Medium Term Budget Policy Statement (MTBPS) 2011: public hearings

Meeting report

Business Unity South Africa (BUSA) MTBPS 2011 Presentation
Professor Raymond Parsons, Deputy Chief Executive Officer, briefed Members on BUSA's response to the Medium Term Budget Policy Statement (MTBPS) or 'mini budget'. BUSA found that the Medium Term Budget Policy Statement offered a realistic assessment of South Africa's economic prospects, spoke rationally to the primary challenges underlying these prospects, and captured broadly both the economic and social challenges facing South Africa, especially poverty and inequality. The MTBPS was very positive for business confidence and showed good management of a challenging internal and external situation.

The MTBPS again emphasised the great need for united efforts and recognition that trade-offs would have to be made to put South Africa on a productive and sustainable fiscal and economic growth trajectory.

'Balance' occurred frequently in the MTBPS and resonated with the business world's perceptions. The MTBPS, presented against the background of an uncertain global economic outlook, had broadly struck sensible balances around external and economic factors, the present and the future, threats and opportunities, counter-cyclical and structural concerns for the South African economy around growth and employment in changed circumstances, and recognising the need to mobilise the private sector to a larger extent to promote economic performance.

BUSA sought to focus on the factors which one could control, rather than on the factors that one could not control. The Group of 20 (G20) meeting was certainly an opportunity to address some of those external factors.

The MTBPS had rightly revised its growth forecasts downward for 2011 and subsequent calendar years.

National Treasury growth predictions were in line with business forecasts. The risks for forecasting, however, were now quite high. The margin for error in economic forecasting had increased. The margin for error in policy had narrowed and a mistake in domestic policy could be costly. It was essential to maintain a balance.

The key factor in the MTBPS was growth and options increased or decreased according to one's forecasts of future growth performance. There was thus need to assess risks and the 'mini budget' obviously focusing on the spending side over the next three years had done a realistic job. At this delicate stage in the business cycle it was unwise to consider raising any taxes.

BUSA applauded the fact that South Africa had showed foresight in being able to enter the 2008 global crisis and the current one in a much stronger position than many other countries. This had paid off extremely well.

In terms of the fiscal framework, National Treasury's counter-cyclical stance adopted ahead of the global financial crisis had proved itself. Although stabilisation of net debt at 40% of gross domestic product had been delayed by 12 months to 2014/15, as far as BUSA and the business community were concerned, this was very acceptable. It did not send out any negative signals.

As mentioned by the Minister it was important to control Government expenditure, especially its salary and wage bill, otherwise that could prove to be a difficulty in the years ahead, if some assumptions were not borne out. The envisaged trends in the recovery of revenue and moderation in the growth of public spending remained credible, but it was imperative that this trajectory not be exceeded, since Government's debt servicing costs still remained projected as the fastest growing category of expenditure over the Medium Term Expenditure Framework – faster than productive investments such as transport infrastructure which was relegated to second place in terms of expenditure growth.

BUSA supported sensible efforts to return to a primary surplus position sooner rather than later, and welcomed National Treasury's specific attention to the necessity of eliminating the primary deficit (deficit after deducting interest payments) within a realistic timeframe.

BUSA believed that debate must centre on moderating salary increases in the public sector. There were already efforts to ensure moderation of executive pay in the private sector.

BUSA supported the MTBPS emphasis on job creation, growth and competitiveness. BUSA commented specifically on promoting job retention and accelerating job creation; competitiveness support package; expansion of infrastructure investment; administered prices; public private partnerships; and the green economy.

Prof Parsons focused especially on job creation and job retention. Very fortunately there was again the New Growth Path – a process rather than an event – which had been under-way for a year; a number of issues under discussion in regard to the budget resonated in discussions on the New Growth Path process. He noted the latest accord signed on local procurement, and the preceding accords on skills development and on basic education. These had been a process of cooperation between the private and public sectors with other stakeholders including labour and the community under the National Economic Development and Labour Council (NEDLAC) umbrella to ensure maximising the number of jobs that could be created at any given growth rate. BUSA also supported the reference to local procurement and the jobs fund in the 'mini budget'. It also supported the wage subsidy that had been discussed in NEDLAC. It was not a complete answer – it was part of the answer, but one must not let the best be the enemy of the good.

BUSA thought that the competitiveness support fund was very aptly named, since this would help businesses to create more jobs.

