Mr Pravin Gordhan, Minister of Finance briefed the Portfolio and Select Committees on Finance and Appropriations, sitting jointly, on the 2012/13 national budget. Although a full presentation, including graphs and statistics, was distributed, the Minister made only a few general comments, to allow more time for debate. He noted that the fiscal framework was healthy, and the key features of the budget looked to expansion of construction of economic and social infrastructure, enhancing economic competitiveness, moderating remuneration and consumption, sustaining investment in people and skills, supporting rural development and promoting job creation. It was hoped to move
Members questioned whether there were any changes proposed to the Youth Wage Subsidy document of February 2011, and hoped that consensus would be reached. A DA Member asked why there was limited narrative on growth in the budget, and questioned the figures for the backlog in maintenance across the country, whilst others also questioned the capital underspending, the reasons for it, and whether it was a factor in the decreasing budget deficit. They asked if there was likely to be increased investor confidence and greater investment from business, and what the incentives would be for local and foreign investment. They asked questions about the toll disputes in
Co-Chairperson Mr Mufamadi welcomed the Minister and Deputy Minister of Finance to the meeting. He also welcomed the provincial chairpersons from almost all the provinces. He commended the Minister and his team for a well-presented and well-received budget.
2012/13 National Budget: Minister of Finance
Hon Pravin Gordhan, Minister of Finance, noted by way of introduction that
He suggested that he should touch on the highlights only of the presentation (see attached document), to allow more time for questions. The key messages of government were to expand construction of economic and social infrastructure, to enhance economic competitiveness, to moderate remuneration and consumption, to sustain investment in people and skills, to supporting rural development and to promote job creation. The recession looked to remain for a while, so the focus was on getting
He reiterated that the fiscal framework was in good health. There was better levelling-off of the debt ratio, particularly when compared to that of other countries (see slide 6). Much of the current focus lay in expanding infrastructure investment. There were many options for money currently in the budget, but here he stressed that time frames would be from about seven to eight and a half years, so there was a need to manage processes, and revenue and expenditure, in a credible way. There was a particular emphasis in supporting growth for competitiveness. There were also various initiatives in respect of investment, technology, enterprise development and support for agriculture. The total spending would reach R1.06 trillion, or 32% of gross domestic product (GDP). However, the main question was not the quantum, but the composition of spending, to ensure that more funds were available for investments. Where there was unspent money, this might be reallocated to more productive investments.
The government wanted to support growth and social services; so the largest slice of the budget would be put to education, health and social services, with a large allocation to the social budget. Further support was being given to job creation issues. The Expanded Public Works Programmes (EPWP) were operating satisfactorily, as well as other programmes like Working for Water, and the Youth Wage Subsidy was part of the National Economic Development and Labour Council (Nedlac) processes. The views of labour had been received, and the budget speech had outlined various proposals from young economists participating in the Nedbank competition, so there were a number of ideas on the table. Over the next six months it was intended to discuss this matter further with a view to reaching consensus.
It was anticipated that revenue would include personal income tax of R9.5 billion. There were processes at play both within and outside the budget review, to try to invigorate household savings, which it was important to encourage in
Government would continue to strengthen the process of strengthening financial management in the public sector. Criticisms would no doubt still be expressed, but he stressed that much effort had been put into trying to understand key weaknesses and to consider what checks, controls and balances could be put in place. The interventions in terms of Section 100 of the Constitution were making a difference in the affected provinces, and there was more being done to ensure that provincial treasuries were respected, well-capacitated and that expenditure would be made only if there was cash available.
The Justice, Crime Prevention and Security Cluster (JCPS) and Anti-Corruption Task Team (ACTT) were making ongoing efforts to address corruption, and there had been changes made to improve procurement policies and practices. It was hoped that the ACTT would help to contribute to tougher enforcement of the Public Finance Management Act (PFMA).
Minister Gordhan said, in conclusion, that the budget supported government’s intent to promote growth, job creation, enable uptake of growth opportunities on the African Continent and address poverty through job creation, in the short and long term.
Mr T Harris (DA) asked about the youth wage subsidy. National Treasury (NT) had published a very good document in February 2011, proposing that the youth wage subsidy should become operational from 1 April 2012, and outlining some excellent policy ideas, which would not adversely affect nor adjust conditions of employment. He asked if there were any restrictions to that document being implemented, with the amount committed, and if so, asked what might have changed in the meantime.
