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19 January 2017
   
 
 
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Honourable Speaker  

Mister President  
Deputy President  

Cabinet Colleagues and Deputy Ministers  
Governor and Governor-Designate of the Reserve Bank  
MECs of Finance  

Honourable Members  
Fellow South Africans  

It is my privilege to present the 2014 Medium Term Budget Policy
Statement and the Adjustments Appropriation Bill, the Division of
Revenue Amendment Bill, all for 2014/15, and this year’s Revenue Laws
Amendment Bills. 
Mister President, we are calling upon Parliament to consider our budget
proposals at a difficult time. In many countries, growth has slowed and
the economic outlook is uncertain. Across the world, tough questions are
being asked about how to generate growth, and how to reduce
inequality. 
Governments everywhere face difficult choices because the gap
between what is required and what can be afforded is very wide. And so
we have to be steadfast in our resolve to do more, together, with less. 
2014 Medium Term Budget Policy Statement Speech
3

Economic outlook
Honourable Speaker, when we tabled the 2014 Budget in February, we
expected the economy to grow by 2.7 per cent this year. The revised
estimate is 1.4 per cent. The Treasury projects that growth will reach 3
per cent in 2017. 
This downward revision is partly because of a weak global environment,
including the slowdown in Europe, China and other emerging
economies. But it also reflects obstacles to our own development: 
energy constraints, labour market disruptions, skills shortages,
administrative shortcomings and difficulties in our industrial
transformation.
We have achieved much over the past twenty years: we have expanded
education and health care, broadened economic participation and
extended income support to the most vulnerable. 
But we are not making enough progress in raising incomes or reducing
poverty. Far too many people are unemployed, which deepens inequality
and heightens vulnerability. We import considerably more than we
export.
As a result of slow growth, tax revenue is below our budget projection.
Government’s debt continues to rise as a percentage of GDP. 
Increased debt is not in itself a bad thing, if it finances investment in
future productive capacity. But we are not investing enough. And our
expenditure on public services achieves less than it should. 
And so, Honourable Speaker, the budget framework we table today is
focused on restoring balance to the nation’s finances, bolstering
investment, and achieving better value for money in public expenditure.
We want to improve our export performance and shift away from
consumption-led, debt-reliant expansion.
These changes are fundamental to our economic transformation,
because they are the foundations on which our social progress and
human development goals will be achieved.
2014 Medium Term Budget Policy Statement Speech
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National Development Plan
Our National Development Plan is about both growth and redistribution –
expanding output and incomes and building a more inclusive and more
equal society. As emphasised by President Zuma in opening the fifth
Parliament, we need economic growth of around 5 per cent a year to
decisively reduce unemployment and poverty, and to transform our
social and economic order. There are many aspects to this
transformation challenge:
 How we utilise land and our mineral resources, 
 How we organise transport, energy and communication
networks, 
 How we manage cities and local government, 
 How we improve education and health services, 
 How we reform our social security and welfare services,
 How we broaden ownership and enterprise development,
and 
 How we engage with Africa and the rest of the world.
We cannot achieve this vision if we remain on our present economic
path. We have to navigate a definite change of course, taking all South
Africans with us.
Medium term strategic framework
Honourable Speaker, the budget framework we are proposing for the
period ahead signals this change. But economic development is much
more than a schedule of taxes and spending plans. 
The success of our budget is defined by its contribution to building a
more equal, prosperous society, as envisaged in the National
Development Plan.
2014 Medium Term Budget Policy Statement Speech
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Government’s actions over the next five years to achieve this vision are
set out in the Medium Term Strategic Framework. It highlights the need
for a compact between a capable developmental state, a thriving
business sector and strong civil society. It identifies employment,
education and enhancing the capacity of the state as central policy
objectives. 
The MTSF includes programmes aimed at improving our
competitiveness, particularly in new areas such as oil and gas
development, renewable energy and green technology. It recognises the
need to support job creation through sector-based interventions,
employment incentives, the expanded public works programme and the
Jobs Fund.
The MTSF also acknowledges the importance of our social grant
programmes and welfare services in combating poverty, and the role of
public health services and child-focused programmes in reducing
vulnerability.
Honourable Speaker, there are structural shifts underway in our
economy that need to be accelerated. Allow me to highlight just a few:
 In manufacturing, we are helping companies to
enhance their competitiveness and upgrade equipment
through the Industrial Policy Action Plan. A new
framework for special economic zones has been
introduced. It allows for targeted incentives, logistics
improvements and active partnerships between
businesses, municipalities and development agencies.
 In agriculture, better links between emerging farmers
and produce markets need to accompany an improved
alignment between land reform and agricultural support
programmes. We have seen strong increases in maize
and livestock production this year. There has also been
notable growth in exports of citrus, wine and
horticulture products. 
 In sub-Saharan Africa, South African firms are
expanding investment and business partnerships,
giving impetus both to regional development and our
own export growth. Africa is the fastest growing region
2014 Medium Term Budget Policy Statement Speech
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in our trade portfolio, and offers many opportunities for
domestic producers to diversify.
 In the energy sector, we have one of the largest
renewable energy programmes in the world, with over
60 wind and solar power projects underway. The
independent power producer programme will be
extended to include 2500 MW of coal projects and
800 MW of cogeneration projects to be connected to
the national grid.
 In mining, we recognise the need for a new accord
between producers, organised labour, government and
local communities. Modernisation of mining is not just
about new technologies. It also involves housing
investments, social development and improved
processes for dispute resolution. 
 In transport and communications, we are in the early
stages of major transformative investments. The
Passenger Rail Agency of South Africa has concluded
a R53 billion contract to replace over 500 commuter
trains over the next ten years. Transnet is expanding
and improving its infrastructure and services. New
public transport systems are being constructed in our
cities. Telecommunications investments are steadily
improving the quality and coverage of broadband
networks.
 In our financial sector, the twin peak reforms to
improve consumer protection and safeguard
investments are underway. These will include attention
to unfair lending and debt recovery practices. We are
working with our Nedlac partners to promote retirement
reforms. Initiatives to encourage saving are in
progress. The shift away from exchange controls to
more appropriate prudential standards will continue,
