Budget Speech 2022

2022/23 BUDGET SPEECH BY MINISTER OF FINANCE ENOCH GODONGWANA
23 February 2022

Honourable Speaker;
His Excellency, President Cyril Ramaphosa;
His Excellency, the Deputy President David Mabuza;
Cabinet Colleagues;
Members of the Executive Committees for Finance in the provinces;
Honourable Members;
Finance Minister of the Democratic Republic of the Congo;
The Governor of the South African Reserve Bank;
The Commissioner of the South African Revenue Services;
Fellow South Africans:

INTRODUCTION

It is my honour and privilege to table before this House the 2022 National Budget.

Today I am tabling the following documents:

• The 2022 Division of Revenue Bill;The 2022 Appropriation Bill;
• The Second Adjustments Appropriation (2021/22 Financial Year) Bill;
• The Estimates of National Expenditure;
• The 2022 Budget Review; and
• The Budget Speech.

Madam Speaker, we stand here galvanised by the State of the Nation Address
delivered by His Excellency President Cyril Ramaphosa.

The President reminded us that even as we face steep and daunting challenges, like
we have done in the past, we will overcome.

To do so, we need to strike a critical balance between saving lives and livelihoods,
while supporting inclusive growth. This budget presents this balance.

Our economic recovery has been un-even and risks remain high. We must proceed
with caution.

In the 2021 MTBPS we committed ourselves to charting a course towards growth and
fiscal sustainability. This budget reasserts this commitment.

It narrows the budget deficit and stabilizes debt.

It also extends income and employment support to the most vulnerable, , addresses
service delivery shortcomings and provides tax relief.

However, these interventions cannot replace the structural changes our economy
needs. Difficult and necessary trade-offs are required.

ECONOMIC OUTLOOK

Global outlook
The world economy is expected to grow by 4.4 per cent this year. This is lower than
the 4.9 per cent we anticipated when tabling the MTBPS.

The Omicron variant of the coronavirus caused many countries to impose restrictions
to manage its spread.

In addition, continued imbalances in global value chains have limited the pace of the
world’s economic recovery.

DOMESTIC OUTLOOK

The South African economy has not been insulated from these global developments.

We have revised our economic growth estimate for 2021 to 4.8 per cent, from
5.1 per cent at the time of the MTBPS.

This revision reflects a combination of the impact of changes in the global
environment, along with our own unique challenges.

Commodity prices, which have supported our economic recovery, slowed in the
second half of 2021.

Also, violent unrest in July, and restrictions imposed to manage the third wave of
COVID-19 further eroded the gains we made in the first half of the year.

Industrial action in the manufacturing sector, and the re-emergence of loadshedding,
also slowed the pace of the recovery.

Real GDP growth of 2.1 percent is projected for 2022. Over the next three years, GDP
growth is expected to average 1.8 percent.

THE FISCAL FRAMEWORK

Revenue collection
Tax collections since the time of the MTBPS have been much stronger than
expected.

We now estimate tax revenue for 2021/22 to be R1.55 trillion.

This is R62 billion higher than our estimates from four months ago, and R182 billion
higher than our estimates from last year’s Budget.

This follows a shortfall of R176 billion for 2020/21 when compared to the 2020 Budget
forecasts.

This positive surprise has come mainly from the mining sector due to higher
commodity prices.

Madam Speaker, one swallow does not a summer make.

The improved revenue performance is not a reflection of an improvement in the
capacity of our economy.

As such, we cannot plan permanent expenditure on the basis ofshort-term increases
in commodity prices.

To be clear, any permanent increases in spending should be financed in a way that it does not worsen the fiscal deficit.

We have also seen higher revenue from other sectors and other tax instruments, such
as personal income tax and value-added tax.

Madam Speaker, this year marks the 25th anniversary of the establishment of the
South African Revenue Service.

SARS plays a vital role in the economy, and we congratulate them on this momentous
occasion.

We also welcome the current modernisation of its infrastructure at border posts, such
as Beit-bridge to facilitate greater trade.

The fiscal outlook
Honorable Members, more than R308 billion has been directed towards bailing out
failing state-owned companies.

