Fiscal Framework and Revenue Proposals: Finance Standing Committee Report adoption

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Finance Standing Committee

28 February 2010
Chairperson: Mr T Mufamadi (ANC)
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Meeting Summary

The Committee debated, and subsequently adopted, as amended, its Report on the 2010 Fiscal Framework and Revenue Proposals. Members expressed their concern at the extremely short period of sixteen days allowed to the Committee to deal with the matter, particularly since the Minister would also need to be given two out of those sixteen days to consider any proposals for amendment. Although this was not finally an issue on this occasion, Members suggested that this time period should be changed. A discussion held on whether the Committees could issue a joint report, to be presented in both houses, concluded that it was correct and appropriate to do so. The Committee had already noted its regret over the non-establishment of the Budget Office, and therefore included only a note that the Committee would have benefited from independent Parliamentary research to provide an evaluation of the forecasting. Members noted the difference of opinion on the projected economic growth figures, between National Treasury and the South African Reserve Bank, and debated whether it was appropriate to debate targets in the report, or merely to note that these were projections. Members suggested changes to wording so that the correct emphasis was given to issues, or for clarity. A Member noted that although the views of various stakeholders and the Minister had been heard, the views of political parties had not, and he believed it appropriate for these to be conveyed in the report. The Committee discussed this point, and agreed that in fact the appropriate time to raise these issues was during the debate in the House. Members also commented on the comparisons provided in the report, firstly noting that very few comparisons were made in some tables – which the researchers noted was due to the limited time available to obtain the information – and secondly that the comparisons to the United States and South Africa were not appropriate, given the widely divergent gross domestic product of these countries. However, the Committee recommendations should highlight firstly, the Committee’s concern over rising levels of debt, whatever was South Africa’s ranking in comparison to other countries, and secondly, the need for a plan to be formulated concerning repayment. The Committee would further recommend support for a fiscal stability pact. The Committee needed to reflect on the recommendations for establishment of a Tax Ombudsman and Tax Commission.

Since the Committee had not recommended amendments to the Fiscal Framework, the Report would be amended as noted, and the debate would proceed in the House. The opposition parties indicated that they would be raising issues during the debate.

Meeting report

Fiscal Framework and Revenue Proposals: Committee’s Report
The Chairperson thanked the Secretariat on doing a good job, despite the time constraints, in producing the document, which he then tabled, and asked the Committee to consider it, with a view to making any material amendments as well as fix any grammatical mistakes.

Dr M Oriani-Ambrosini (IFP) suggested that the grammatical errors should be left to the Chairman to fix, as this would significantly reduce the time that the Committee would have to spend on the document.

Ms Z Dlamini (ANC) suggested that five minutes should be set aside for the Committee to read the report.

The Chairperson agreed to both proposals.

Dr D George (DA) pointed out that the Committee was dealing with new legislation. According to the Act, if the Committee had any proposals or amendments then the Minister had to have at least two days to consider them. The Committee would not be able to table them. The other implication was that the Committee would not be able to take the Report to the House to debate it.

Mr M Mkhize, Content Advisor to the Committee, confirmed what Dr George had mentioned. The report would not be tabled for debate at the National Assembly tomorrow if the Committee made any amendments, since the Minister had to have two days to consider the proposals and amendments.

Mr S Swart (ACDP) asked what the implications of this would be, given the fact that the Committee only had sixteen 6 days to deal with the legislation.

Mr Mkhize said the two days that would be allocated to the Minister were included in the sixteen days afforded to the Committee. The Money Bills Amendment Procedure and Related Matters Act (Act 9 of 2009) (the Money Bills Act) was new legislation. The Committee section was not fully consulted when the programming took place. Failure to comply with the Act would not look good in the eyes of the public.

Dr Oriani-Ambrosini said that he was confused as to the purpose of this meeting, since the Committee was deliberating on something that it could not change. 95% of the report repeated what had been submitted and proposed previously. The purpose of the meeting was to accept or reject what had been proposed by the Minister in terms of the Fiscal Framework.

Mr T Harris (DA) said that his understanding was that if the Committee had decided to amend the Fiscal Framework then the debate would be postponed. If it were not amended, then the debate would go ahead.

