Fiscal Framework and Revenue Proposals: Committee Report: Adoption

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Finance Standing Committee

02 March 2011
Chairperson: Mr C de Beer (ANC, Northern Cape) and Mr T Mufamadi (ANC)
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Meeting Summary

Members of the two Committees deliberated on the Draft Committee Report on the Fiscal Framework and Revenue Proposals. They asked that the views expressed should be reflected as being those of the organisations involved and not individual representatives. Some Members felt that the report lacked flow and questioned the structure. They also asked that reference to the fiscal policy should be replaced with references to the fiscal framework. They were concerned that some of the views of those making submissions had not been fully reflected. There was general concern over the State's high salary burden and the lack of saving. They agreed that taxation on savings might be a disincentive and that efforts should be made to promote savings, especially amongst the youth. Members also recommended that performance indicators be taken into account. The procedures in the Financial Intelligence Centre Act should be streamlined. The growing disparity between revenue from personal and corporate tax should be investigated. The role of Further Education and Training Colleges should be studied as these institutions could produce more trained people. This might help in the quest to create jobs and develop skills. Members held differing views on whether the figures for unemployment constituted a crisis, but noted that the number of those dependent on social security was directly linked to the numbers who were unable to gain employment, and that much of the available labour was unskilled. There was a proposal that the issue of the Budget Office should be included in the Report, but the Chairperson pointed out that there had in the meantime been moves on that and it did not need to be included.

Members adopted the Draft Report, with the various amendments suggested in the meeting.

Meeting report

Fiscal Framework and Revenue Proposals: Draft Committee Report: deliberations and adoption
Co-Chairperson Mufamadi noted that the DA Members had tendered their apologies, due to other commitments. He tabled the draft Committee Report on the Fiscal Framework and Revenue Proposals (the Report), noting that it was necessary to hold the joint sitting to approve this Report, as the Committees had sat jointly in the public hearings.

Mr M Makhubela (COPE, Limpopo) thought that the Report was very well drawn. However, he suggested that references to individuals should be deleted and only the names of their organisations should be included in the report.

Mr S Swart (ACDP) asked that the Committee should refer to page 11, dealing with the fiscal deficit. The Committees, sitting jointly, had already expressed their concerns about the deficit. The actual deficit was more than projected in October 2010. The Minister had warned that spending on infrastructure such as schools and roads might be overtaken by interest payments.

Mr B Mnguni (ANC, Free State) said that reference should be made to the fiscal framework rather than fiscal policy. He suggested that the wording on page 4 should flow better, to emphasise the focus on South Africa.

Ms Z Dlamini-Dubazana (ANC) commented that she had found some parts of the Report difficult to follow. She suggested that a paragraph on page 2 should be reworded. She commented that the contributions of Business Unity South Africa (BUSA) and the Financial and Fiscal Commission (FFC) were confused. Presentations by the Congress of Traditional Leaders of South Africa (Contralesa) and the Congress of South African Trade Unions (COSATU) did not seem to be reflected.

Ms N Sibhidla (ANC) found the reference to capital inflows confusing. She felt that an incorrect preposition was confusing the meaning.

Mr N Koornhof (COPE) agreed that the report was clumsy in some placed. He appreciated that very limited time that had been available to the drafters, but felt that the Report should be referred back to the drafters, to tidy up the language. He commented that certain elements in the public sectors were being paid well. Categories in the service delivery parts of the public service should also draw better salaries. There were some problems in the provinces. The portion of the budget on salaries was 44%, particularly in the provinces. The report had to speak to fiscal policy.

He pointed out that there was a problem around looming huge food price increases, which were likely to hit South Africa within three months. Inflation would soar. COSATU had raised a good point in saying that it was concerned about inflation. What COSATU said about unemployment indicated a crisis, and this was reality. He thought that it was unfair that this Report had not given the input of Mr Mike Schussler. Despite his style of presentation, he had made some good points and the opinions he had expressed on a variety of topics, including the problems for small entrepreneurs who were tied up in a forest of regulation, should be covered. Red tape was strangling ordinary South Africans. In regard to the fringe benefit tax on pensions, the Committee had to recognise the perception that savings were being eroded. South Africans did not save enough, and a clear message must be sent.

Co-Chairperson Mufamadi summarised the inputs made by Members. He agreed that all the presenters had been representing institutions, and not themselves, so he agreed that their names should be removed. In regard to the structure of the Report, there was a clear introductory portion, and the background should be sketched. The second portion should be a description of what the budget was about. He noted that presentations could not be captured completely. There would then be more room to expand on the issues raised by Mr Koornhof.

Mr B Mashile (ANC, Mpumalanga) said that the quotation of the Money Bills Amendment Procedure and Related Matters Act, early in the document, should be rephrased. In the section on economic policy and outlook, there was reference made to the expectation that there could be a gradual recovery, but pointed out that the reference should rather be to the gradual recovery continuing, since the recovery had already started. He asked if the number of jobs to be created was exactly or approximately one million. The wording was deceptive and open to challenges. He agreed that there was high employment, but he was unsure if this situation could really be called a crisis. It had been stated that only two of five persons of working age had a job. He questioned the accuracy of this statement and some of the other statistics.