Since 2013, frontline services and infrastructure reduced by R257 billion.

In this Budget, we are shifting from this trend, and are restoring our focus on the core
functions of government.

We are also on course to close key fiscal imbalances and restore the health of public
finances.

Our debt burden remains a matter of serious concern.

This year, government debt has reached R4.3 trillion and is projected to rise to R5.4
trillion over the medium-term.

This huge sum is owed to lenders domestically and around the world!

It incurs large debt-service costs; averaging R330 billion annually over the MTEF.

These costs are larger than spending on each of health, policing or basic education.

For this reason and to support the economic recovery, in this budget we are reducing
the fiscal deficit and stabilising debt.

The consolidated budget deficit is projected to narrow from 5.7 per cent of GDP in
2021/22, to 4.2 per cent of GDP by 2024/25.

We now expect to realise a primary fiscal surplus – where revenue exceeds noninterest
expenditure – by 2023/24.

The debt ratio will stabilise at 75.1 per cent of GDP by 2024/25. This is 3 percentage
points lower than we had projected when we tabled the MTBPS.

This is also the first time since 2015 that we are reducing the borrowing requirement,
using some of the extra revenue we have collected.

The borrowing requirement decreases by R135.8 billion this year and a total of R131.5
billion over the next two years.

Risks to the fiscal framework
Though the fiscal outlook has improved, it is subject to significant risks.

These include:

• Slowing global and domestic economic growth; Calls for a permanent increase
  in social protection that exceed available resources.
• Pressures from the public‐service wage bill; and
• Continued requests for financial support from financially distressed state‐owned
  companies.

We need to stay vigilant and mitigate the risks where possible.

In the upcoming period, we will do more work to strengthen fiscal anchors.

We will also reduce the continual demands on South Africa’s limited public resources
from state-owned companies.

For this reason, SOCs need to develop and implement sustainable turnaround plans.

The future of our state-owned companies is under consideration by the Presidential
State-Owned Enterprises Council.

Their future will be informed by the value they create and whether they can be run as
sustainable entities without bailouts from the fiscus.

Some state-owned companies will be retained, while others will rationalized or
consolidated.

To reduce their continuing demands on South Africa’s public resources, the National
Treasury will outline the criteria for government funding of state‐owned companies,
during the upcoming financial year.

This, Madam Speaker, is what we mean by tough love!

We are aware that Eskom’s debt situation remains a concern for its creditors and our
investors alike.

Government continues to support Eskom to remain financially sustainable during its
transition.

To date, Eskom has been provided with R136 billion to pay off its debt with a further
R88 billion until 2025/26.

We acknowledge, however, that Eskom is faced with a large amount of debt that
remains a challenge to service without assistance.

The National Treasury is working on a sustainable solution to deal with Eskom’s debt
in a manner that is equitable and fair to all stakeholders.

Any solution will be contingent on continued progress to reform South Africa’s
electricity sector and Eskom’s own progress on its turnaround plan and its
restructuring.

We expect Eskom to take further steps towards cost containment, conclude the sale
of assets and implement operational improvements to enhance the reliability of
electricity supply.

The outcome of this work, which is legally and technically complex, will be announced
within the next financial year.

Madam Speaker, we have taken action to reform the electricity sector. This
encompasses the lifting of the registration threshold of embedded generation to 100
megawatts.

It also includes amendments to the Electricity Regulation Act of 2006, and the new
generation projects that are coming online over the next few years.

These interventions demonstrate our commitment to solving South Africa’s electricity
supply challenges.

SUPPORTING ECONOMIC RECONSTRUCTION AND RECOVERY

Madam Speaker, we have had more than a decade of economic stagnation.
Only through sustained economic growth can South Africa create enough jobs to
reduce poverty and inequality; enabling us to reach our goal of a better life for all.

The Economic Reconstruction and Recovery Programme remains essential to
growth.

We are accelerating the implementation of critical structural reforms contained in the
ERRP in particular, in electricity, rail, ports and telecommunications.