The Chairperson said that the Committee should have been aware of the sixteen days allocated to it as the programme was distributed in advance. The possibility of not being able to adhere to this should have been mentioned. The discussions should not be pre-empted and therefore the Committee should now deliberate on the issues. If there were any departures, then the Committee would further discuss how to deal with them. The Committee also had to look at the Budget Review and the Minister’s response to the Committee’s proposed amendments. The Fiscal Framework that the Committee was currently analysing did not depart from the Medium Term Budget Policy Statement (MTBPS) that was recommended to the House. 

Dr Oriani-Ambrosini corrected the Chairperson and said that the Standing Committee on Finance and the Select Committee of Finance and Appropriations were separate committees. They could not have a joint report.

The Chairperson disagreed and said that if they were sitting jointly, then they could agree a joint report.

Dr Oriani-Ambrosini maintained that this was not possible, as the Committees had not been established jointly according to the rules.

Ms N Sibhidla (ANC) asked how the budget was referred to the Committee by Parliament.

Mr E Mthethwa (ANC) stated that the report should not be drafted as two separate documents, but that it could be presented in both houses.

Dr George referred to the Act, which provided that “the Committees must, within 16 days…submit a report to the National Assembly (NA) and National Council of Provinces (NCOP) as the case requires”. He agreed with the Chairperson that there seemed to be no reason why the Committees could not submit a joint report.

Dr Oriani-Ambrosini requested that the Chairperson could perhaps ask the Speaker for direction.

Mr M Swart (DA) said that during the public hearings there was a joint sitting. The Act held that “the Committees must conduct joint public hearings on Fiscal Framework and Revenue proposals”. It then went on to specify what must be done with the report, as Dr George had quoted. The report was a joint report and there was absolutely nothing wrong with it.

Mr C De Beer (ANC) reminded the Committees that the MTBPS sittings and public hearings were conducted jointly.

The Chairperson said that the Committee had now dealt with the procedural matters and needed to move on to those that were content based.

Mr S Swart (ACDP) suggested that the Committee could insert an expression of its regret over the non-establishment of the Budget Office. The Budget Office would have provided an independent evaluation and the Committee would ensure that it was set up next time.

The Chairperson agreed and added that the point raised was a valid one. This had been expressed already by the Committee in its report on the MTBPS. The Minister had also noted this.

Dr George also agreed that the non-establishment of the Budget Office did not warrant an expression of regret from the Committee. The key point was that were assumptions being made by institutions such as National Treasury and the Committee had to keep this in mind.

Ms Sibhidla said that the issue should be mentioned at the conclusion stage of the report, under the subheading of Challenges.

Ms Dlamini referred to page 1 and noted that a reference should be made to the Minister, under the work of the Committee.

Mr D Van Rooyen (ANC) said that the issue of the Budget Office should not be raised again as something new. It was currently being processed, and reference to it could be captured in the report, where appropriate, for instance where the Report referred to the Committee making estimates regarding the various institutions.

Mr M Swart said that the Money Bills Act required the formation of a Budget Office. This had nothing to do with the Fiscal Framework, which the Committee was dealing with in the present report. Although both matters were covered under the one Act, there were two different issues.

The Chairperson agreed. The tabling of the Budget had a number of subjects: Appropriations, Fiscal Framework, the Proposal of Tax Amendments and the Division of Revenue Bill. These were all affected by the absence or presence of a Budget Office. The Committee had a duty to ensure that the Budget Office was in place.

Mr M Swart suggested that one sentence would cover this issue. He proposed that this be inserted on page 5, to read: “The Committee would have benefited from independent Parliamentary research that would have provided an evaluation of forecasting.” The Budget Office would then not be referred to.

Dr Oriani-Ambrosini seconded this proposal.

Dr George referred to page 2 and stated that the document had captured BUSA as ‘Business Union of South Africa’, whereas its correct name was ‘Business Unity South Africa’.

Ms B Balindlela (COPE) requested that the submissions from the Association of Chartered Certified Accountants should also be mentioned.

Dr George asked why more comparative countries were not mentioned in the table that contained the Fiscal Balances of Selected Countries. The same issue was also pertinent, later in the report, in the table listing deficits. He believed that more types of comparative economies be used in the document.

