention”.

The tax threshold – what one has to earn before having to pay income tax – rises from R59 750 a year for people under 65 to R63 556. People over 65 will start paying only once their earnings top R99 056 (up from R93 150).

Of the 11 million employed people, 4.9 million pay no income tax, while the top-earning 2.5 percent contribute 37 percent of income taxes, according to the Budget Review.

Personal income tax – payments by individuals and trusts – for the 2012/13 tax year is to contribute R296bn or 37 percent of national government revenue.

Corporate income tax is to contribute R168bn and VAT R210bn to the national coffers.

The provinces are to raise R105bn in the year. - The Star

A key message from the Budget is a drive to build an encouraging environment for savings, which includes reforming the tax treatment of contributions to retirement funds.

Donwald Pressly

A key message from the Budget is a drive to build an encouraging environment for savings, which includes reforming the tax treatment of contributions to retirement funds.

Finance Minister Pravin Gordhan said yesterday that to encourage voluntary savings, consideration was being given to the introduction of tax-exempt short- and medium-term savings products. The proposal was that individuals should be permitted to save up to R30 000 a year “with a lifetime limit of R500 000 in registered savings or investment products that would be free of tax on interest, dividends or capital gains”.

The current tax-free interest income thresholds would be reviewed and possibly phased out as part of this reform, Gordhan said.

With the termination of the secondary tax on companies from the end of next month, with a withholding tax on dividends that would be implemented from April 1, he said pension funds would benefit as they would receive dividends tax free.

In the financial sector, there were too many products that were expensive, with participants in some investment vehicles losing up to 40 percent in charges at the end of the investment period.

While the state was driving the process to establish a mandatory statutory fund to provide pensions, life insurance and disability benefits, in the absence of such a fund, a large number of occupational and voluntary schemes had been established.

Many workers, primarily low income earners, were inadequately protected. The proposed national social security fund would be based on the principle of social solidarity, risk would be shared across the workforce and the state would back the fund.

The Treasury director-general, Lungisa Fuzile, reported in the Budget Review that alongside reform of the social security system, the government sought to encourage higher voluntary savings and improved retirement provision.

“Proposed reforms include mandatory preservation and portability, harmonisation of the tax treatment of contributions to retirement funds, reform of the annuities market and better incentives for saving.”

There would be consultation with trade unions, the industry and other interested parties during the year.

The South African state now supports nearly 16 million people on social grants with expenditure on this item rising from R105 billion in 2012/13 to R122bn in 2014/15.

Donwald Pressly

The state now supports nearly 16 million people on social grants, with expenditure on this item projected to rise from R105 billion in 2012/13 to R122bn in 2014/15.

Finance Minister Pravin Gordhan announced in his Budget yesterday that the monthly state old age pension and the disability and care dependency grants would rise by R60 a month to R1 200, and R1 220 for pensioners over the age of 75.

Foster care grants are set to increase by R30 to R770 a month and child support grants will be increased to R280 a month.

A community work programme will cost nearly R80bn over the next three years. There will be 332 000 people employed in this temporary works programme by 2014/15, up from just 90 000 in March last year.

At the same time, calls from the business sector for a youth employment subsidy have drifted off the government agenda, although last year Gordhan indicated that it would be a priority of the government. In yesterday’s Budget speech he mentioned it in passing.

Referring to the Nedbank/Old Mutual Budget speech competition winners who considered the question how South Africa might reduce youth unemployment, Gordhan said several great ideas had emerged.

One winner, Ian Mrozek, offered “an interesting variation on the idea of a youth subsidy… he proposes that it should go to new business start-ups as a tax incentive, which would encourage entrepreneurs and business innovation”.

Gordhan said it was right that South Africa should look for “many ways of supporting enterprise development” in many different settings and circumstances – in urban and rural areas and in agriculture, manufacturing and service sectors. He said the country had to move beyond debate and find the policy levers that would make a difference to the pace and dynamics of job creation across the entire economy.

He said reducing unemployment was at “the centrepiece” of the government’s approach to reducing poverty. Social spending made up nearly 60 percent of the state’s expenditure in the next year, up from 49 percent a decade back.

The government provided social grants to almost a third of the population, paid for largely free services at public health facilities and in no-fee schools for 60 percent of learners, while it also paid for housing, water and electricity in poor communities.

“The average value of the social wage for a family of four in 2012/13 was about R3 940 a month. This represents a substantial investment in household living conditions, financed through a broadly progressive tax structure,” Gordhan said.

Many moons ago the Competition Commission was established to investigate and fine companies that were involved in a collusive relationship to the detriment of the consumer.

Many moons ago the Competition Commission was established to investigate and fine companies that were involved in a collusive relationship to the detriment of the consumer.

It is now obvious that these companies involved in the fixing of prices saw in the commission a toothless bulldog that barks more than it bites.

What can one say, otherwise they would have immediately stopped their collusive conduct. However, it was business as usual for these firms.

These unlawful practices continue despite the fact that the watchdog has proved itself very effective in pursuing and punishing culprits.

This week Engen and Shell reached settlement agreements with the commission after admitting they colluded to fix the price of bitumen and agreed to pay penalties amounting to R55 million.

The collusion with other oil companies went on for nine years, despite the presence of the commission.

Since 2006, the commission has prioritised food and agro-processing because of the prevalence of cartels in the sector and the effect of anti-competitive behaviour in this sector on consumers, especially the poor. Two years ago, the commission found Pioneer Foods, the maker of Sasko bread, guilty for its role in a bread cartel and ordered the group to desist from such conduct.

