Presenting a R1.06 trillion 2013 National Budget in the National Assembly, Pravin Gordhan said despite the still troubled world economic outlook, the world economy had shown signs of improvements.

He said South Africa's economy has continued to grow, but at a slower rate than projected in last year's Budget.

Gross Domestic Product (GDP) growth reached 2.5% last year and the country is expected to grow at 2.7% this year, rising to 3.8% in 2015.

Inflation will remain moderate with consumer prices projected to increase by an average of 5.5% a year over the next three years.

The budget deficit will fall from 5.2% of GDP in 2012/13 to 4.6% in 2013/14 and 3.1% in 2015/16.

Gordhan attributed the large budget deficit – amounting to a revenue shortfall of over R16 billion – to the economic turbulence the country experienced in the second half of last year.

Trade performance remained low – with exports growing at just 1.1% in real terms last year – against an increase of 7.2% in imports – pushing the deficit of the balance in payments to 6.2% or R190 billion.

He said the disruption of activity in the mining sector and the drop in mining exports because of lower demand had partly contributed to the widening of South Africa's balance of payments.
Over half of all government spending, or R682 billion, will go to education, health, housing and social grants.

Local government will get an extra R5.2 billion in the 2012/13 financial year as part of the local government equitable share to help smaller municipalities to fund development needs.

The Passenger Rail Association of South Africa (Prasa) will get R3.2 billion to fund rail signaling, while the SA National Roads Agency Limited (Sanral) will get an additional R1.4 billion to fund road construction and maintenance.

Additional amounts will also be made available to fund dams and water pipelines, with an extra R2.6 billion allocated to fund regional bulk water infrastructure, R1.9 billion to top up the municipal water infrastructure grant and R1.5 billion to complete the De Hoop Dam.

The Square Kilometre Array (SKA) project will get a further R1.1 billion, while science and technology infrastructure will get an additional R600 million.

An additional R1.8 billion will be spent on increasing the number of teachers, with R800 million of this to fund Grade R teachers.

Gordhan said allocations from the contingency reserve – of R4 billion – will be made later this year, mainly for unforeseeable and unavoidable expenditure.

"Work is in progress to determine funding requirements for reconstruction and rehabilitation following flood damage in the Western Cape, KwaZulu-Natal, Limpopo and Mpumalanga," he said.

He said an allocation will be made in the adjustments appropriation for the Dinaledi schools connectivity programme and other broadband infrastructure projects subject to finalisation of implementation plans.

Of the items in the Budget, debt-service costs will rise the most over last year's budget, with a 12.9% increase.

Other significant increases in spending include that on social grants – which will account for R134.9 billion – up 9.2% over last year, spending on housing and amenities such as water to municipalities up 11% and spending on economic affairs up 10.8%.

Debt-service costs total R100 billion for 2013/14 and are expected to stabilise at 2.8% of GDP in 2012/13. A further R4 billion will be set aside as a contingency reserve.

The government will borrow R215.5 billion in 2013/14, which will be financed mainly with domestic bonds.

Net loan debt is project to reach 38.6% of GDP by the 2013 financial year, climbing to 40.3% in 2015/16.

Gordhan said there were several steps that the government was taking to improve revenue and spending. These include carrying out a review of expenditure, focusing on both spending and controls in government programmes and agencies, the initiation of a tax review later this year and a competitiveness enhancement programme introduced in last year's budget.

The capacity of the state to implement plans and programmes would also be strengthened.

He said new policy initiatives over the next three years would be financed from savings, efficiency gains and reprioritisation of spending.

"If we succeed in driving growth towards 5% a year and government revenue doubles in the next 20 years, major infrastructure projects and new policy initiatives such as national health insurance and expanded vocational education will be affordable with limited adjustments to tax policy," he said.

"But if growth continues along the present trajectory, substantial spending commitments would require significant adjustments in revenue and reductions in other areas of spending," he warned.

The National Treasury has prepared a report for Parliament - which is currently before government - that considers the country's fiscal sustainability from a long-term perspective.

Gordhan said the Budget took into consideration the National Development Plan (NDP) by focusing on growth and employment creation, prioritising improvements in education and training and by promoting progress towards a more equal society.

The medium-term budget plans are also framed in the long-term vision and strategy embodied by the NDP, he said.

Gordhan also stressed that South Africa has substantial strengths on which to build.

These include a well-established legal system, secure property rights, an effective tax system, world-class universities and science councils, established transport, water and communications infrastructure networks, a sound macro-economic and fiscal framework and expertise in a number of areas – such as mining, retail, construction, logistics and manufacturing.