Infrastructure
To complement these interventions, Madam Speaker, we will be accelerating
infrastructure investment which is the backbone of a thriving economy.

The National Treasury will be implementing the results of a recently completed review
of the Public-Private Partnerships framework.

We aim to create a centre-of-excellence for PPPs and other blended finance projects.
This centre-of-excellence will be established with direct Treasury oversight.
It will be a direct interface with private financial institutions for investments in critical
government infrastructure programmes.

We will also work with other national departments and the provinces of the Eastern
Cape and Northern Cape, to pilot a revised approach to infrastructure delivery.
This approach will include innovative financing and delivery mechanisms, as
announced by the President in the State of the Nation Address.

Regarding the Umzimvumbu Dam, we are at an advanced stage of resolving the
project issues. We will make further announcements on this in the MTBPS.

In October, I will table amendments, through the 2022 Division of Revenue
Amendment Bill, to enable provinces to pledge their infrastructure grants to leverage
more financing to fast-track the rollout of infrastructure.

Mr, President; in the State of the Nation address you spoke about the importance of
catalytic and blended finance projects. These projects have the potential to crowd in
private investors for bulk infrastructure.

As we upgrade roads, bridges, water and sewer, transport, school infrastructure and
hospitals and clinics, the aim is to unlock higher levels of employment for those
involved in the projects.

I am pleased to inform this House that a provisional allocation is set aside in this
Budget for R17.5 billion over the MTEF for infrastructure catalytic projects. We look
forward to engaging with specific proposals in this regard.

Value for money and quality of delivery is the top priority in the development of the
project pipeline.

Bounce-back scheme to support SMEs
To support businesses in distress owing to the Covid-19 pandemic, a new business
bounce-back scheme will be launched, using two mechanisms which will be
introduced sequentially:

Firstly, small business loan guarantees of R15 billion will be facilitated through
participating banks and development finance institutions. This allows access for
qualifying non-bank small and medium loan providers.

Government will partner with loan providers by underwriting the first 20% of losses for
banks and other eligible small and medium loan providers.

The eligibility criteria, including the requirement for collateral, has been loosened.
This mechanism will be launched and operational next month.

Secondly, by April this year, we intend to introduce a business equity-linked loan
guarantee support mechanism.

We intend to bring the total support package through the bounce-back scheme to R20
billion.

The equity support mechanism of this scheme will be facilitated through DFIs. It will
also be available to qualifying non-bank small and medium finance providers.

Details of the terms of the equity-linked guarantee mechanism will be provided soon.

Public employment
Over the medium-term, R76 billion is allocated for job creation programmes.
In this Budget an additional R18.4 billion is made available for the Presidential
Employment Initiative.

Madam Speaker, we do not aspire to be a below 2 per cent growth economy. We are
capable of so much more.

In this regard, we are refining proposals for an expanded reform agenda – to shift our
economy towards a higher growth trajectory.

SPENDING PROPOSALS

In this budget, we are taking steps to support education, health, the fight against crime
and corruption, and to improve capital investment, amongst others.

Over the next three years, we allocate R3.33 trillion to the social wage to support
vulnerable and low-income households. This is approximately 60 per cent of noninterest
spending.

We have prioritized spending on the following key areas:
In 2017, government announced a policy for fee-free higher education. We are
announcing an additional allocation of R32.6 billion for financial support to current
bursary holders and first-year students under the National Student Financial Aid
Scheme.

Any further shortfalls will be funded from within the baseline of the Department of
Higher Education.

Madam Speaker, at the height of the COVID-19 our teachers had to make tremendous
sacrifices to ensure that our children get education.

Equally our health care workers, we among those that were the last and only line of
defence against the pandemic.

In this budget, we are adding R24.6 billion for provincial education departments to
address the shortfalls in the compensation of teachers.

An additional R15.6 billion is allocated to provincial health departments to support
their continued response to COVID-19, and to bridge shortfalls in essential goods
and services.

R3.3 billion is allocated to absorb medical interns and community service doctors.
R8.7 billion is added to the Police budget.

The department is allocated R1 billion to implement personnel reforms.
Another R800 million may be available in the following year, subject to satisfactory
progress.

