WEDNESDAY, 20 FEBRUARY 2002 __

                PROCEEDINGS OF THE NATIONAL ASSEMBLY
                                ____

The House met at 14:02.

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, Mr President, Deputy President, Cabinet colleagues, hon members, ladies and gentlemen, our dear friends, at home or at work, sharing this afternoon with us, thank you for the time that you are giving us today. For those privileged to be in the House and chewing, they will know that there is nothing as sweet as South Africa’s hanepoot grapes. [Laughter.] [Applause.]

The philosopher Richard Rorty writes:

In my utopia, human solidarity would not be seen as a fact to be recognised by clearing away ``prejudice’’ or burrowing down to previously hidden depths but, rather, as a goal to be achieved. Is it to be achieved not by inquiry but by imagination, the imaginative ability to see strange people as fellow sufferers. Solidarity is not discovered by reflection but created. It is created by increasing our sensitivity to the particular details of the pain and humiliation of other, unfamiliar sorts of people.

Introduction - creating solidarity

The Budget we present today seeks to embody a philosophy that lies deep in the struggle that has brought us together in this democratic assembly. It is a philosophy of people affirming the things that they share with others above those that set them apart, relying not on abstract concepts and ideas to build our community, but seeking to anchor it to daily solidarities expressed in deeds and actions, of which this Budget is only one, but a particularly visible, example. This solidarity does not appear out of thin air, but is nurtured and sustained through ``the imaginative ability to see strange people as fellow sufferers’’, as Rorty wrote, and this in turn nurtures and sustains us. This solidarity that saw us through the centuries of oppression instilled in us that imaginative capacity to identify with the suffering in our midst. But that was already part of us when we stepped back from the precipice - oppressor and oppressed - and began the long journey toward a better life for all. This is the solidarity of which I speak. This is our legacy.

We know that the society to which we aspire - compassionate, democratic, egalitarian - will not come about by belief alone. It is a society we seek to create. We create it in our communities when a person who has never had running water opens a tap in her own back yard, when a family turns on an electric light for the very first time. We create it in our region when we join in a contracts with others, seeking to negotiate a new partnership for the sustainable development of the continent.

We seek its global embodiment in an international order committed to the eradication of poverty, not because poverty is the presumed seed-bed of terrorism, but because we are all enriched by affirming the dignity and recognising the potential of others. [Applause.]

As we table the 2002 Budget before this House today it is therefore appropriate that we take some time to reflect on the developments in the global economy. The past two decades were characterised by unbridled optimism fuelled by the longest period of growth in the United States, the prospects of economic power embodied in the coming of age of the European Union, and the mirage of unimpeded expansion in Asia and Latin America.

A naive confidence prevailed that prosperity was the guaranteed outcome of the third wave of globalisation. This wave of globalisation, which began around 1980, had at its heart three broad characteristics. Firstly, a large group of developing countries accounting for some three billion people became players in global markets. Secondly, international migration and capital movements increased dramatically, reshaping trading patterns and ownership structures. Thirdly, for some developing countries, many of them in Africa, globalisation has meant increased marginalisation.

Unprecedented prosperity and wealth in the developed nations of the world have created opportunities for growth and trade for other countries. However, these benefits have not been distributed equally. The bulk of capital flows remains between the rich countries of the world. Foreign direct investment per capita in the United States is around $3 200, while in Africa it is a paltry $124 per person.

And a naive definition of success blunted the world’s commitment to address poverty. It ignored local realities, cultures, and needs. It sought simplistic solutions to complex problems. In the aftermath of September 11, 2001, we again face the risk of easy diagnosis. Of course terrorism is an evil that must be countered. But this must not be allowed to become another burden laid indiscriminately on the shoulders of the poor. [Applause.] And we must not allow the war on poverty to become hostage to another agenda.

The poor, as history has shown, are remarkably peace-loving. More importantly, it is often the poorest of the poor who are the victims of violence and terrorism. We must be clear about the fact that the reason we need to combat poverty is that it deprives individuals and, by extension, societies, of their full potential. It robs children of their childhood. It condemns adults to illiteracy. It deprives people of access to simple necessities such as safe drinking water. It condemns many millions to disease. It wears down the human spirit and robs people of their dignity. We must fight poverty, because until it has been overcome we cannot lay claim to being a compassionate society.

We who are born into the cradle of humanity have a responsibility for remaining activists for a more compassionate society; a society that recognises and respects the richness of different cultures and languages, the humanity of all the world’s people; a society that is intolerant of poverty; a society that recognises that the life of a Mozambican child is as precious as that of an American child … [Applause] … a society that accepts that poverty anywhere lessens the humanity of every citizen of the globe; a global society that actively seeks human solidarity.

As Rorty wrote:

Solidarity is not discovered by reflection but created. It is created by increasing our sensitivity to the particular details of the pain and humiliation of other, unfamiliar sorts of people.

From the global economic perspective the challenge we now face is to ensure that the gains that have been made through this wave of globalisation can be extended to eliminate poverty and improve equity in the poorest parts of the world. As Nobel laureate, economist Joe Stiglitz reminds us: ``Each of the most successful globalising countries determined its own pace of change; each made sure that as it grew the benefits were shared equitably.’’

Kolu hlahlo lwabiwomali siza kunyusa inkam-nkam ngama-50 eerandi. [Kwaqhwatywa.] Ukususela ngomhla woku-1 kuApreli inkam-nkam iza kuba ngama- 620 eerandi ngenyanga. [Kwaqhwatywa.] Isondlo sabantwana siza kunyuka ngama- 20 eerandi, sibe li-130 eerandi. [Kwaqhwatywa.] (Translation of Xhosa paragraph follows.)

[In this budget we shall increase the old-age pension by R50.00. [Applause.] From 1 April the old-age pension will be R620.00 per month. [Applause.] The children’s grant will go up by R20.00 to R130.00. [Applause.]

I think we should all join together in saying: ``Wagwetywa ndlala! [Hunger, your time is up!]’’ [Applause.]

Siza kuqesha amapolisa angamawaka ali-16 ukuze silwe ulwaphulo-mthetho. Siza kuxhasa iinkonzo zamahala, sithobe nerhafu. [Kwaqhwatywa.] Nakulo nyaka siyaphinda sithi, eli lixesha lokuba sixhamle iziqhamo zenkululeko. [Kwaqhwatywa.] (Translation of Xhosa paragraph follows.)

[We shall employ 16 000 police personnel with a view to crime prevention. We shall support free services and reduce the tax. [Applause.] Again this year we say this is the time to enjoy the fruit of freedom. [Applause.]]

And so in this Budget we are able, once again, to harvest the sweet fruits of the progress we have made. The 2002 Budget:

• gives priority to reducing poverty and vulnerability through sustained economic growth;

• increases spending on social grants, municipal infrastructure and housing, improved police and justice services and critical administrative services to citizens;

• supports an enhanced programme to address the impact of HIV/Aids;

• gives continued emphasis to infrastructure investment and support to urban and rural development;

• strengthens the fight against crime;

• steps up assistance to communities to improve access to affordable basic services; and

• as we said, gives generous tax relief to all.

We recognise the importance of taking charge of our destiny and of finding solutions that are appropriate to our needs and circumstances.

Our response has been to seek a partnership with the global economy and, in particular, the wealthy nations of the world and the multilateral institutions: a partnership built on trust, respect and, above all, a commitment to succeed; a partnership designed to improve the quality of the lives of all the people of our continent, and particularly the poor. But it is also a partnership that will contribute positively to global growth and prosperity. We take pride in the role that our President has played and continues to play in shaping the New Partnership for Africa’s Development, Nepad. [Applause.] As South Africans we have a shared responsibility to ensure that this partnership takes root and grows.

It is our intention to place firmly on the agenda of the global discourse the values and principles that have guided our young democracy. The World Summit on Sustainable Development to be held in Johannesburg in August this year provides a unique opportunity to arrive at a global partnership that will embody these values.

The Johannesburg conference is preceded by a conference on Financing for Development in Monterrey, Mexico, where, as one of two special envoys of the Secretary-General of the United Nations, I will have the task of challenging my colleagues, the Ministers of finance of developed countries, to commit to a meaningful compact on the resources required for sustainable development. Another opportunity arises from the fact that as of November last year South Africa has occupied the chair of the Development Committee, which is the policy-making committee that governs the World Bank. It is our clear intention to use this opportunity to focus the attention of the multilateral institutions on a programme of action designed to eliminate poverty.