Pioneer was involved in this collusion with other bread makers, including Tiger Brands (Albany), Premier Foods (Blue Ribbon) and Foodcorp (Sunbake).

Together the four bakeries enjoy a share of between 50 percent and 60 percent in the domestic bread market.

Tiger and Foodcorp negotiated leniency from the commission in which they agreed to pay fines and desist from the conduct.

Pioneer thought it could fight the case alone and ended up being fined R195 million, which was 10 percent of Sasko’s national bread turnover in 2006.

The Competition Tribunal said in its decision that hard core cartel activities were considered the most egregious offences under the Competition Act.

Tourism

Marthinus van Schalkwyk has so far proved to be the most effective Minister of Tourism this country has ever had – possibly because he appears to be the first to appreciate the sector’s importance as an earner of foreign exchange as well as a source of a huge variety of jobs.

Former ministers in that portfolio actually limited arrivals of foreign tourists by discouraging attempts by British airlines to increase their flights to this country.

Van Schalkwyk is certainly hard-working. This month he has visited India and China to promote South Africa as a travel destination – he rushed from Mumbai to Beijing using different (foreign) airlines to meet SAA’s first direct flight to the Chinese capital.

And before that he was in Australia, which, with its growing economy and strengthening currency, is described by his department as a “crucial” source of tourism for this country.

His three-day visit to Sydney and Melbourne included a speech at the annual Asia-Pacific Incentives and Meetings Expo in which he urged the travel trade to come to its South African equivalent, Meetings Africa, in the Sandton Convention Centre next week.

According to the Department of Tourism a surprising number of more than 84 000 Australians visited this country in the year to October last year, when tourism from Europe declined because of recessionary conditions there and because there is normally a slack period following the hosting of a major event such as the Fifa World Cup.

Many of them were probably fairly new Australians – former South Africans visiting family – which would help to explain a surprising variation between the number of passengers who arrived at our airports in the past year and the shortage of guests in our hotels in the first nine months. But even if they stayed with family or friends they supported our economy by spending while they were here.

The hotels are doing much better now, prompting Cape Town Routes Unlimited, the tourism promotions organisation for the Western Cape, to say that this summer would prove to be our best tourism season ever, while Airports Company South Africa (Acsa) announced this week that its three main airports handled 9.2 million passengers in the first two months of the holiday season.

Solomon Makgale, Acsa’s group communications manager, said most of these had arrived or left from Cape Town, where passenger numbers grew by 12 percent in November and 17 percent in both December and January, or from Durban where there were 10 380 additional visitors and international travel grew by 105 percent, with an average flight occupancy of 95 percent during the international conference on climate change.

According to communications staff at Cape Town International Airport, large numbers of tourists are still arriving.

Edited by Peter DeIonno. With contributions by Wiseman Khuzwayo and Audrey D’Angelo.

n Gary Ronald, the head of public affairs, AA: “We are convinced that despite the latest offering from the government, the cost to the consumer, as far as the Gauteng tolls are concerned, is going to hit home hard when commodity prices increase as well as transport costs.

n Gary Ronald, the head of public affairs, AA: “We are convinced that despite the latest offering from the government, the cost to the consumer, as far as the Gauteng tolls are concerned, is going to hit home hard when commodity prices increase as well as transport costs.

“It is the Automobile Association’s (AA’s) belief that a dedicated road fund be established or, at the very least, money collected through the fuel levy be ring-fenced for transport, road safety and transport infrastructure projects.”

n Cliff Watson, the executive tax manager, Grant Thornton Johannesburg: “The special appropriation of R5.8 billion towards the debt related to the project is encouraging. The idea of the halving and capping of these fees is welcomed. However, it should be taken into account that a person with an e-tag would need to travel approximately 1 833km a month… to reach the cap of R550 a month.” page 10

President Jacob Zuma has given us a clear and historic challenge to “write a new story about South Africa – the story of how, working together, we drove back unemployment and reduced economic inequality and poverty”.

President Jacob Zuma has given us a clear and historic challenge to “write a new story about South Africa – the story of how, working together, we drove back unemployment and reduced economic inequality and poverty”.

This Budget has been crafted at a challenging but hopeful time. Economic uncertainty will be with us for some time, yet we have a programme of economic change that can steadily roll back unemployment, poverty and inequality.

We have demonstrated excellent resilience during the post-2008 crisis. We now need to introduce dynamism among all South Africans. It requires extraordinary national effort from all role players, committed not just to identifying the barriers to progress, not just to proposing solutions, but also working together over the long haul.

Our new story, our period of transition, is about building modern infrastructure, a vibrant economy, a decent quality of life for all, reduced poverty and decent employment. It is a story that must be written by all of us. Not just by the government. Not just by business. Not just by unions. South Africans from all corners of this country.

The legacy of our past is not only that of difficulty and despair. We can draw pride from the celebration of the ANC’s centenary, and build on this past to get things done today. The idea of unity in action, working together to realise practical goals, must be revived. The idea of an active citizenry, drawn into motion by dedicated activists and inspired by a compelling vision of the future, has to be renewed.

Every one of the past 100 years has seen our nation overcome obstacles. Some may have been beyond our control, the result of changes to which we were compelled to adjust. Some were the result of our failure to act, even when the solutions were known to us. Others were the unintended consequences of our own successes.