We are also strengthening the resourcing of the justice system and our courts.

In this regard, the budget of the Department of Justice and Constitutional Development
is increased by R1.1 billion, while the Office of the Chief Justice receives an additional
R39.9 million.

The South African National Roads Agency (SANRAL) receives an additional R9.9
billion for maintaining the non-toll road network.

Over and above this, the Budget Facility for Infrastructure has approved funding for
several water projects:

• R2.1 billion is allocated for raising the Clan William Dam.
• The Lepelle Water Board is allocated R1.4 billion for the Olifantspoort and Ebenezer plants.
• The Umgeni Water Board is allocated R813 million for the Lower uMkhomazi
  Water Supply Scheme.

I am also pleased to announce that the project to modernise six border posts, including
Beitbridge, is at an advanced stage of preparation. Feasibility studies have been
completed and a request for proposal (RFP) will be issued in March 2022.

Madam Speaker, we watched in outrage and sadness as flames devoured the
buildings in which our constitution was born.

I am gratified to learn of the enthusiasm of South Africans who want to be part of
rebuilding Parliament, and I look forward to a truly national effort for this.

The department of social development will receive the largest allocation of R58.6
billion over the medium term for the following:

• First, to initiate a new extended child support grant for double orphans. This is
  to encourage the care of orphans within families rather than foster care
• Second, to provide for inflationary increases to permanent social grants.
• For the 2022/23 fiscal year, the old age, war veterans, disability and care
  dependency grants, will increase by R90 in April and a further R10 in October.
  The foster care and child support grants will increase by a once off R20 in April;
• Thirdly, R44 billion is allocated for a 12-month extension of the R350 social
  relief of distress (SRD) grant.

Honorable Members, the social relief of distress grant was introduced in 2020/21, as
a temporary relief measure in view of the plight of those who have lost economic
opportunities and were adversely affected during the worst periods of the pandemic.

This emergency grant added to the country's already extensive social safety net.
South Africa now pays grants to more than 46 percent of the population.

Finally, the 2022/23 contingency reserve is increased by R5 billion. This provides for
an amount already approved in the previous Budget for the Land Bank to be paid in
the new financial year.

We remain committed to controlling those parts of the budget that are permanent in
nature, including by arresting historically rapid increases in the public sector wage bill.

Compensation spending will increase marginally, from R665.1 billion in 2021/22 to
R702 billion in 2024/25, at an average annual rate of 1.8 per cent.

As indicated in the 2021 MTBPS, we have allocated additional funding of R20.5 billion
in 2022/23, to meet the cost implications of the 2021 public-service wage agreement.

A Public Sector Labour Summit is scheduled to take the place as from the 28th to the
31st of March.

This summit is an important opportunity for stakeholders to engage on building a
sustainable public service and remuneration guidelines.

DIVISION OF REVENUE

Basic municipal services require more support, especially for the poor. To address
this, R28.9 billion is added to the local government equitable share.

Madam Speaker, we are making these allocations to uplift and provide services to our
people.

These funds must be used for the purpose they are meant for. Currently 175 out of
257 municipalities are in financial distress. We stand ready to work with Parliament
and all oversight bodies to hold municipalities accountable for delivering these
services.

At the same time, our municipalities and other institutions cannot survive if they don’t
receive payment from those who consume their services.

We urge our people and government departments to pay their municipal bills.
Municipalities are also required to improve their service delivery mechanisms, and to
ensure that billing systems are fair and efficient.

CORRUPTION AND STATE CAPABILITY

Madam Speaker, corruption is a major blight on our country.

It has lowered our economic growth potential, made us fiscally more vulnerable, and
severely weakened the capability of the state.

Accounting officers need to ensure that their procurement processes have integrity,
provide value for money, and are free from interference from politically connected
persons and bidders.

We also need to be clear on what we are fighting.

We must differentiate between corruption and minor transgressions of the rules of
policy prescripts that are audited as irregular expenditure.

The National Treasury is engaging with the Auditor-General to continue to ensure
transparent disclosure of minor transgressions, but outside the financial audit
process.