But South Africa’s role in other multilateral institutions also needs to be recognised. The role that my colleague Minister Alec Erwin played in Doha in shaping a development round in the World Trade Organisation needs to be commended because it gives form and character to what we need to achieve around the world. [Applause.] South Africa’s appointment to the chair of the council of the World Customs Organisation in June last year also reflects the integration of our economy into the world economy and establishes the SA Revenue Service as a reliable partner in trade administration. It also provides another forum within which to advance the interests of developing economies and the goals of Nepad.

Economic outlook

Another Nobel economics laureate and philosopher, Amartya Sen, has for many years articulated a profound and nuanced understanding of the need to address broader social policy concerns alongside growth as an economic goal. Public action in areas such as education, health, social development, security, land reform and housing are critical to a development strategy that places at its core the need to eradicate poverty and create a better life for all citizens.

Our economic policy over the past seven years has been shaped by this commitment. The choices we have made are designed to ensure that our economy grows sustainably and that more and more of our people share in the benefits of that growth.

Tekanyetsokabo ya gompieno e na le maitlhomo a matlhano a go tlisa tlhabologo, le go lwantsha bohuma. Sa ntlha, e rotloetsa kgolo ya ekonomi. Sa bobedi, e lwantsha bohumanegi ka go oketsa motente, madi a tlhokomelo ya bana kgotsa child support grant, le madi a go lwantsha HIV/Aids. Sa boraro, e tlhabolola metseselegae le makeishene. Sa bone, e hira maphodisa a a 16 000 go lwantsha botlhokatsebe. [Legofi.] Sa botlhano, e fokotsa motshelo. (Translation of Setswana paragraph follows.)

[Today’s budget has five objectives of bringing about development and fighting against poverty. Firstly, it encourages economic growth. Secondly, it fights poverty by increasing the old-age grant and the child support grant and puts money towards the fight against HIV/Aids. Thirdly, it develops rural areas and townships. Fourthly, it employs 16 000 police officers to fight crime. [Applause.] Fifthly, it decreases interest rates.]

The Budget we Table in this House today makes five key interventions in support of development and the war against poverty. Firstly, this Budget is strongly oriented towards growth, providing for an average increase in real spending of over 4% a year for the next three years. Secondly, it provides for an intensification of spending on alleviating poverty, including increases in old-age pensions and child support grants and an enhanced response to HIV/Aids. Thirdly, there is increased investment in infrastructure, particularly in support of urban renewal and rural development. Fourthly, it strengthens the fight against crime by, amongst other things, making available the resources to employ an additional 16 000 policemen and policewomen. Fifthly, it provides tax cuts for individuals, further tax incentives for investment and a more generous tax regime for small businesses.

This Budget has been crafted against the background of considerable uncertainty about the growth prospects for the global economy. The rapid growth that characterised the latter part of the 1990s stalled in 2001. The US economy descended into a recession last year, from which it is expected to make a mild recovery this year. Although initially expected to be relatively immune to the investment collapse in the US, Europe’s economic performance was affected. Germany in particular has experienced a sharp slowdown. The Japanese economy remains trapped in a recession from which it is unlikely to recover in the year ahead. The outlook for the emerging market economies also remains subdued. The collapse of Argentina and the fragile position of Turkey are likely to remain points of vulnerability for other emerging markets.

It is worth noting that this is the first time since the mid-1970s that there has been such a comprehensive slowdown in the global economy. The advanced economies are expected to grow by 0,6% this year.

Amidst this, South Africa’s economy has shown impressive resilience. It is easily forgotten that the average rate of growth in real GDP between 1994 and 2000 was 2,7%. If we exclude 1998, a year of exceptional international turmoil due to the Asian financial crisis, average growth was 3,1%. The economy grew by 3,4% in 2000 and about 2,2% last year, underpinned by a moderate recovery of investment and a strong export performance in the first half of last year.

But, of course, our economy is not immune to the international developments which have temporarily unsettled growth and inflation trends. Growth for 2002 is expected to be 2,3%, rising to 3,3% next year. Against the background of an unexpected depreciation of the rand in the second half of last year, we now expect inflation to pick up moderately this year.

But the growth of our economy has been underpinned by extensive structural reforms designed to ensure a more dynamic and resilient economy.

• Export diversification continues, both in nontraditional manufactured goods and in tourism-related trade and growth in services exports. Manufactured exports grew from 9% to 20% of GDP between 1990 and 2000.

• The balance of payments is immeasurably stronger and better able to sustain growth - the current account will register a moderate deficit of 0,5% of GDP this year.

• Real wages and productivity have increased by a whopping 20% since 1994, bringing rising living standards to millions of people and strengthening the competitiveness of industry.

• The net open forward position has been reduced from some US$24 billion in 1998 to just under $3 billion in January of this year. [Applause.]

• The budget deficit is expected to be 2,1% of GDP in the 2002-03 fiscal year, falling to 1,7% in 2004-05.

Numerous explanations have been advanced for the depreciation of the rand in the fourth quarter of 2001. The underlying health of the South African economy is not in question. Indeed the international rating agency Moody’s provided a strong endorsement of our economic policies by raising our credit rating to Baa2.

It is widely acknowledged that the depreciation of the rand in the last quarter of last year was overdone. In an attempt to better understand what occasioned the sharp decline of the exchange rate in the last quarter of last year, a commission has been set up headed by Adv Myburgh. The commission’s preliminary report is expected by the end of April.

Rising prices impact negatively on the poor and most vulnerable, and so the lowering of CPIX inflation from 7,7% in 2000 to 6,6% last year represents a significant advance. The Governor of the SA Reserve Bank, Mr Tito Mboweni, must be commended for the way in which the bank has managed monetary policy during difficult and uncertain times. [Applause.]

This year we will see a temporary rise in inflation as the economy adjusts to last year’s depreciation, and we now expect CPIX to average 6,9%, just outside the 3%-6% range. However, the underlying inflation outlook is firmly downwards, and both the Government and the Reserve Bank remain confident that CPIX will return to the target range in 2003 and beyond.

Although the overall inflation trend remains muted, we are aware that food prices have increased sharply. The rise in the maize price in particular affects the poor and most vulnerable. The markets for grains, meat, vegetables and related products are unavoidably affected by seasonal factors and international developments in commodity prices, and so we should expect a greater variation in food prices than the overall CPI.

For three of the past four years food prices have increased by less than other consumer goods. But it is clearly important that we avoid an undue rise in the prices of essential staple foods. Therefore the President has requested the Departments of Trade and Industry and of Agriculture to do a thorough investigation, and a report is expected shortly. We would like once more to appeal to the players in this sector to keep prices appropriately related to costs. It would clearly be in no one’s interest for the benefits of a more competitive agricultural marketing system to be lost in the pursuit of short-term opportunistic and predatory gains. [Applause.]

Viewed against the rapid changes in the global economy and the deep structural reforms we have undertaken in the past six years, our economy’s growth performance has been remarkable. But employment creation remains weak and efforts to accelerate investment and training and promote small business development have not yet turned the employment trend around.

We believe that the economy’s potential is infinitely greater. Unleashing this potential requires that we act together as a nation; that we embrace the spirit of Vukuzenzele, and allow the needs, aspirations and interests of our country and economy to shape our respective roles, responsibilities and responses; that we act now, together, energetically to realise the potential of our country. Government alone cannot take responsibility for growth and development. It is a collective responsibility. We need, all of us, to accept that and commit to a compact that recognises that the power to make a difference rests with all of us.

Such a compact would need to address a key element in our economic and social landscape. This element, which is hard to define precisely or adequately quantify in economic models, is confidence. It is the need to understand that we all have a part to play in shaping our common destiny. In our generation vests the responsibility to build human solidarity actively, to push back poverty, to build a compassionate, caring society. It is our task to identify the challenges and grasp the opportunities.

