Budget documents are available at: www.treasury.gov.za 2011 Budget Speech

Honourable Speaker
It is my privilege to introduce the Second Budget of President Zuma’s
administration.
Mister President, you outlined our programme of action in the State of the
Nation Address two weeks ago. Your vision for the future is abundantly clear:
“We want to have a country where millions more South Africans have decent
employment opportunities, which has a modern infrastructure and vibrant
economy and where the quality of life is high.”
This Budget, Mister President, reflects the collective determination of the
Government to address with energy the challenges of creating jobs, reducing
poverty, building infrastructure and expanding our economy.
The Budget sets out a financial framework for implementing this vision, a
framework that is sound and sustainable. It recognises that building South
Africa is a multi-decade project that must invigorate our capacity to grow, and
must include all South Africans in that growth.

This Budget sets us on a path, Honourable Members, that will be neither easy
nor uncontested – hard work and difficult choices lie ahead. But the journey is
under way. We have embarked on the long walk to economic freedom. All
South Africans aspire to these freedoms:
 Freedom from poverty,
 Freedom from need,
 Freedom to exercise our talents and thrive as individuals,
 Freedom to work together as communities, as organised social
formations, as business enterprises, as a proud and forwardlooking nation.
This Budget is about making South Africa work smarter, harder, and differently.
What does this Budget offer?
Mister Speaker, the 2011 Budget ensures
 That government can intensify activities that make a difference to
the lives and prospects of all South Africans,
 That priority programmes required for implementing the New
Growth Path are funded,
 That macroeconomic stability is maintained, with necessary
adjustments supporting enterprise and job creation.

In tabling another weighty load of documentation today, our aim is to display
transparently how South Africans benefit from government’s programmes and
policies and how their tax contributions are spent.
For the poor, the Budget continues to expand spending on housing, rural
development, better community services and social assistance grants for the
elderly, the disabled and children in need.
For workers, the Budget emphasises job creation and expenditure on the
“social wage,” including access to health services, education, social security,
transport and municipal infrastructure.
For the business sector, the Budget expands investment in modernising our
infrastructure and transport logistics, accelerating further education and skills
development and supporting research, technology and industrial investment.
For the small business sector, there are targeted financial and enterprise
development programmes, and tax relief measures.
For the youth, there is expanded access and financial assistance for further
education, and a range of initiatives aimed at expanding job opportunities.
All of this, and more, we must do within a sound fiscal framework. We must
also recognise that we are taking steps, this year and next, on a long-term
growth path, a decades-long transformation and expansion of our social and
economic possibilities.
In reflecting on commitments made in last year’s budget, we can point to
progress on several fronts:
 Savings have again been identified in low-priority categories of
spending, releasing over R30 billion to frontline service delivery
allocations.
 Support for the Industrial Policy Action Plan is further enhanced.
Tax and spending measures are proposed to improve investment
and trade performance, enhance science and technology,
accelerate job creation, boost small enterprise development and
to strengthen rural development and emerging farmer support.
 Education and skills development are bolstered over the period
ahead through expanding further education colleges and student
financial assistance, and a new school building programme.
 Spending on economic and social infrastructure of over
R800 billion is projected over the next three years.
 A new community-based family health-care programme is to be
introduced as part of national health insurance, while work is
proceeding on the design and consolidation of our social security
arrangements.
 At Parliament’s request, we are tabling guidelines on long-term
fiscal sustainability and debt management.
An opportunity to create hope for young people
Mister Speaker, we live in an extraordinary time in human history – a time of
immense transition, of profound risks, but also of great opportunities.
We are in the midst of epoch-changing shifts in the global economy as large
fast-growing countries, particularly China and India, have become major world
producers and consumers. Their weight in world trade, finance and investment
and in restructuring the world’s industries affects every country, every firm and
every family.
Fast-growing economies that are raising living standards and creating jobs
have one thing in common. They are continually moving into new products and
improving the ways of producing the things they sell. Adaptation to the
disciplines and the productive possibilities of the new global economy opens
up new vistas of opportunity for improving living standards and expanding
employment. But it also presents great challenges.
We shoulder the responsibility to build a better South Africa. We have taken
on the challenge that the legacy of apartheid left us – a legacy of
disempowerment, landlessness, inequality of opportunity, and millions of
unemployed young people who cannot see a realistic prospect for a decent
life. Confronting these realities is not about blaming the past or denying our
own shortcomings.
It is about recognising that now is the time to do extraordinary things, in dealing
with our particular development circumstances. It requires new ideas and bold
efforts from all: government, business, labour, communities and every family.
We must show, across the economy, the game-changing strengths we have
shown on big issues, from creating our democracy to hosting Africa’s first
Soccer World Cup festival.
Now we have to ignite the flame of higher inclusive growth, and sustain it.
We cannot view the fact that 42 per cent of young people between the ages of
18 and 29 are unemployed as merely a statistic. Young men and women in
cities, informal settlements, towns and villages may not have jobs, but have
skills in life. They possess the awareness and the ability to learn, they drive
fashion and inspire with their music, yet they know their local traditions. And
they have hope, and look to us to give meaning to that hope.

In response we must take measures to ensure that our young people can look
forward to decent work in productive, competitive enterprises. It means that we
will continue to strengthen social expenditure, enabling families to commit to
participating in education and community activities, while supporting the old
and sick.
Inclusive growth means strenuous efforts to cut back poverty and shrink the
inequality that continue to blight us. The South African growth path we envision
is not measurable by GDP alone. It must be an inclusive growth, which
especially benefits the many South Africans who have been left behind.
Inclusive growth also means addressing the climate change challenges that
confront the long-term global outlook. This year South Africa will host the 17
th
United Nations Conference of the Parties on climate change. Our own efforts
to green our economy will come under special scrutiny. Mitigation initiatives are
not just about reducing the dangers associated with a hotter future, but they
also offer significant opportunities to create jobs and reduce costs in our
economy.
And so in mapping a New Growth Path that will lead to rapid creation of jobs,
that will ensure an equitable distribution of benefits, that will reduce inequality,
ignite industrial development and transform rural and urban communities – in
charting this course, we are mindful of the specific realities of our
circumstances and the changing shape of the global economy.
As comrade Chris Hani so rightly said, “We want to build a nation free from
hunger, disease and poverty, free from ignorance, homelessness and
humiliation, a country in which there is peace, security and jobs.”
It is time to celebrate and embrace the potential of our unemployed young,
knowing that they are our future. How we meet this challenge will shape the
quality of life that our children and their children will enjoy.