Enterprise development, especially small and emerging business was at the heart of what one wanted to achieve in terms of growth and development. It was likely that the next two accords under the New Growth Path would be the green economy accord and the enterprise development accord, which would pull together these mechanisms to promote small and emerging business.

Prof Parsons emphasised the whole issue of infrastructure. Quite clearly there had been a lag, as the Minister had pointed out. Even where the money had been budgeted, sufficient infrastructure had not been established, so there was considerable catching up to do. There was a Presidential Infrastructure Coordinating Commission to pull efforts towards infrastructure establishment in a more effective way.

The issue of administered prices was quite a serious challenge to the ability to get the economy to grow more rapidly and to avoid inflation which would prevent lowering of interest rates. While acknowledging that everyone wanted better infrastructure – better roads and ports, for example - it was important to plan the financing of this infrastructure much better. There was an adverse cumulative effect of increased electricity charges, port charges, and water tariffs, which were undermining the costs of doing business as much as Government was giving subsidies on the one hand. Of course it was not so easy to find an answer, since these increases had happened so quickly: there had been a convergence. Affordability of these tariffs had to be discussed, for example, the issue of toll roads. How they were to be financed should have been discussed at a much earlier stage.

The issue of public private sector partnerships (PPPs) needed to be discussed visibly. Until now PPPs had been marginal in infrastructure development. It was necessary to use all available mechanisms to expedite the spending on infrastructure, especially at the local level, on which the Minister had had some very specific comments. This meant that the private sector must be mobilised more effectively under the umbrella of PPPs.

Prof Parsons compared South Africa to the BRICS (Brazil, Russia, India, China and South Africa) in the use of PPPs. South Africa was at the bottom of the scale. It was important to think creatively around the potential for the use of PPPs in building infrastructure.

Prof Parsons emphasised BUSA's support for what had been done on the green economy to move to a more environmentally friendly economy. He acknowledged that Government support was needed, with action that was crafted in a clever way to change behaviour through the carrot or the stick as the case might be. The important thing was to get the sequence right. As a developing country it was necessary to take a balanced view, in accordance with the philosophy of the mini budget.

There were some aspects of climate change which resided on the global agenda and which Prof Parsons was confident that South Africa would push at the forthcoming Conference of the Parties (COP) 17 Conference in Durban. The issues of the green economy would also feature in the New Growth Path discussions and it was hoped that a draft accord might be finalised in the New Year.

Prof Parsons stressed BUSA's aim for an economy that was bigger, growing, stronger, and better in serving the people of South Africa in terms of poverty alleviation, employment, and alleviating inequality. To this end it was essential to:

 ⚫ sustain the present economic recovery

⚫ enlarge South Africa's growth potential and increase it to 5%, 6% or 7%.

⚫ maximise the number of jobs created at any given growth rate, in particular for the young.

In regard to growth, the importance of infrastructure was highlighted by the fact that when South Africa last had growth of 5%, in 2007, the lights had gone out.

Perhaps the most overarching message of the 'mini budget' was that if we could factor talking into our GDP South Africa would be the fastest economy in the world. What was required was implementation and delivery through the collaborative effort of key stakeholders. 'We must make it happen.'

Discussion
Dr D George (DA) asked if BUSA thought that Government could act to accelerate the growth rate and if Government was doing enough to collaborate with business.

Mr S Marais (DA) noted that the private sector should be central to job creation but Government was the biggest employer and its share of employment was increasing, while business's share was decreasing - was BUSA happy with that trend? There was a huge backlog with the process of land reform and funding was a problem. Was there enough to fund the national health insurance scheme? How could South Africa ensure that it had a competitive edge and lift it above that 4% growth in GDP in order to fund all those obligations under the New Growth Path?

Mr N Koornhof (COPE) noted that BUSA had pleaded for more public private sector partnerships (PPPs) though the Government had cancelled them. He doubted the benefit of the PPPs on account of the professional fees that they charged. These fees were outrageous and close to greed. The state wage bill had to be addressed. For this it was necessary for BUSA to create a suitable environment. With very high bonuses, salaries and share options in the private sector, it was hard to convince the unions to do a deal on wage moderation.

Mr D Van Rooyen (ANC) could not agree more that forecasting was very difficult and it was hard to be optimistic about South Africa's current projections. He asked what could be done to get PPPs to work. What were the impediments? Exactly what was stopping us from 'walking the talk'? Was the current platform of consensus inadequate? Was NEDLAC not effective?