including simpler administrative requirements. 
These are areas of structural transformation, Honourable Speaker, that
involve investment and change across the economy as a whole, bringing
together the public and private sectors, civil society and local initiatives. 
2014 Medium Term Budget Policy Statement Speech
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I need to highlight the key aims of our Medium Term Strategic
Framework that have substantial implications for the budget.
 The quality of our education system and our health services
needs to be improved. These will remain the top priorities of
government spending.
 Building capacity and strengthening accountability of the
public sector is critical, particularly at local government level
and in state-owned companies. 
 South Africa’s spatial landscape has to be re-shaped,
including investment in dynamic city development, integrated
housing and transport programmes and support for business
activity and job creation in both urban and rural areas. 
The MTSF will guide the budget decisions that contribute to making the
NDP a reality. The required increases in investment and productivity will
not be easily achieved. There will be difficult short-term adjustments, to
achieve a sustainable long-term development path. As the NDP says,
we must work together as partners to revive investment, avoid lengthy
production stoppages, improve public services, strengthen local
accountability and generate confidence in the economy. 
The recent “Operation Phakisa” review of our oceans economy is an
excellent example of the kind of cooperation we need. We had  intensive
engagement, over several weeks, under expert guidance. This has
deepened our understanding and generated practical ideas for further
development.
On Friday this week, the President will again meet business leaders to
discuss measures to increase investment in our economy. On 4
November, the Deputy President will lead a consultation between social
partners on challenges in the labour relations environment. Through
forums of this kind, Honourable Speaker, we make progress in
implementing the National Development Plan and in addressing specific
challenges that confront us. 
We have responded to two such challenges in recent months. Let me
comment briefly on each.
2014 Medium Term Budget Policy Statement Speech
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African Bank
It became clear earlier this year that African Bank was in difficulty. After
consideration of the implications for the wider financial system, it was
resolved that African Bank should be placed under curatorship. The
intervention was led by the Reserve Bank and the Treasury, and
included participation by other banks, private investors and the Public
Investment Corporation. 
In support of the restructuring, the Treasury has provided a R7 billion
assurance to the Reserve Bank. Our expectation is that the new African
Bank will re-list on the stock exchange early next year, and that the
curatorship will be concluded without the use of taxpayer money. 
Eskom and other state-owned companies
We have also taken steps to safeguard Eskom’s financial sustainability. 
The support proposed for Eskom will allow its build programme to
continue without an unduly steep increase in electricity prices. 
 Eskom will borrow a total of R250 billion over the next five
years, supported by existing guarantees from government.
 Government will provide at least R20 billion of funding, raised
through the sale of non-strategic assets. This will be deficit-
neutral: the capitalisation of Eskom will only occur once
these funds are realised. If necessary, consideration will be
given to a partial equity conversion of the R60 billion loan
that has already been provided.
 Financial assistance to municipalities for free basic services
will continue, ensuring that the poorest households are
protected against rising electricity tariffs.
Electricity supply will remain tight until the first units of the new Medupi
power station come on line and the capacity of existing plants improves.
Even then, it will require several years and substantial public and private
investment in power generation before a satisfactory balance between
supply capacity and demand is achieved. 
2014 Medium Term Budget Policy Statement Speech
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Stepped-up investment in distribution infrastructure is also required by
municipalities, alongside investment in demand management and
energy efficiency improvements by both businesses and households.
In addition to Eskom, several other state-owned companies are under
Cabinet’s close scrutiny. A new framework is envisaged that will
distinguish commercial activities from development mandates,
accompanied by more stringent financial reporting requirements. 
Following the successful restructuring of the Development Bank of
Southern Africa, steps to address financial risks and improve
governance are being undertaken at South African Airways, South
African Express, the SA Post Office and the Land Bank.
Adjustments Appropriation: 2014/15
Honourable Members, I now turn to the Adjustments Appropriation for
the current financial year. Details are set out for each vote in the
Adjusted Estimates.
As in past years, there are various shifts of funds and minor
adjustments. I will highlight just a few.
Additional allocations for unforeseeable and unavoidable expenditure
include:
 R157 million on the Cooperative Governance vote to repair
infrastructure damaged by disasters, and R35 million for
emergency water and sanitation interventions;
 R32.6 million for the Department of Health for Ebola control
and prevention measures, including support for affected
countries; and
 R350 million for International Relations and Cooperation to
compensate for the depreciation of the Rand.
The Adjustments Appropriation also includes R620 million for the digital
broadcast migration programme, as indicated in the February budget
speech.
2014 Medium Term Budget Policy Statement Speech
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After taking into account the unallocated reserve, declared savings and
projected underspending, total expenditure in 2014/15 will be about
R6 billion less than the February estimate. 
The revised revenue estimate is R956 billion, leaving a deficit on the
main budget of R180 billion. Surpluses of the social security funds,
provinces and public entities are estimated at R27 billion. This brings the
consolidated budget deficit to R153 billion, or 4.1 per cent of GDP, which
is in line with the February budget estimate.
Elements of the MTBPS
In tabling the 2014 Medium Term Budget Policy Statement, Honourable
Speaker, allow me to emphasise once more that investment and
initiative by both the private and the public sectors are required for our
economic growth and fiscal sustainability. 
The National Development Plan calls for private and public sector
investment to reach 30 per cent of GDP. Progress has been made:
public sector spending on infrastructure has doubled over the past five
years. But there is still a long way to go if we are to achieve investment-
led growth, which is the centrepiece of our development strategy. 
Two years ago, we pointed out that if the economic and fiscal outlook
were to deteriorate, expenditure and revenue plans would be
reconsidered. In the 2013 Budget, government reduced its spending
plans and cut the unallocated contingency reserve. The 2014 Budget
indicated that additional measures would be required if the economic
outlook were to worsen. 
Members of the House, we have reached that turning point. Fiscal
consolidation can no longer be postponed.
By proposing measures to reduce the budget deficit, government will
stabilise public debt and ensure the sustainability of our critical social
programmes. The proposals being tabled today complement reforms
under way to encourage lower consumption, higher savings and
increased productive investment. 