Economic outlook
Mister Speaker, there are encouraging signs of stronger recovery in the global
economy as we enter 2011. But it remains essentially a two-speed recovery.
There is moderate growth in the United States and parts of Europe again,
whereas China and many other emerging economies continue to expand
rapidly.
The roots of this divergent growth pattern lie in the unbalanced structure of
world growth in the years leading up to the financial crisis. World growth came
to rely too heavily on countries that exhibited overly high consumption,
financed by countries with high savings and large trade surpluses.
The financial crisis and subsequent recession brought painful adjustments.
However, the shift in world trade, investment, manufacturing, incomes and
consumption is a structural transition that will take many years, as a multi-polar
world evolves.
Up until the turn of the century, developing countries accounted for about
20 per cent of global output. This will increase to 40 per cent by about 2015.
Developing economies in Africa, Latin America and South Asia will play an
increasingly important role in the global economy in coming years as incomes
rise and poverty falls.
South Africa’s invitation to join the BRIC economies reflects this broadening of
the sources of economic growth. Over the next five years, these economies
will account for 36 per cent of world economic growth. We have to construct
our own growth and development strategies to propel our economy forward,
create jobs and compete on the global stage.

Brazil, Russia, India and China

The New Growth Path outlines our approach to accelerate growth and
employment, focusing on several key drivers:
 Continuing and broadening public investment in infrastructure,
 Targeting more labour-absorbing activities in the agricultural and
mining value chains, manufacturing, construction and services,
 Promoting innovation through “green economy” initiatives, and
 Supporting rural development and regional integration.
The latest estimate released by the Statistician-General is that the domestic
economy grew by 2.8 per cent in 2010. Strong commodity prices, low interest
rates, and faster global growth, have been the main forces behind our
economic recovery. Improving household consumption and accelerating
investment will support an increase in economic growth over the medium term.
Real GDP growth is projected to reach 3.4 per cent in 2011, 4.1 per cent in
2012 and 4.4 per cent in 2013.
Steady employment gains – of about 2 per cent a year – will raise disposable
incomes, supporting household consumption and investment.
Private gross fixed-capital formation increased in the second and third quarters
of 2010 – a marked turnaround after five successive quarters of decline. Total
investment is expected to grow by 3.9 per cent in 2011, rising to 6.8 per cent in
2013. The buoyancy of the investment recovery is an important determinant of
future economic growth.
Real growth in exports is expected to average 6.5 per cent a year over the
medium term as commodity exports benefit from strong demand and high
prices.

Inflation is forecast to remain within the target range of 3 – 6 per cent, edging
towards the upper end of the range in 2013 as the economy strengthens.
Increasing food and oil prices represent risks to the inflation outlook. The price
of Brent crude reached US$107 yesterday – further increases will put upward
pressure on prices more broadly.
The improved terms of trade for South Africa contributed to a better current
account deficit for 2010 than was expected a year ago. As it widens from the
3.2 per cent of GDP expected this year to 5 per cent in 2013, we would like it to
reflect rapidly rising investment rather than higher consumption.
Macroeconomic stability in an uncertain world
Mister Speaker, the growth and transformation of financial markets in recent
decades has seen increased volatility of exchange rates and capital flows.
Global commodity markets now account for significant fluctuations in prices for
our energy imports, mineral exports, and food supplies.
The macroeconomic environment facing South Africans – through interest
rates, exchange rates, inflation, and credit conditions – can be destabilised by
those international shocks. The macroeconomic policy task is to provide a
stable and predictable economic environment by offsetting such shocks as far
as possible.
Our monetary policy, designed to target inflation, has been conducted
successfully by the South African Reserve Bank, achieving the current low rate
of inflation and interest rates.
Fiscal and monetary policy will continue to work in partnership. Monetary
policy, operated by the Reserve Bank, will continue to be focused on

controlling inflation, and we will continue to ensure that fiscal policy is countercyclical within a sustainable long-term framework.
Movements in the exchange rate affect different sectors of the economy in
different ways, and present difficulties in macroeconomic policy for many
countries.
Recognising the impact of rand strength on the manufacturing industry, in
particular, we announced measures in October to moderate the potential effect
of capital inflows.
 Foreign exchange regulations were amended to permit greater
foreign investment by South African institutions.
 Stepped up foreign exchange purchases by the Reserve Bank
have partially offset upward pressures on the rand.
As a result of these policy adjustments, and in line with shifts in investor
sentiment globally, the rand depreciated from December 2010 to midFebruary 2011 by about 10 per cent against the US dollar, the euro and
sterling.
During 2010 South Africa received net inflows of R92 billion in liquid foreign
capital, which contributed to upward pressure on the exchange rate. Since the
fourth quarter of last year, South Africa experienced capital outflows. Along
with uncertainties and volatility in global financial markets this contributed to
the depreciation of the rand.
Furthermore the increase in oil and food prices is posing new risks to the
inflation outlook.
Government will continue to assist the Reserve Bank to accumulate foreign
exchange reserves when market conditions are favourable and engage in

foreign currency swaps to moderate the effect of capital flows on the exchange
rate.
Overly rapid currency depreciation carries risks to macroeconomic stability,
however, and so we expect the Governor of the Reserve Bank to be vigilant in
monitoring inflationary pressures and ensuring that monetary policy is effective
in meeting our inflation targets. The credibility of monetary policy in achieving
our target inflation range, combined with our commitment to fiscal discipline,
are important foundations for moderating exchange rate volatility.
Changes in the volume and direction of capital flows may be significant over
the year ahead, and are largely beyond our control or influence. We will allow
the actions announced in the MTBPS to have their full effect and continue to
monitor capital flows.
Other countries, too, experienced high capital inflows in 2010. Several,
including Brazil, South Korea, and Thailand, introduced tax or regulatory
measures to deter such investment flows and currency speculation. We have
examined these options and their impact, and will continue to monitor the
adjustments made in other countries, while recognising that circumstances
vary from country to country. National Treasury is cognisant of the risk that
financial instability and currency volatility can arise from large capital
movements. If necessary, appropriate steps to moderate these effects will be
taken, together with the Reserve Bank.