As I indicated last year, the Public Procurement Bill will be tabled before Parliament in
2022/23.

In light of the recent Constitutional Court judgement on the preferential procurement
regulations, and the first Zondo Commission report highlighting abuses in state
procurement, we are revising the Bill to take account of these developments.

We will also be responding formally to the Zondo Commission report.
In the meantime, we must take bold steps to improve state capability and reduce the
scope for procurement corruption.

Working with SARS, the Investigative Directorate in the office of the National
Directorate of Public Prosecutions, has brought charges against a company Director
and a Gupta associate involved in the corrupt ESTINA Dairy project.

This is on charges of fraudulent VAT refund claims, under-declaration of plant and
equipment expenses, and exchange control violations. SARS is also recovering the
fraudulent refunds that were claimed.

We are also dealing with illicit trade.

Just yesterday, SARS conducted a search and seizure operation.

This operation uncovered another consignment of illegal tobacco products, bringing
the total value of illicit tobacco seized during the pandemic to over R350 million.

Overall, SARS has raised assessments of R18 billion additional duties, cancelled the
trading licenses of 3 operators, liquidated one operator, and referred 8 cases for
criminal prosecution.

Finally, we are addressing the weaknesses in fighting fraud and money laundering
identified in our recent mutual evaluation of our anti-money laundering system by the
Financial Action Task Force (FATF).

TAX PROPOSALS

Madam Speaker, households and businesses are still under financial pressure and
are coping with higher obligations, the effects of COVID-19 and increased fuel prices.

Now is not the time to increase taxes and put the recovery at risk!
Accordingly, we have decided to keep money in the pockets of South Africans.

This Budget includes R5.2 billion in tax relief to help support the economic recovery,
provide some respite from fuel tax increases, and boost incentives for youth
employment.

Madam Speaker, our tax proposals for 2022/23 are as follows.

Personal Income Tax
The personal income tax brackets and rebates will be adjusted by 4.5 percent, in line
with inflation.

The adjustments will mean that the annual tax-free threshold for a person under the
age of 65, will increase from R87 300 to R91 250.

Medical tax credits will increase from R332 to R347 per month for the first two
members, and from R224 to R234 per month for additional members.

Employment tax incentive
The employment tax incentive will be expanded through a 50 per cent increase in the
maximum monthly value to R1 500.

I encourage small and medium firms to take up this incentive.

We anticipate that the expansion will provide additional support worth R2.2 billion.

Fuel Levies
In 2021, the inland petrol price breached R20 per litre. The higher prices have put
pressure on the cost of transport, food and other goods and services.

To provide some relief to households, no increases will be made to the general fuel
levy on petrol and diesel for 2022/23. This will provide tax relief of R3.5 billion to South
Africans.

There will also be no increase in the Road Accident Fund levy.

Minister Mantashe and I have agreed that a review of all aspects of the fuel price is
needed.

Our teams have already begun to engage on this critical work.

Corporate Income Tax
Restructuring the corporate income tax system is an important part of our efforts to
create a conducive environment for businesses to grow, increase investment and
employ more people.

As announced in the 2021 Budget, the corporate income tax rate will be reduced from
28 per cent to 27 per cent, for companies with years of assessment ending on or after
31 March 2023.

This will be complemented by base-broadening measures to ensure that there is no
negative impact on revenue.

Excise duties
Excise duties on alcohol and tobacco will increase by between 4.5 and 6.5 percent.

The increases mean that as from today:

• A 340ml can of beer or cider will cost 11c more;
• A 750ml bottle of wine will be 17c more expensive;
• A bottle of sparkling wine will cost an additional 76c;
• And a bottle of spirits will be R4.83 more expensive;
• A packet of cigarettes will cost an additional R1.03;
• 25 grams of piped tobacco will cost an extra 37c; and
• A 23 gram cigar will be R6.77 more expensive.

Government also proposes to introduce a new tax on vaping products of at least R2.90
per millilitre from 1 January 2023.

A new tax will also be introduced on beer powders.

After three years of no changes, the health promotion levy will be increased to 2.31
cents per gram of sugar.