Co-Chairperson Mufamadi asked Members to comment on the recommendations in the report.

Ms Dlamini-Dubazana said that selected performance indicators were not considered in the final budget considerations. She recommended that National Treasury (NT) should analyse performance indicators before allocating funds. She recommended that before development finance institution (DFI) funds were allocated, a measurable programme with a set of monitoring tools had to be put in place.

Mr Koornhof asked if the Financial Information Centre Act (FICA) process could be streamlined or possibly be made available in an electronic format. Sometimes laws were passed without considering the cost implications on ordinary South Africans. He felt that an across-the-board 15% tax on gambling winnings would be better than the proposals tabled in the budget. The State wage bill should perhaps be audited. If the wage bill could not be reduced the country would be in serious trouble.

Co-Chairperson Mufamadi said that some issues could rather be saved for the full debate. The FICA proposal and the suggestion on gambling tax were two of these suggestions. The issue of the wage bill had already been raised and this recommendation had to appear in the report. He welcomed the recommendation that proper research must be done into the wage bill. The prevalence of people continuing to be in “acting” positions should be phased out, to create greater certainty.

Mr Mashile said that the proportion of personal and corporate tax had been more or less the same in the past, but it now seemed that the proportion of revenue from personal income tax now far outstripped that from company tax. This should be looked into.

Ms Sibhidla said that tax revenue targets were sometimes met, but sometimes not. She asked how NT reached the targets set. In a meeting during 2010, South African Revenue Services (SARS) had said that they did not have a reliable database of taxpayers, especially the corporate taxpayers. She suggested that the Committee should engage with NT and SARS. She pointed out that 2011 had been declared as the year of job creation. Skills development and training would drive the process. However, much of the available labour in the country was unskilled, leading to the high unemployment rate. There was no sense that the Further Education and Training Colleges (FETs) were producing the required results. She proposed that either NT or the Department of Higher Education should present a clear strategy on the revitalisation of FETs. She agreed with Mr Koornhof's view on savings. Mixed messages were being sent. People were being told to save, but the government was waiting to take a portion of their savings. Savings had to start at an early age. A clear programme was needed to instil a culture of saving.

Co-Chairperson Mufamadi agreed with Ms Sibhidla on the issue of savings. Pensioners should not be targeted. Young people had disposable income, but tended to spend and not save. They should be told of the advantages of saving.

Mr D van Rooyen (ANC) said that half the population was reliant on welfare grants. People needed to be rescued from the poverty trap. A recommendation was needed calling for a link between the growth path and the objective of lifting the people out of poverty and making them less dependant on social grants. Interventions to date did not look at the bigger problem.

Co-Chairperson Mufamadi said that measurable indicators were needed to see how many people were emerging from the social security net and becoming employed. Only human beings created things that did not work, so the inconsistencies were the result of human error.

Mr S Montsitsi (ANC, Gauteng) said that the main problem was that more and more resources became available with growth. This increased the grant allocation. It should be incumbent on the Ministry of Social Development to ensure that there was innovation within that Ministry on social grants. Merely increasing the grants was unsustainable. Perhaps the way to approach the recommendation would be to get the Department of Social Development to suggest methods of alleviating the problem.

Mr Mashile said that the figure of R50 million was unreliable. Many beneficiaries were children who were indifferent to the economic trends. There should be a separation between those who were still at school and those who could be helped. Social services should ascertain the exact number of people needing assistance.

Co-Chairperson Mufamadi said that foster children were included in the grants. There were also children in the system because their parents were unemployed. As the parents were absorbed into the social network and found work, the number of dependant children would be reduced. Recovery should be driven by job creation.

Mr Swart asked if the issue of the budget office should be raised. It was partially the fault of Parliament that this office was not in place. An independent office would be invaluable in advising the house.

Co-Chairperson Mufamadi said that Mr Swart was perhaps not updated on the progress that had been made on this, due to his commitments with other Committees. A lot of work had been done on this issue, and so he felt that this comment need not be included in the Report.

Mr van Rooyen said that the Minister had raised an important point on several occasions. There was a link to a common front. A growth part would be an important part of eradicating inequalities.

Co-Chairperson Mufamadi said that one of the key aspects was the targeting of the youth. A two-tier labour market system had been mooted.

Ms Dlamini-Dubazana had already covered this point. She had said that there must be a programme for youth. An amount of money had been set aside but government did not yet know how this would be utilised.

Co-Chairperson Mufamadi said that the South African government had adopted a fiscal approach. Members had dealt with the framework and the content of the Report, and he suggested that this meeting could accept the Report, with the amendments. He asked the Committee Secretary to make the necessary amendments as suggested in this meeting, finalise the Report, and e-mail it to Members, so that it could be tabled in the House in the following week.

Members moved, seconded and adopted the Report, as amended.

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