Transformation of the financial sector
Mister President, you pointed out in your State of the Nation Address that our
financial sector proved to be remarkably resilient in the face of the recent
financial crisis and the global economic meltdown.
In line with global developments, there are further steps to be taken to
enhance the regulatory framework and improve financial services. The
proposed reforms include a shift to a “twin peak” system of financial regulation,
with market conduct under the Financial Services Board, and prudential
regulation in the Reserve Bank. An inter-agency financial stability oversight
committee will be formed, and a Council of Financial Regulators. A policy
discussion paper sets out the new framework for how the financial sector could
better serve South Africa.
Among the issues to be addressed are the findings of Judge Jali’s Enquiry into
Competition in Banking – findings that are echoed by many people’s
complaints that bank charges are high and opaque. As senior citizen Mr Bill
Nobile wrote to me last week, “We do not fully understand the complexity of the
payment systems for credit and other cards but there does appear to be
considerable leeway in reducing costs to the consumer, including the elderly.”
I have met with the chief executives of our banks to take up this issue, and I
believe it is time to put in place measures that will ensure that banking charges
are fairly set, are transparent and do not create undue hardship.
As part of the work of modernising and harmonising our investment framework,
Treasury is releasing two further discussion papers – one on the regulation of
foreign direct investment, and another on the prudential framework for
institutional investors. We look forward to consultation with stakeholders on
these issues over the coming months.

The fiscal framework
South Africa adopted a countercyclical fiscal stance two years ahead of the
crisis. We entered the recent recession with a healthy fiscal position and a
comparatively low level of debt. This allowed us to maintain government
spending despite a sharp deterioration in revenue.
Government spending continues to grow over the next three years, though at a
slower rate than in the recent past. Since the Medium Term Budget Policy
Statement, several additional spending allocations have been made, including
provision for a response to the damage caused by last year’s floods.
The impact of slightly slower growth in revenue and the additional expenditures
is that the deficit for next year is half a percentage point of GDP higher than we
projected in October. The trend remains downwards however, with a deficit of
3.8 per cent of GDP expected in 2013/14. This reduction in the deficit over the
next three years is consistent with stabilising the growth in our debt and the
conduct of a countercyclical fiscal policy. National government net debt is set
to rise from R526 billion at the end of 2008/09 to over R1.3 trillion in 2013/14.
Mister Speaker, to ensure that our spending on schools, hospitals and roads is
not crowded out by an ever-rising interest burden, government debt needs to
be managed sustainably. We don’t want an unmanageable increase in
expenditure, nor do we want the severe austerity measures some western
countries have had to adopt.
In view of these considerations, Parliament asked the National Treasury to
investigate how we might reinforce long-term sustainability of our public
finances. For the further consideration of the House, I will be proposing a set
of fiscal guidelines, informed by three principles:

 A counter-cyclical fiscal stance, to counteract variations over the
business cycle,
 Long-term debt sustainability, to ensure that financing costs do
not crowd out expenditure on public services, and
 Inter-generational equity, so that our children’s wellbeing is not
compromised by short-term interests.
Developing fiscal and budgetary guidelines will strengthen parliamentary
oversight, encourage transparency and enhance accountability.
Division of revenue
Mister Speaker, our Constitution sets out specific criteria for the sharing of
nationally-raised revenue between national departments, provinces and
municipalities. Proposals for this division are set out in the Division of
Revenue Bill.
Total expenditure from the National Revenue Fund of R889 billion is provided
for in 2011/12, which is 9.8 per cent more than the revised estimate for
2010/11.
 Debt service costs will amount to R77 billion next year, rising to
R104 billion in 2013/14. Though our overall debt burden remains
moderate, the size of the budget deficit at present results in debt
service costs rising faster than any other category of spending
over the period ahead.
 In keeping with established practice, the budget framework
includes an unallocated contingency reserve of R4 billion in
2011/12, R11 billion in 2012/13 and R23 billion in 2013/14. This
allows for unforeseeable and unavoidable spending requirements
next year, and future policy priorities over the medium term.
 This leaves R808 billion to be allocated between national,
provincial and local government in 2011/12, up from R743 billion
in 2010/11 and rising to R926 billion by the end of the MTEF
period. National departments are allocated 47 per cent of the
total, provinces 44 per cent and municipalities just under 9 per
cent. National transfers to local government have increased
substantially, and will amount to over R70 billion in budgetary
assistance and infrastructure grants in the 2011/12 year.
R e v i s i o n s t o b a s e l i n e , s a v i n g s a n d r e p r i o r i t i s a t i o n
Mister Speaker, the proposed medium-term expenditure framework has been
structured to enable government’s policy priorities to be implemented, in
accordance with delivery agreements.
The 2011 Budget makes available R94 billion in addition to baseline
allocations over the next three years. Savings of R30.6 billion were identified,
of which R21.6 billion was reprioritised within departmental baselines to meet
existing commitments. In order to accommodate additional funding for the
National Student Finance Aid Scheme, all departments were required to effect
unprecedented spending cuts of 0.3 per cent, amounting to R6 billion. I want
to place on record our appreciation to Cabinet colleagues and departmental
accounting officers for their co-operation.
Part of this revision to baseline allocations is the carry-through cost of the 2010
wage agreement, which requires an additional R39.4 billion for remuneration of
employees over the MTEF period. The public service salary bill has doubled

over the past five years, from R156 billion to R314 billion. This constitutes just
under 40 per cent of consolidated non-interest expenditure.
Consolidated government expenditure
Members of the House will know that the spending plans of national
government departments, public entities and social security funds are set out in
considerable detail in the Estimates of National Expenditure. Estimates of
consolidated government expenditure for the period ahead are set out in
chapter 8 of the Budget Review.
Consolidated expenditure is projected to increase from R897 billion in 2010/11
to R1.2 trillion in 2013/14, with non-interest spending on public services
growing by an average of 8 per cent a year.
C r e a t i n g j o b s
As you have emphasised, Mister President, our aim is to put development first,
and not dependence on welfare.
The Budget therefore proposes a range of measures to accelerate employment
creation over the period ahead:
 As announced by the President, R9 billion has been set aside
over the next three years for a Jobs Fund to co-finance
innovative public- and private-sector employment projects.
 Further education and training colleges are allocated over
R14 billion for the period ahead, and student financial assistance
will be stepped up. 2011 Budget Speech