Mr Mkhize replied that this was all the information that the research team was able to obtain, given the limited time that it had. The inflation figures and other variables were compared to those of China and India. It was not easy to obtain more data in the short space of time, although if more time had been available, then more could have been included.

The Chairperson said that when comparisons were being made, it was important to try to make comparisons against similar situations.

Dr George suggested that a paragraph or sentence could be added to give effect to what the Chairperson had said..

Mr Harris referred to page 4, at paragraph 3, and said that what should be analysed was the gross performance of South Africa. The Minister had given a good response as to why South Africa’s economy was growing slowly. This response should be included, as well as the concern for the slow growth of South Africa’s economy.

Ms B Dlamini (ANC) pointed out that the response from the Government had been incorrectly captured on page 4, paragraph 1.

Dr Z Luyenge (ANC) also referred to page 4, paragraph 1. The word ‘disappointingly’ was misleading as it gave the impression that the Committee was not aware of the high unemployment levels amongst the youth. This should be re-worded, so that it would be presented as a challenge. The Department’s response to this challenge should be also noted.

Dr Oriani-Ambrosini expressed doubt over the projected economic growth figures. He expressed his concern that the Department had always projected incorrect figures, and things would then later collapse, citing the Growth, Employment and Redistribution (GEAR) programme as an example of this. The South African Reserve Bank (SARB) did not agree with figures from National Treasury as the former felt that they were inflated. He asked whether the Committee was comfortable with these figures.

Ms Sibidla, addressing Mr Oriani-Ambrosini’s point, said that it would be difficult to engage in a debate, as the Committee did not have the necessary tools to analyse the statistical figures of National Treasury.

Dr George took issue with her statement, and said that the Committee was, in his view, sufficiently equipped.

Ms Dlamini referred to page 4, paragraph 1 and said that the subsidies for the unemployed youth that were proposed during the Minister’s Budget Speech should be included.

The Chairperson said that the proposal by Ms Dlamini was open for discussion. The issue of unemployment subsidies for the youth was a new concept that the Committee had to analyse. Projections made use of many variables and a lot of work went into the final output figures. Any doubts over the figures had to be substantiated. The issue of GEAR was not appropriate for the Committee to debate on. There were those who were of the view that the 6% target of GEAR was going to be met, but there were also external factors that contributed to its downfall.

Dr Oriani-Ambrosini said that the view of experts was important. National Treasury had incorrect projections for the past fifteen years, and this was during a time when it was far easier to get the projections right. The SARB had informed the Committee that, based on its research, the projections should be lower than those of National Treasury. It was better to be cautious than to be overconfident.

Dr George said that perhaps in the future the Committee would have more time to engage with all the assumptions that were made beforehand. There was actually no difference between 2% or 2.3% insofar as revenue was concerned. The document could take note of the fact that the figures were actually projections.

Mr S Swart highlighted the importance of the last paragraph on page 4, especially in light of the countries debt level.

Dr Oriani-Ambrosini said that the biggest threat for all economies was the bond market. The bond market was collapsing in Greece and Italy, and Ireland could follow. According to the Shadow Minister in Australia, if the bond market collapsed there would be a global meltdown. The Committee should express concern about the probability of the bond market collapsing.

The Chairperson said that if all Members of the Committee were to request that everything that they had heard or said must be included in the report, then the current exercise would be futile. The Committee should focus on what was in front of it.

Mr Harris referred to page 4, paragraph 1 and pointed out that the government had not accelerated anti-recession spending. This was technically incorrect. Spending in general had been maintained during the recession.

The Chairperson asked if Mr Harris meant that there was no response from the government to the recession. There was a national response framework, and the economy had held its ground due to infrastructural expenditure. It was in fact the private sector that had not made a significant contribution. In fact, the government did have a response.

Mr Harris proposed that the word ‘accelerating’ should be changed, as there was ‘maintenance’ and not ‘acceleration’ on infrastructure spending.

Mr van Rooyen said that in his opinion the paragraph was trying to broaden the scope and was not only about infrastructural spending.

Mr Harris agreed with Mr van Rooyen insofar as it was expressed in the report that expenditure was maintained despite a fall in revenue.

Mr N Koornhof (COPE) said that because of 2010, there was huge acceleration across various sectors in the country. Expenditure accelerated because of 2010 and not as a response to the recession.