2014 Medium Term Budget Policy Statement Speech
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Re-establishing a sustainable foundation for the public finances will
lower the cost of capital across the entire economy and open the way for
investment-led growth.  It also means that government will play its part in
moderating the wide deficit on the current account and correcting our
external imbalance.
Together, these fiscal measures will complement job creation and skills
development initiatives. These include government’s flagship re-
industrialisation programmes, projects of the Presidential Infrastructure
Coordinating Commission and support for our expansion of higher
education and vocational training. 
Fiscal framework
The fiscal framework set out in the MTBPS is as follows.
In order to reduce the budget deficit from 4.1 per cent this year to 2.5 per
cent over the next three years, the expenditure ceiling will be lowered by
R10 billion in 2015/16 and R15 billion in 2016/17. To effect the lower
ceiling, national government will: 
 Freeze budgets of non-essential goods and services at
2014/15 levels;   
 Withdraw funding for posts that have been vacant for some
time; and
 Reduce the rate of growth of transfers to public entities,
particularly those with cash reserves.  
Across national departments, planned expenditure on travel and
subsistence, conference venues and catering has been cut. Advertising
and communications budgets have been reduced. Allocations for
consultant services have been capped. These steps will contribute
savings of about R1.3 billion over the next two years. They supplement
the cost-containment measures adopted at the start of this year, which
have already achieved substantial savings.