Mr T Chaane (ANC, North West) asked if it was not time to elevate the discussion with NEDLAC to the level of implementation, observed that business was working against Government, and that Government was increasing the number of employees while business was retrenching as many people as possible and keeping quiet because it could easily move to other countries. Business must come to the table with firm commitments and implement rather than keeping Government busy with dialogue every day, week, month and year.

Ms Z Dlamini-Dubazana (ANC) said that a very crucial point was that there should be a cooperation from the private sector and BUSA should play that role. BUSA mainly focused on counter-cycling. Globally there was no country that could sustain its debt without the help of private sector. Therefore the recovery of tax revenue played a crucial role. She asked BUSA what its model was to motivate companies to pay taxes at the right time. She understood from BUSA that somehow Government became involved in bulk infrastructure investment without proper planning. BUSA came to Parliament on behalf of business so it should inform Parliament of the loopholes. In what sense did BUSA consider that the PPPs had so far been marginal in infrastructure development? South Africa had focused mainly on exports like copper and gold, and, as a consequence, there had been much retrenchment. She asked if BUSA could propose to the Government alternative trading arrangements so as to create more jobs, alleviate poverty and eliminate inequality.

Mr A Lees (DA, KwaZulu-Natal) was concerned that the projected growth for South Africa was not enough. Was BUSA saying that South Africa could not do better than that? He noted the regulations that governed employment in South Africa today. Surely BUSA must address that, in terms of the high proportion of the budget now devoted to paying salaries and wages. How was this to be addressed in future? It was not possible to lay people off and then rehire them, only to lay them off again. This was why commerce and industry over the last 10 years had been reducing employment as much as possible. Was there no comment from BUSA on employment?

Mr Lees said that businesses in his constituency, Newcastle, KwaZulu-Natal, felt that they had no connection with BUSA at all, particularly the smaller businesses. More collaboration at that level was required. But ultimately the debate must take place in Parliament.

Prof Parsons preferred to group his replies rather than reply to individual Members. That South Africa could do better was the burden of BUSA's message to Government. He referred to a BUSA document on perspectives on an inclusive higher job rich growth path by 2025. This would explain BUSA's position.

BUSA was already cooperating in a number of structures but believed that it could cooperate more. The accords referred to above were instances of tangible outcomes of such social dialogue, all in the past few months.

Social dialogue did not govern the country but helped to keep it governable. Ultimately decisions were taken by Parliament, so the two must work together.

The concept of the PPPs had not enjoyed the thrust that it required. There was within the National Treasury a structure called the PPP Unit. In its limited framework it had done some good work. However, given the challenges on the infrastructure side and on delivery, it had to be asked if the PPPs were being used as they should. It was important to see what lessons had been learned from this global mechanism and apply a problem-solving approach.

BUSA was not happy with the projected growth rate but accepted it as the reality, on which we needed to build. BUSA shared the Minister's aspirational goal of 7%. South Africa was not there yet, but would have to achieve this to make a difference. Without growth and without the tax revenue, it would be hard to achieve objectives and have room for manoeuvre. Prof Parsons would welcome the challenge of higher growth.

Prof Parsons had anticipated reference to executive pay. A reciprocal debate was now underway under the New Growth Path and some work was being done in the private sector.

Business expected the current economic volatility to unwind, but this would take time. Therefore it was important to consider alternative markets. It was important that South Africa had joined BRICS (Brazil, Russia, India, China and South Africa).

Certain amendments to the labour laws were under discussion in NEDLAC and an outcome was expected soon.

The high increases in administered prices neutralised efforts to make businesses more competitive.

There were very important proposals in the Industrial Policy Action Plan (IPAP) 2 which affected the manufacturing sector. Certain sectors had been identified as having especial job potential.

BUSA was an association of associations and expected its members to ensure that they kept in touch with their members with a view to obtaining a consensus that included the smaller members.

Parliament had oversight over stakeholders, which was why BUSA was present. He emphasised that it was important to obtain the total view. It was important to enrich Parliament's oversight role so that it could anticipate some of the developments in an uncertain situation.

Chairperson De Beer looked forward to receiving the document to which Prof Parsons had referred.