A towering leader of our movement, Walter Sisulu, wrote from his prison cell on Robben Island: “In a certain sense, the story of our struggle is a story of problems arising and problems being overcome. It is understandable that many of the problems should generate much controversy and emotion. However cool and detached we may strive to be in our analysis, the fact remains that we are deeply involved and interested parties and the solutions we adopt are solutions we ourselves have to implement.”

We will not turn away from our challenges. We must confront them boldly, and with hope. In harnessing all the resources at our disposal, we have to do more, with less; we must work smarter and harder. South Africans must focus on our strengths and opportunities, to identify and activate the levers of economic and social change at our disposal.

The president has given effect to the wisdom of Walter Sisulu; through the work of the Planning Commission this country now has a 20-year vision. We now have a massive infrastructure plan also extending over 20 years, which will increase the job-creating potential of our economy.

Big issues

We remain steadfast in addressing the challenges of creating jobs, cutting poverty, building infrastructure and growing our economy. In brief, we advise the following:

n The global environment remains highly uncertain. While there are signs of a revival in the US economy, Europe is in recession, and huge risks cloud the global economic outlook.

n South Africa’s finances are in good health. A budget deficit of 4.6 percent of gross domestic product (GDP) is projected in 2012/13. We plan to cut the deficit to 3 percent of GDP in 2014/15, and public debt will stabilise at about 38 percent of GDP.

n An expansion in infrastructure investment is a central priority of the 2012 Budget.

n Special emphasis is given to improving competitiveness in industry, investment in technology, encouragement of enterprise development and support for agriculture.

n Total spending will reach R1.1 trillion next year, representing some 32 percent of GDP.

n Education, health and social assistance will remain the largest categories of expenditure, sustaining and expanding the social wage over the medium-term expenditure framework (MTEF) period ahead. Investment in people is at the centre of our growth and development strategy.

n Job creation will be supported, with a particular focus on unemployed youth.

n A personal income tax relief of R9.5 billion will be provided, with further measures to increase tax compliance.

n Measures are proposed to invigorate household savings.

n We will strengthen financial management in the public sector, pursue value for money with the greatest possible vigour and ensure that taxpayers’ money is well used.

n Fraud and corruption will be combated with changes to procurement policies and practices and tough law enforcement.

Giving the budget practical effect cannot be a project of the government alone. In Setswana, we say “Mabogo dinku a thebana”, meaning “we have to work together to achieve more”.

The government has supported the recovery from the 2008 recession, but as we expand infrastructure investment, we have to see business investing in our future.

The government has expanded social assistance to households over the past decade, but employment and economic growth have to be the main future drivers of income growth and poverty reduction.

The government is responsible for developing effective municipalities and broadening access to services, but business, civil society and organised labour have to be partners in building cohesive communities and promoting social solidarity.

And so, in tabling the 2012 Budget, we have to say: this is what we undertake to do, not just as the government, but as a nation. Our development requires every one of us to ask – what can I do for my country, my people, our future!

World is changing

A historic shift in economic power is taking place.

n In 2012, global output is projected to expand by 3.3 percent. Advanced economies are expected to grow 1.2 percent, while developing Asia will grow by 7.3 percent and sub-Saharan Africa by 5.5 percent.

n Negative growth is forecast for the euro area, impacting on trade in many other economies.

n In the past 5 years, China has expanded by 60 percent and India by 45 percent. Advanced economies barely show positive growth. A recent World Bank study argues that “new growth poles are redefining the global economic structure”. This study predicts that emerging economies will grow on average by 4.7 percent a year, while advanced ones will grow 2.3 percent between 2011 and 2025.

n The speed of change is unprecedented and places emerging economies at the centre of the global economy. The evolving world we face presents us with both challenges and opportunities. To succeed in this environment, we have to seize the opportunities. As a major mining economy, we should be benefiting more from the continued buoyancy in commodity markets internationally.

We need to take advantage of rising demand for agricultural and manufacturing goods. Some 85 million manufacturing jobs in China will shift to other countries in the years ahead. Do we have the right policies, conditions and boldness to enable local businesses to gain from these immense shifts in the patterns of production and trade?

There are expanding opportunities in Africa, the second-fastest growing region in the world. This growth is sustained by high commodity prices, but also reflects a youthful, increasingly educated population, rapid urbanisation and a new entrepreneurial spirit. Ten years ago there were fewer than 10 million internet users in Africa. Today there are 100 million.

As well as developing South African business interests in the continent, we should use the strength and sophistication of our financial system to turn us into a gateway for investment into, and development of, Africa.

Both the National Development Plan and the New Growth Path recognise that to compete in the global economy requires flexibility, innovation and leadership, in government and the private sector. We have to build an adaptable economy. This requires dynamic partnership between the government, the private sector and civil society.

At the same time, the crisis and its aftermath have revealed intractable problems in the old system. Growing inequalities in income and wealth have undermined economic growth and social well-being. The difficult task of moderating and reversing inequality requires active government intervention. Unregulated capitalism is clearly in crisis.