Dr Luyenge said that National Treasury mentioned that it would not service delivery as a response to the recession. There was no adjustment in terms of spending and everything had been done accordingly.

Mr M Swart referred to page 6, paragraph 3 and noted that the reference to the 35% electricity hike should be adjusted to 25%, as this was the approved figure.

Mr S Swart requested that his previous proposal for the sentence on the independent evaluation should be inserted in the second paragraph.

Ms Dlamini endorsed the proposal.

Mr Mkhize drew the attention of the Committee to footnote 9, which made mention of the approved electricity tariff hike. The projections, however, were based on the 35% and this reference should therefore be left as it was.

Mr S Swart suggested that the wording of the paragraph that made mention of the electricity hikes should then be in the past tense, if the reference to the 35% remained.

Dr Oriani-Ambrosini commented that the views of the various stakeholders and the Minister had been heard. The views of political parties in the Committee, however, had not been heard. The IFP had a problem with the Minister taking R846 billion of infrastructure and funding it through tariffs as opposed to through the budgetary process.

Ms Dlamini requested that Dr Oriani-Ambrosini should view himself primarily as a Committee and not a party member, pointing out that the final report would be one of the Committee, not a particular party.

Dr Oriani-Ambrosini wanted the report to note the Committee’s concern over the bypassing of the budgetary process for the funding of infrastructure.

The Chairperson asked about the relevance of Mr Ambrosini’s proposal. Although this point had moved away from what the Committee was discussing on page 6, he nonetheless noted that he would hear the point.

Dr Oriani-Ambrosini explained that the tariffs were the tools used by the Minister to finance R846 billion worth of expenditure on infrastructure. Taxpayers would thus pay for Eskom’s expansion programme, for example. The other alternative would have been to take the money from the budgetary process and give it to Eskom. He thought the concerns of political parties had to be reflected in the document as well.

The Chairperson reminded Dr Oriani-Ambrosini that no political party had made submissions to the Committee. That was the reason why there were no views from political parties reflected in the report. The issue of tariffs would be deliberated at a later stage. Unfortunately not everything could be included in the Committee report.

Mr M Swart pointed out that the Act prescribed that the Committee had to listen to the inputs from the public. Political parties had the opportunity to voice their disagreements during the debate in the House.

Mr Luyenge concurred with Mr M Swart on the point that political parties had the opportunity to voice their concerns at the House debate, rather than when the Committee was sitting, and urged that Members of the Committee, for the purposes of debate, should be working in a more unified way.

Ms Dlamini complained of the slow pace at which the Committee was moving

The Chairperson responded that it was the members and not he who was responsible for the slow pace.

Mr S Swart referred to page 7, paragraph 2 and suggested that this paragraph should rather be moved to the following page.

Mr De Beer said that there was a footnote missing.

Mr S Swart pointed out that on page 9, paragraph 4, the phrase ‘alleged stimulus package’ should be changed to ‘the stimulus package’, as the government had provided one.

Mr Koornhof pointed out that the comparison on page 13 between South Africa and the United States of America (US) should be removed, because South Africa’s gross domestic product (GDP) could not be compared to that of the US in terms of size. The Report was trying to make a point when it compared the lower debt levels of South Africa with those of the US and the United Kingdom (UK).

Dr George agreed with Mr Koornhof, saying it was common knowledge that the economies of the US and the UK were incomparable to South Africa’s. The Fiscal and Financial Commission (FFC) had stated that South Africa had to manage its rising debt levels. The Committee had to stress that managing debt was a priority issue.

Mr S Swart suggested that the Committee had to express its concern over the rising debt levels more strongly in the document. This was a matter of great concern.

Dr George further added that the key point was also to pay back all this debt. This had to be highlighted under the recommendations of the Committee. For South Africa’s economy, the level of debt was alarming, despite the documents ranking it lower than the other economies.

Mr van Rooyen was of the opinion that the point had been made in the document about the rising levels of debt and the issue of how these would be combated.

Dr Oriani-Ambrosini said that the Report should be used to express the Committee members’ political views, and not to repeat what had been already heard. The Minister had responded to a question about the debt levels by stating that by 2015 the budget would have stabilised at a deficit of 4%. At no stage had a plan of action to repay debt been tabled. The Committee should express its concern that there was no plan to repay the accumulating debt.

