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Pre-Budget Presentation: Leftward Liaisons
Presented by: Dawie Roodt
6 February 2008
Chairman and Chief EconomistEfficient Group81 Dely Road
Hazelwood0081
Tel: (012) 460-9580Cell: 082 456 0204
Email: [email protected]
Dawie Roodt
Intro
To Stay or Not to Stay...??
Total Self Declared Emigrants ('000)
6.5
9.0
11.5
14.0
16.5
1994 1995 1996 1997 1998 1999 2000 2001 2002 2003
Th
ou
san
ds
Year
Source: Documented Migration Publication, StatsSA
To Stay or Not to Stay...??UK Australia Canada South Africa
Average Destination of Emigrates (%)
33% 15% 3%
Eco Indicators
Real Eco Growth (GDP, Q3)
2.4% 4.3% 2.9% 4.7%
Inflation (CPI, avg. 2008) 2.1% 3.2% 1.9% 7.2%
Currency p US$ £0.51 $1.14 CAN$1.02 R7.10
Marginal Tax Rate 40% 48.5% 29% 40%
Socio Indicators
Life Expectancy at birth 79.0 80.9 80.3 43.0
Adult Literacy rate (>15yr,%)
99.0 99.0 99.0 82.4
UN HDI Rank 16th – 0.853 4th – 0.961 3rd - 0.962 121th– 0.674
Murders p capita, rank (100 000)
46th – 1.4 43th – 1.5 44th – 1.49 2nd – 49.6
Sources: Economic Indicators, Economist. UN HDI 2007/2008, 7 th UN Survey of Crime Trends 1998 – 2000
A Quick Eish’kom Calculation
Vision:"Together building the
powerbase for sustainable growth and development."
Load Shedding: The 3 Hour Effect
Average GDP per day:• GDP, 2007 (current): R1,973.4bn• Workdays: 240• GDP per day: R8.3bn
Average GDP per sector:• Allocate equal weights to GDP sectors: (3 out of 24)
– Loss per day: R1.1bn (13.3%)
Average GDP loss per sector:• Allocate weights to GDP sectors:
– Finance, real estate and business services (3 out of 8)– Mining and quarrying (3 out of 24),etc.– Loss per day: R1.9bn (22.8%)
Potential Job Losses
Case Study:
+/- 400 000 employees in Mining Sector
Mining production at 90% electricity – Lose 15% - 20%
1% loss in production = 1% reduction in workforce
Thus, potential reduction in mining workforce:
60 000 – 80 000 jobs lostSource: Thousands face job chop at GFI, 31 Jan 2008, Fin24
GDP Loss: Base Case Scenario
Revised Growth Estimate: 4.6% to 3.0%
Loss in real terms: R19.76bn
Potential Tax Revenue loss: R5.9bn
Extra Load Shed on Consumers
‘Alternative Energy’ Cost - Generator
Facility Generator Size (KVA)
Capital Cost p KVA
Total Capital Cost (excl. installation)
House 10 KVA R1250 – R5000
R12 500 – R50 000
Small/Medium Business
60 – 80 KVA
R1400 – R3000
R84 000 – R240 000
Supermarket/Butchery
130 – 140 KVA
R1300 – R2500
R169 000 – R350 000
Source: Efficient Research
‘Demand Side Management’
• Efficient Lighting Roll-Out Programme
– Compact fluorescent light fittings (CFL’s)
• Solar Water Heating Programme
– Government subsidise 20% – 30%
– Cost R7 000 – R20 000 (R25 000) per geyser
• Fuel Switching
– Liquefied Petroleum Gas used in cooking
BULL!