What to expect

In building partnerships that will take us through this crisis, we have to implement a strategy for faster and more inclusive economic growth. We are not doing well enough in growing our economy and creating jobs for our young people.

n The South African economy has averaged 3 percent growth a year since 2009. Against the background of the slowdown in the global economy, real GDP growth is likely to fall to 2.7 percent in 2012.

n We expect a recovery to 3.6 percent and 4.2 percent growth in 2013 and 2014, but these are modest rates of expansion relative to the social and developmental challenges we face and the opportunities that our mineral wealth and human capabilities offer.

n On present trends, the deficit on the current account of the balance of payments will widen from 3.3 percent in 2011 to 4.4 percent GDP in 2014.

n There was a welcome recovery in job creation during 2011, but employment has not yet returned to its 2008 peak and the unemployment rate remains high at 23.9 percent.

2030 vision

Through Zuma’s leadership we have a vision for our country and our economy – where we want to get to in the next 20 years. Our New Growth Path recognises that special employment initiatives have to be a priority in our present circumstances, while in the longer term growth in agriculture and manufacturing, and investment in a knowledge-based economy must be prioritised.

The draft National Development Plan identifies several key objectives:

n Lowering costs for both households and business;

n Increasing public infrastructure spending;

n Growing our manufacturing and agricultural sectors;

n Raising mining output;

n Improving the functioning of the labour market, particularly to help young people access work; and

n Raising competitiveness and exports.

In each of these areas there are steps proposed over the three years ahead. Our development strategy requires a capable state, and active citizens. We need parents to work with the state to deliver quality education, community leaders that will help protect neighbourhoods; business leaders and trade unions to grow the economy; and investors to create jobs. In isiZulu, “Uzothola kanjani uhleli ekhoneni”, meaning “how far will you get if you are sitting in your corner?”.

Levers of change

If we are to succeed in putting our economy on a more rapid and inclusive growth path to 2030, we need to effectively direct and manage the levers of change – levers that activate both public and private sector energies and capabilities. These include:

n Our public-sector infrastructure programme;

n Support for industrial development and special economic zones;

n Investment in science and technology;

n Support for emerging farmers and beneficiaries of land reform;

n Expansion of employment programmes; and

n Improvements in further education and skills development.

Fiscal framework

A sustainable fiscal framework, based on the principles of counter-cyclicality, debt sustainability and intergenerational equity underpins our growth strategy.

We can be proud of the collective wisdom and will of our government in making the tough decisions that have kept our fiscus on a sustainable track. Reprioritisation, savings, haircuts – these have been executed with singular determination. The consolidated resources available to the state over the MTEF period amount to R4.5 trillion, taking into account the investment plans of state enterprises and development finance institutions.

Key features of the budget framework include:

n Real growth in non-interest expenditure averaging 2.6 percent over the medium term, bringing spending in line with long-term revenue trends;

n Additional allocations of R55.9bn over the next three years, including R9.5bn for an economic support package;

n Tax revenue stabilising at about one-quarter of GDP;

n A cut in the budget deficit from 4.8 percent in 2011/12 to 3 percent in 2014/15.

n A public-sector borrowing requirement of 7.1 percent of GDP in 2011/12, declining to 5 percent in 2014/15 before rapidly rising again as the infrastructure plan of the government accelerates.

By phasing in our fiscal consolidation over the medium term, we avoid the social and economic dislocation associated with more rapid adjustments, while still stabilising the fiscal position without burdening the economy and future generations with huge debt.

Infrastructure fund

The Presidential Infrastructure Co-ordinating Commission (PICC) has made progress in identifying projects and clarifying long-term investment plans to drive economic change.

The Budget Review lists 43 major infrastructure projects, adding up to R3.2 trillion in expenditure. Over the MTEF period ahead, approved and budgeted infrastructure plans amount to R845bn, of which just under R300bn is in the energy sector and R262bn in transport and logistics projects. These projects are funded in various ways:

n The fiscus meets the costs of public-service facilities such as schools and courtrooms, hospitals and rural roads.

n Public entities such as Eskom and Transnet finance their investments from internally generated surpluses and borrowing from the capital market. This means they have to generate sufficient revenue from tariffs and charges to repay debt over time, and cover operating and maintenance costs.

n A mix of tax finance and cost recovery in some cases.

n Private sector investment plays a substantial role in several sectors. Access to telecoms services is financed by private operators, and our airlines industry has several private sector players. The first round of over 1 200 megawatts of renewable energy projects was recently successfully tendered to independent power producers. Private sector capacity can also be mobilised through construction and operating concessions.

n The Development Bank of Southern Africa will play a coordinating role in raising finance, in partnership with multilateral finance institutions, foreign investors and other investment funds. The Industrial Development Corporation similarly invests directly in income-generating projects, in partnership with other investors.

South Africa has deep and liquid capital markets, through which long-term capital can be raised at competitive rates by the government, state enterprises and the private sector. Our development finance institutions are capable of raising capital and co-financing investments of the private sector, state entities and municipalities. These are considerable strengths – they mean that we do not have to rely on expensive external finance or complex structured arrangements.

But the key consideration is the impact and economic viability of our infrastructure investments. The PICC will ensure expert project assessment, subject to appropriate standards of review and public accountability – a critical requirement before investment decisions are taken.

No good project will be short of funding.

Infrastructure plan

We are aware of several weaknesses in the state’s infrastructure capacity. In the past, spending has lagged behind plans. Our estimate is that in 2010/11, R178bn was spent out of a planned R260bn, or just 68 percent. We have to do better than that – state enterprises, municipalities and government departments all need to improve their planning and management of capital projects.

In addition to long delays, we have often experienced significant cost overruns in infrastructure projects. So we shall step up the quality of planning, costing and project management, so that infrastructure is delivered on time, and on budget.