Opportunities can arise in surprising ways. We initiated a project called ``Tips for Trevor’’. The idea is that South Africans from all walks of life are invited to write to the Minister with tips as to what they think should be in the Budget. About two weeks ago one of our very tired officials inadvertently gave a telephone number for the Ministry which turned out to be the number of Butler’s Pizza in Gardens. Butler’s phones started ringing, not with pizza orders but with tips for the Minister. They thought it was about dough, but it turned out to be a different kind of dough from what they used in pizzas. It took very little time to convert an annoying situation into a business opportunity. They approached our communications manager and proposed that, in return for the tips they had received, they wanted a picture with the Minister. A strange ambition! They also very generously donated 60 pizzas to an exhausted and hungry Treasury team. We thank them and apologise for the mix-up. [Applause.] We will declare those pizzas, Madam Speaker! [Laughter.]

Similarly, when we called upon Mr Hannes Rabie at his farm Nuwerus yesterday to share some of his Hanepoot harvest with the members of Parliament here today, he jumped at the opportunity - mahala! [Laughter.] And he offered, bab’uShenge, that we should return next year for even sweeter fruit. [Laughter.]

These two stories capture the spirit of South Africa’s wonderful people.

The Budget framework

2001 Budget outcome

This Budget extends the growth-oriented fiscal stance of the 2001 Budget, providing for strong real increases in spending and significant cuts in taxes. Although the economy did slow down last year, we have again seen strong revenue performance and sound debt management. The projected outcome for 2001-02 is dominated by strong tax performance. Revenue is projected to be about R15 billion higher than we budgeted for. [Applause.] Supplementary allocations raise total expenditure by R4,3 billion.

Of the additional spending this year, R2 billion goes to provinces to pay the backlogs in social security payments that the President referred to last Thursday. [Applause.] An amount of R130 million is set aside for our military operations in support of democracy in Burundi and the remainder funds unavoidable and unforeseeable expenditure approved by Parliament in the Adjustments Estimate in November last year. [Applause.]

The Budget deficit for the current fiscal year is expected to be 1,4% of GDP. [Applause.]

2002 Budget priorities

The good news is, of course, that the improvement in our fiscal position means that we can sustainably increase public spending, thereby increasing the potential of all of our people to contribute to social development. Main Budget expenditure will be financed through moderate growth in revenue and a deficit of 2,1% of GDP in 2002-03, decreasing to 1,7% in the third year of the Medium-Term Expenditure Framework.

The 2002 Budget directs more resources towards reducing poverty and vulnerability amongst our people; educating our children; training and developing skills amongst our youth; building and enhancing physical infrastructure and basic municipal services; and making our communities safer places in which to live, work and play.

Real noninterest spending across national and provincial governments will grow by 4,1% a year over the next three years. In nominal terms, it rises from R256 billion in the Budget we will table today to R298 billion two years later.

Prudent fiscal management has resulted in lower interest costs, thereby releasing some R10 billion of additional resources for spending on services over the next three years. Debt service costs are expected to fall from 4,8% of GDP in the present fiscal year to 4,4% next year and 4,1% two years later. What this means is that whereas in 1998-99 we were spending 20,2% of our Budget on interest costs - we remember that debate because we were concerned that these costs would soon overtake education as the largest expenditure item - for 2002-03 this comes down to 15,7% … [Applause.] … and is expected to fall below 15% by the third year of the MTEF. This is clearly a policy choice that has started to pay dividends. It releases resources that we can now spend on that which makes a difference to the lives of our people right now.

The outstanding revenue performance for this year is largely the outcome of a sharp improvement in company tax receipts. The robust revenue trend makes possible substantial relief to taxpayers again in the 2002 Budget, which will in turn contribute to a recovery in household spending and economic growth over the medium term.

The Main Budget provides for expenditure of R287,9 billion in the first year, rising to R334,6 billion two years later. Revenue increases from R265,2 billion to R313,2 billion over the same period.

After setting aside provision for debt costs and the contingency reserve, the framework provides for total allocations to national departments, provinces and assistance for local government of R237,1 billion in the first year, rising to R273,1 billion two years later.

Recognising that the depreciation of the rand will impact on inflation and Public Service salary adjustments in 2002, the revised framework includes a R3,3 billion contingency reserve in the first year, rising to R9 billion in the third year. The reserve also provides for possible unforeseeable and unavoidable expenditure in the budget year and macroeconomic uncertainties or new priorities in the years ahead. Supplementary funds are once again set aside for new infrastructure spending.

The 2002 Budget framework creates an enabling environment that allows us to respond creatively to the challenges of social development and work in partnership with communities to build a healthy, vibrant future for all.

Our response is balanced, yet it reflects the tough choices that we have made. It ensures that spending is affordable and sustainable and contributes effectively towards achieving our broad social and economic policy objectives. These include enhancing economic growth and job creation, deepening equity and social development and strengthening the safety and justice sector.

Investing in growth

Recognising the need to reinforce the growth momentum of the economy, the 2002 Budget aims to invigorate several key policy initiatives.

As in last year’s Budget, investment in infrastructure is prioritised. In addition to national and provincial capital spending, the investment programmes of public enterprises and public-private partnership agreements

• including transport projects, Government buildings and several ecotourism initiatives - will contribute significantly to building productive capacity in the years ahead.

Economic performance is also enhanced by a cluster of measures focused on enhancing the quality of public spending. These include the overhaul of the shape and organisation of the public finances and a robust new framework for financial accountability across all three spheres of government. Managerial capacity-building programmes have been strengthened, information systems upgraded and financial management training enhanced.

The most important contribution Government makes to long-run growth and development is investing in people. The Human Resource Development Strategy launched in April last year sets the framework for developing our country’s skills base. Reshaping our universities and technikons, improving learning and teaching in schools and creating new skills development programmes for workers and work-seekers are amongst the key elements of the strategy for human development. To these we will add in the years ahead the new learnership incentive and the programmes of the Umsobomvu Fund.

Division of revenues

The 2002 framework allows for additional spending of R13,4 billion in 2002- 03, rising to R17,9 billion two years later. These numbers are over and above the forward estimates we set out last year.

• Over the MTEF period, additional allocations totalling R20,5 billion are proposed for provinces, mainly in response to the rapid take-up of the child support grant - last week the President asked all South Africans to participate in this campaign to ensure that children are signed up to this programme - and to reinforce both human and physical capability in the health system to address the impact of communicable diseases such as TB, malaria and HIV/Aids.

• A further R6,8 billion is proposed in support of local government to strengthen basic municipal service provision to poor households and to manage the impact of the municipal demarcation processes and the institutional restructuring of service delivery systems.

• Supplementary allocations to national departments include some R6,6 billion for the criminal justice sector to employ additional personnel, strengthen the administration of justice, improve court services and build additional prison accommodation. [Applause.] Additional allocations are also directed towards key administrative services, including modernising the information systems of the Departments of Home Affairs and of Defence, which are compensated for the effects of the depreciation of the rand on their costs.

Given that most of our social spending is in the provincial sphere, the biggest transfers in the Budget are to this sphere, rising from a revised level of R121,2 billion in the present fiscal year to R132,4 billion in the new year and R152,4 billion two years later. This represents an annual average growth rate of 7,9% over the next three years.

With stable finances and improved financial management, the strong growth in transfers to provinces will reinforce the accelerated delivery of pro- poor programmes. They should enable provinces to build and improve social and economic infrastructure such as hospitals, schools and roads. They should allow them to strengthen their capacity to deliver better-quality services by employing more doctors and nurses, and to increase the amounts for old age pensions and child support grants.

But the biggest increases in this budget go to local government, only because Minister Mufamadi is my benchmate. [Laughter.] [Applause.] These allocations rise by 18,3% a year over the MTEF period. Total allocations rise from R6,6 billion in the present year to R8,6 billion in the new year and R10,9 billion in 2004-05. [Applause.] This reflects Government’s strong commitment to the delivery of basic municipal services and infrastructure to the poorest of our people. Now that our municipalities have completed their transition, residents are dependent on them to roll out essential infrastructure. Poor areas that fall within the nodes identified in the rural development and urban renewal programmes are given an extra boost of funds to accelerate the pace of alleviating poverty in the poorest areas of our country.

The municipal infrastructure programme increases from R2,2 billion this year to over R4 billion in the year ending 31 March 2005. [Applause.] The housing subsidy allocations grow from R3,2 billion to R4,3 billion over the MTEF period.

This year around 30 municipalities will, for the first time, implement three-year budgets for their new 2002-03 budgets. The Local Government: Municipal Finance Management Bill, currently before Parliament, will also give legislative effect to financial management reforms in this sphere.