 Over R20 billion goes to Sector Education and Training
Authorities and R5 billion to the National Skills Fund, which have
key responsibilities for training work-seekers.
 The expanded public works programme is R73 billion over the
next three years, including community-based projects,
environmental and social programmes and maintenance of roads
and infrastructure.
 Tax incentives have been renewed for manufacturing investment
of R20 billion, with a focus on job-creation potential.
 Investment will be increased in housing, and residential
infrastructure and services.
 Small enterprise development initiatives will be strengthened,
including a focus on employment activation by the National Youth
Development Agency.
 Initiatives are under way to promote rural employment, and
provide stepped up support for agricultural producers.
 Funding is allocated for renewable energy, environmental
protection and “green” economy initiatives.
 As promised last year, details of a R5 billion youth employment
subsidy are set out in a discussion paper, for further
consideration in the House and at Nedlac.
We must offer young work-seekers real hope where at present there is despair.
We need to do things differently. We need to have the courage to pilot new
approaches and build new partnerships, promoting innovation throughout our
economy.
I mp r o v i n g t h e q u a l i t y o f e d u c a t i o n
Education takes up the largest share of government spending – 21 per cent of
non-interest allocations – and receives the largest share of the additional
allocations.
 An amount of R8.3 billion over the MTEF period is added for
schools infrastructure. A programme to address backlogs in
school facilities over a three-year period will be administered by
Minister Motshekga’s department.
 Just under R1 billion is added for funza lushaka teacher bursaries
and bursaries for postgraduate students in natural sciences.
 R9.5 billion is provided for expanding further education and
training colleges and skills development.
Including adjustments for the remuneration of teachers, a total of R24.3 billion
will be added to education and skills spending over the next three years, which
rises from R190 billion next year to R215 billion in 2013/14.
Minister Nzimande and Minister Motshekga exercise stewardship, Mister
Speaker, over the largest network of service providers in our economy, and the
most important programme of investment in future growth and redistribution. 2011 Budget Speech

E n h a n c i n g h e a l t h s e r v i c e s
Several further steps in implementing Minister Motsoaledi’s ten-point plan for
reform of health services are accommodated in this Budget.
Total spending on public health services has increased strongly over the past
three years, from R63 billion in 2007/08 to R113 billion projected for next year.
In addition to provision for higher personnel expenditure over the period ahead,
over R8 billion is added to specific health service interventions, laying the
foundations for National Health Insurance. This includes:
 R1.2 billion to introduce family health care teams,
 R2.9 billion to improve quality in health facilities, medical
equipment and hospital systems,
 R1.4 billion for improved district-based maternal and child health
services,
 A new Office of Standards Compliance to inspect and certify
hospitals,
 Funding for the Department of Health to lead the necessary
institutional and management reforms,
 Revitalising health infrastructure, including a new infrastructure
grant for provinces,
 Expanding capacity to train medical doctors and nurses.
Total expenditure on the Comprehensive HIV/Aids conditional grant will
amount to R26.9 billion over the MTEF period, based on an increase in the

number of people on treatment from 1.2 million this year to 2.6 million by
2013/14.
The phasing in of National Health Insurance will require substantial reforms to
address imbalances across the public and private sectors and expand health
professional training. The financial and organisational implications of these
reforms are being jointly addressed by the Department of Health and the
Treasury.
M a k i n g c o m mu n i t i e s s a f e r
Additional resources are also allocated to the safety and security cluster led by
Ministers Radebe, Mthethwa, Cwele and Mapisa-Nqakula for the period ahead.
A total of R12.8 billion goes to the departments of Police, Justice and
Constitutional Development, Correctional Services and the Independent
Complaints Directorate. The budget provides R2.1 billion for the increase in
police personnel to 202 260 in 2013/14, from about 190 000 at present. An
additional R670 million is allocated for the upgrade of information technology
over the MTEF period, and R490 million is for construction of courts, including
new high courts in Nelspruit and Polokwane.
Total expenditure on public order and safety functions will amount to
R91 billion next year, rising to R105 billion in 2013/14.
D e f e n c e
On Minister Sisulu’s Defence vote, further allocations are made for assistance
in safeguarding the country’s borders, and to upgrade and maintain border
facilities and equipment.

Additional funding of R1.3 billion in 2011/12, rising to R2 billion in 2013/14, will
bring total expenditure on defence and state security to R38.4 billion next year,
rising to R43.9 billion in the outer year.
E c o n o m i c d e v e l o p me n t a n d i n d u s t r i a l p r o mo t i o n
Additional allocations in support of industrial and economic development over
the period ahead include:
 R600 million for enterprise investment incentives,
 R735 million for the Competition Commission and other
economic regulatory agencies,
 R250 million to the Industrial Development Corporation to support
agro-processing businesses,
 R120 million for the national tooling initiative,
 R282 million for the Micro-finance Apex Fund, and
 R55 million for Khula Enterprises to pilot a new approach to
small business lending.
Under the guidance of Minister Davies, about R10 billion will be spent on
Industrial Policy Action Plan investment promotion over the MTEF period,
including the automotive production and development programme, clothing
and textiles production incentives, the film and television production incentive
and support for small manufacturing and tourism enterprises.
Small businesses are an important source of jobs. Businesses that employ
fewer than 50 workers account for 68 per cent of private sector employment.