Financial and Fiscal Commission (FFC) MTBPS 2011 Briefing
Dr Ramos Mabugu, Director: Research, Financial and Fiscal Commission said that the Commission had found that little had changed over the last year in terms of South Africa's vulnerability to interruptions in global recovery with the MTBPS downward revision of 2011 gross domestic product figure as expected. Finance, real estate and business services manufacturing and wholesale, retain, motor trade and accommodation were the likely sectors to be affected by major trading partners' slow recovery impacting sectoral composition of the gross domestic product.

South Africa would need a much higher economic growth than set out in the New Growth Path (0.7% annually). To date, fiscal and monetary policies had been coordinated and counter-cyclical – aimed at boosting recovery.

Recent consumer price index figures indicated a rise in inflation from 4.1% in March 2011 to 4.2% in April 2011 – this slight increase indicated that inflation was on the rise and coincided with the upward revision of inflation forecasts by the South African Reserve Bank. It indicated a repo rate increase later this year and further increases in 2012.

An important tenet of the New Growth Path was to drive the value of the rand down to make locally produced goods more competitive and create more jobs. However, a weaker rand benefited exports but might fuel inflation. To obtain more benefits from a competitive currency, South Africa needed to improve productivity and contain domestic costs.

Savings and investment in South Africa were below the levels needed for sustained growth. To achieve growth of more than 4% domestic savings rate had to be some 24% of gross domestic product. It was currently at some 16% compared to 40% in China. Moreover, the current ratio of savings to disposable income of households was minus 0.3%. A modest increase in the rate of investment was expected in 2011 with low capacity utilization.

To reduce unemployment, which increased across all race groups despite moderate economic growth (current figure 25%) it was necessary to tackle structural impediments to job creation.

Fiscal consolidation was still important. Government debt was set to rise to 40% of gross domestic product by 2015 after which it was expected to stabilise and decline.

Challenges included the Government balancing act of achieving inclusive growth and job creation together with fiscal sustainability and low inflation and other risks – commodity prices and debt service costs.

As to medium term spending priorities, annual real growth rates of most governmental expenditure components were too high. Real annual increases should be kept at around 3%. The Commission welcomed the priority shift to infrastructure investment as a critical vehicle for job creation.

Though South Africa had made some progress in achieving the Millennium Development Goals some gaps remained. Even with 4.5% growth in gross domestic product, none of the health Millennium Development Goals would be achieved. The Commission recommended emphasis on greater efficiency and cost savings and the need for Government to produce credible interim financing mechanisms for the National Health Insurance scheme. It was well known that the full programme would cost much more than the pilot projects and would pose a fiscal risk.

The Commission believed that the proposals for strengthening selected child welfare programmes (early childhood development services) and home community based childcare and protection were worth funding but in the context of reforms to resolve structural issues in the sector. Giving more money to the sector should be guided by the need for a serious policy review about the role of the state and the effectiveness of the delivery models.

The Commission had sought to link its submission on the MTBPS with its recommendations tabled to Parliament in May 2011.

Since growth prospects threatened achievement of the R5 million job creation goal South Africa should not rely on its global counterparts but should do more domestically to find solutions to employment problems.

National provincial and local government should further reprioritise expenditure in respect of the equitable share and conditional grants for 2012/11 towards attaining the Millennium Development Goals.

The Commission would make long-term budget projections under scenarios that reflected different assumptions about future policies for revenues and spending following the Government long term financing discussion paper.

(Please see presentation document and also refer to the Financial and Fiscal Commission’s MTBPS 2011 Submission document)

People's Budget Coalition MTBPS 2011 Submission
Ms Prakashnee Govender, Parliamentary Office Coordinator, Congress of South African Trade Unions (COSATU), submitted on behalf of the People's Budget Coalition, a civil society coalition comprising COSATU, the South African Council of Churches (SACC) and the South African Non-Governmental Organisations Coalition (SANGOCO), that effective re-distributive strategies were required to enable growth to take place. Such strategies should find expression in a macro-economic policy framework that put decent work at its centre. High unemployment had been at the centre of all the major economic policy documents. Yet there was ample evidence that policies to deal with this problem continued to fail. The failure was partly because there had been only a limited and distorted understanding of the reality that these policies sought to transform leading to inappropriate tools of intervention, many of which had been plainly wrong. Total job losses from 2009 to the second quarter of 2011 amounted to over one million with the largest losses registered by the wholesale and retail trade and manufacturing sectors. Between the fourth quarter of 2009 and the fourth quarter of 2010 the proportion of the unemployed without work for more than a year rose from 59% to 68% while discouraged work-seekers increased by 26% over the same period. These facts showed that most of South Africa's unemployment was of a structural nature, and that while the economy might experience a cyclical downswing, the resultant job losses translated not into a cyclical unemployment but that these losses assumed a more or less permanent nature.