National expenditure proposals

Details of national departments’ spending plans for the next three years are again this year set out in the Estimates of National Expenditure. That is the big book that we are tabling here. Members will find in it a wealth of information, some 820 pages of departmental aims and objectives, policy developments, programme expenditure estimates, service delivery outputs, indicators and targets. Hon members will be pleased to learn that I do not propose to list the full set of measurable objectives by programme, but I would urge members to exploit to the full this valuable compendium. Hidden in this volume and departments’ published annual reports there is a remarkable record of our development and progress:

• In fighting cholera in KwaZulu-Natal, the Department of Water Affairs and Forestry provided 100 000 people with safe water and 52 000 people with ventilated pit latrines. [Applause.]

• Some 20 300 land restitution cases have been settled, returning 300 000 hectares to 44 246 households.

• Social development and welfare departments pay 1 942 000 old age pensions and 706 000 disability grants every month. There are 1,7 million children registered for child support grants now.

• Migration officials registered 6 million visitors passing through our borders last year.

• In 2001 the Department of Agriculture eradicated 40 000 hopper bands and 9 000 swarms of locusts. I had to check that these were not hip- hop bands, but bands of locusts. [Laughter.]

• The regional task forces of Minister Tshwete have seized 101,6 tons of dagga and recovered 2 595 head of stolen livestock. [Applause.] I do not know about the cloud cover from this 101,6 tons of dagga.

• The national Health department distributed 310 million condoms last year. There were over 429 000 admissions to our hospitals for complex tertiary care. Our antimalaria vector control programme saw over 1,1 million households sprayed last year.

• The Government Communication and Information System records that there are 909 679 pages registered on Government websites.

Madam Speaker, I am sure you did not know that last year Parliament received 279 696 incoming telephone calls, of which 37 744 were not answered. [Laughter.]

There is more to the Budget, of course, than the statistics that track expenditure and services. But by monitoring and reporting on progress, and quantifying plans and targets, we hope to reinforce and empower this House and the public in holding our departments accountable. [Applause.]

Investing in people

Turning now to the expenditure proposals, we note that investing in people is again the foremost priority in the Budget.

Education and skills development

Spending on education is 24% of noninterest expenditure - the lion’s share of the allocations.

Consolidated spending on education (national and provincial government) rises to R59,8 billion in 2002-03 and is estimated to increase to R68,3 billion by the third year of the MTEF.

For 2002-03 projected revenue from the skills development levy, which my colleague Minister Mdladlana, who is away today, spoke about last week, and which is drawn from a 1% levy on payroll, is expected to be R2,95 billion. Our plea must be that this be used for the training of people. Critical to the success of this initiative is the partnership that is required between Government and business so as to ensure that the skills development programmes being implemented are consistent with the requirements of a particular sector.

The Umsobomvu Fund has youth development as its focus. Since its inception, the fund has initiated a number of projects including the creation of pilot youth advisory centres, the launch of community youth service programmes and the establishment of school-to-work pilot projects. This year the fund will launch new initiatives to provide young entrepreneurs, primarily in the small business sector, with business advisory support. [Applause.]

Social security grants and welfare services

Go tloga kajeno motente o tlile go oketswa ka di 1 Moranang, mme e seng ka di 1 Phukwi. Go tloga ka di 1 Moranang, motente o oketswa ka R50. O tlile go nna R620 ka kgwedi. [Legofi.] Madi a tlhokomelo ya bana kgotsa child support grant a oketswa ka R20. A tlile go nna R130 ka kgwedi, go tloga ka Moranang. Tlala e mo kotsing! [Legofi.] (Translation of Setswana paragraph follows.)

[As from today the old age pension will be increased with effect from 1 April and not 1 July. As from 1 April the old age pension will be increased by R50 to make it R620 per month. [Applause.] The child support grant will be increased by R20 to make it R130 per month with effect from 1 April. Hunger is in trouble! [Applause.]]

I want us to say together, Tlala e mo kotsing!'' [Applause.] For those who do not know, we are saying,Hunger is in trouble.’’

Besteding op maatskaplike dienste en toelaes vorm ‘n belangrike deel van provinsiale begrotings en styg tot R34,3 miljard in die finansiële jaar wat eindig 31 Maart 2004. Die stelsel van maatskaplike toelaes is die mees effektiewe manier om armoede te verlig. Met effek van hierdie Begroting word die datum vir verhogings in maatskaplike toelaes vervroeg vanaf 1 Julie tot 1 April, dit wil sê die begin van die finansiële jaar.

Vanaf April hierdie jaar, sal ons meer geld in die hande van vier miljoen mense plaas wanneer ons ouderdomspensioene en ander maatskaplike toelaes tot R620 per maand verhoog. [Applous.] Dit is baie goeie nuus en sal bydra daartoe om die daaglikse bestaan vir baie arm gesinne draagliker te maak.

Ons wil ook hulle wat na jong kinders omsien, bystaan deur die waarde van die kindertoelae met R20 tot R130 per maand te verhoog en ook die toelae uit te brei na ‘n verdere 1,2 miljoen kinders teen die einde van volgende jaar. (Translation of Afrikaans paragraphs follows.)

[Expenditure on social services and grants constitutes an important part of provincial budgets and will rise to R34,3 billion in the financial year ending on 31 March 2004. The system of social grants is the most effective way of alleviating poverty. With effect from this Budget, the date for social grant increases will be advanced from 1 July to 1 April, in other words to the start of the financial year.

From April of this year we will be putting more money in the hands of four million people when we increase old age pensions and other social grants to R620 per month. [Applause.] This is very good news, which will contribute towards making the daily existence of very poor families more bearable.

We also want to support those who care for small children by increasing the amount of the child support grant by R20 to R130 a month and also by extending the grant to an additional 1,2 million children by the end of next year.]

I do not know if my mom got that, but spending on welfare services and social security grants forms a significant share of provincial budgets. The social grant system is our most effective tool in alleviating poverty. What we are doing is, instead of increasing pensions from 1 July, increasing them from 1 April. Pensions are being increased by R50 to R620 a month and child support grants from R110 to R130 a month, and we want to extend this to a further R1,2 million children by the end of next year. [Applause.]

Health care

This Budget contains significant measures to strengthen the national HIV/Aids programme. In addition to an estimated R4 billion currently spent by provincial health departments on Aids-related illnesses, funding for prevention programmes in schools and communities, hospital treatment and community-care programmes will amount to R1,0 billion next year, rising to R1,8 billion two years later. [Applause.] This includes a progressive roll- out of a programme to prevent mother-to-child transmission at the conclusion of the current trials. Medication for the treatment of TB, pneumonia and other opportunistic infections is also included.

Conditional grants to provinces play a significant role in funding health services. The tertiary services and training grants are rationalised in support of a more equitable distribution of services over time. The National Tertiary Service Grant amounts to R3,7 billion in the new Budget, increasing to R4,2 billion in the third year. It will fund tertiary units in 27 hospitals, facilitating a redistribution of health services from the Western Cape and Gauteng to other provinces where poverty is more prevalent.

The Health Professional Training and Development grant rises from R1,3 billion in this Budget to R1,4 billion by the third year and provides for a phased increase in the number of medical specialists and registrars in underserved provinces. Over the next three years R1,6 billion is directed toward modernising hospitals, ensuring better tertiary health care, while improvements to hospital management receive targeted funding rising from R124 million in the first year to R138 million in the third.

Facing the infrastructure challenge and investing in economic development

Increased funding of physical construction is again prioritised, as we have said, and steps have been taken to improve the capacity to spend. Well- designed investment in economic infrastructure and services has significant potential to enhance growth and improve services and opportunities for poor people.

This year the Budget does the following:

• It steps up allocations for electrification to R950 million a year, supporting Eskom’s drive to electrify rural communities. [Applause.]

• It increases spending on roads and rail services by R1 billion, ensuring that rehabilitation and investment raises economic activity and provides both development and safety in rail and road transport. I thank Jeremy for applauding! [Laughter.]

• It sets aside R80 million for the hosting of the World Summit on Sustainable Development in Johannesburg in August.

• It boosts spending on Water Affairs and Forestry to R3,6 billion in the first year in support of investment in rural water and sanitation infrastructure. [Applause.]

• It directs R300 million a year to the Post Office to assist further restructuring that will facilitate the roll-out of infrastructure and services to underserved areas.