We need to get our small business sector growing. Allow me to share just a
few inspiring examples.
 Mlondolozi Kosi is a young man with a passion for building skills
in his community, Willowvale. He has set up a small ICT training
Centre where he has trained more than 120 people IT skills.
 Norman Mpedi is an ex-MK combatant, who after being forced to
live off the bush in Angola discovered the umviyo fruit and has
grown this into a thriving juice-making, Nguni Juice.
 Antonio Pooe started Exactech Fraud Solutions in 2007 as a
small one-man business operating out of his home and has since
grown it to a company with offices in Johannesburg, Cape Town
and Durban and he now employs 24 people.
These are a few examples of thousands of small and micro businesses which
have taken root and fill a vital place in our economy. In many instances they
have been supported by financing from both the private sector and programme
of the Department of Trade and Industry.
R u r a l d e v e l o p me n t a n d a g r i c u l t u r e
Under Minister Joemat-Petterssen and Minister Nkwinti, government’s land
reform and agricultural development programmes are focused on rural job
creation and poverty reduction, while expanding agricultural production and
improving food security.
Additional allocations amounting to R2.2 billion go to these functions, including
a further R400 million for the comprehensive agricultural support programme
and the land care programme grant and funding to enable a further 5 000
recruits into the National Rural Youth Services corps. 2011 Budget Speech

Including provincial allocations for agricultural support, a total of R19 billion will
be spent on rural development and agriculture in 2011/12, rising to R21 billion
in 2013/14.
T r a n s p o r t
Additional allocations of R10.3 billion are made over the MTEF for transport
infrastructure and services on Minister Ndebele’s vote.
 This includes R3.8 billion for maintenance of the coal haulage
road network, financed from the increased levy on electricity
collected from Eskom.
 An additional R1.5 billion goes to provinces for road maintenance
and weighbridges, as part of a new conditional grant for roads
infrastructure.
 Funds are also stepped up for the Passenger Rail Agency of
South Africa, for replacing signaling infrastructure and
refurbishing rail coaches.
 A further R2.5 billion goes to municipalities for public transport
systems and infrastructure.
Consolidated government transport spending will amount to R66 billion next
year, rising to R80 billion by 2013/14.

E n v i r o n me n t a l p r o t e c t i o n a n d a d a p t i n g t o c l i ma t e c h a n g e
Funding amounting to R800 million has been set aside over the next three
years for “green economy” initiatives. Specific allocations will be made in the
Adjustments Budget.
Additional allocations for research into energy-efficiency technologies are
proposed, efforts to prevent wildlife trafficking and improved air quality, waste
disposal and coastline management. A total of R2.2 billion is allocated for
environmental employment programmes over the medium term period and
funding is provided on Minister Molewa’s vote for hosting the Conference on
Climate Change in November this year.
Total spending on the integrated national electrification programme will
increase to R3.2 billion in 2013/14.
H o u s i n g a n d c o mm u n i t y a me n i t i e s
Mister Speaker, recent research published by the Development Policy
Research Unit confirms that significant progress has been made in the delivery
of housing, water, sanitation and electricity.
 The proportion of poor households living in formal dwellings has
increased from 47 per cent in 1994 to 66 per cent,
 Households with piped water have increased from 28 per cent to
53 per cent,
 Those with electricity for lighting, from 20 per cent to 75 per cent,
and
 With flush or chemical sanitation, from 18 per cent to 37 per cent. 2011 Budget Speech

Additional allocations to Minister Sexwale’s vote for human settlements
upgrading and municipal services amount to R4.9 billion over the MTEF period.
Two new grants to provinces and municipalities are proposed under Minister
Shiceka’s oversight, to respond more rapidly to disasters.
A further R3.6 billion is added for water infrastructure and services, including
funding for the acid water drainage threat associated with abandoned
underground mines. A report on this by a team of experts has been approved
by Cabinet, and Minister Molewa is taking the lead in consulting with industry
on a shared and coordinated response.
Government aims to upgrade 400 000 homes in informal settlements by 2014.
A new urban settlements development grant contributes R21.8 billion over the
next three years for these projects.
Total spending on the housing, water and community amenities social wage
will amount to R122 billion in 2011/12, rising to R138 billion in 2013/14.
S o c i a l p r o t e c t i o n
The social protection budget is another substantial part of the social wage.
This practical expression of a caring society amounts to R147 billion in
2011/12, rising to R172 billion in 2013/14. Income support to poor households
has been extended over the past decade, mainly through the phased
extension of the child support grant to older children.
At present close to 15 million fellow citizens receive social grants on Minister
Dlamini’s vote, equivalent to more than a quarter of the population. Social grant
payments mainly go to pensioners (38 per cent), children in poor households
(35 per cent) and the disabled (19 per cent).

With effect from April:
 The monthly state old age grant and the disability and care
dependency grants will rise by R60 a month to R1 140,
 For pensioners over the age of 75, the old age grant will rise by a
further R20 a month to R1 160,
 Foster care grants will increase by R30 to R740,
 The child support grant will increase from R250 to R260 in April,
and to R270 in October.
 Revisions are also proposed to the means test thresholds, which
will benefit households with modest incomes that reduce their
grant entitlements.
Social protection also includes unemployment insurance, occupational injury
compensation and the road accident fund. Proposals are now well advanced
for alignment and consolidation of these social security arrangements, together
with the introduction of a mandatory basic retirement savings plan. Over
R9 billion a year is currently spent in administering our fragmented social
security system. An integrated and better coordinated social security system
will offer better protection to vulnerable households, at a lower administrative
cost.

Revenue estimates and tax proposals
Let me turn, Mister Speaker, to the revenue required for these spending plans.
Members of the House have been very patient, and may be thinking of the
need for liquid refreshment, and the cost thereof! I will say something about
that in a moment. But first let me report on revenue.
R e v e n u e o u t c o me s a n d t a x e x p e n d i t u r e s
I am pleased to report that tax revenue has recovered during 2010/11. The
revised estimate is R672 billion, or 12.3 per cent higher than last year.
Personal income tax has increased strongly as have VAT receipts and
customs duties. However, corporate income tax revenue has remained below
projections, indicating the effect of the 2009 recession on company profits.
Total budget revenue, including provincial receipts, and income of social
security funds and public entities, is R755 billion, or 13.6 per cent above the
2009/10 estimate.
This Budget Review includes, for the first time, a tax expenditure statement.
This is a summary of potential tax revenues foregone as a result of various tax
incentives. The purpose of the statement is to make transparent those fiscal
incentives or indirect subsidies that lie behind the headline revenue and
spending numbers. The initial estimate puts the value of tax expenditures at
R78 billion a year. We are also publishing the latest edition of the annual Tax
Statistics which provides the most detailed view to date of our tax base and
revenue contributions and helps to complete the overall picture of the budget
system.