The vast majority of the unemployed – an estimated 72% - were young people between 15 and 36 years of age with 60% having minimal or no secondary education. The wage subsidy was, however, premised on the misconception that the young people were considered too expensive to employ. However, it was unlikely that young, inexperienced people without secondary education would earn R1 250 per month – which, after deducting R20 daily transport costs left R850 per month for survival or R28 per day.

The Gini coefficient stood at 0.64 in 1995 but increased to 0.68 in 2008. The top 10% of the rich accounted for 33 times the income earned by the bottom 10% in 2000. This gap was likely to have worsened, given the fall in the share of employees in national income and the global economic crisis of 2008. Approximately 20% of South Africans earned less than R800 a month in 2002, and the situation was worse for Africans. By 2007 71% of African female-headed households earned less than R800 per month and 59% of these had no income; 58% of African male-headed households earned less than R800 a month and 48% had no income. Differences in consumption expenditure patterns illustrated the stark inequalities between wealthy and poor households.

The Coalition noted with concern that the MTBPS called for wage moderation in the public service. This was problematic since estimates from the Quarterly Employment Statistics indicated that real wages had declined by 6% over the past two and a half years. The average inflation rate faced by workers was 10% and most wage settlements in the public sector were between 6% and 8%. This attack on public sector workers was therefore unwarranted. It also ignored the many impoverished financial dependents and families that public servants supported.

The MTBPS did not represent a real shift on macro-economic policy but continued on the old path. The Coalition characterised the MTBPS as a conservative macro-economic framework predicated on a neo-liberal paradigm. This was because this spending did not prioritise job creation and retention while the country still suffered from more than one million job losses.

Over the past two and a half years, workers had lost in excess of R42 billion worth of income, yet the MTBPS mentioned social security only in passing, its spending was modest relative to the depth of the crisis – virtually stagnant in real terms – and effectively presented a surplus budget hence creating a 'policy reserve'.

The coalition would have expected a macro-economic policy that placed job creation at the centre to have adopted a targeted, expansionary fiscal stance supported by other macro-economic policy interventions such as management of exchange rate appreciations.

It would have expected the MTBPS to address such interventions as introducing a tax on luxury items, a progress report on the formation of the state bank, the consolidation of development finance institutions, a tax on luxury items and a tax on the super rich, expanding tax collections to finance public infrastructure, and elimination of tenders.

The MTBPS did not mention training through the National Skills Development Strategy 3. The MTBPS failed to address infrastructure delivery mechanisms.

While the MTBPS mentioned the need to increase investment in mining, it did not mention beneficiation as the cornerstone to building downstream industries.

The infrastructure spending mentioned in the MTBPS was not linked to local industrial development through interventions such as local procurement.

The MTBPS should have laid the foundation to address backlogs in basic and higher education and training. The re-opening of teacher training colleges, nursing colleges, technical colleges and the building of new institutions, including the two universities in the Northern Cape and Mpumalanga needed to be expedited. This was important to stem the tide of ill-equipped young people entering the labour market. Furthermore, and encouraged by the turnaround of the National Student Financial Aid Scheme more allocations would have to be made to ensure that no deserving young person was denied a chance to further their studies. A 1.6% real increase would make a dent in expending the Further Education and Training sector by 150%, for example.

The MTBPS mentioned that health spending would increase by 7.4% - in real terms a 1.9% increase. This was worrying given the massive crisis in this area. The MTBPS should have indicated how many nursing colleges had been re-opened or would be re-opened, and how the increase in the number of physicians and associated professionals would be funded. The Coalition welcomed the strengthening of local government in rural communities, and the prioritisation of water infrastructure and upgrading wastewater treatment in rural areas.

The intention to support small-scale farmers was a welcome move, as was the alignment of programmes between the Departments of Rural Development & Land Reform, Agriculture, Forestry & Fisheries and Water Affairs. The MTBPS had also made an important observation on the need to address backlogs in public service delivery in municipalities. This was important because it addressed the rural-urban divide. In addition, the focus on rural development should go some way to easing migration into cities.