This means that government departments and municipalities that do not spend, underspend or misspend their allocated funding, will risk losing the allocations. The relevant officials will also be held liable for such misdemeanours. The Treasury will proactively monitor the spend of grants to ensure value for money, adherence to Expanded Public Works Programme targets and implementation of operational and maintenance programmes.

Several measures are in place to improve infrastructure project implementation and build management capacity.

n Within state-owned entities, development finance institutions and the private sector, considerable capacity is already mobilised in project planning and management.

n The Infrastructure Development Improvement Programme assists national and provincial departments, focused largely on education and health projects and support for provincial public works departments. The Construction Industry Development Board has played a key role in developing standards and procedures for government tenders.

n A new Cities Support Programme will get under way this year, initially in eight metropolitan authorities, focused on improved spatial planning, public transport systems and management of infrastructure utilities.

n The Municipal Infrastructure Support Agency will be established by Minister Richard Baloyi this year, focused on rural municipalities that lack planning capacity.

n Technical assistance to municipalities is also provided through the neighbourhood development plan, which supports 220 projects aimed at catalysing business investment in township partnership projects.

n The infrastructure skills development grant supported 150 graduate interns in engineering and spatial planning in 2011/12, and will extend to a further 43 municipalities over the period ahead.

n Special attention will be given to the procurement processes for major infrastructure projects, to ensure both value for money and development of local suppliers and support industries.

Training and mentorship schemes have a critical role to play in addressing capacity constraints of departments and municipalities. But professionalism, hard work and commitment to value for money are preconditions for successful project delivery. There can be no compromise on the basic principles of sound financial management in ensuring that resources are mobilised efficiently to serve our people.

A capable state focussed on delivery requires a passionate and patriotic public service – without those few individuals whose only desire is to profit from the state.

Toll taking

The underlying principles are that the tax system should be fair, efficient, transparent, certain – and, where possible, uncomplicated. Tax revenue recovered during 2010/11 and 2011/12, following a decline in 2009/10 during the global recession. Although tax revenue is slightly lower than our estimate in February last year, the revised estimate for 2011/12 of R739bn is R10bn higher than projected in last year’s Medium Term Budget Policy Statement.

This year’s tax proposals:

n Personal income tax relief of R9.5bn, which takes account of inflation and provides modest real tax relief.

n As from March 1, 2012, the tax credit for contributions to medical schemes will be introduced, at a rate of R230 a month for the first two beneficiaries and R154 each for additional beneficiaries. Taxpayers 65 years and older and people with disabilities will be included in the second phase of this reform, which will be implemented in 2014. These reforms will significantly improve the fairness of the personal income tax system.

n Reform of the tax treatment of contributions to retirement funds is also envisaged, to take effect in 2014. To encourage voluntary savings, consideration is given to the introduction of tax-exempt short- and medium-term savings products.

n The secondary tax on firms will be terminated in March and a withholding tax on dividends will be implemented in April. This will align South Africa’s tax treatment of dividends with that in most other countries. Pension funds will benefit from this transition as they will receive dividends tax free. The dividend tax will be introduced at 15 percent.

n The introduction of capital gains tax (CGT) in 2001 was an important step in broadening the tax base. To reduce the scope for tax arbitrage and broaden the tax base further, the CGT inclusion rate for individuals and special trusts will be increased in March from 25 percent to 33.3 percent, and for companies and other trusts from 50 percent to 66.6 percent. To mitigate the impact on middle-income earners, the various exclusion thresholds are increased.

n Good news: there will be further tax relief for small businesses and microenterprises.

n In the corporate tax environment, further steps will be taken to limit excessive debt financing. Amendments to the mark-to-market taxation of foreign currency and other financial instruments will be phased in and the governance and tax treatment of property loan stock entities will be aligned with the present treatment of regulated property unit trusts

Tax relief is proposed for housing developers and employers who provide housing below R300 000 a unit.

n The minister of trade and industry has published draft legislation to provide for the creation of special economic zones. Tax relief is under consideration for businesses that invest in these zones.

n A revised policy paper on a carbon tax will be published this year for a second round of public comment and consultation. As set out in the Climate Change Response White Paper approved by the cabinet in 2011, the need to price carbon emissions and the phasing in of a tax instrument for this purpose are accepted.

n The levy on electricity generated from non-renewable sources will increase from July and will replace the current funding mechanism for energy efficiency initiatives. There should be little overall impact on electricity tariffs.

n The general fuel levy on petrol and diesel will rise with effect from April, as will the Road Accident Fund.

n The Square Kilometre Array radio telescope project will qualify for VAT relief.

n It is proposed that a national tax based on gross gambling revenue be introduced from April. A similar base will be used to tax the national lottery.

n Duties on tobacco products will rise between 5 percent and 8 percent this year. In beer and spirits, an increased benchmark tax burden is proposed, to be phased in over two years.

n South Africa has a financial transaction tax on securities transfers, at a rate of 0.25 percent. It is proposed that the current exemption for brokers should be abolished. Transactions for the broker’s benefit will be taxed at a lower rate.

The inclusion of financial derivatives in the base of the securities transfer tax is also under consideration.

Tax admin

Whereas several nations are confronting severe austerity measures and significantly higher taxes, we are able to propose tax relief of R2.3bn overall, partly on the strength of our tax policy and administration, and in part because millions of South Africans pay their taxes and duties in full and on time.