Economic Overview:The Grazing Ground
2006 2007 2008
M3 (end of year) 23.1% 23.7% 19.8%
PSCE (adj. end of year) 27.6% 22.2% 18.3%
CPIX (average) 4.6% 6.5% 7.3%
Prime (end of year) 12.5% 14.5% 14.5%
Current Account: Nom -R111.0bn -R138.2bn -R144.2bn
Current Account: GDP -6.4% -7.0% -6.5%
R/$ (end of year) 7.04 6.84 7.61
GDP (full year) 5.4% 5.1% 3.6%
Economic Overview
Credit Demand
PSCE (Adj), Mortgages and Other (Credit Cards, Overdrafts)
10
15
20
25
30
35
40
Jan-05 Jan-06 Jan-07 Jan-08
%
Source: SARB and own calculations
Household debt to disposable income
Household debt to disposable income of households
40
45
50
55
60
65
70
75
1970 1975 1980 1985 1990 1995 2000 2005
%
Source: SARB and own calculations
44.5%
50.2%
56.9%
59.4%
Savings to disposable income of households
Ratio of saving by households to disposable income of households
-2
0
2
4
6
8
10
12
1970 1975 1980 1985 1990 1995 2000 2005
%
Source: SARB and own calculations
9.2%
5.4%
2.6%
0.5%
Is Tax Crowding Out Savings..?
-20000
30000
80000
130000
180000
230000
1990
1991
1992
1993
1994
1995
1996
1997
1998
1999
2000
2001
2002
2003
2004
2005
2006
Tax Revenue:Comp&Indiv Corporate Savings Household Savings
Cro
wd
ing
Ou
t ?
Income Tax Revenue from Companies and Individuals vs Private Sector Savings
Inflation
Inflation bracket
CPI & CPIX
0
3
6
9
12
15
18
21
1980 1982 1984 1986 1988 1990 1992 1994 1996 1998 2000 2002 2004 2006 2008
%
Source: StatsSA and own calculations
14.6%
10.0%
5.3%
Interest rates
Prime
9
11
13
15
17
19
21
23
25
1980 1982 1984 1986 1988 1990 1992 1994 1996 1998 2000 2002 2004 2006 2008
%
De Kock (16.5%)
Stals (18.9%)
Mboweni (13.3%)
GDP at Market Prices
GDP market prices, q:q seasonal
-1
0
1
2
3
4
5
6
7
8
1994 1996 1998 2000 2002 2004 2006 2008
%
Source: StatsSA and own calculations
Fiscal Policy
Background
Revenue & Expenditure:GDP
20
21
22
23
24
25
26
27
28
29
30
1980 1982 1984 1986 1988 1990 1992 1994 1996 1998 2000 2002 2004 2006 2008 2010
%
Trevor’s reign!
Gold
Dissavin
g
Budget Sustainability
Source: Fiscal Policy, 2007 MTBPS
Main Budget and Structural Budget Balances, 2000/01 – 2010/11
FISCAL 2007/08…
Revenue: Fiscal 2007/08
Revenue Sources (1994)
39%
13% 26%
5%
8%
9%
Individual Tax
Company Tax
VAT
Excise Duties
Fuel Levy
Other
Revenue Sources (Est. 2007/08)
30%
26% 27%
3%
4%
10%
Individual Tax
Company Tax
VAT
Excise Duties
Fuel Levy
Other
Contribution to Fiscus
Registered Income Tax Payers
Individuals Companies Trusts Total
Registered Taxpayers
5.0 million 1.7 million 300 000 7 million
Source: Fin24, Sep 2007
Redistribution
Rand In : Rand Out Ratio 2007/08
Family 1* – very poor 8.61
Family 2 – poor, 1 tax payer 1.41
Family 3 – middle class, 2 tax payers, Low investments
0.53
Family 4 – upper middle class, 2 tax payers, medium investments
0.23
Family 5 – Affluent 0.02
*Average family consists of 4 people, aggregates taken per capita
Source: Efficient Research
Individual Tax Rate, per Country (2006)
Individual Marginal Tax Rates
10
20
30
40
50
60
0 10 20 30 40 50
Countries
%
Source: worldwide-tax.com
South Africa
Russia
Denmark
Average: 35.4%
Median: 36.0%
USA
Ireland
Company Tax Rate, per Country (2006)
Company Tax Rates
0
5
10
15
20
25
30
35
40
45
0 10 20 30 40 50 60