• It allocates R741 million for restructuring the Unemployment Insurance Fund, ensuring that benefits are more effectively targeted and the financial viability of the fund is improved.

• It raises provision for sustainable land reform to R1,1 billion in 2004-05, contributing to development and job creation in rural areas. I hope that allows my colleague to complete the work as the President directed last week.

• It sets aside R700 million in the first year, rising to R2 billion in 2004-05, for infrastructure investment in support of rural and urban development.

Provincial spending on social and economic infrastructure has improved and municipal infrastructure financing receives substantial increases in allocations over the next three years.

Development partnerships with local government

We must recognise that development is not only about large-scale infrastructure programmes, wide-reaching income support or high-profile health campaigns. For many, real development happens when people’s access to services and opportunities within their own communities improves; when they are able to open the door to their house, drink water that is clean and safe from disease, switch on an electric light and watch their children kick a soccer ball around the community soccer ground. Building a better life for all is therefore a challenge that we share with communities.

Spending plans set out in this year’s Budget encourage partnerships with communities, building solidarity as we join hands to improve access to affordable basic services. Increased funds are allocated to step up housing and municipal infrastructure programmes, focusing on water, sanitation and electrification.

We are making good progress in the first pilot projects identified under the Integrated Sustainable Rural Development and Urban Renewal programmes. In these areas, national and provincial departments will work with councils and local organisations to improve services, create business opportunities and build strong and thriving communities. Strengthening the fight against crime

Social progress also rests on effectively combating crime and making communities safer places to live, work and play. We are resolute about strengthening the fight against crime.

Over the next three years, an additional R5,2 billion will go the Safety and Security Vote. This allows, as we said earlier, 16 000 more police personnel to be employed to reduce crime in areas that are identified as crime hot-spots, working in close co-operation with communities to improve their everyday safety and security.

More police officials on the beat will lead to more arrests. These arrests place a further burden on an already stressed judicial system. Over the next three years a further R826 million will help efforts to restructure and streamline operations in the administration of justice, enhancing court efficiency and raising the overall efficacy of the criminal justice system.

Once criminals are prosecuted and found guilty, they are sentenced to an appropriate prison term. A rapid increase in the prisoner population has contributed to significant overcrowding in prisons across the country. We estimate that our daily average prisoner population will rise to 225 600 by the third year of the MTEF. Budgeted spending on the Correctional Services Vote increases from R6,9 billion in the 2002 fiscal year to R8,1 billion two years later to fund increased operational costs associated with higher prisoner numbers and expanding prison capacity.

The Defence Force is involved in diverse activities, including operations to combat crime, patrolling the country’s borders and rural areas and fulfilling international obligations in providing peace support in the Democratic Republic of the Congo, Burundi and the Horn of Africa.

Increases on the Defence Vote will provide for the higher costs of the strategic defence procurement programme due to revised exchange rate projections. Provision is also made for the protection mission to Burundi, the costs of which will be partly recovered from international donors. This rise in spending brings total defence expenditure to 1,7% of GDP in the new year, compared with 3,7% a decade ago and 1,5% in 1997-98. [Applause.]

Revenue trends and tax proposals

The past fiscal year turned in yet another buoyant revenue performance, following comprehensive tax policy reforms and further advances in restructuring the Revenue Service and collection processes.

In this year’s Budget, Government continues to provide substantial tax relief for individuals and seeks to improve further the effectiveness and efficiency of the South African tax structure with a view to encouraging investment and reducing the costs of doing business in this country.

Progress on outstanding 2001 tax reform initiatives

As we indicated in the 2001 Medium-Term Budget Policy Statement, this year heralds a period of consolidation after the far-reaching income tax changes that have been introduced since 2000. We are able to report on progress in several key tax reforms of last year’s budget.

We announced the introduction of a wage incentive last year. Recognising the importance of investing in skills alongside the creation of jobs, it will take the form of an additional tax allowance for learnerships offered by employers. Draft legislation has been released for public comment and will be introduced this year. An allowance to employers in the form of a R25 000 deduction will be permitted when a learnership agreement is signed, and a further R25 000 when the learnership is successfully completed. [Applause.] This incentive programme applies to all learnerships entered into from 1 October last year and will apply for a five-year period.

An amount of R3 billion of foregone tax revenue over four years was allocated in the Budget last year to encourage investment projects with significant direct and indirect benefits for the South African manufacturing sector. The National Treasury and the Department of Trade and Industry have developed stringent evaluation criteria and transparent administrative processes that seek to guarantee that only those applications that significantly raise the competitiveness of the economy and create job opportunities are approved. The programme is characterised by sound governance and parliamentary oversight procedures. The Department of Trade and Industry will begin to process applications shortly.

Last year, Government announced fundamental measures for a more coherent tax environment for public benefit organisations. We raised significantly the thresholds for tax-deductible donations by individuals. In addition, the range of deserving public benefit organisations that qualified for tax- deductible donations was broadened, including those caring for children and the aged, HIV/Aids care and education. Moreover, Government released a list of public benefit activities that qualify an organisation for tax-exempt status, thereby widening the range of qualifying organisations. Underlying this list of tax-privileged activities is the principle that these must promote social development or meet special needs of the wider public, and not just a narrowly exclusive group.

The list of organisations qualifying for tax-deductible donations and tax- exempt status will be broadened during the course of the new fiscal year. The National Treasury and Sars have already met with important stakeholders to discuss revisions to the public benefit activity lists. The new approach, together with the enhanced capacity of Sars to administer these incentives, adds another well-targeted set of measures in addressing poverty and vulnerability effectively.

I am pleased to report to the President that the revised list will include the provision of health services to the poor and the care of the terminally ill and persons with severe physical or mental impairment. Furthermore, we propose to recognise private contributions to our transfrontier peace parks for tax purposes. This will encourage initiatives that bring jobs and tourists to our region and signal the spirit of partnership between nations, and between Government and the private sector, that underpins Africa’s new approach to development.

Growth-enhancing income tax proposals

Personal income tax relief

Personal income tax in South Africa is still our most important revenue source, contributing nearly 37% of Main Budget revenue in the present fiscal year. In the 2001 Medium-Term Budget Policy Statement we indicated that increased revenue associated with enhanced tax collection efforts will be returned to taxpayers through further relief to individuals, particularly in the lower- and middle-income brackets.

Taking account of the sterling revenue performance of Sars and the tax base broadening achieved by introducing the residence-based income tax system and capital gains tax, we propose this year to reduce income tax on individuals by a further R15 billion. [Applause.] Individual taxpayers are therefore the primary beneficiaries of the income-tax-base-broadening initiatives and improved revenue collection record. This brings personal income tax relief since 1995 to R48,6 billion.

The revised tax scales mean the following:

• The income tax threshold is raised from R23 000 to R27 000 a year - that is, people earning below R27 000 a year will pay no income tax. [Applause.]

• The tax threshold for taxpayers aged 65 and over increases to R42
  1. Do I owe Minister Asmal that?

• Someone earning R60 000 a year will pay R1 380 less; those earning R90 000 will pay R3 480 less.

• Rates and bracket adjustments provide relief across the entire income tax population, with the maximum rate reduced from 42% to 40%. [Applause.] I thought that would make us popular in this House today. [Laughter.]

• Of the total tax relief, 57% accrues to taxpayers earning less than R150 000 a year, 37% accrues to taxpayers earning between R150 000 and R300 000 a year and 6% to taxpayers earning more than R300 000 a year.

• The average cut for taxpayers in the income group up to R150 000 is 25%, for taxpayers in the income group of R150 000 to R300 000 it is 14% and for taxpayers earning more than R300 000 average rates are cut by 7%.

This individual tax relief package contributes to reducing the cost of employment and rewards both work and savings. It also narrows the gap between the maximum individual rate and the company rate, improving the integrity and consistency of the tax structure. Increase of interest and dividend income exemption

Complementing the income tax rate reductions, it is proposed to increase the domestic interest and dividend income exemption from the current R4 000 to R6 000 for taxpayers under the age of 65 and from R5 000 to R10 000 for taxpayers aged 65 and over. [Applause.] This measure provides substantial relief for those living on modest fixed-interest incomes. This relief measure will cost the fiscus R163 million.

With a view to encouraging taxpayers to make their savings available for domestic capital formation, foreign interest and dividends will in future only be exempt up to R1 000 out of the total exemption limit.

