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Madam Speaker, Honourable Members, it is with immense pride and excitement that I once again bring good tidings and reflect on the achievements of our economy and indicate the way forward for the three departments entrusted with the management of the economy. The theme of this year's budget is the sharing of the fruits of the tough decisions, hard work, consolidation and reprioritisation of fiscal spending.

The three organisations that constitute the Ministry of Finance have played a critical role in ensuring that the policy choices that have been made bear fruit. Today we have an opportunity to reflect upon the contributions of the National Treasury, South African Revenue Services, and STATS SA to our economic performance. We can be collectively proud of the fact that all three organisations have successfully aspired to, and shown concrete progress towards benchmarking their work against the most rigorous international standards and norms. They have become important repositories and training grounds of a growing group of black and white intellectual talent and leadership. Together these three organisations have undertaken some of the most exciting, ambitious and far-reaching institutional changes in the public administration - probably even surpassing such initiatives in the private sector. These formidable changes have been clearly planned, carefully managed and systematically delivered. Their efforts are in the service of the development of a resilient economy, and a proud nation which can hold its own in the most challenging of international forums.

Madam Speaker, there is ample evidence of a steady improvement in the performance of the South African economy over the past three years. Real growth of gross domestic product increased to 3,1 per cent last year, after just 0,7 per cent in 1998 and about 2 per cent in 1999. Despite the sharp rise in oil prices and the depreciation of the rand, price inflation has remained moderate and in the first four months of this year has made encouraging progress towards our target range of 3-6 per cent for next year. Exports grew by over 7 per cent in real terms last year and have continued to perform strongly this year, despite the adverse international environment. The balance of payments and the nation's foreign reserves are in a healthier state than they have been for many years and the public sector borrowing requirement has fallen from over 5 per cent of GDP to just over 2 per cent over the past four years. Yesterday, the R150 government bond traded at 10,98 per cent, down from about 13 per cent a year ago. The steady decline in long-term interest rates since 1998 is perhaps the most notable signal of the fact that our financial infrastructure is powerfully positioned for a robust expansion over the years ahead. It reflects confidence that inflation is under control. It means that funds are available for investment. It reduces the cost of capital to businesses seeking to build new plant or purchase equipment. It lowers the cost of borrowing for government, raising the affordable level of real spending on public goods and services. It represents a significant decline in the price we must pay to attract foreign portfolio investment into our bond market. The interests of consumers are closely bound up with another financial reform namely the introduction of the inflation-targeting regime last year. We believe that we are on course to achieving the 3 to 6 per cent target for 2002 agreed with the SARB. Because we have little control over exogenous shocks such as increases in the price of crude oil, the agreement with the SARB provides an escape clause. This escape clause was deliberately agreed to take account of serious supply shocks and to avoid unnecessary monetary tightening, particularly when inflation is seen as an aberration. Given the importance attached to this regime the Treasury and the Reserve Bank have formed a joint task team to develop our understanding of the inflation process, the implication of both macro and sectoral policies and propose further steps in the inflation-targeting framework. The new target will be announced in the Medium Term Budget Policy Statement. The healthy state of the nation's finances is a critical foundation for growth, but it does not guarantee economic success.

And so, our efforts must now turn to the details of industrial policy, the provision of infrastructure, investment in skills, the structure of our labour markets and the evolution of transport, communication and other services on which dynamic growth and employment creation depend. These are themes that extend well beyond our mandate in the Finance Ministry, but we have a modest role to play, which is the subject of this budget debate. Our influence is not limited to our own national boundaries. As a country, we have actively participated in shaping the international economic agenda through our participation in various multilateral fora. In chairing the annual meeting of the Boards of the IMF and World Bank in Prague last year, we gave prominence to the pressing need for democratisation of the international financial institutions, to the urgency of developed country reforms to complement those of developing countries in attacking poverty, and the importance of measures to ensure a more equitable distribution of the benefits of globalisation. We have called for fair access to markets as an important aspect of the development agenda.