Mr M Swart suggested that everything from the bottom of page 13 to the end of page 14 should be expunged and replaced with wording reflecting the Committee’s concern over the level of debt and the need for a plan to be formulated concerning repayment.

Dr Oriani-Ambrosini said that there were two separate issues, namely the rising level of debt, and the need for a repayment plan.

Mr S Swart asked if the Committee supported the idea of a fiscal stability pact, or whether this issue warranted a separate debate. The Committee needed to express itself on this idea.

Mr George seconded the proposal and suggested that this point should be put under recommendations, ideally under recommendation number 1.

Mr van Rooyen recommended that the title of a Minister should be followed by the name, and noted that this must be applied in the report consistently.

Mr S Swart mentioned that page 17 was littered with value-laden judgments. Statements that made definite forecasts should be treated with caution, as there were no guarantees.

Dr George said that he did not remember some of the issues listed under point 5.1 on page 18 being extensively discussed. The sub-paragraph also did not come to mind. The universal tax specialists mentioned a Tax Ombudsman as well as the complexity of tax laws. The document also did not mention the establishment of a Tax Commission, under point 5.2.

Dr Oriani-Ambrosini suggested that the Committee should support a proposal for the establishment of a Tax Commission and a Tax Ombudsman.

Mr van Rooyen suggested that the Committee should reflect on the recommendations for the establishment of a Tax Ombudsman and Tax Commission. He asked whether it was appropriate for the Committee to make such recommendations.

The Chairperson agreed with Mr van Rooyen.

Mr Harris supported the recommendations and read out the changes that could be inserted.

Mr van Rooyen agreed with the view expressed in the report that most stakeholders were of the view that a fiscal stimulus was appropriate. Some stakeholders were of the view that there was no reciprocal plan of action from the private sector. Some of the companies that were beneficiaries of these packages had not utilised them. The concern around this had to be included in the report. The assessment of the effectiveness of the stimulus packages had to be added under the Committee’s recommendations.

Dr Oriani-Ambrosini requested that the Committee should not endorse the recommendations. The Committee should also express its concern over the financing of infrastructure emanating from outside the budget process.

Dr George suggested that the second paragraph under recommendations should only include SARB’s mandate of the maintenance of price stability. The Committee had to look at the issue of the establishment of a Tax Ombudsman and Tax Commission. This could be put under the recommendations. The Committee was aware that the Budgetary Office had not been established, but once it was established then it could be commissioned to look into Value Added Tax.

Ms Sibidla proposed that Parliament should have a total review of its programme as the Committee only had effectively two and half days to review the Fiscal Framework, as opposed to the sixteen that had been stipulated. This would enable the Committee to implement the legislation to its fullest.

The Chairperson asked if Ms Sibidla was asking for a review of the amendments or the entire Parliamentary programme.

Ms Sibidla said that the entire Parliamentary rules needed to be reviewed.

Ms Balindlela supported the proposal.

Ms Dlamini agreed with the recommendations and added more priorities under the second paragraph.

Mr Harris agreed with all the other proposals. However, the suggested amendment on the mandate of the SARB should not be included. The mandate of the SARB had been captured correctly in the report.

Dr Oriani-Ambrosini recommended that the Committee should be given the mandate by the National Assembly to look into the merits of legislation that established a Tax Ombudsman and Tax Review Commission.

The Chairperson said that the Committee had to be careful about asking for things that already fell within the Committee’s powers. Tax issues and Money Bills fell within the mandate of the Committee.

Mr van Rooyen said that his recommendations on the establishment of a Tax Ombudsmen and Tax Commission should be initiatives that came from the Minister.

Mr M Swart asked what would happen now, since changes had been made. He asked whether the document would make its way to the Minister.

The Chairperson noted that no substantive changes had been made to the content of the Fiscal Framework, and the Committee had not suggested any material deviations.

Dr George indicted that the DA was in favour of the Fiscal Framework, but it disagreed with some policy issues. These would be debated in the House.

Mr S Swart, on behalf of the ACDP, indicated his party’s general endorsement of the Fiscal Framework but noted that points would be debated further in the House.

A COPE representative also said that COPE supported the Fiscal Framework but further discussions would be held in the National Assembly.

The Committee Report was adopted, with amendments.

The meeting was adjourned.

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