The recent Voluntary Disclosure Programme has attracted about 18 000 applications, and has yielded almost R1bn in additional tax so far. It has also provided useful insights into areas of non-compliance that will receive focused attention.

Poor tax compliance is also apparent in respect of trusts and in parts of the construction sector, and the role of tax practitioners and other intermediaries will come under scrutiny.

Within the trade environment, customs officials will continue to focus attention on under-valuation of imports, especially in textiles, using a reference price database which industry is helping to update.

Since April, 230 taxpayers have been prosecuted for tax-related offence. A further 1 500 tax-related cases await prosecution with the National Prosecution Authority. Since April 2011 more than 700 000 taxpayers have been penalised for failing to submit an income tax return on time as required.

These and other measures have increased the proportion of on-time submission. The SA Revenue Service received 5 million returns during the most recent tax season – 23 percent more than the year before.

The Tax Administration Bill has been approved by Parliament. It incorporates the common administrative elements of current tax law into one piece of legislation, and makes further improvements in this area. The bill is expected to be promulgated and most of its provisions brought into force in 2012. During 2012, South Africa will establish a dedicated ombudsman for tax matters.

Medium-term spend

In our spending recommendations, we have taken advice from Amanda Mzulwini: “I think that you should spend money on things that matter, like improving health care, building more schools in the rural areas and building clinics.”

n Job creation is a central priority. An additional R4.8bn over the 2012 MTEF period is provided for the expanded public works plan, bringing its allocation to a total of R77.8bn.

n Spending on education will grow from R207bn in 2012/13 to R236bn in 2014/15. Additional allocations of R18.8bn over the medium term are accommodated.

n Medium-term priorities in health include hospital infrastructure, the comprehensive HIV/Aids treatment and prevention programme, and expanding health professional training. Progress in these areas will strengthen the public health system, paving the way for the introduction of national health insurance. The health sector is allocated an additional R12.3bn over the next three years. R1bn is allocated for National Health Insurance pilot projects and increasing primary health care visits.

n Social welfare priorities include the early childhood development and Isibindi childcare and protection programmes. These beneficial initiatives are allocated an additional R1.4bn over the MTEF. Expenditure on social grants will grow from R105bn in 2012/13 to R122bn in 2014/15.

n The budget for transport, energy and communication services increases from R84bn in 2012/13 to R98bn in 2014/15, rising by an annual average of 8.4 percent. An additional R4bn is allocated to the Passenger Rail Agency of South Africa to purchase coaches. The agency will also receive R1bn to build three depots and upgrade signalling.

n Energy’s focus is on demand-side management to address limited supply until new generation capacity comes online. An additional R4.7bn is allocated to complete the installation of 1 million solar water geysers.

n Investment in municipal infrastructure and human settlements will grow from R120bn to R139bn. Additional allocations of R9.9bn over the medium term are proposed.

n Allocations of R15.8bn are provided for economic services and environmental protection. The Department of Trade and Industry receives the bulk of this funding – R5.8bn for the manufacturing competitiveness enhancement programme and R2.3bn for industrial development and special economic zones. And R1.9bn goes to the Department of Agriculture, Forestry and Fisheries to improve agricultural support services. The Land Bank receives R1bn to conclude its recapitalisation.

n The Science and Technology Department’s spend swells to R12.1bn in 2014/15.

n The Department of Home Affairs receives funding for an integrated computer system and upgrading border post infrastructure and housing.

n Defence, public order and safety will grow from R140bn to R158bn. The sector receives R7.6bn to boost service, staff numbers and infrastructure.

n National Health Insurance is to be phased in over 14 years. The new system will require funding over and above current budget allocations to public health. An additional revenue source will be needed in 2014/15 amounting to R6bn in that year.

n The introduction of tolling to finance the Gauteng Freeway Improvement Programme has caused considerable public reaction. The total debt associated with the project is R20bn. To contribute to a further cut in the toll burden, a special appropriation of R5.8bn is proposed, to be included in 2011/12 expenditure.

Fraud

The Treasury has issued new laws that require departments to submit annual tender programmes, limit variations to orders, and require disclosures of all directives. Progress is being made in identifying and dealing with those who have abused the system.

A procurement officer will monitor procurement across the government. The tax clearance system will be strengthened to ensure that those who have defrauded the state cannot do business with the state.

We need stronger rules, as the government, to improve financial management capability across national and provincial departments.

Finance growth

Progress is being made on several financial sector reforms. There is now agreement between stakeholders on enhanced targets for empowerment financing and access to financial services. A revised financial sector charter code will be gazetted shortly for public comment.

But high costs in savings products undermine the national objective of getting our people to save more. The financial industry must take more urgent steps to reduce costs and introduce more appropriate products, including annuities.

Business growth

Initiatives in progress to strengthen support for business sector growth include small enterprise financing and a simplified tax regime for small businesses. The National Tooling Initiative is under way.

Given the current global economic context, there is understandable caution in the business sector about investment and future growth prospects. Many firms have accumulated large cash balances instead of investing them or distributing to shareholders.

The time has come to confront uncertainty – from government’s side, we are committed to an environment that will encourage business investment; from the side of business, we seek investment for the long term, enhanced competitiveness and training commitments.

Spend on new jobs

This time last year, funding was allocated to a new jobs fund. Project allocations of R1bn have been committed, and a second round of project applications will be announced shortly. We released a discussion paper proposing a youth employment incentive last year. It is under discussion at Nedlac, where the labour constituency has expressed reservations. In our view these concerns can be addressed in the design and implementation of the incentive. We would all like to see greater urgency in resolving this matter.