The MTBPS decried the rise in food prices without indicating what Government intended to do about this. It should have proposed measures to limit speculation on essential food items in financial markets. The MTBPS should have taken account of the cost drivers faced by farmers, such as fertilizer, electricity, transport and water tariffs. In this context the re-nationalisation of SASOL became important.

Furthermore the MTBPS did not mention land redistribution which was far behind target.

The MTBPS should have addressed the resourcing of the police service and ensured adequate resources for institutions such as community policing forums.

The most powerful way to deal with corruption was to eliminate the use of tenders to deliver basic goods and services.

Prior to the enactment of the Money Bills Amendment Procedure and Related Matters Act the Coalition had boycotted parliamentary hearings on the budget. Not withstanding its lifting of the boycott, it continued to emphasize the need to strengthen the technical capacity of Parliament, and in particular the establishment of a Parliamentary Budget Office. It sought clarity on progress in this regard.

Discussion
Dr George asked the FFC for clarity on the MTBPS GDP growth projections. Was it saying that these projections were overstated? Would the FFC have a lower projection for growth?

Dr George asked if the FFC believed that the assumption that Government debt would rise to 40% of GDP by 2015 was not realistic.

Dr George found the FFC very skeptical about Government's macro-economic projections. If these projections were not realistic, what would the FFC's own projections be?

Mr Lees asked, in the light of the FFC's pessimistic view about the increase in inflation, if the FFC thought that the budget restrictions in terms of wage increases and cutting spending would not be adhered to in the public and private sectors. If they were going to be adhered to, was the FFC worried about outside pressures, such as the exchange rate?

 Mr Bongali Khumalo, Acting Chairperson and Chief Executive Officer (CEO), FFC, replied to Dr George and to Mr Lees that the FFC was not pessimistic about anything in the MTBPS. The FFC did scenario-modeling exercises. In its 2010 submission it had tabled three sets of scenarios to show what would happen to the prospects for growth. It had then looked at the composition of expenditure. There needed to be a structural shift from current consumption, which was obviously dominated by the public sector wage bill, to infrastructure and capital investment. The FFC had observed such a shift, and even a shift into economic development, and some deliberate incentives offered to firms in order to cushion them from the impact of the recession. This whole scenario was very much dependent on what happened in the global environment, specifically in the United States of America (USA) and in the Eurozone. In the MTBPS the FFC saw a message that Government was fairly confident that there would be a positive solution to the kind of d discussions that were taking place in the Eurozone, for example, on what to do with the peaks. The FFC was not shy to say that, while having a positive outlook, it was necessary to be aware of the possible clouds on the horizon. If those clouds went the other way, things might turn out to be worse. The FFC had every confidence in Government projections but at the same time wanted to be aware of the risk. The FFC was playing 'Devil's advocate'.

Ms Tania Ajam, Commissioner, FFC, added that there was now much less fiscal space than before, when South Africa had benefited from its previous surpluses. As Mr Khumalo had pointed out, the environment was becoming more and more volatile. The levels of volatility were such that it seemed that one was having a structural regime change which made prediction difficult. Thus South Africa was in an environment of increased fiscal risk. This called for increased prudence in making projections.

 Mr Lees noted the FFC's observation that an increased growth rate was highly unlikely given that countries like India and China were not achieving 7% or 8%. Surely, however, a small economy such as South Africa's could grow exponentially at such a rate? Was the FFC taking the relative size of economies into account?

Dr Mabugu replied that the growth projections for India and China had actually been revised downwards. It was necessary for South Africa to examine opportunities that might exist elsewhere, for example, the forecasts for growth in the rest of Africa were quite positive.

Mr Lees observed that the FFC had talked about improving productivity, and on this Members could agree, but it had not said much about how increased productivity could be achieved.

Ms Ajam said that it was also the productivity of those personnel expenditures. The answers lay within the realms of human resource management. This was not the FFC's core competence. However, productivity was much more than just looking at human resource practices. It was necessary to look at productivity broadly, taking account of the various inputs to personnel expenditures. In the past the FFC had made many relevant recommendations in this regard, for example, on education. Also maintenance and upgrade played a major role in productivity and consumption expenditure. The FFC had also made many observations on capacity. All these related to the productivity of spending.

Dr Mabugu said that the FFC's understanding of productivity was that it was necessary to focus on output as well as inputs.