We have also been contributors to the economic and social well-being of our continent and region. In the past year, President Mbeki has elaborated a vision for economic recovery in Africa that rests on the foundations of democratic governance, that emphasises sound and sustainable economic policies and that puts the needs of the very poor first. Mindful of the message our President has taken to the British Government this week, it is appropriate that this House should note our own substantial commitments to the development of our region and our continent. These include contributions to the Highly Indebted Poor Country Initiative and to the Poverty Reduction and Growth Facility of the International Monetary Fund. We have cancelled South Africa's bilateral debt to Mozambique. The National Treasury vote includes annual provision for payments to the African Development Fund of the African Development Bank, which provides financial assistance to the poorest countries in Africa on highly favourable terms. Our shareholding in the African Development Bank has increased to just over 4 per cent and we expect the Bank to play an active role in supporting the goals of the Millennium Africa Recovery Programme. Our largest contributions to neighbouring countries are not made through the voted appropriations, but through a revenue-sharing partnership. The Southern African Customs Union provides for transfers of some R8 billion a year to Botswana, Lesotho, Swaziland and Namibia out of a common revenue pool. We are hopeful that a revised agreement will soon be given effect, enhancing its development impact by reserving a component of the pool to be distributed in relation to income per capita.

In our quest for setting world-class standards, we have proactively participated in various international programs and processes. In 1996, we subscribed to the IMF's Special Data Dissemination Standards (SDDS), and we are one of the very few countries to have fully complied, within the set time frame. We have also agreed that a Report on Observance of Standards and Codes (ROSC) should be undertaken of our economic and financial data. We have now participated in three Financial Sector Assessment Programmes (FSAPs) all of which confirm a general soundness of the financial system, and see no risks to macroeconomic stability. They present a broadly positive endorsement of the South African financial system. South Africa's markets are described as "highly developed and balanced", government financial and monetary policies as "sound", the national payment system as "modern and sophisticated", and the legal and regulatory framework "impressive in the comprehensiveness of its coverage". The reports note that the financial sector's resilience contributed to the economy's successful weathering of the 1997/98 financial crises. This year we will further strengthen the institutional framework by establishing a single regulator. The International Monetary Fund's annual Article IV consultations and report to the Board in March this year again drew attention to the healthy state of our public finances and the robustness of our economy. Our tax reform strategy, the reduction of the budget deficit, our debt management reforms and the progress made by the Reserve Bank in reducing its forward foreign exchange exposure have been noted favourably.

Madam Speaker, the fundamental reform of our economy is well underway. The significant restructuring of our public finances will continue to bear fruit for many generations to come. Because our public finances are in such a healthy state, we are better positioned to continue to spend more on education, health, social services and infrastructure, all of which contribute significantly to the eradication of poverty and the creation of a better life for all. What we need now is something that no economic model can give us, namely a healthy dose of national pride in what we have achieved. We must state quite unequivocally that our economy has never been in better shape. Let us now build on these achievements. We must also be frank about the challenges and opportunities that lie ahead and confirm our resolve to tackle them with the same vigour and determination that we have demonstrated until now. Let me briefly outline the achievements, challenges and plans of the three organisations that make up the Ministry of Finance.

NATIONAL TREASURY

This has been a year of consolidation, reorganisation and delivery on a range of new initiatives for the National Treasury. It has been a year in which it has delivered budget reform, new intergovernmental financial arrangements and the meticulous implementation of the PFMA. We agreed, last year, that the former Departments of Finance and State Expenditure should be merged. Members of the House, from all parties, acknowledged that financial management, budgetary planning and fiscal policy belonged together and that the Public Finance Management Act requires a unified National Treasury. This has been achieved. A new merged department is fully operational. The Budget Vote now reflects a more sensible division of functions. The Ministry and several divisions of the Treasury have also moved into recently refurbished premises on Church Square in Pretoria - the former headquarters of the Reserve Bank. The new Treasury is a place in which learning, debating, reporting, analysing, interpreting - in short, the many activities that contribute to sound public finances are deliberated upon. The amount to be voted for the 2001/02 year is R9.176 billion, rising to a projected R10.360 billion in the third year of the medium term expenditure framework. This is divided between ten programmes, of which the first five comprise the Department's operational budget of some R491 million this year. The core of the work of the National Treasury resides in the Budget Office, Economic Policy and International Relations, Public Finance and Intergovernmental Relations together these units are responsible for co-ordination of the budget process, economic and fiscal policy advice, international economic liaison and oversight of the public finances.