Poverty, inequality

Reducing unemployment is the centrepiece of our approach to reducing poverty, but it is not the only measure. Social spending comprises 58 percent of government expenditure next year, up from 49 percent a decade ago. The budget gives social grants to almost a third of the population, it pays for largely free services at public health facilities and no-fee schools for 60 percent of learners, and it pays for housing, water and electricity in poor communities.

Social security reform and the phasing in of National Health Insurance will improve the effectiveness and coherence of redistribution through the fiscus. But of course, redistribution is not a substitute for economic growth and job creation. And so the quality of the poverty reduction we achieve over the decades ahead will depend on our success in broadening development to include historically disadvantaged sectors and communities, as envisaged in our New Growth Path and draft Development Plan.

Now it’s our turn

We have a budget that gives effect to the challenges our president has set us – to accelerate growth, expand investment, support economic development and confront poverty and inequality.

In former president Nelson Mandela’s words: “The future of our country is in your hands. It will be what you make of it today. In the competitive international market place to which we are opening our economy, success and even survival of the nation will depend on you.”

This is an edited version of the speech.

Wealthy individuals are targeted in several ways in the 2012/13 Budget presented yesterday by Finance Minister Pravin Gordhan, but personal income taxpayers are to get R9.5 billion worth of relief overall. Gordhan said the adjustments took account of inflation and provided modest real tax relief to the average taxpayer.

Ethel Hazelhurst

Wealthy individuals are targeted in several ways in the 2012/13 Budget presented yesterday by Finance Minister Pravin Gordhan, but personal income taxpayers are to get R9.5 billion worth of relief overall. Gordhan said the adjustments took account of inflation and provided modest real tax relief to the average taxpayer.

To compensate for the revenue forgone, people who derive income from capital will pay more.

The Budget Review notes: “High-income individuals tend to receive a larger portion of their income in the form of dividends and capital gains.”

With this in mind, Gordhan has raised the effective tax rate on capital gains and has introduced a higher-than-expected dividends tax, which replaces the secondary tax on companies (STC) at the beginning of April this year.

Capital gains tax (CGT), which was introduced in 2001 at an effective 10 percent for individuals, will increase to 13.3 percent. But, to cushion the effect on middle-income households, the exemption threshold for CGT and for primary residences has been adjusted “significantly”.

For individuals, the annual exclusion on CGT will rise from R20 000 to R30 000, as from next month; on death it will increase from R200 000 to R300 000. The primary residence exclusion will go up from R1.5 million to R2m and on the disposal of a small business for a person over the age of 55 from R900 000 to R1.8m.

In a press conference ahead of the Budget, the minister pointed out that this was the first increase in CGT and said it would not be a recurring feature of the Budget.

At the same time, the dividend-withholding tax will be introduced at 15 percent, 5 percentage points higher than the rate of STC which it replaces.

The higher rate of withholding tax versus STC will help mitigate some of the R1.9bn in revenue losses due to the switch from STC.

Pension funds that are exempt from income tax will receive their dividends tax-free.

There are tax breaks for lower income people. For those below the age of 65, the tax threshold has been raised from R59 750 to R63 556, while for people aged 65 and over the increase is from R93 150 to R99 056. For people over 75 – a concession introduced last year – the threshold has risen from R104 261 to R110 889.

Medical tax credits will replace medical deductions from March 1. They are described as a more equitable form of relief, as the relative value of the relief does not increase with higher income levels.

And individuals will see the tax bill cut as they can claim as tax deductible contributions by both themselves and former employers who continue to contribute to medical aids.

A rise in fuel levies will impose an additional burden on companies and households. The general fuel levy on petrol and diesel will be increased by 20c a litre from April – petrol to R1.975 and diesel to R1.825. And the Road Accident Fund levy is to go up by 8c to 88c a litre.

Company tax remains at 28 percent. However, firms no longer have to pay STC, which pushed their effective tax rate well over 30 percent.

The proposed changes will have both negative and positive effects on the flows to the fiscus. But the net effect will decrease estimated total tax revenue by R2.3bn.

There is a time bomb waiting in the future. The Budget Review notes that the National Health Insurance will “over time require additional funding over and above current budget allocations to public health”.

“Funding options include an increase in the value-added tax rate, a payroll tax on employers, a surcharge on the taxable income of individuals or some combination,” the review says. A discussion paper is to be published by end of April.

Dealing with administrative issues, Gordhan noted the recent voluntary disclosure programme had attracted 18 000 applications and yielded almost R1bn. He warned that the role of tax practitioners and other intermediaries would come under scrutiny.

“Analysis of compliance among the country’s 34 000 tax advisers shows practitioners owe over R260m in outstanding taxes and have 18 000 income tax returns outstanding in their personal capacity.

The SA Revenue Service has launched an offensive against errant taxpayers. Gordhan said: “Since April, over 230 taxpayers have been successfully prosecuted for tax-related offences totalling 370 years and nearly R5m in fines. A further 15 000 cases await prosecution.”

A dedicated ombud will be set up for tax matters to “provide taxpayers with a low-cost mechanism to address administrative difficulties”. page 7

Much meat was added yesterday to President Jacob Zuma’s announcement in his State of the Nation speech that the government would focus in the medium term on infrastructure spending, with Finance Minister Pravin Gordhan reporting that R3.2 trillion worth of infrastructure projects were under consideration over eight years.