Countries
%
Source: worldwide-tax.com
South Africa
Bulgaria
Egypt
Average: 26.6%
Median: 29.0%
Ireland
USA
South Africa + STC (’06)
South Africa + STC (’07)
VAT Rate, per Country (2006)
VAT Rates
0
10
20
30
0 10 20 30 40 50
Countries
%
South Africa
Ireland
Denmark
Singapore
Source: worldwide-tax.com
Average: 16.7%
Median: 18.0%
2007/08 in Review:Revenue
R bn Budget ’07 MTBPS ’07 Expected Diff. (%)
Income Tax 312.2 327.3 329.1 16.9 (5.4%)
Individual 155.3 167.0 166.9 11.6 (7.4%)
Company 138.5 140.1 143.6 5.1 (3.7%)
STC 16.0 18.0 18.3 2.3 (14.4%)
Other 2.3 2.2 0.3 -2.0 (-86.9%)
VAT 155.1 147.0 150.0 -5.1 (-3.3%)
Excise Duty 17.8 18.5 17.9 0.1 (0.5%)
Fuel Levy 23.9 23.2 24.3 0.4 (1.7%)
Other 54.0 57.4 53.4 -0.5 (-1.0%)
Total 544.6 553.2 556.2 11.5 (2.1%)
Expenditure: Fiscal 2007/08
Spending Priorities
Expenditure: Functional Classification (1994)
7%
17%
14%
17%2%
21%
8%
4%
10%
43%
Central Gov
Justice and Prot.
Eco. & Infra.
State Debt Cost
Other
Education
Social Dev.
Other Social Serv.
Health
Expenditure: Functional Classification (Est.)
7%
16%
13%
12%1%
18%
17%
5%
11%
50%
Central Gov
Justice and Prot.
Eco. & Infra.
State Debt Cost
Other
Education
Social Dev.
Other Social Serv.
Health
Social Spending
2007/08 in Review:Expenditure
R bn Budget ’07 MTBPS ’07 Expected Diff. (%)
Voted Amounts 299.2* 313.3 305.2 6.0 (2.1%)
Central Gov. 40.8 42.5 40.6 -0.2 (-0.5%)
Fin. & Admin. 21.7 21.9 21.1 -0.6 (-2.7%)
Social Services 102.7 105.4 104.4 1.7 (1.7%)
Justice & Protect. 79.9 81.7 80.9 0.9 (1.1%)
Eco. & Infrastruc. 54.0 61.7 59.5 5.4 (10.1%)
State Debt Cost 52.9 52.9 52.8 -0.1 (0.2%)
Transfer Provinces 171.3 172.9 172.8 1.6 (0.9%)
Other 7.5 8.3 7.8 0.3 (4.0%)
Total 533.8 540.4 539.9 6.1 (1.2%)
* Includes: Contingency Reserve (R3.0bn)
Expenditure Analysis:Money Well Spend?
Health
Public Expenditure on Health Comparison (2003-04)
Source: Human Development Report, 2006 (undp.org)
Public Health Expenditure as % GDP
0
1
2
3
4
5
6
7
8
9
0 20 40 60 80 100 120 140 160Countries
% GDP
South Africa (‘04&’06)
Myanmar
Iceland
Average: 3.5
Median: 3.0
CubaMalawi
South Africa (’07)
Core Health Care Indicators
Health Care Indicator Number (2004) Density per 1,000
SA vs. (Sample average)
Physicians 34,829 0.77 (1.45)
Nurses 184,459 4.08 (3.45)
Dentists 5,995 0.13 (0.32)
Pharmacists 12,521 0.28 (0.35)
Community health workers
14,306 0.32 (0.98)
Health management and support workers
22,859 0.51 (1.84)
Source: World Health Statistics 2007, WHO (www.who.int)
Public Health Expenditure (2003) vs. Physicians 2004)
Health Spending vs Physicians
0
4.5
9
0 300 600
Number of Physicians, per 100,000
Hea
lth E
xpen
ditu
re (%
GD
P)
Malawi
Cuba
Saint Lucia
Canada
South Africa 2004
South Africa (2001)
Source: Human Development Report, 2006 (undp.org)
Eddjucation
Education expenditure comparison (2002-2004 as available)
Source: Human Development Report, 2006 (undp.org)
Expenditure on education as % GDP
0
1
2
3
4
5
6
7
8
9
10
0 20 40 60 80 100 120
Countries
% G
DP
South Africa (’06 & ’07)
Equatorial Guinea
Lesotho
Average: 4.7
Zimbabwe
The Reading Literacy of Fourth Grade Students
Source: US Department of Education, PIRLS 2006
Progress in International Reading Literaycy Study (PIRLS)