T a x p r o p o s a l s – i n d i v i d u a l s , t r u s t s a n d n o n – b u s i n e s s e n t i t i e s
Mister Speaker, revisions to the personal income tax brackets and rebates are
proposed which represent relief for individuals of R8.1 billion. These
adjustments compensate for the effects of inflation for the coming year and the
balance of the fiscal drag effect that could not be accommodated last year.
From March 2011:
 Tax will be payable only on income above R59 750 for taxpayers below
age 65, and R93 150 for those 65 and older.
 A third rebate of R2 000 per year is proposed, increasing the tax
threshold for taxpayers aged 75 and older to R104 261.
 An increase in the annual tax-free interest income to R22 800 for
individuals below 65 years is proposed, and to R33 000 for individuals
65 years and over. The treasury is exploring the possibility of
incentivised savings schemes for housing or for education as
alternatives to this exemption.
 The tax-free lump sum benefit upon retirement will increase from
R300 000 to R315 000.
As in past years, inflation-related increases will be made to the monthly
thresholds for tax-deductible contributions to medical schemes. These
deductions and those for qualifying out-of-pocket medical expenses will be
converted into tax credits with effect from March 2012. A tax credit is more
equitable since it provides for an equal benefit to all taxpayers regardless of
their income. 2011 Budget Speech

Changes to the tax treatment and administration of contributions to retirement
funds are also proposed. These will simplify administration and improve the
fairness of the system. There will be extensive consultation on the matter. The
proposals include treatment of employer contributions as a fringe benefit, limits
on tax deductible contributions and alignment of the tax treatment of provident
and pension funds.
From March 2012, an employer’s contribution will be treated as a taxable fringe
benefit, and employees will be allowed to deduct up to 22.5 per cent of taxable
income for contributions to approved retirement funds. A maximum of
R200 000 a year will be deductible. With a view to protecting workers’ savings,
it is proposed that the one-third lump-sum withdrawal limit applicable to
pension and retirement annuity funds should also apply to provident funds.
The following capital gains exclusion amounts will be increased from 1 March
2011:
 For individuals and special trusts, from R17 500 to R20 000
annually,
 On death, from R120 000 to R200 000,
 On disposal of a small business when a person is 55 years or
older, from R750 000 to R900 000.
The annual trading income exemption for public benefit organisations will
increase from R150 000 to R200 000, and for recreational clubs from
R100 000 to R120 000.

W i t h h o l d i n g t a x o n g a mb l i n g w i n n i n g s
Mister Speaker, last year we indicated that the taxation of gambling winnings
would come under review. With effect from April 2012, all winnings above
R25 000, including pay-outs from the National Lottery, will be subject to a final
15 per cent withholding tax. This is in line with practice in a number of other
countries, such as the United States. I hope it will assist in discouraging
excessive gambling. Despite the obvious merits of this argument, I expect
vigorous debate during the Parliamentary process.
N a t i o n a l h e a l t h i n s u r a n c e
Proposals are under review for a national health insurance system, as part of
the broader restructuring and enhancement of health services. There will be
substantial cost implications. We will consider and consult on options for
meeting the funding requirements, including a payroll tax (payable by
employers), an increase in the VAT rate and a surcharge on individuals’
taxable income. The fiscal and financial implications of health system reform,
and alternative revenue sources, will be examined in the year ahead.
T a x p r o p o s a l s – b u s i n e s s e s
For businesses, the following is proposed:
 As indicated in previous years, a dividends tax will take effect on
1 April 2012, replacing the secondary tax on companies.
 Dividend schemes that undermine the tax base will be closed by treating
the dividends at issue as ordinary revenue. These include dividend
cessions, where taxpayers effectively purchase tax-free dividends
without any stake in the underlying shares. 2011 Budget Speech

 Government introduced the concept of a venture capital company into
the Income Tax Act in 2009, but the response has been poor. The
approach will be refined so as to facilitate greater access to equity
finance by small and medium businesses and junior mining companies.
 From March 2011, the turnover tax for micro businesses with annual
turnover up to R1 million will be adjusted so that tax will be payable only
if turnover exceeds R150 000 a year. The rate structure will also be
reviewed.
 Also, from 1 March 2012, micro businesses that register for VAT will no
longer be barred from registering for turnover tax.
 The learnership tax incentive, designed to support youth employment,
will expire in September 2011. Government proposes to extend this for
a further five years, subject to an analysis of its effectiveness with all
stakeholders.
 A youth employment subsidy is proposed. Subject to completion of
consultations, it will take the form of a tax credit costing R5 billion over
three years to be administered by the South African Revenue Service
through the PAYE system.
 To support the objectives of the industrial policy action plan and the
New Growth Path, certain investments qualify for tax relief.
Consideration will be given to expanding such incentives for labourintensive projects in Industrial Development Zones (IDZs).

I n d i r e c t t a x e s
 The transfer duty exemption threshold will be increased from R500 000
to R600 000.
 Excise duties on alcoholic beverages will be increased by between
4.5 and 10.3 per cent – an increase of 6.4 cents for a 340ml can of beer,
13.5 cents per bottle of wine, or R2.86 for a bottle of spirits.
 Taxes on tobacco products will increase between 6 and 10.2 per cent –
80 cents more for a packet of 20 cigarettes.
 Currently there is an ad valorem excise tax on new motor vehicles. The
rate increases as the price of the vehicle increases. These rates will
remain unchanged below a purchase price of R900 000. For vehicles
above R900 000, the tax rate will increase to a maximum of 25 per cent,
from 20 per cent at present.
 The general fuel levy will increase by 10 cents a litre on both petrol and
diesel on 6 April 2011.
 The Road Accident Fund levy will be increased by 8 cents to 80 cents a
litre.
 Increases will take effect on 1 October 2011 in the air passenger
departure tax on flights to international destinations.
 The levy on electricity generated from non-renewable and nuclear
energy sources will increase by 0.5c/kWh to 2.5c/kWh from April 2011.
The increase should not impact on electricity tariffs, as it has already
been taken into account in the National Energy Regulator’s approved
tariff structure.