The annual Budget Review, the Intergovernmental Fiscal Review and this year the new Estimates of National Expenditure reflect the broad range and focus of the work of these divisions. The focus in budget reform is now firmly on extending the quality and depth of service delivery-related information that informs budget decision-making. The new format of the Estimates of National Expenditure brings a far richer descriptive content to the published numbers while extending the coverage of the medium term expenditure framework. In the years ahead, this project will be extended, so that Cabinet in considering budget policy options and Parliament in its oversight role will increasingly dispose of relevant, timely and verifiable service delivery information.

Budget reform extends also to the special accounts, funds and public entities that receive statutory or voted allocations but operate outside of the normal departmental accounting environment. Our aim is to apply the same broad principles to all government entities: medium term budgeting, transparent accounting and reporting and an output-based or performance oriented approach to reviewing expenditure allocations. The complexity of this challenge should not be downplayed. Many countries have embarked on reforms of this kind, but there are few instances of lasting, successful implementation of output-based budgeting. Our intergovernmental relations team is responsible for ensuring that budget reform and improved financial management are also implemented in the provincial and local spheres.

This year, the Division of Revenue Act takes a significant step forward in fiscal transparency, setting out the provincial conditional grants in detail and the various transfers to local government with allocations listed by individual municipality. Over the next three years, the focus will be on improving the financial and fiscal position of local government. Our tax policy unit has been involved in an extensive programme of tax policy reform including capital gains tax and the investment incentive scheme outlined in this year's Budget. Over the next three years, they will work closely with the SARS on the on-going programme of tax policy reform. The Public-Private Partnership unit is now operational. It has an impressive portfolio of projects ranging from hospital management and equipping to tourism facility outsourcing, and a technical assistance team who provide temporary dedicated project management skills at the request of other departments or government agencies. Priorities over the next year will include strengthening our financial regulation office and bringing greater coherence to the related work of the regulation of financial services and the banking sector.

A Financial Intelligence Centre is to be established to address money laundering and financial fraud concerns. The Asset and Liability Management division has not only met our targets for our annual borrowing requirement and managed our considerable foreign and domestic debt portfolio, but also introduced a more modern approach to financial risk management. We have reinforced our oversight of borrowing by public enterprises and management of guarantees and other contingent risks. We will also be focusing on an ambitious programme to reform state procurement policies and procedures, the co-ordination of implementation of the Public Finance Management Act, the Office of the Accountant-General and the management of Government's central financial management systems. Several initiatives are underway to ensure the successful implementation of the PFMA.

SOUTH AFRICAN REVENUE SERVICES

The performance of the SARS both in terms of the revenue collected for the SA government and the new awareness it has created among the SA public of their tax and customs responsibilities, is one of the significant examples of the success of this government's fiscal policy. In the year ahead, much of the pioneering work done in laying the groundwork for the emergence of a completely new service will begin to be implemented. The approach of the SARS in uncompromisingly ensuring that tax and customs fraud and evasion is brought to book will continue to improve the business climate in SA. It will also ensure that the individual taxpayer carries less of the tax burden in SA and continues to benefit from the tax cuts we have been able to undertake over the past few years. Today, leaders of legitimate businesses in the retail electronic industry can praise the efforts of SARS and publicly acknowledge that the tough and creative investigative work of SARS has created a level playing field in the electronic retail trade for the first time ever.

Tomorrow, we want the clothing and textile industries to say that as a result of close collaboration between SARS, the trade unions and the organised business leaders this sector has been cleaned of endemic fraud. I can assure this House that over the next year, we will uncover illicit and unlawful activities in several sectors of the economy in our country. We will work with business and labour representatives in creating a new culture of compliance in SA. In the financial year 2000/01, SARS collected a record R219 billion. This amount surpassed the original target by R7.4 billion, and the revised target by R4.2 billion. This has helped to bring down the budget deficit from a projected 2.4 to 1.9 per cent of GDP, reducing the levels of borrowing and the cost of servicing debt. A key feature of this success is that it has been attained at a cost of about 1.15 per cent of the revenue collected.

This year an additional R8.3 billion was given back to individual taxpayers, with more than 50 per cent of the relief going to taxpayers with income less than R80 000 per annum.