250
300
350
400
450
500
550
600
0 5 10 15 20 25 30 35 40 45 50
Countries
Sco
re
High Intermediate Low None
Russian Federation(565)
United States (541)
Macedonia (439)
South Africa (302)
Breakdown: Population Education
Over 20's Population Education (%)
17.9
20.4
16
5.9
40.1
9.18.4
30.8
16
6.4
10.3
18.6
No Schooling
Some Primary
Completed Primary
Some Secondary
Grade 12
Higher
Census 01 CS 2007
Source: Community Survey 2007, StatsSA
SC HG Maths & Science Passes
Source: Dep of Education, Education Statistics in SA at a glance , SC Examination Results, 2006
Enrolment for SC HG Maths and Science as % of SC enrolment
Source: Dep. of Education, Education Statistics in SA at a glance , SC Examination Results, 2006
13.3%
9 %
Government Targets for SC HG Maths passes vs Actual passes
Achieved
Targets
Sources: Dep. of Education, Statistics in SA at a glance, 1999 – 2005; Senior Certificate Examination Results, 2006.
Pass Rates for SC, SC HG Maths & Science
Source: Dep of Education, Education Statistics in SA at a glance, SC Examination Results, 2006
53% HG Maths Passes – 4.8%
43% HG Science Passes – 5.7%
Senior Certificate Mathematics Results (2006)
11%
81%
Source: Department of Education, Senior Certificate Examination Results, 2006
71%
16%
Time Spent by Teachers on Different Activities
Time Spent by Teachers
41%
14%
12%
9%
7%
5%5% 3% 2%2%
Teaching
Preparation and Planning
Extra-Curriculat
Assessing/Evaluating
Managing/Supervising
Prof Dev
Record Keeping
Pastoral Care
Breaks
Guidance/counselling
Source: Educator workload in SA, Pretoria: Human Sciences Research Council, 2006
85% – Optimal Time Allocation
Alternative Solutions…?
SETA:– 5 Seta’s researched in 3 Sectors– Key Findings:
• Only 2% of employees benefit • SETA’s themselves define ‘scarce’ skills with their capacity
to address the priorities• Demands to provide foundational education vs occupational
skills • ‘Second Education’ instead of skills development
Source: Centre for Development and Enterprise
Leftward Proposals
Social Security and
Welfare
Correlation? Household Expenditure vs Social Grants
Consumption Expenditure on Food, Beverages and Alcohol vs Social Grants
0
50000
100000
150000
200000
250000
300000
1999
2000
2001
2002
2003
2004
2005
2006
0
15000
30000
45000
60000
75000
90000
HH Exp SocSec
Summary Social grant beneficiaries doubled between 2003 to 2007 Child support recipients tripled between 2003 to 2007 Child Support grant age doubled from 7 (1998) to 14 (2007) Constant sharp rise as percentage of economy (%GDP) 2007: 11,9m recipients (25.0% of SA population)
Important social responsibility; however rising by alarming rate…!
Accountability
Spilling the Milk…?
Qualified Audit Opinions: Department 2005-06 2004-05 2003-04 2002-03 2001-02 2000-01
Independent Complaints Directorate
✓
Land Affairs ✓ ✓
Transport ✓ ✓
Labour ✓ ✓ ✓
Justice ✓ ✓ ✓ ✓
Parliament ✓ ✓ ✓
Health ✓ ✓ ✓ ✓
Defense ✓ ✓ ✓ ✓
Correctional Services ✓ ✓ ✓ ✓ ✓
Water Affairs & Forestry ✓ ✓ ✓ ✓ ✓
Home Affairs ✓ ✓ ✓ ✓ ✓ ✓
Source: General Report of the Auditor General on Audit Outcomes for the Financial Year 2005-06
Additional Facts
• All departments qualified in 2004-05 also received a qualified audit opinion in 2005-06.