Ms Govender said that there had not been a decline in productivity.

Mr Lees’ position on the NHI was exactly the same as that of the Coalition. However, it had not said much on how the NHI should be achieved.

Mr Khumalo acknowledged that the NHI had implications for the fiscus. Part of the work referred to by Dr Mabugu was on the long-term implications. Concrete assumptions must be made, while recognising that one was not in control of the outcomes. One was very much dependent on the external environment.

Mr Van Rooyen said that one of the causes of uncertainty was the call made in certain sectors for nationalisation. Unfortunately, it was not substantiated. He asked the FFC to confirm whether these calls for nationalisation were in fact causes for uncertainty that impacted negatively on capital inflows.

Mr Khumalo, although the Commission had not done any scientific studies on this subject, denied, from his experience as an economist, that nationalisation deterred investment inflows. Many countries had nationalised and continued to have investment inflows. Other factors must be at play beside nationalisation.

Mr Van Rooyen sought the FFC's views on the proposals of some in the private sector to generate electricity privately. Was this an option to consider?

This question was not answered.

Mr Lees acknowledged that the input costs in farming were horrific. However, he questioned the Coalition's assumption that nationalisation of SASOL would assist, for example, with the price of fertilizer. Was a state-owned enterprise necessarily more efficient and more able to deliver at reasonable prices than a private enterprise? He gave examples such as Alexkor, Eskom and Transnet 'which are disastrous'.

Ms Govender replied that the Coalition was talking about corporatised models for state-owned enterprises (SOEs). Eskom happened to conform to the corporatised model in that that it functioned like a private entity even though it was state-owned. Such enterprises had their emphasis on profit rather than the developmental mandate. They did not necessarily deliver more cheaply

Ms Dlamini-Dubazana asked the Coalition about the youth wage subsidy. This initiative had been introduced in the 2009/10 budget. What had the Coalition observed from that time? Had the Coalition observed and monitored implementation by companies – and, if so, what progress had been achieved and was progress satisfactory, was there any abuse by companies, and was there any retrenchment of permanent employees in favour of young people?

Mr Lees agreed with much that the Coalition had presented but asked about its position that one could employ people without their acquiring any skills and its implication that it was a waste of time to spend money on low-level employment. Was his understanding correct?

Ms Govender replied that the Coalition's concern with the youth subsidy was that it did not address the structural problems and was likely to become a revolving door for the next unemployed young worker. It was necessary to address intergenerational poverty. Higher skilled jobs had been replaced. It was necessary to review the Industrial Policy Action Plan (IPAP) 2 and the New Growth Path taking account of the sectors that one wanted to grow. There had been complaints about the lack of particular skills. It was necessary to target the skills that were required. There was a need to target those levels of skills when talking about employability. The lower skilled unemployed (as distinct from those with hard core engineering skills) had to wait longer before they could find opportunities. There was a need for a targeted mechanism.

Ms Govender added that the youth subsidy was proposed in the last budget but not yet implemented. There was a discussion paper. Hence she could not reply to Ms Dlamini-Dubazana on abuses detected through the Coalition's monitoring. She noted that race, class and gender were inherent factors when it came to the ability of the young unemployed to find and take up opportunities for employment. A child with a proper house, water, electricity and sanitation, would perform better at school, and subsequently have better opportunities. If one wanted to address intergenerational poverty, it was essential to address the situation for younger workers who found it hard to enter the labour market.

Mr Koornhof noted that the Coalition was concerned about the calls for wage moderation in the public service (submission, page 7). The current state wage bill was 42% of the GDP and growing. How would the Coalition suggest dealing with that in the years to come. Would the Congress of South African Trade Unions (COSATU) support Government in its negotiations by saying that it would freeze in certain categories any increases in salaries for the next three years - not the lower categories but the higher categories?

Ms Govender was unable to say whether or not COSATU would impose a freeze on its affiliates. Those matters would be discussed at a political level. However, she emphasised the necessity for a living wage and decent living conditions. As regards wage moderation, she was not sure where the threshold would be pegged in a possible wage or salary freeze on higher earners. There were many contradictions in the proposals targeting, in particular, the public sector workers. A great deal of money was spent in the public sector on consultants in order to attract specialised people who were not attracted by the normal salaries offered. In the private sector, there was an excessive amount paid to city managers. Exorbitant amounts were also paid to executives in the parastatals.