In 2000, we introduced in this House the most comprehensive set of tax policy reforms in recent memory. These reforms culminated in major legislative changes, principally to the Taxation Laws Amendment Act, 2000 which was promulgated on the 19th July 2000 and the Revenue Laws Amendment Act, 2000 promulgated on the 6th December 2000.

In addition to normal annual amendments, the Taxation Laws Amendment Act, 2000 provided for: Taxation of foreign dividends, revision of the exemption provisions of public benefit organisations and other important provisions.

The Revenue Laws Amendment Act, 2000 introduced the change from source basis to a residence basis of taxation, with effect from 1st January 2001; and enabling legislation for the preferential treatment of South African exports of textiles and other goods to the USA in terms of the African Growth and Opportunities Act.

The Taxation Laws Amendment Act, 2001:

This Act introduces a tax on capital gains from 1st October 2001, along with enabling legislation to permit the regulation of e-filing of Pay-As-You-Earn, the Skills Development Levy and the VAT returns.

These reforms constitute part of a wider initiative aimed at enhancing the integrity of the tax system, broadening the tax base and reducing the tax rates.

Not only did SARS staff participate in the development of the policy proposals and legislation but they also ensured that the trained people and technology changes were ready on the designated dates.

What is remarkable about the above achievements is that they happened at a time when intensive work was being undertaken to radically transform SARS in terms of its business processes, structures, skills profile, the orientation of its staff and the technology supporting the business. In January last year, I gave my blessing and support to the SARS management to initiate this change process.

Notable gains have already been attained through the creation of 'war rooms' that have resulted in the elimination of the backlog of 2.3 million income tax returns in tax assessments. This resulted in an additional refund of R1.7 billion to the SA taxpayer.

The processing of assessments will be concentrated in six processing centres aimed at efficiency improvements. In this regard, the roll out of a pilot in KwaZulu-Natal on the 1st October 2001 will herald a new era in which considerable attention will be given to improving turnaround time and the quality of service to taxpayers. Service centres, supported appropriately by a call centre, will be established to provide for direct interface with taxpayers. These services will be extended to areas that have hitherto been under-serviced, both in the rural areas and in urban townships, through a network of service offices.

The imminent introduction of electronic filing and payments will also provide a much-needed service to some sections of the business community.

SARS places emphasis on responsible enforcement to combat tax and customs evasion. The focus of compliance strategy will be on delinquent taxpayers, using risk management tools and a more strategic approach to audit investigations that place priority on areas of high risk, and therefore greater revenue yield.

In respect of customs, the focus is on combating commercial fraud, smuggling and the global trafficking of illicit drugs and other dangerous substances. New control measures, with adequate technology support, will be introduced to regulate goods in transit and warehouses in order to reduce opportunities for fraud and smuggling. Customs will facilitate the flows of higher volumes of trade, including the implementation of trade agreements, through improved clearance of exports and imports.

The SARS management has adopted a bold and uncompromising approach to all forms of internal corruption. Tough action has been taken in the last year against both those that bribe SARS staff and the staff themselves. There have been 57 dismissals in the past year. Five staff members have been criminally convicted.

The changes in SARS has as its most important element the repositioning of all the people and attracting highly skilled and motivated professionals to what is now a dynamic and exciting organisation.

A number of significant challenges remain. The reorganisation of SARS has to be supported by a substantial change in the technology systems. The role of customs in administering the rapidly growing and increasingly complex trade must be substantially strengthened, as must its role at all commercial ports of entry. Increasing dialogue and co-operation with all sectors of SA business in order to enhance tax and customs compliance must take place. There is a need for an extensive communication campaign to educate the public on tax matters, including the importance of compliance with tax obligations. This will contribute to increasing the number of registered taxpayers.

STATS SA

Turning then to Statistics South Africa and as I said before we need the right data to work with and this is the role of Statistics South Africa - if we cannot measure it, we can not manage it.

The best way to characterise the transformation in this organisation is from decline to sustainability

The Apartheid era saw a fragmentation of the statistical system resulting in poor quality statistics designed to support the interests of the white elite, rather than providing an accurate picture of the social, economic and demographic situation of all of South Africa's people.