T a x a dm i n i s t r a t i o n
Mister Speaker, allow me to pay tribute again to the continued support
received from millions of honest taxpayers. Their contributions are reflected in
the recovery of tax revenue this year. We have been able to expand spending
where other nations have been forced into austerity adjustments. Even those
who have not contributed fully to date have begun to come forward to take
advantage of the Reserve Bank and SARS’s voluntary disclosure programmes.
Others who wish to have until the end of October this year to join the 1200
applicants to date.
Administrative reforms will continue to focus on ensuring that all those who
earn an income through employment or other economic activity pay what is
due to the fiscus.
This year, SARS will turn its attention to enhancements to the business tax
process including corporate income tax, VAT and an enhanced Turnover Tax
for emerging businesses. As with personal income tax, a pre-requisite for these
improvements is an accurate picture of all business entities no matter their size
or tax liability. SARS, in partnership with other state institutions, will make
significant improvements to the business registration process this year –
including conducting a door-to-door drive in the informal sector to help
complete the picture.
Tax and customs evasion remains a serious threat. Working together, the
police, the prosecuting authority, the Financial Intelligence Centre and SARS
ensured that more than 200 taxpayers were convicted of fraud and tax evasion
during the last six months.
Recently, customs officers with the support of the police impounded nearly
3 000 illegally imported second-hand vehicles, two significant tobaccosmuggling rings have been snuffed out and a tobacco manufacturer has been

shut down in the last month. We are also, in conjunction with the tobacco
industry, investigating a new method of marking and authenticating legal
cigarettes with a counterfeit-proof digital system to replace the current
“diamond mark”.
Mister Speaker, the sector most visibly affected by the illicit economy in recent
years has been the clothing and textile industry, resulting in significant loss of
jobs in local manufacturing plants. In the coming months a multidisciplinary
task team comprising representatives of the manufacturing, importing and retail
industries and a range of public sector stakeholders, will begin interventions
across the entire supply chain to clamp down on illicit clothing and textiles
imports.
Measures to combat fraud and corruption
Mister Speaker, public procurement plays a significant part in the economy and
is central to government service delivery. However, citizens and taxpayers do
not get full value for money, because this is an area vulnerable to waste and
corruption. This compromises the integrity of governance and frustrates the
pace of service delivery.
Alongside the work of the competition authorities in addressing supplier
collusion and tender-rigging, a strong procurement framework is critical to
boosting jobs and service delivery.

The first round of measures announced in October will come into effect this
year:
 Government departments will be required to establish rigorous
demand management procedures, including submission of
advance tender programmes for the next financial year to the
relevant treasury authority.
 Limits will be prescribed for variation orders, to restrict significant
changes to procurement orders and bring our system in line with
international standards.
 Companies bidding for tenders will be required to disclose the
identity of all directors, to determine whether any of the directors
are government officials or tax non-compliant.
There are currently 53 investigations involving procurement irregularities,
involving contracts worth R3 billion. Minister Radebe recently reported that 65
people linked to some of these investigations have been arrested and brought
before the courts. More than R250 million has been seized by the state.
SARS is investigating another 9 cases of tender fraud, with a total value of
approximately R1.7 billion.
SARS has also increased its analytical capacity with the aim of ensuring that
vendors winning state contracts satisfy their tax obligations fully. As at the end
January 2011, SARS had identified some 13 000 vendors who have won state
contracts and who owe taxes amounting to over R1 billion.
Mister Speaker, we have a shared responsibility to prevent corruption and we
call on all citizens to blow the whistle on corruption and to report any
procurement irregularities to the relevant authorities.

Equally important is the call of this Government to its managers to ensure that
our communities and our taxpayers get full value for their money. Poor
delivery and stealing from the fiscus are never acceptable. Senior managers of
our institutions and municipalities are expected to work actively to improve their
procurement processes and oversight.
Infrastructure investment, city planning and development
finance
P u b l i c s e c t o r i n f r a s t r u c t u r e s p e n d i n g
Mister Speaker, government and state-owned enterprises will spend more than
R800 billion over the next 3 years on new power stations, road networks, dams
and water supply pipelines, rail and ports facilities, schools, hospitals and
government buildings. This builds on the steady progress made over the past
decade which saw the contribution of government and public enterprises to
gross fixed capital formation rise from 4 per cent of GDP in 2000 to 8.6 per
cent in 2009. These are long-term investments in the future of our country, and
in the capacity of the economy to grow and create jobs for generations to
come.
Major projects under way include:
 Medupi power station, which will generate 4 700 MW at a
projected investment cost of R125 billion,
 The R23 billion Transnet multi-product pipeline which will secure
our inland fuel supplies, 2011 Budget Speech

 And the R21 billion freeway improvement scheme, which has
already significantly eased congestion on Gauteng roads.
These investments are largely financed through borrowing, with costs
recovered from future electricity consumers and road-users.
As part of a long-term strategy for modernising public transport in metropolitan
areas, the Passenger Rail Agency of South Africa is embarking on an 18-year
programme to replace its coach and locomotive fleet, at an estimated cost of
R86 billion.
While infrastructure spending in the lead-up to the Soccer World Cup assisted
in moderating the impact of the recession on South Africa, there has been an
apparent deterioration in government construction spending over the past year.
The challenge of intensifying infrastructure spending over the period ahead will
require attention to planning, budgeting and contract management in national
and provincial departments and municipalities.
P l a n n i n g a n d f i n a n c i n g c i t i e s f o r i n c l u s i v e g r o w t h
It is time for special initiatives to accelerate growth and development in South
Africa’s cities, which have immense potential for inclusive growth and are
home to many millions of poor people.
The public finance challenge is to balance investment in expanding urban
capacity while also providing key public services – electricity, water, sanitation,
refuse removal and public transport. An efficient and cost-effective public
transport system is crucial because the majority of our people live too far from
where job opportunities are. In addition, through better land use management,
we need to deliver integrated human settlements that break from the apartheid
past.