Accelerating depreciation allowances for manufacturing plant

South Africa needs to nurture its economic growth and job creation. In order to encourage investment in productive capacity, an accelerated depreciation allowance for a broad range of new manufacturing assets acquired within three years from 1 March 2002 is proposed. These assets will be depreciated over four years in contrast with the existing five-year period: 40% of the cost of the asset will be deducted in the first year and 20% of the cost in the subsequent three years. This measure will encourage investment and ease the impact on investing firms of the recent depreciation of the rand.

In addition, the monetary threshold for assets acquired on or after 1 March 2002 that may be immediately written off is increased from R1 000 to R2 000. These two measures will cost the fiscus R295 million in the new year.

Extending tax and administrative relief for small businesses

Government is very conscious of the needs of the small business sector, and the unfolding tax reform programme recognises this sector’s strategic role in economic growth and employment. Building on the 2000 and 2001 concessions, it is proposed to increase the existing threshold of the first R100 000 of taxable income, which attracts the 15% graduated company tax rate, to R150 000.

The small business benefits are limited to companies with an annual turnover of less than R1 million. It is proposed to raise this threshold to R3 million, with these changes taking effect for companies with years of assessment ending on or after 1 April this year. [Applause.]

It is common knowledge that the burden of tax and regulatory compliance impacts adversely on small businesses. Administrative procedures and the existing penalty provisions will be reviewed with the aim of simplifying tax compliance for small businesses. In addition, a simplified approach to calculating VAT obligations will be investigated. These measures combined constitute a possible revenue loss of R40 million in the new year.

Review of monetary thresholds

The Income Tax Act contains a number of monetary thresholds that need to be adjusted from time to time to take account of the effects of inflation. Taking account of affordability and the economic impact of the threshold, the following revisions are proposed:

• Tax-exempt donations are raised to R30 000 for individuals and R10 000 for companies not considered to be public companies.

• The exemption from estate duty is increased to R1,5 million.

• Exemptions for bursaries and scholarships are raised.

• The R1 000 threshold for medical expense deductions will be eliminated.

• The exemption from tax for bravery and long-service awards is raised to R5 000.

• The immediate deduction for intellectual property will be increased to R5 000.

These proposals will result in revenue losses of around R36 million.

Tax simplification and reducing the cost of doing business in South Africa

Limitation of employee deductions

Recognising that most salaried employees have few expenses that are incurred in the production of their employment income, it is proposed to simplify the taxation of employment income by limiting employee deductions to the following:

• business travel deductions against car allowance;

• certain medical expenses;

• contributions to pension and retirement annuity funds;

• donations to certain public benefit organisations;

• specific expenditure against allowances of holders of public office; and

• wear and tear allowances on equipment.

These limitations, which will not apply where an employee’s remuneration is wholly or mainly derived in the form of commissions based on sales or turnover, will come into effect on 1 March this year.

It is also proposed that the R150 a day allowance, which compensates for deemed accommodation costs where actual expenses are not claimed, should be abolished. Taxpayers may still be reimbursed by employers for actual expenses incurred on accommodation for business purposes. The R65 a day allowance for subsistence expenses will be continued. These steps will increase revenue by around R100 million.

Other administrative reforms

A number of these reforms are proposed, resulting in an estimated net revenue loss of R50 million. For example, it is proposed that the existing June year-end arrangement with certain farmers, fishers and diamond diggers, which dates back to 1962, should be terminated. The remaining 1 000 taxpayers on this system will be brought into the standard provisional tax arrangement. Also, the provisional tax registration threshold for individuals below the age of 65 who earn taxable nonemployment income will be raised from R2 000 a year to R10 000 a year from 1 March this year.

Transfer duties

As a further contribution to making home ownership affordable, amendments to the transfer duty rates are proposed. The new structure is as follows:

• On properties with a value of less than R100 000, no duty will be paid. [Applause.]

• Where the value is between R100 000 and R300 000, there will be a 5% duty.

• On a value above R300 000, the duty will be 8%.

The average duty on property with a value of R150 000 will fall from 3,1% to 1,7%, whereas the duty on property with a value of R300 000 falls from 4,6% to 3,3%, thereby maintaining an appropriate progressive property transfer tax. The new rate structure will apply to property acquisitions from 1 March this year and will cost R300 million in revenue foregone.

Reducing financial transaction taxes

There are a variety of financial transaction taxes still in place in our tax structure. In order to contribute to the competitiveness and development of our financial sector, it is proposed that certain of these should be abolished.

With effect from 1 January 2002, the 2,5% charge on Lloyd’s insurance premiums will be withdrawn. With effect from 1 April, taxes on the following transactions or financial instruments will be abolished:

• repurchase of warrants by their issuers;

• the issue of listed debt instruments;

• the transfer of a mortgage bond from one institution to another; and

• various insurance policies or contracts, and the cession of insurance policies.

The overall cost to the fiscus of the transaction tax withdrawals is R130 million.

Indirect tax proposals

Although revenue from value-added tax is expected to be moderately lower than budgeted in the present year, it remains a dependable and broad-based tax source. No change in VAT is proposed. [Applause.]

Duties on beverages and tobacco products

Now we come to that sad bit, and amongst the many Tips for Trevor'' a number have said,Please don’t call these things sin taxes; you make us feel bad.’’ [Laughter.] Let us rather, then, talk about duties on beverages and tobacco products.

Excise taxes have also lagged behind budget estimates, reflecting both slower than anticipated spending trends and shifts in household consumption away from excisable products in response to higher taxes. Bearing both revenue and health considerations in mind, the following adjustments are proposed:

• Beer and ciders are raised by 8%, bringing the proposed excise duty to 43,6 cents per 340 ml can or an average increase of 3,2 cents per can.

• Sorghum beer and sorghum flour duties will not be increased. Minister Buthelezi must take note. Utshwala! [Sorghum beer!] [Laughter.]

• Duties on wine are raised by 8%.

• Duties on spirits and sparkling wine are increased by 10%. This translates into a total excise duty of R11,84 per 750 ml bottle of spirits, or a R1,08 increase per bottle. [Interjections.] I do not know what that ``Yeah, yeah!’’ means - too little or too much?

• Taxes on tobacco products are raised by an average of 12%. This increases the total excise burden to R3,51 per packet of 20 cigarettes, or an increase of 34 cents per packet. [Applause.]

We will raise R798 million with these changes. Government has steadily reduced excise duties on soft drinks over the last four years. It is proposed to abolish the remaining 6 cents a litre duty. The estimated revenue loss will be about R135 million.

Fuel levy

We are mindful of the effect of the depreciation of the rand on pump prices and the dependence of our urban public transport system. There will be no change in the general fuel levy on diesel and petrol this year. The tax burden on fuel has fallen from an average of 45% of the pump price in 1998 to approximately 30% in the past year.

Environmentally friendly diesel fuels

We are advised that it is now possible to power a motor vehicle using crushed sunflower seeds. Environmentally friendly biodiesel and ethanol alternatives have the potential, our advisers tell us, to reduce dependence on imported fossil fuels and provide a growing market for employment- intensive oil seed crops.

To provide appropriate encouragement to these developments, it is proposed that a levy at 70% of the general fuel levy rate should apply to the consumption of environmentally friendly alternative diesel fuels. Other provisions - the Road Accident Fund levy, off-road fuel levy concessions, the Sacu excise duty and VAT zero-rating - will apply as for other fuels.

Further maritime diesel fuel concessions

It is proposed to extend the existing full diesel concessions to offshore vessels conducting research in support of the maritime industry - Minister Moosa should take note - coastal patrol vessels, vessel employed in the servicing of fibre optic telecommunication cables along our coastlines, harbour vessels operated by Portnet and in-port bunker barges. An estimated revenue loss of R4,1 million to the fiscus and R2,4 million to the Road Accident Fund is envisaged.

Road Accident Fund levy increase

The Road Accident Fund is currently re-engineering its claims processing procedures with a view to striving towards disciplined financial management. On the understanding that the fund will continue to improve its efficiency and stamp out fraud, the Road Accident Fund levy is increased by 2 cents a litre so that the fund will receive 18,5 cents on every litre of fuel sold to meet its ongoing liabilities. This will raise an additional R310 million and will be effective from 3 April this year.