• 78% of all issues are in respect of only five departments, namely:• Correctional Services (21 issues )• Home Affairs (13 issues)• Defence (10 issues)• Independent Complaints Directorate (8 issues)• Water Affairs and Forestry (7 issues)
• Only four departments received clean audit reports – 12%– Public Enterprise– Public Services Commission– Presidency – Trade and Industry
Spilling the Beans…
Corruption:
Number of Alleged Corruption Cases Received
Percentage of Total
Feedback Percentage Feedback
1125 49% 359 32%
Financial Disclosure:
Number of sms members
Number of forms received
Number of forms outstanding
% Received
3619 2025 1594 56%
Source: 2007 State of the Public Service Report, PSC
National Departments
Vacancies in National Departments
• Average Vacancy (National and Provincial):
• Senior Management Vacancies: 35%
2006 2005 2004
24.3% 23.4% 25.1%
Unqualified Reports for Public Entities
Percentage Unqualified Audit Reports
5055606570758085
Year
% Total
• 76% Public Entities Unqualified• Primary Areas of Public Entity Qualifications: Income and Receivables – 26% Asset Management – 25% Non-Personnel Expenditure - 14%
Source: General Report of the Auditor General on Audit Outcomes for the Financial Year 2005-06
Public Sentiment: State Service DeliveryDelivery Area 2006 2007 Change
Transparency and Accountability
67% 39% -28%
Reducing the Crime Rate 54% 33% -21%
Narrowing the Income Gap 65% 45% -20%
Fighting Corruption 63% 43% -20%
Retaining Skilled People 48% 28% -20%
Educational Needs 78% 65% -13%
Improving Basic Health Services
73% 64% -10%
Reducing Unemployment 40% 32% -8%
Welfare Payments 85% 80% -5%
Source: SA Reconciliation Barometer Survey Report 2007, IJR
Public Confidence in InstitutionsInstitution 2006 2007 Change
National Government 73% 63% -10%
Political Parties 48% 37% -10%
Provincial Government 66% 57% -9%
Presidency 77% 68% -9%
Parliament 69% 62% -8%
Local Government 50% 43% -7%
Legal Systems 61% 55% -6%
Big Companies 65% 60% -6%
Constitutional Court 66% 61% -5%
Religious Institutions 70% 69% -1%
Source: SA Reconciliation Barometer Survey Report 2007, IJR
Capital Expenditure
Capital Expenditure
First Picture of Cape Town’s New Stadium:
Capital Expenditure Institute
Time Horizon
Planned Capital Expenditure (Rbn)
Sasol 2013 62.0
Eskom 2017 204.0
World Cup 2010:
Gautrain
Acsa
Stadiums
2010
2011
2010
25.5
20.0
8.4
Transnet (Rail, Ports, Pipelines)
2012 78.0
State (National Budget)
2009 372.0
Funding
State’s Cash Coffer
Government Cash Balances (Exch. Acc)
0
10
20
30
40
50
60
70
80
90
100
110
R bn.
2007/08: Funding
R bn Budget ’07 Expected Diff.
Extraordinary 1.2 1.1 0.1
TB’s 5.7 5.6 0.1
Bonds -9.0 -9.9 -0.9
Foreign Loans -2.6 -4.2 -1.7
Use of balances -5.7 -8.3 -2.5
Total Funding -10.7 -16.2 -5.5
Summing Up: Fiscal 2007/08
Summary 2007/08
R bn Budget ’07 MTBPS ’07 Expected Difference
Revenue 544.6 553.2 556.2 11.5
Expenditure 533.9 542.4 539.9 6.1
(Deficit)/Surplus 10.7 10.8 16.2 -5.5
% of GDP 0.6% 0.7% 0.8%
Budget 2008
How Far can the Cash Cow be Pushed…?
