Presented by: Dawie Roodt 27 February 2007

2. Fiscal Efficiency and the Budget Presented by: Dawie Roodt 27 February 2007

3. Dawie Roodt Chairman and Chief EconomistEfficient Group81 Dely RoadHazelwood0081Tel: (012) 460-9580Cell: 082 456 0204Email: dawie@efgroup.co.za

4. Through the Eyes of the World Source: The Economist January 20-26, 2007 Full page advertisements

5. The Oppositionp. 15

7. The Home Teamp. 17

10. Missing Something? But why say it?

11. 2007:Economic Overview

12. Economic Overview

13. Background

14. Consumption Expenditure by Households

15. Inflation

16. Interest Rate

17. GDP at Market Prices

18. Fiscal Overview

19. Background Gold

20. Background

21. Background

22. FISCAL 2006/07…

23. Revenue

24. Contribution to Fiscus

25. 2006/07 in Review:Revenue * Estimated

26. Quick Tax Burden Calculation • Trevor Manuel appointed as Minister of Finance in April 1996 • 1996: Revenue (22.5% GDP) • 2005: GDP (fiscal): R1,417bn • 22.5% of GDP = Revenue (2005): R319bn • Actual Revenue: R348bn • Difference: R29bn • ‘…(w)e have announced over R72bn in tax cuts since 1994…’ - 2004 Budget Speech Where are the tax cuts?

27. Quick Calculation

28. Revenue Categories • Personal Income Tax • Strong wage increases • Company Tax • Commodity cycle • Strong demand • VAT • Strong demand • Credit extension • Total Overrun • Mostly company tax

29. Expenditure

30. Spending Priorities

31. 2006/07 in Review:Expenditure * Includes: Contingency Reserve (R3.1bn)

32. Funding

33. 2006/07: Funding

34. 2006/07: Summary • Strong Revenue • Continues increase in Expenditure • Lower Deficit or surplus • Lower Debt • Support Consumption Expenditure

35. Summary 2006/07

36. Redistribution

37. Expansion vs. Contraction • Deficit: • Changes in deficit – Contr. • Level – Contr. • Debt • Changes in Debt – Contr. • Level – Contr. • Mix of expenditure and revenue – Very Exp.

38. 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 R7740 • 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+)

39. 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

40. Fiscal Efficiency:An Expenditure Comparison

41. Close-up on South Africa Source: Unesco and World Bank Development Indicators

42. Where does the money go?

43. Social Services Expenditure

44. Social Services Expenditure

45. Social Services Expenditure as % of Total Expenditure Source: Various Budgets and own calculation

46. Human Poverty Index (HPI): Developing Countries (HPI-1),2004 Mali South Africa South Africa(1998) Average: 30 Cuba Median: 27 Source: Human Development Report, 2006 (undp.org)

47. South Africans (0-14) with One or Both Parents Dead Source: StatsSA: Trends in the percentage of children who are orphaned in South Africa: 1995–2005

48. Grants • 2001/02 to 2005/06 fiscal years: • Foster care grants increase from R364m to R2,044m (5.6 times) • All social grants increase 2.5 times • April 2001 to April 2005: • Recipients of foster care grants from 86k to 256k (3 times) (Source: SA, Department of Treasury) • 2009/10: Foster care grant recipients to 472k (Source: SA, Department of Social Development)

49. Summary • Average (developing) level of poverty • Appear to deteriorate • Assist almost 30% of population! • 11m receive some form of social assistance (2006) • 7m children (child support grant) • 2m old age pension • Increasing number of orphans • Aggravated by health problem (HIV/Tuberculosis) • Contributes to lawlessness Increasing dependency on state

50. Edducayshion