Addressing tax avoidance and reducing the compliance gap

The overall impact of our tax proposals is to provide tax relief of R15,2 billion. This is possible, in large measure, because of the progress Sars continues to make in reducing what we call the ``tax gap’’ - the gap between the revenue that is actually collected and the amount that would be raised if compliance with the tax code was complete. This gap arises for various reasons. In some cases taxpayers are not aware of their obligations. In others, tax is avoided by aggressive tax planning, while purportedly adhering to the letter of the law. Then there are those who simply ignore their obligations. An increasing number of people are finding that this is a dangerous choice. We have a partnership with Minister Skosana on this particular matter. [Laughter.] The tax gap is, of course, not only of interest to Sars and the National Treasury. Closing the gap is what makes tax relief and rising social spending possible. Closing the gap allows us to lower the burden on those citizens who meet their obligations and accelerate our investment in meeting the pressing needs of the country.

There are several ways in which we are steadily closing the gap. Sars has begun the shift to an integrated audit approach, allowing the examination and comparison of a wide spectrum of taxes in a company’s books. This improves our service to taxpayers while yielding valuable comparative information. By drawing on integrated field audits and the employment of highly skilled specialists, the Woodmead project in Gauteng, for example, has exposed noncompliance in both the formal and informal sectors of the business community.

In the banking sector, as announced last year, we have put the spotlight on the arrangements and structures that lead to low effective tax rates. Improved enforcement of the current law has already yielded additional collections of R792 million. A review of the taxation of derivative instruments and financial leases will take place in the coming year.

The number of personnel in Sars’s Corporate Tax Centre will double by the middle of this year, contributing both to improved audit capacity and to better quality service to corporate businesses. The role of tax advisers and consultants in ensuring better compliance and sound advice to taxpayers is a further area for review in the year ahead. Initiatives to extend compliance to areas of the economy where it is erratic or nonexistent are being stepped up. As these unfold, Sars will ensure that those who approach the Revenue Service voluntarily to meet their obligations will be met with a helpful and sympathetic reception. Those who do not will meet us in court.

Details of these and other measures to streamline tax administration and address tax avoidance are set out in the Budget Review. Specific provisions include:

• the introduction of a deeming provision to underpin enforcement of the taxation of foreign income - people make investments abroad, nobody knows what revenue there is and so we are examining the implementation of a deeming provision;

• raising the provisional tax threshold from R2 000 to R10 000;

• investigation of the introduction of more frequent provisional tax payments; and

• the taxation of trusts other than special trusts and testamentary trusts established for the benefit of minor children at a flat rate of 40%.

Sars’s transformation programme, Siyakha, and its technology improvement programme, aim to address the inadequate and outdated systems and technology currently in use and to provide a better quality of service to all taxpayers. These reforms will take time before they are fully effective. In the short term, Sars will be launching a complaints office that will operate independently of branch offices, and small businesses will benefit from the simplification of tax forms and more accessible contact centres.

As the larger transformation gathers momentum, we will find that our investment in improving tax compliance contributes not just to Government revenue, but also to improved accounting and auditing, better governance and reduced financial risk in the business community at large.

Reinforcing corporate governance

The issue of corporate governance and in particular the role of the auditing firms has once again dominated the headlines. The Enron debacle has brought into sharp relief a number of key issues - weak or nonexistent corporate governance structures, the fiduciary responsibilities of directors, negligent and sometimes reckless management, ineffective auditing, the independence of auditors and conflicts of interest arising from inadequate separation between auditing and consulting. Closer to home a number of corporate failures - Macmed, Leisurenet, Regal Treasury and Unifer, to name but a few - have raised a similar set of issues. Many of these weaknesses were highlighted in the Nel commission’s report.

The Minister of Finance has responsibility for the legislation governing the audit profession in South Africa. Last year the National Accountancy and Consultative Forum presented me with a draft Accountancy Professions Bill to replace the existing Public Accountants’ and Auditors’ Act of 1991. Having considered the draft legislation and taking account of recent developments both nationally and globally, it is my view that the Bill does not go far enough. Over the coming months we will actively engage with all the role-players to ensure that the Bill addresses our country’s needs in this regard.

Financing proposals

After taking account of our spending proposals and revenue estimates, there is a budget deficit of R22,7 billion to finance next year, or, as we said, 2,1% of GDP.

To date total investment of R27 billion has been raised through restructuring state assets, mainly from international equity partners, of which R17 billion has been used to reduce debt. Given the accelerated pace of implementation, some R12 billion from the restructuring of public enterprises is expected in 2002-03, decreasing the net borrowing requirement to R12,2 billion.

We propose to raise R4 billion in short-term loans next year, contributing further to the liquidity of this market. Net foreign borrowing to the value of R16,2 billion is proposed. This will allow domestic long-term debt to be reduced by about R11 billion. In effect, we propose to repay R11 billion in long-term rand-denominated debt next year.

At the end of 2001-02, the total loan debt will amount to R425,1 billion, or 42,9% of GDP, down from over 48% five years ago. [Applause.] Debt will steadily decline as a share of GDP to a projected 37,4% by the year ending 31 March 2005.

Madam Speaker, allow me firstly to place upon the Table:

(1) Budget Speech - 20 February 2002 [RP 27-2002].

(2) Estimate of National Revenue 2002 [RP 22-2002].

(3) Taxation proposals: Income Tax.

(4) Taxation proposals in respect of specific excise duties (customs and excise) [tabled at 15:30].

(5) Division of Revenue Bill [B 5 - 2002].

(6) Budget Review 2002, 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 26-2002].

(7) Estimates of National Expenditure, 2002 [RP 24-2002].

(8) Appropriation Bill [B 4 - 2002].

This is not very environmentally friendly, because we have to cut down a number of trees to produce what Parliament needs for its oversight.

Conclusion

I would like to express my sincere and profound appreciation to the following:

• President Mbeki, for his leadership and the challenges he puts before us, before this House, before our nation and before our continent. Siyabulela. [Applause.]

• Deputy President Jacob Zuma and all of our Cabinet colleagues, particularly the members of the Ministers’ Committee on the Budget, for their support and initiative in bringing forward budget suggestions.

• Deputy Minister Mandisi ``Sipho’’ Mpahlwa, for sharing the duties we carry.

• My ``Team Finance’’ colleagues, the MECs for finance in the provincial executive councils, who have led with courage and professionalism. The provinces are in much better shape than many in South Africa want to believe. [Applause.]

Our task has been greatly facilitated by several others: Governor Tito Mboweni and his team at the SA Reserve Bank - I do not see him, but he is somewhere in the gallery … [Applause] … Murphy Morobe and his team at the Financial and Fiscal Commission, Philip Dexter and Nedlac, Barbara Hogan as chairperson of the Portfolio Committee on Finance … [Applause] … and Qedani Mahlangu as chairperson of the Select Committee on Finance. A special word of thanks is due to the many South Africans who took time and made the effort to write, fax and e-mail us their suggestions for the Budget. We actually have tried to accommodate as many of these as possible. I am sorry that some of these ideas - such as the abolition of personal income taxes - could not be accommodated. [Laughter.] Apologies also to the correspondent who requested that ice-rink tickets should be zero-rated for VAT purposes. [Laughter.] That might do something to get us into the next Winter Olympics.

The Budget is largely the fruit of the efforts of the National Treasury and the Revenue Service. Special thanks are due to Maria Ramos and Pravin Gordhan for their leadership and also for their time. [Applause.]

Thanks also to the staff of the Ministry who tolerate us with such good cheer. Last, but not least, guys, thanks for your support, and thanks to my sons and the rest of my family for their unwavering support. [Applause.]

This Budget makes an important contribution to achieving a more caring, more compassionate, more prosperous society; a society with the imagination to achieve solidarity, freedom from poverty and, of course, human dignity; a society that nurtures its children, that respects and cherishes its elderly; a society that draws deeply on its history and the qualities of its struggle - resilience, humility, courage, wisdom, tolerance, assurance, and an indomitable spirit for life. These values are rooted deep in the psyche of our nation. They guide us now as they guided the great leaders of our country. And although we have achieved our liberty, we must continue to aspire to and strive for the vision that inspired that great patriot, Chief Albert Luthuli, especially when he wrote:

The task is not finished. South Africa is not yet a home for all her sons and daughters. Such a home we wish to ensure. From the beginning our history has been one of ascending unities, the breaking of tribal, racial and creedal barriers. The past cannot hope to have a life sustained by itself, wrenched from the whole. There remains before us the building of a new land … from the ruins of the old narrow groups, a synthesis of the rich cultural strains which we have inherited … The task is immense.