2014 Medium Term Budget Policy Statement Speech
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Lower government consumption also requires prudent management of
the public-sector wage bill, while maintaining the real value of public
service salaries. New posts will have to be funded from existing
allocations and natural attrition. Posts that remain vacant will be
reviewed. 
Honourable Speaker, our consolidation path thus far has relied mainly
on containing expenditure growth. Revenue measures will also come
into consideration in the period ahead. If we are to avoid reducing
expenditure in real terms, about R15 billion a year in additional revenue
will need to be raised. Details will be announced in the 2015 budget. The
revenue measures will be designed to limit as far as possible any
negative impact on growth and job creation.
Acting now to re-establish a sustainable foundation for public finances
will enable government to rebuild fiscal space in the years ahead. Once
debt has stabilised, spending growth will be aligned with long-term
economic growth trends. In the final year of the MTEF period an
unallocated reserve is retained, to allow for future shocks to the fiscus or
allocations to new priorities.
Government will place greater emphasis on longer-term planning and
efficient resource allocation. There will be a comprehensive assessment
of baseline estimates for 2017/18, emphasising value for money and
alignment with policy priorities.
Capital injections for state-owned companies will be allocated without
impacting on the budget deficit over the next two years, and on the
condition that a sound business plan is in place.
Medium term expenditure priorities
Honourable Speaker, over the past decade we have increased public
spending on the main budget from 26 per cent to 31 per cent of GDP.
Much of this increase has gone to programmes that contribute to the
social wage, including schools, roads, hospitals, housing and municipal
services.

2014 Medium Term Budget Policy Statement Speech
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Our medium term objective is to ensure that public spending promotes
growth and creates an environment for greater private sector
investment. To this end, we are targeting three priority spending areas.
 First, we will support cities to improve living conditions,
modernise transport and communications infrastructure,
expand the urban economy and promote trade and
investment. Government will work with development finance
institutions to increase investment in the urban landscape
and expand the municipal debt market.  
 Secondly, we will reinforce support for export
competitiveness and job creation. This includes over
R18 billion for manufacturing incentives, the establishment of
special economic zones and the employment tax incentive. 
 Thirdly, we will expand the skills base: R800 billion is
proposed over the MTEF period for education and skills
development. Post-school education and training has
received the fastest-growing share of the budget over the
past three years, and will continue to expand.
Alongside these priorities, there will be real growth in spending on local
development and social infrastructure. As in the past, the largest
allocations will go to education, health and social protection. 
This year, one-third of allocated expenditure will go to the compensation
of employees. Over the period ahead, we have budgeted for nominal
wage-bill growth in line with consumer price inflation. In the present
economic circumstances, it is especially important that we maintain a
careful balance between personnel spending and other resources
required for public service delivery.
Division of revenue
Honourable Speaker, a national appropriation of R1.2 trillion in 2015/16
is proposed, rising to R1.3 trillion in 2016/17. The proposed division of
revenue allocates 48 per cent to national departments, 43 per cent to
provinces and 9 percent to local government over the MTEF period.  
2014 Medium Term Budget Policy Statement Speech
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Allocations to national departments will total R495 billion in the current
year and will increase to R585 billion in 2017/18. 
Provinces 
Provinces will receive R469 billion next year, increasing to R527 billion
in 2017/18. Efficiency improvements will be prioritised in the core areas
of service delivery: basic education, health, roads and social
development.
National Treasury will work with provincial departments to improve
human resource management and supply chain processes. Special
attention must be paid to containing personnel expenditure, which now
accounts for 61 per cent of total provincial spending.
Local government
The division of revenue allocates R91 billion to local government next
year. This will increase to R110 billion in 2017/18 to support the MTSF
outcome of responsive, accountable, effective and efficient local
government. 
Support will be provided to municipalities to improve revenue collection
and management of infrastructure financed from both own revenue and
grants.
The local government equitable share continues to finance the provision
of free basic services to poor households, but municipalities must work
harder to broaden access.
Service delivery impact
What do all the proposals being announced today mean for service
delivery? 
Let me be absolutely clear: we will not balance the budget on the backs
of the poor. This means that intensive effort has to be focused on
achieving the intended savings and maximising efficiency. 
2014 Medium Term Budget Policy Statement Speech
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 This will include a focus on procurement costs. In November,
we will release a Public Procurement Review which clearly
outlines reforms to be implemented over the next five years.
 Cost-containment measures will be reinforced to identify
goods and services expenditure that can be eliminated
without affecting service delivery. 
 A culture of doing more with less is required. For example,
Treasury is working with municipalities to link the
disbursement of infrastructure grants more tightly to the
efficient delivery of capital projects.
 We will continue to fight waste and corruption, supported by
our audit institutions and stringent monitoring and reporting
requirements.
More details of these measures will be provided in the 2015 Budget
Review. 
Honourable Speaker, South Africans rightly expect efficient and reliable
delivery of basic government functions – water supply, sanitation, refuse
removal, teachers in classrooms, medicines in clinics, postal delivery,
visible policing. These essential services come first. Where they are in
disrepair, they must be fixed. 
To meet the cost of these services, taxes have to be paid and municipal
bills collected. So let me again express appreciation to the many South
Africans who pay their taxes and bills, on time. Our thanks also to the
officials whose duties are to enforce the laws.
Conclusion
In concluding, Honourable Speaker, allow me to acknowledge the
guidance and support of President Zuma and Deputy President
Ramaphosa in these difficult times.  
Cabinet collectively owns this medium term budget policy statement. Its
support and understanding for tough measures is highly appreciated. 
2014 Medium Term Budget Policy Statement Speech
16