Madam Speaker, the structure of the economy will need to change to adapt to the
needs of addressing climate change.

As we reduce emissions, communities must not be left behind as production shifts to
greener solutions.

There are opportunities to access international finance to help pay for this just
transition. The National Treasury is working with the new head of the Presidential
Climate Finance Task Team, on accessing these resources.

The carbon tax is the main mechanism to ensure we lower our greenhouse
emissions.

The carbon tax rate will increase from R134 to R144, effective from 1 January 2022.

As required by legislation, the carbon fuel levy will increase by 1c to 9c per litre for
petrol, and 10c per litre for diesel, from 6 April 2022.

The first phase of the carbon tax, with substantial allowances and electricity price
neutrality, will be extended to 31 December 2025.

However, in line with our commitments at COP26, the carbon tax rate will be
progressively increased every year to reach $20 per tonne.

In the second phase from 2026 onwards, the carbon tax rate will have larger annual
increases to reach at least $30 by 2030, and the allowances will rapidly fall away.

We urge all our companies that have not already done so to develop plans to
progressively reduce their emissions over the next 10 years, otherwise they will face
these steep taxes.

Our exporters will also face overseas border taxes for carbon-intensive goods such as
iron and steel, which will reduce their competitiveness.

Madam Speaker, you will note that we have not increased taxes in the major revenue
generating categories, such as personal income tax, VAT and the general fuel levy.

We have reduced the corporate tax rate and broadened the tax base.

However, let me restate my earlier caution, that if there are permanent expenditure
increases in the coming years, we would have no choice but to revisit this to ensure
the fiscal deficit does not worsen.

Madam Speaker, in these trying times and without compromising our ability to collect
revenue, we have managed, through these tax proposals, to keep money in the
pockets of South Africans, and to create conditions for greater investment in the
economy.

Financial sector reforms
Retirement funds play a critical role in channelling savings into productive
investments. Regulation 28 of the Pension Funds Act sets out the criteria through
which these funds may make investments.

Changes have been proposed to these regulations to enable greater investment in
infrastructure by these funds. After consultation on these changes, the amendments
will be gazetted next month.

Government has also proposed a fundamental restructuring of the retirement system
for individuals to allow for greater preservation and partial access to funds through a
“two-pot” system.

Part of this proposal includes the possibility of short-term access, which would be
dependent on the approval by trustees of each fund.

Consultations are proceeding following the release of a discussion paper last year and
the draft legislation on these amendments will be published for comment in the middle
of the year.

CONCLUSION

In conclusion, I would like to reiterate our commitment to the reconstruction and
recovery of our economy; saving lives and restoring livelihoods, as well as securing
the long-term prosperity of our nation.

It is often said, and I believe that this applies to the circumstances under which we
deliver this budget: “You won't realize the distance you have walked, until you look
around and realize how far you have been.”

We have been on this journey for a long time. And we still have a long distance to walk
before reaching our goal.

Madam Speaker, I take this opportunity to thank the President and Deputy President
for their leadership and guidance during these difficult times.

I want to also express my appreciation to Deputy Minister, Dr David Masondo, for his
support.

The Treasury team, led by Director-General Dondo Mogajane, continues to undertake
their task with dedication, and I express my thanks to them.

My sincere gratitude also goes to the Commissioner of the South African Revenue
Service, Edward Kieswetter, and the hard-working team at SARS.

Many thanks to the Governor of the South African Reserve Bank, Mr. Lesetja
Kganyago and the staff of the Bank, for their work and support.

Let me also thank my colleagues in the Ministers’ Committee on the Budget and in the
Budget Council, and MEC's of Finance from various provinces, who have shared the
load of the tough decisions that have to be made in the current climate.

Similarly, the Parliamentary Committees of Finance and Appropriations, I express my
sincere appreciation. Finally, we pay tribute to the millions of South Africans, whose
resilience and courage during these times of pandemic and economic hardship, is an
inspiration to all of us who have the privilege to serve in the public sector.

Thank you.

2022 Budget Speech

Summary of the National Budget