A massive revitalisation of official statistics took place between 1995 to date. Key elements of this revitalisation trajectory were an increase in both the number and the quality of statistical products that aim to meet primarily our national interest and comply with SDDS requirements. Collaborative activities were entered into and ranged from the construction of a national spatial database to user driven household surveys and the creation of the Business Register (BR) infrastructure for improving the business-sampling frame. These efforts culminated in the enactment of the New Act in 1999, the subsequent elevation of the department and the appointment of a Statistician General towards the end of 2000. Despite these achievements, there is need to support and review the outputs of the organisation for their methodological rigour, veracity and relevance. The newly appointed Statistics Council will take on the role of oversight and advice for this challenge. Stats SA's quest for providing a broad range of sustainable quality statistics is underpinned by the need and justification for creating a National Statistics System (NSS).

There are three main impact considerations that should be made in favour of such a system:

* The first is the financial and quality implications of a system based on a duplication model.
* The second, a corollary to the first, is the political cost of failing to report accurately and timeously, implying failure to manage and be accountable.
* The third is the cost of making inappropriate policy decisions due to a dearth of plausible and cohesive data.

The NSS aims to address these issues and enhance the capacity of the state to formulate and evaluate policy decisions based on appropriate and quality data. This will be achieved through the creation of an integrated data and information network of state institutions. SAMDI and Stats SA are exploring the creation of an institution in South Africa that will provide training in official statistics. It is sad to note that there is no such institution in South Africa. Interim arrangements for training our staff in official statistics have been made with reputable regional institutions, such as the Institute of Statistics and Applied Economics at Makerere University and the East African Statistical Training Centre in Tanzania. While these countries contributed to South Africa in military training for freedom in the past, this time they will contribute in statistical training for social development. Achieving economic literacy, a passion of the President, is predicated upon achieving statistical literacy. Stats SA has immediate challenges to improve the infrastructure for successful collection and dissemination of statistics namely, compiling a regularly up-dated, comprehensive business register and conducting a well-run population census that provide the basic tools for drawing samples.

An immediate challenge to the organisation is the mounting of the second census of the population under democratic rule. Premiers of six provinces have launched the Census 2001 campaign to date following on the national launch at Parliament recently. I wish to thank Premiers for having taken this task in the spirit it commands. The census at schools project, a joint initiative between Department of Education and Stats SA, will promote awareness amongst the public about the forthcoming census, and more importantly, constitutes a significant first step towards entrenching statistical literacy in society. Census 2001 will provide information for benchmarking progress and identifying areas that require further development.

Stats SA is moving towards publishing useful, integrated information for policy and planning which in the main explains what the statistical implications of the changes are, so that decision makers can infer policy implications.

The new organisational structure will promote a more responsive, professional organisation focussed on the needs of users. It has three broad work areas: product output, statistical support, and organisation and management. The new structure will improve co-ordination in the product output areas of economic, population and social statistics and further ensure greater and more direct relationships with government policy-formulation, programs and activities. Statistical support areas consist of Provincial Offices, Quality and Methodology, Informatics, NSS Co-ordination, Marketing and Dissemination. These areas will formulate quality standards and ensure their application in official statistics produced not only by Stats SA but by other government departments as well. To support statistical programmes including the census and survey programmes, necessitates effective and efficient organisation and management support systems that lay more emphasis on project management.

CONCLUSION

Madam Speaker, the three organisations which are the subject of debate today have demonstrated in practical terms, our determination to transform the institutions of the South African state. They have, and continue to, plan and implement a wide-ranging set of changes and initiatives which ensure SA a proud and prime place on the world stage. They will continue to grapple with the challenges of creating learning organisations; organisations which set and strive for the highest standards; that build a new cadre of professional men and women who provide an energetic and creative service to South Africa.

Madam Speaker, allow me to express my profound appreciation to:

* President Mbeki for his leadership and guidance;
* Deputy President Zuma and my Cabinet colleagues, for challenging us to do more, better;
* Deputy Minister Mpahlwa for sharing the burden;
* Ms Barbara Hogan and Ms Qedani Mahlangu and their respective committees, for their guidance, support and patience;
* Mr P Gordhan, Mr P Lehohla and Ms M Ramos and their teams for their hard work and professionalism; and
* This House for its support and patience.

Issued by: Ministry of Finance, 14 June 2001