My appreciation also goes to colleagues in the Ministers’ Committee on
the Budget for their continuous and vigorous engagement with the
challenges before us.    
A heartfelt thank you to Deputy Minister Jonas for his sound advice.
My thanks to the MECs of Finance, who play a critical role as guardians
of 43 per cent of our spending. 
Our appreciation also goes to: 
 The outgoing Governor of The South African Reserve Bank,
Gill Marcus, who has so wisely steered the Reserve Bank
during stormy financial times, Governor-designate Lesetja
Kganyago and the Deputy Governors, 
 Auditor-General Mr Kimi Makwetu and the audit teams who
keep us under scrutiny,
 Commissioner Tom Moyane and the staff of the South
African Revenue Service, 
 The executive heads of the Development Bank of Southern
Africa, the Land Bank, the Public Investment Corporation,
the Financial and Fiscal Commission, the Financial Services
Board, the Financial Intelligence Centre and the Government
Pension Administration Agency, 
 The managing director of NEDLAC and its constituency
representatives, 
 The chairs of the Standing and Select Committees on
Finance and Appropriations, Honourable Yunus Carrim,
Charel de Beer, Paul Mashatile and Seiso Mohai, who
ensure that Parliament remains a vibrant forum for
accountability and public participation, 
 Director-General Lungisa Fuzile and the management and
staff of the National Treasury and the Ministry, and 
 My very supportive family. 
2014 Medium Term Budget Policy Statement Speech
17

And finally, I must express sincere gratitude to all South Africans who
offer words of encouragement – as well as criticism and concerns. This
is what keeps us accountable and drives us constantly to improve. 
I hereby table for consideration by the House the Medium Term Budget
Policy Statement, the Adjusted Estimates of National Expenditure, the
Adjustments Appropriation Bill, the Division of Revenue Amendment Bill,
the Rates and Monetary Amounts and Amendment of Revenue Laws
Bill, the Taxation Laws Amendment Bill, and the Tax Administration
Laws Amendment Bill.
 
Honourable Speaker, Nelson Mandela set the tone for us in November
1994 when he said: “Our primary objective is to address the basic needs
of especially the poor. We have to reconcile this with South Africa's
resource constraints. We must consequently shift our priorities, accept
financial discipline and create a climate conducive to sustained
economic growth.” 

I table this budget framework at a watershed moment in our country’s
history. This year, we have been able to celebrate our collective
achievements of the past 20 years – creating a more prosperous and
inclusive nation, and the maturing of our institutions of democracy and
accountability. 

Surely, we also share a determination to protect these gains, to deepen
our capacity to meet the needs of our people and to place our future on
firm foundations. We, Mister President, together with all South Africans,
are joint trustees of this compact.

I thank you.

Edited by: Creamer Media Reporter
 
 
 
 
 
 
 
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