Mr Van Rooyen said that more emphasis was placed on the public sector wage bill. He asked the FFC if this implied that all was in order with the private sector wage bill.

Ms Dlamini-Dubazana wanted the Coalition to be more specific about the state wage bill.

Mr Khumalo replied that the Commission's work was primarily around the public resources and how they were utilised. Thus the focus of the Commission was primarily on whether or not the public purse could sustain the kind of wages under consideration as against the value for money derived from those wages. In the private sector it was the case that if one did not produce one did not get paid, and if one produced, one did get paid. The FFC was aware that at higher levels in the private sector, 'there is definitely something wrong'. The global economic crisis had highlighted some of those flaws. Bonuses were a key point of discussion. Moreover, in view of Government's intention to engage at the level of the National Economic Development and Labour Council (NEDLAC), there was a realisation that this was an across the board issue. There was no bias in FFC's choice of focus.

Ms Ajam said that it was also the productivity of those personnel expenditures that had to be considered. The answers lay within the realms of human resource management. This was not the FFC's core competence. However, productivity was much more than just looking at human resource practices. It was necessary to look at productivity broadly taking account of the various inputs to personnel expenditures. In the past the FFC had made many relevant recommendations in this regard, for example, on education. Also maintenance and upgrade played a major role in productivity and consumption expenditure. The FFC had also made many observations on capacity. All these related to the productivity of spending.

Dr Mabugu said that the FFC's understanding of productivity was that it was necessary to focus on output as well as inputs.

Ms Govender disagreed with the FFC in so far as it said that if one did not work in the private sector, one did not get paid. As far as senior executives in the private sector were concerned, what had happened in the recession was proof of that.

Ms Govender denied, on the basis of statistics, that there had been a decline in productivity. On the contrary it had risen.

Ms Dlamini-Dubazana said that the gap was still so big between the executives and others, even Members of Parliament. 'Let those that get more, at least not get any increases, so that we close the gap' and direct the money saved to those on lower wages and salaries whose increases currently were less than the projected inflation rate.

Mr Lees said that the tax on the super rich was a popularist view, and one which had been raised by 'our super rich man in th United States'. However, had the Coalition done any research to determine who the super rich were, how many such people existed, what their taxable income was, what kind of additional tax should be applied, and how much additional revenue would be obtained?

Ms Govender replied that the Coalition had not conducted research on the idea of a tax on super rich. The Coalition had raised it as a matter of principle, but there was adequate information, based on lists of the directors of the wealthiest companies to give an illustrative picture, though not necessarily and accurate picture.

The Rev. Keith Vermeulen, Director: Parliamentary Office, South African Council of Churches (SACC), added that the SACC had been partnered by Christian Aid, a United Kingdom organisation, which had conducted an extensive study with Tax Justice Network Africa on the extent to which tax was avoided or evaded and invested in tax havens by multinational companies. In Africa alone, multinational corporations had stashed away avoided and evaded taxes and profits to the extent of $805 billion between 2005 and 2008. South Africa's portion of that might be in the order of R10 billion annually. However, this was not an argument against the efficiency of the South African Revenue Service (SARS). It was an issue of justice. Automatic reporting and exchange of information, country by country, was needed as a prerequisite for countries which received investments. There was need for greater study and research. One of the studies in South Africa had been on, for example, the SAB Miller insider trading and deflection of profits to subsidiaries. This study had been brought to National Treasury's attention. While South Africa was represented as a country with a limited tax base of six million, South Africa's poor were paying a regressive tax and the Coalition wanted to see that offset in terms of certain Millennium Development Goals by targeting evasion and avoidance by investing in tax havens by multinationals. It was unsustainable to have chief executive officers earning one hundred times the amount earned by their lowest paid employees. Such did not reflect the nature and dignity of work. It was not possible to build social cohesion on such large gaps between rich and poor whether in the private or public sector.

Mr Van Rooyen asked the FFC's view on a recent submission calling for more frequent engagement between the FFC , other role-players and the finance Committees, on account of the rapid changes taking place in the global economy.

Mr Kumalo replied that the FFC was ready and happy to engage. Ms Tania Ajam, Commissioner, FFC, now attended the FFC's Cape Town office three days a week.

Chairperson De Beer noted that all submissions had been dealt with and the public hearings on the MTBPS were hereby concluded.

The meeting was adjourned.