Donwald Pressly

Much meat was added yesterday to President Jacob Zuma’s announcement in his State of the Nation speech that the government would focus in the medium term on infrastructure spending, with Finance Minister Pravin Gordhan reporting that R3.2 trillion worth of infrastructure projects were under consideration over eight years.

He stressed that, over the three-year medium-term framework, expenditure would total nearly R850 billion, and a further R108bn by state-owned transport utility Transnet would take that spending to nearly R1 trillion.

Over seven years, Transnet would spend about R300bn, the bulk of it on the freight rail network, capacity upgrades on the iron ore and coal export lines, modern rolling stock and infrastructure refurbishment.

Among major infrastructure projects that were “in the concept, pre-feasibility and feasibility stages” was Eskom’s nuclear build. It is envisaged that at least three nuclear plants will be added to the existing plant at Koeberg to generate 9 600 megawatts, to be completed by 2029.

A R200bn project to produce 40 000MW of hydroelectricity on the Inga River – dubbed Grand Inga – was being considered with the government of the Democratic Republic of Congo.

Treasury director-general Lungisa Fuzile said South Africa was “assessing support options”.

Another big project in the feasibility stage is a solar park, to be managed by the Central Energy Fund, in the Northern Cape with an estimated cost of R200bn.

Project Mthombo, a proposed crude oil refinery associated with state oil and gas company PetroSA, is being considered at Coega in the Eastern Cape.

Fuzile said a feasibility study was under way “for a smaller-sized refinery”.

As mentioned in the president’s address earlier this month, universities are being considered in two provinces that do not have them, Mpumalanga and the Northern Cape. Funding of R20bn is committed for the development of the two campuses.

But Gordhan emphasised that all public sector infrastructure projects “will be subject to rigorous assessment to determine their feasibility. Not all of the R3.2 trillion of infrastructure projects under consideration will be approved for implementation. Government will choose the most cost-effective projects that provide optimal long-term benefits.”

The minister also acknowledged in his Budget speech that the Treasury was aware of “several weaknesses” in the state’s infrastructure capacity. “In the past, spending has lagged behind plans. Our estimate is that in 2010/11 R178bn was spent out of a planned R260bn,” he said.

In an apparent reference to the Eskom coal-fired power stations at Kusile and Medupi, he said in addition to long delays “we have often experienced significant cost overruns in infrastructure projects. So we shall step up the quality of planning, costing and project management, so that infrastructure is delivered on time and on budget.”

The Budget noted that Kusile’s project cost was R121bn and Medupi just short of R100bn.

One of the biggest projects currently in the pipeline is the R120bn 3 725MW renewable energy project managed by independent power producers, which will start feeding into the grid by 2016. Fuzile reported that the tender process was under way with 1 415MW of bids confirmed in the first procurement round.

Municipalities that under-spent or misspent their allocated funding “will be at risk of losing the allocations”. The relevant officials would also be held liable for such misdemeanours.

“National Treasury will be proactively monitoring the spending of grants to ensure value for money.”

Gordhan said some R75bn would be spent on water projects in the medium term.

Among the bigger water projects is the R16bn Olifants River water project, with construction of a dam and bulk distribution to be completed within four years. Dam construction is nearly complete with distribution design negotiations in progress.

The Mokolo-Crocodile water augmentation project is in the first phase to deliver water in two years. Fuzile said the second part of the financing phase for the R15bn project was “in progress”.

Transport infrastructure will be beefed up by about R165bn over the medium to long term. Procurement had commenced in the R80bn project to acquire a new fleet of rolling stock for passenger railways, run by the Passenger Rail Agency of SA.

Some R45bn will be spent on roads administered by the SA National Roads Agency, which is responsible for maintaining and expanding the 16 170km national road network. Some R25bn would be spent on expansion and R18bn on maintenance.

Ann Crotty

The government is continuing to look into ways of addressing its concerns relating to the extensive tax leakage the fiscus has suffered as a result of complex corporate restructurings that use section 45 of the Income Tax Act.

It intends revising the reclassification rules to restrict the tax leakage resulting from the use of debt in corporate restructurings and is looking at placing a ceiling on interest deductions.

Last year, in a move that caused much consternation within the corporate finance community, the Treasury announced it was suspending the use of section 45 for the implementation of corporate restructurings. The suspension was lifted after a few months and limited restrictions were introduced.

In the Budget Review, the Treasury referred to last year’s public debate, which it said highlighted the need to improve the classification of corporate financing.

“The main problem is the erroneous classification of certain instruments as ‘debt’ to generate interest deductions for the debtor when such instruments more accurately represent equity financing.”

It noted that in some private equity transactions, where creditors receive exempt interest income, the deductibility of interest payments deprives the fiscus of revenue.

“Excessive debt can also give rise to excessively risky transactions that may represent ‘credit risk’ for the domestic market,” it noted.

In addition to revising its classification rules, “in 2013 government will also consider an ‘across-the-board’ percentage ceiling on interest deductions, relative to earnings before interest and depreciation, to limit excessive debt financing”.

“Section 45 has been used as an indirect acquisition technique to facilitate the deduction of interest payments by allowing debt to be formally matched against underlying assets as opposed to shares… it is now proposed that the use of debt to directly acquire controlling shares, interests of at least 70 percent be allowed.”