Those words live on. The challenge is as profound now as it was then. I thank hon members very much for their patience. [Applause.]

Bill, together with the introductory speech and papers tabled, referred to the Portfolio Committee on Finance for consideration and report.

The SPEAKER: Order! Hon Minister, I wish to thank you for drawing attention to the fact that Parliament does need more money to improve its telephone service. [Laughter.]

The House adjourned at 15:36. ____

            ANNOUNCEMENTS, TABLINGS AND COMMITTEE REPORTS

ANNOUNCEMENTS:

National Assembly and National Council of Provinces:

1. The Speaker and the Chairperson:

 (1)    The following Bills were introduced by the Minister  of  Finance
     in the National Assembly on 20 February 2002 and  referred  to  the
     Joint Tagging Mechanism (JTM) for classification in terms of  Joint
     Rule 160:


     (i)     Appropriation Bill [B 4 - 2002] (National  Assembly  -  sec
           77).


     (ii)    Division of Revenue Bill [B 5 - 2002] (National Assembly  -
           sec 76).


     The Bills have been referred to the Portfolio Committee on  Finance
     of the National Assembly.


     In terms of Joint Rule 154 written views on the  classification  of
     the Bills may be submitted to the  Joint  Tagging  Mechanism  (JTM)
     within three parliamentary working days.


 (2)    The following Bill was introduced by the  Minister  for  Justice
     and Constitutional Development  in  the  National  Assembly  on  20
     February 2002 and referred to the  Joint  Tagging  Mechanism  (JTM)
     for classification in terms of Joint Rule 160:


     (i)     Reinstatement of Enrolment of Certain  Legal  Practitioners
          Bill [B 6 - 2002] (National Assembly -  sec  75)  [Explanatory
          summary of Bill and prior notice of its introduction published
          in Government Gazette No 23142 of 19 February 2001.]


     The Bill has been referred to the Portfolio  Committee  on  Justice
     and Constitutional Development of the National Assembly.


     In terms of Joint Rule 154 written views on the  classification  of
     the Bill may be submitted to  the  Joint  Tagging  Mechanism  (JTM)
     within three parliamentary working days.


 (3)    The Minister of Communications on 13 February 2002  submitted  a
     draft of  the  Electronic  Communications  and  Transactions  Bill,
     2002, as well as the  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  to  the  Portfolio
     Committee on Communications and the Select Committee on Labour  and
     Public  Enterprises   by   the   Speaker   and   the   Chairperson,
     respectively, in accordance with Joint Rule 159(2).

TABLINGS:

National Assembly and National Council of Provinces:

Papers:

1. The Minister of Finance:

 (1)    The Budget Speech of the Minister of Finance [RP 27-2002].


 (2)    Estimate of National Revenue for 2002-2003 [RP 22-2002].


 (3)    Taxation Proposals: Income Tax.
 (4)    Taxation proposals in respect of custom and excise  duties  laid
     upon the Table at 15:30.


 (5)    Division of Revenue Bill [B 5 - 2002] tabled in terms of section
     10(1) of the Intergovernmental Fiscal Relations Act, 1997  (Act  No
     97 of 1997).


 (6)     Budget  Review  2002  [RP  26-2002],  including  "Annexure   E:
     Memorandum to accompany the 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 4 - 2002].


 (8)    Estimate  of  National  Expenditure  2002  [RP  24-2002],  which
     includes:


     1. Memorandum on Vote No 1 - "Presidency",  Main  Estimates,  2002-
          2003;


     2. Memorandum on Vote No 2  -  "Parliament",  Main  Estimates,2002-
          2003;


     3. Memorandum on Vote No 3 -  "Foreign  Affairs",  Main  Estimates,
          2002-2003;


     4. Memorandum on Vote No 4 - "Home Affairs", Main Estimates,  2002-
          2003;


     5. Memorandum on Vote No 5 -  "Provincial  and  Local  Government",
          Main Estimates, 2002-2003;


     6. Memorandum on Vote No 6 - "Public Works", Main Estimates,  2002-
          2003;


     7. Memorandum  on  Vote  No  7  -  "Government  Communications  and
          Information System", Main Estimates, 2002-2003;


     8. Memorandum on Vote No 8 - "National Treasury",  Main  Estimates,
          2002-2003;


     9. Memorandum on Vote No 9 - "Public Enterprises", Main  Estimates,
          2002-2003;


     10.      Memorandum  on  Vote  No  10   -   "Public   Service   and
          Administration", Main Estimates, 2002-2003;


     11.     Memorandum on Vote No 11  -  "Public  Service  Commission",
          Main Estimates, 2002-2003;


     12.     Memorandum on  Vote  No  12  -  "South  African  Management
          Development Institute", Main Estimates, 2002-2003;


     13.     Memorandum on Vote No 13 - "Statistics South Africa",  Main
          Estimates, 2002-2003;


     14.     Memorandum on Vote No 14  -  "Arts,  Culture,  Science  and
          Technology", Main Estimates, 2002-2003;


     15.     Memorandum on Vote No 15  -  "Education",  Main  Estimates,
          2002-2003;


     16.     Memorandum on Vote No 16 - "Health", Main Estimates,  2002-
          2003;


     17.     Memorandum on Vote No 17 - "Housing", Main Estimates, 2002-
          2003;


     18.     Memorandum on Vote  No  18  -  "Social  Development",  Main
          Estimates, 2002-2003;


     19.     Memorandum on Vote No 19  -  "Sport  and  Recreation  South
          Africa", Main Estimates, 2002-2003;


     20.     Memorandum on Vote No 20 -  "Correctional  Services",  Main
          Estimates, 2002-2003;


     21.     Memorandum on Vote No 21 - "Defence", Main Estimates, 2002-
          2003;


     22.      Memorandum  on  Vote  No  22  -  "Independent   Complaints
          Directorate", Main Estimates, 2002-2003;


     23.     Memorandum on Vote No  23  -  "Justice  and  Constitutional
          Development", Main Estimates, 2002-2003;


     24.     Memorandum on Vote No 24  -  "Safety  and  Security",  Main
          Estimates, 2002-2003;


     25.     Memorandum on Vote No 25 - "Agriculture",  Main  Estimates,
          2002-2003;


     26.      Memorandum  on  Vote  No  26  -   "Communications",   Main
          Estimates, 2002-2003;


     27.     Memorandum on Vote  No  27  -  "Environmental  Affairs  and
          Tourism", Main Estimates, 2002-2003;


     28.     Memorandum on Vote No 28 - "Labour", Main Estimates,  2002-
          2003;


     29.     Memorandum on Vote No 29 - "Land Affairs", Main  Estimates,
          2002-2003;


     30.     Memorandum on Vote No 30  -  "Minerals  and  Energy",  Main
          Estimates, 2002-2003;


     31.     Memorandum on Vote No  31  -  "Trade  and  Industry",  Main
          Estimates, 2002-2003;


     32.     Memorandum on Vote No 32  -  "Transport",  Main  Estimates,
          2002-2003;


     33.     Memorandum on Vote No 33 - "Water  Affairs  and  Forestry",
          Main Estimates, 2002-2003.

COMMITTEE REPORTS:

National Assembly:

1. Report of the Portfolio Committee on Agriculture and Land Affairs on the Animal Health Bill [B 64B - 2001] (National Council of Provinces - sec 76), dated 19 February 2002:

   The Portfolio Committee on Agriculture and Land Affairs, having considered the subject of the Animal Health Bill [B 64B - 2001] (National Council of Provinces - sec 76), referred to it and classified by the Joint Tagging Mechanism as a section 76 Bill, reports the Bill with amendments [B 64C - 2001].

2. Report of the Portfolio Committee on Environmental Affairs and Tourism on the Kyoto Protocol on Climate Change, dated 19 February 2002:

   The Portfolio Committee on Environmental Affairs and Tourism, having considered the request for approval by Parliament of the Kyoto Protocol to the United Nations Framework Convention on Climate Change, referred to it, recommends that the House, in terms of section 231(2) of the Constitution, approve the said Protocol.

 Report to be considered.