2007 Budget Highlights:
Finance: 2006/07 fiscal year to report first surplus in SA’s history 2007/08 surplus budgeted for is 0.6% of GDP Individuals: Pit brackets adjustment Primary rebate up to R7,740 Donation tax annual exemption to R100k Donation to PBO’s to 10% Estate Duty exemption up to R3.5m Interest on dividends to R18k (R26 for 65+)
2007 Budget Highlights:
Companies: Dividend Tax (from 1 October):
STC reduced to 10% STC to be replace by dividend tax
Threshold for FDI outside Africa lowered to 25%
Other: Retirement fund tax scrap RAF and Fuel levies up by 5c each Wage subsidy and social security tax reform Commercial buildings write-off over 20 years
Possible Changes to Taxes
The Milk Machine…
Efficient’s Possible, Likely, Probable New Tax Table
2007/08 2008/09
Taxable Inc (R) Rates of Tax Taxable Inc (R) Rates of Tax
0 – 112 500 18% 0 – 125 000 18%
112 501 – 180 000 R20 250 + 25% 125 001 – 220 000 R22 500 + 25%
180 001 – 250 000 R37 125 + 30% 220 001 – 300 000 R46 250 + 30%
250 001 – 350 000 R58 125 + 35% 300 001 – 400 000 R70 250 + 35%
350 001 – 450 000 R93 125 + 38% 400 001 – 500 000 R105 250 + 38%
450 001 – R131 125 + 40% 500 001 – R143 250 + 40%
Rebates Rebates
Primary 7 740 Primary 8 280
Tax Threshold Tax Threshold
Below 65 43 000 Below 65 46 000
Effect of Adjustment
Income 2007/08 Tax 2008/09 Tax Difference
R100k R10 260 R9 720 R540 (5.3%)
R150k R21 885 R20 470 R1 415 (6.5%)
R200k R35 385 R32 970 R2 415 (6.8%)
R300k R67 885 R61 970 R5 915 (8.7%)
R400k R104 385 R96 970 R7 415 (7.1%)
R500k R143 385 R134 970 R8 415 (5.9%)
Income Tax: Companies
Type Tax Rate Possible changes
Companies 29% Down 1%
Small Business Corporations (SMEs)
R0 – R43 000 0% Bracket adjustment
(threshold to R46k)
R43 001 – R300 000 10% Bracket adjustment
R300 001 & above 29% Bracket adjustment
Employment Companies 34%
Foreign Resident Companies in SA 34%
STC to Dividend base 10% (1 Oct 07) More clarity on dividend tax
Possible Other
Tax breaks for science and research Transfer duties - threshold higher Donations tax - currently R100k of property donated exempt Further adjustments on deductions for medical aid contributions Mining Royalties? (Mines shocked from both sides) Sin taxes to be upped (as usual) Threshold for foreign direct investment (FDI) – lowered from 50% to
25%. Fuel levy – as if fuel price not high enough!
Environmental Structures
Depreciation on environmental capital structure (dams, tanks) currently allowed
Announcement surrounding costs related to solar water geysers? Die Geyser-kombers?
Taxes: A Wish List
Tax Category Wish
VAT Higher
STC Lower/Scrap
Company tax Lower
PIT (Mid/high income) Lower
Transfer duty Abolish
Customs Duties Lower/Scrap
Small comp. VAT returns Lower frequency/Higher threshold
Flat tax rate 22%
Expenditure
The Milky Way…
Expenditure Trends 2009 – Election Year! Surge in Social Spending More for Education and Health (good!) Service delivery to get more and more Capital spending
World Cup Housing Eish’kom?
Let’s hope; safety and security - World Cup
Higher revenue helps spending higher – danger!!
Social Security and Retirement Reform
• State Old Age Pension (SOAP) – introduced for all citizens upon reaching a certain age
• Government Sponsored Retirement Fund:– Mandatory National Retirement fund– Industries with own funds can opt out of the GSRF– Fund will be a Defined Benefit– Earning Ceiling for contributors: R75 000 p/a– Contribution rate: 10-12% of pre-tax earnings– Wage subsidy paid to employers for employees earning below
the tax threshold.
Summary 2008/09
MTBPS Budget ‘07 Efficient Difference
Revenue 615.9 591.2 612.4 21.2
Expenditure 590.2 594.2 597.5 3.3
Deficit/Surplus 25.7 -3.0 14.9 17.9
% of GDP 0.5% 0.6% 0.5%
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