A start is made in this budget, in the allocation of funds directly to cities to
upgrade informal settlements. Minister Sexwale will implement the
accreditation of municipalities which have demonstrated their capacity to
manage the low-income housing subsidy system. The public transport function,
including the management of rail, has been delegated by Minister Ndebele to
metropolitan municipalities in terms of the National Land Transport Act. These
are steps that create direct responsibilities for city councils, and open up
opportunities for accelerating investment and change in the urban landscape
and how cities promote their local economic development.
D e v e l o p m e n t f i n a n c e i n s t i t u t i o n s
Mister Speaker, a Development Finance Institutions Council has been
established, as recommended by a review committee. One of its primary tasks
is to ensure alignment between the programmes of these institutions and
government’s development agenda.
Members will recall that in last year’s budget we agreed to support an
expanded lending capacity of several development finance institutions. The
recapitalisation of the Land Bank is under way. So far, R1.7 billion has been
transferred to the Land Bank, and its finances are improving. The Land Bank
board has agreed to step up the Bank’s support for emerging farmers. In
cooperation with the Departments of Rural Development and Land Reform,
and Agriculture, Forestry and Fisheries, steps are in progress to turn failing
farms that were transferred to emerging farmers under the land reform
programme into successful business enterprises.
The lending capacity of the Development Bank of Southern Africa has also
been enhanced, by providing an interim guarantee while processing the
necessary legislative amendment. The DBSA is now working closely with
National Treasury and the departments of Health and Water Affairs, amongst
others, on strengthening infrastructure project management – revitalising five

major hospitals and their medical faculties, and preliminary planning of nine
bulk water schemes. The Bank also plays a key role in supporting municipal
financial capacity, and will assist in operationalising the new Jobs Fund. Our
agreement is that the delivery capacity and excellence we mobilised at national
level to build stadiums and host the World Cup, will be the benchmark for
undertaking these initiatives.
Including the investment and lending capability of the Industrial Development
Corporation, our development finance institutions are ready to expand
financing substantially over the next three years. The challenge is to ensure
available funds are allocated effectively and efficiently, to contribute to raising
productive capacity and to complement the investment activities of the wider
financial sector.
Conclusion
Mister Speaker, I extend my sincere appreciation to the President and Deputy
President for their unwavering support and wise counsel. Keeping our country
on a steady course through the Great Recession has been a challenging task
for all of us and the support of the Presidency has been both indispensable
and inspirational.
I would like to thank my Cabinet colleagues for their support. The Budget is
our collective statement. Your positive and encouraging contributions have
been most helpful.
The Members of the Ministers Committee on the Budget have shouldered an
immense responsibility to restructure and reform our fiscal system and make
bold recommendations to Cabinet. Theirs has been an excellent and enduring
team effort.

Deputy Minister Nene has offered wise insights and shared many
responsibilities. He forms an invaluable part of a maturing ministry.
Thanks also go to the MECs for Finance, who play a vital role in managing
over 40 per cent of the budget.
Our collective thanks go to:
 Governor Gill Marcus and the staff of the South African Reserve Bank,
 Commissioner Oupa Magashula and the South African Revenue
Service,
 Jabu Moleketi, chair of the DBSA, and CEO Paul Baloyi,
 The Financial and Fiscal Commission and its acting chair Bongani
Khumalo,
 NEDLAC, its Managing Director, Herbert Mkhize, and representatives of
the business, labour and community constituencies on the Public
Finance and Monetary Chamber,
 The Honourable Thaba Mufamadi and Honourable Charel de Beer who
chair the Standing and Select Committees on Finance respectively and
to the two chairs of the Appropriations committees, the Honourable Eliot
Sogoni and Honourable Teboho Chaane,
 Lesetja Kganyago and the National Treasury team, who continue to
surpass their own high standards and remain wonderful examples of
loyal and professional public servants, and are an invaluable asset to
our democratic state,

 Staff of the Ministry who make my work easier and give vital support
daily.
I thank my family for their support and sacrifices so that I may serve our
country.
Once again my sincere appreciation to the wide range of South Africans who
provide positive feedback and ideas on how government could work better and
differently.
Fellow South Africans, the President has clearly stated that job creation is our
number one priority. This budget outlines what government’s capabilities and
finances can do to support the delivery of jobs.
Now it is time for all of us to say “making South Africa work begins with you
and me.”
Giving every South African the dignity of a job, the security of an income, the
prospect of training, the support to launch new businesses, the confidence to
be an entrepreneur and the sheer passion and optimism to break the shackles
of unemployment – is the best legacy this generation can leave for the next.
The world is full of opportunities. Ours is the task of transforming these
opportunities into real, tangible outcomes which all of our people can
experience and call their own.
Or as Mandisa Motha-Ngumla advised me in a budget tip: “Government must
teach its people to fish; not be suppliers of fish. The latter is not sustainable;
the government pond will never be able to supply more fish in twenty years
than it is doing now to the ever growing masses of people of this country. Let’s
work to reduce dependency and give back dignity that was eroded by our
past.”

We repeat, with jobs comes dignity. With dignity comes participation. And
from participation emerges prosperity for all.
In Madiba’s words “In judging our progress as individuals we tend to
concentrate on external factors, such as one’s social position, influence and
popularity, wealth and standard of education… It is perfectly understandable if
many people exert themselves mainly to achieve all these. But internal factors
may be even more crucial…Honesty, sincerity, simplicity, humility, pure
generosity, absence of vanity, readiness to serve others – qualities which are
within easy reach of every soul.”

Download the budget speech here

National Budget Speech

(474kb)

	National Budget Review
	Estimates of National Expenditure (Printed version)	(7,339kb)
	Estimates of National Expenditure (Detailed information per vote)

	Division of Revenue Bill	(2,295kb)
	Appropriation Bill	(272kb)

	National Treasury Budget Highlights	(1,209kb)
	People’s Guide to the Budget : English	(3,185kb)
	People’s Guide to the Budget : Afrikaans	(3,029kb)
	People’s Guide to the Budget : Setswana	(3,021kb)
	People’s Guide to the Budget : Xhosa	(3,027kb)
	People’s Guide to the Budget : Zulu	(3,036kb)
	Budget Tax Proposals 2011	(2,717kb)
	Tax Pocket Guide 2011	(982kb)

	Additional information released on/after 23 Feb 2011
	2010 Tax Statistics
	A safer financial sector to serve South Africa better	(1,574kb)
	Final Regulation 28 with Explanatory Memo and Matrix of Comments

	Discussion Papers
	Cover note – A review framework for cross-border direct investment in SA	(596kb)
	A review framework for cross-border direct investment in South Africa	(141kb)
	Cover note – Prudential Regulation of Foreign Exposure in SA	(126kb)
	CREFSA Prudential Regulation of Foreign Exposure	(277kb)
	Confronting youth unemployment – Policy options	(1,453kb)

source: treasury.gov.za

Tags: budget speech 2011, budget speech 2011 south africa pravin gordhan, full text of budget speech 2011