Medium Term Budget Policy Statement 2006 Construction Conference 2006 Andrew Donaldson National Trea

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Medium Term Budget Policy Statement
2006Construction Conference 2006 Andrew
DonaldsonNational Treasury
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• Economic outlook
• Fiscal policy and budget framework
• Spending priorities and division of revenue
• Infrastructure and construction outlook

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Buoyant demand, supporting strong growth trend
Expenditure running ahead of output growth
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Sustained growth anticipated in future years
Growth of 4½ to 5 per cent over next three years,
in line with AsgiSA targets
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Macroeconomic outlook
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International background

• Global environment is growth supportive, but
  risks rising
• Persistent US twin deficits sustainability
  concern
• Strong capital flows to emerging markets may slow
• Rising interest rates
• World growth projected to rise slightly in 2006
  and then moderate
• Developing countries lead growth, particularly
  China and India
• Commodity prices relatively high

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Commodity prices and world growth
Commodity boom underpins growth in resource rich
countries like SA but wont last forever
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Sectoral performance
Agriculture and mining have held back growth this
year, construction leading the expansion
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Current account deficit

• Rising domestic demand and capacity utilisation
• Increasing reliance on imports
• Thus widening savings and investment imbalance

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Trade balance
A widening trade deficit since 2004 driven by
strong import growth, related to strong rand and
consumer demand
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Exports by product
12
Imports by product
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Net saving
Overall saving (after depreciation) has declined
as of GDPGovernment and household savings
negative
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Domestic economy policy issues

• Growth has been strong, inflation is relatively
  low, employment growth has gained momentum
• Nonetheless macroeconomic policy challenges
• Short-run
• Managing fiscal-monetary policy mix
• Commodity price movements and balance of payments
  management
• Sklls and targeted training programmes
• Long-run
• Improved saving needed for sustained investment
  growth
• Industrial policy and trade performance
• Education and productivity improvement
• Reducing poverty and inequality

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Fiscal policy

• Strong revenue trend results in lower fiscal
  deficits and anticipated surplus in 2007/08
• Deficit reduction and lower interest rates
  continue to contribute to declining debt service
  costs as share of GDP
• Budget framework allows continued strong growth
  in non-interest spending

Main Budget deficit
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Budget is broadly in balance over the MTEF period
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Expenditure rising strongly since 2000
1.90
1.90
1.80
1.80
Real non-interest expenditure (1997/98 1)
1.70
1.70
1.60
1.60
1.50
1.50
1.40
1.40
1.30
1.30
1.20
1.20
1.10
1.10
1.00
1.00
0.90
0.90
1997/98
1998/99
1999/00
2000/01
2001/02
2002/03
2003/04
2004/05
2005/06
2006/07
2007/08
2008/09
1997/98
1998/99
1999/00
2000/01
2001/02
2002/03
2003/04
2004/05
2005/06
2006/07
2007/08
2008/09
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Budget framework
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In-year adjustments in 2006/07 largely focused
on infrastructure

• Funds rolled over for N2 Gateway housing project
  totaling R372 million
• Emergency funding for flood damage totals R654
  million
• Initial payment for 2010 WC of R600 million
• R2 billion for the recapitalisation of
  state-owned enterprises
• Savings by Correctional Services and Land Affairs
  of R800 million and R1 billion, respectively

In year adjustments result in expenditure level
increasing from R472,7bn to R474,2bn
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Key spending areas for 2007 MTEF

• Investment in stadiums and public transport to
  ensure a successful 2010 FIFA World Cup
• Stepping up investment in the built environment
  in the form of housing, electricity, water,
  sanitation and community facilities
• Contributing to improved economic efficiency
  through investment in roads, rail, research and
  development, energy and skills development
• Strengthening the criminal justice sector, with
  particular emphasis on visible policing and
  improving court case flows
• Improving the quality of education, health and
  welfare services through additional resources and
  targeted interventions to improve public
  administration

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Consolidated expenditure Social services 57 of
total

• R80bn new allocations
• R21,7bn Social services
• R28bn Infrastructure investments
• R3,6bn for JCPS

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Provincial priorities

• Provincial equitable share grows by 7 in real
  terms
• Improving quality/access to education, health and
  social development
• Improving remuneration of educators and health
  professionals
• Step-up in conditional grants
• Provincial infrastructure grant (R4,3bn)
• Hospital revitalisation grant (R1bn)
• Integrated housing and human settlement dev grant
  (R2,7bn)
• Comprehensive HIV and Aids grant (R750mn)
• National tertiary services grant (R550mn)
• New provincial boundaries taken into account in
  provincial allocations

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Local government priorities

• Local government equitable share grows by 11 in
  real terms
• Increased funding for free basic services to poor
  households
• Improving governance and administrative systems
• R45,7bn Capital transfers to municipalities
  include
• R24,7bn for infrastructure to roll out basic
  municipal services
• R7,8bn for construction and upgrading stadiums
• R6,7bn to host cities for stadium precincts and
  public transport
• R1,4bn for bulk systems for water supply and
  sanitation
• R1,4bn for electricity infrastructure
• R3,7bn for neighbourhood development partnership
  grant
• Capacity-building in municipalities is
  prioritised
• Focus on planning, budgeting, financial
  management skills
• Siyenza Manje programme led by DBSA

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Focus on infrastructure remains central to
development strategy

• Housing and residential development
• Double spending on housing grant programme
• Accelerate credit-linked subsidy and social
  housing projects
• Electrification
• Water and sanitation programmes
• Neighbourhood development partnership grant
  programme 35 projects identified
• Transport
• Rail investment and refurbishment
• Gautrain under way
• Supplementary funding for national and provincial
  roads
• Earmarked allocations for access roads
  improvements
• Social infrastructure
• Schools
• Hospital revitalisation programme
• 2010 FIFA World Cup
• Five new stadiums, five upgrades
• Public transport improvements focused on 2010
  World Cup projects

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2007 MTEF infrastructure spending estimates
MTEF total R410 billion
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MTBPS Highlights

• Buoyant economic conditions
• Non-agricultural GDP has grown by 5 per cent a
  year since 1st quarter of 2004
• Growth in GDP per capita has accelerated from 1,4
  per cent in 2003 to 3,5 per cent in 2005
• Over 1 million jobs in the last three years
• Outlook for construction
• Fixed capital spending growth of 10 a year
  (real)
• Focus on stadiums and transport over next three
  years
• Housing and residential development remain
  priorities for expansion in spending
• Expanding role for private finance and project
  management
• Skills development needs to accompany spending
  growth