Mr Gordhan said that a concept paper had been drawn and money had been set aside, and the process had been taken to Nedlac. The labour sector had raised some concerns, including the possibility of businesses employing younger workers to get the subsidy, and then laying off their older and better-paid workers. That was acknowledged as a real concern, and it had occupied Nedlac over the last few months. On 8 February the Nedlac constituencies were given the opportunity to express their “wish lists”, which were summarised in his budget speech. He stressed that at some point the discussion must draw to a close, and there should be a decision, hopefully through consensus, on a redesigned incentive for employment in the private and social sector. There were no legal restrictions, but the ideal was to try to find consensus. This would be taken back to the government system for further guidance and input. He would not like to see this issue turned into a “political football”.
Mr Harris said that there was no narrative on growth in the budget. In
Mr Gordhan said that part of the narrative could be found on page 8 of his speech. The levers on economic change included the public sector infrastructure programme, investment in science and technology, expansion of employment programmes. Later in the speech, under the heading “Vision for the Economy in 2030”, it was noted that there were some common features, such as lowering costs for business, growing public spending, improving the labour market, raising competitiveness and exports. He felt that these indeed constituted narrative about growth. In the previous year, through the growth path debates and National Planning Commission (NPC) process, there was some consensus on what must be done, but decisions were still needed on when this must be done, and who was to do it. Government wanted to build consensus around the path to be followed, and find areas of cooperation, so that sectors could focus on what they wanted to do together.
Mr Harris asked if the Minister agreed with the Department of Public Works (DPW) that there was a R1.5 trillion backlog in maintenance across the country. The projected infrastructure development, this time last year, was 8.1%, but this had now dropped to 7.9%. He understood that this was a small drop, and was influenced also by the fact that GDP had increased. However, he thought that there should be scaling up of the projects now. He thought the Minister might name the underspending (only 60%) by parastatals on infrastructure, as a constraint, but if so, then he thought there should be a greater focus on skills capacity, cutting regulatory red tape, and actual implementation of projects.
Minister Gordhan said he could not confirm the figure quoted, but maintained that there was a commitment to changing, and moving to investment. However, this would not be an easy task. Generally, in government, there was an understanding that privatisation implied that some people would have to give up something. Over the last two years, in the budget review, there had been reprioritization, to save funds. If implementation was a challenge, other methods must be found. Investment and investment delivery must be up-scaled. Lack of skills was recognised as a major constraint, and a better skills supply pipeline was needed. He assured Mr Harris that there were developments to try to reduce red tape. For instance, whilst it was still necessary to ensure that environmental impact assessments (EIAs) were done, they should be done more quickly to avoid delays.
The Minister acknowledged that much had been said about so-called “cadre deployment” which led to the wrong people given jobs. He said that the ANC saw this as deployment of friends and family, rather than deployment of those who were not up to the task. He noted that mediocrity and incompetence in provincial treasuries would not be accepted. The right levels of integrity were needed. The ANC was willing to admit that things had not always gone entirely well, but it also pointed out that in the
Mr S Swart (ACDP) commended the Minister on the budget speech. His party had previously expressed concerns about the increasing deficit and state debt levels. He was pleasantly surprised to see that the deficit was lower than previously projected. However, most of the increase in the deficit was due to capital underspending, and he asked if this was a particular concern and indeed a factor in the decreasing budget deficit.
Mr Gordhan noted that the budget speech did set out numbers. The higher-than-expected revenue collection was fed into the system, and this, together with lower capital spending, had resulted in a lower deficit. There were likely to be higher tax collections and higher surpluses on the social sector.
Mr Lungisa Fuzile, Director General, National Treasury, addressed the questions of Mr Swart and Mr Harris on capital expenditure and the backlogs in maintenance. In general there was an assumption that the amount spent on capital expenditure (Capex) should be about 10% of total spending. However, if the country spent less than 10% over a number of years there would obviously be a backlog. There were various ways to calculate the backlog, including one that simply added together the underspending over years, but this did not take into account exactly where the backlogs were to be found, and whether the backlogs related to lack of connections, or lack of building of the necessary infrastructure, or infrastructure that was built but not maintained. A proper measurement of each of these would no doubt result in a different figure. However, that figure would still not be particularly useful, except as an indicator of what was happening on the ground, rather than a “desktop number”. He noted also that the backlog figures must be related to capacity to spend; if a country was struggling to spend R200 million a year, it would clearly not be able to address a backlog of more than that. In the previous year several issues were named that stood in the way of faster infrastructure delivery. Problems in planning were a common thread. There was a tendency of departments to identify needs, and then immediately request national or provincial treasuries for funding, and sometimes the whole allocation would be given out in one year. However, what invariably happened was that, because there had been no or insufficient advance planning, which was necessary because of the long lead times, the money would end up not being spent. The new processes could help because they demanded that needs and options analyses be done early, and assessments made as to the most cost-effective options. However, this must also be combined with tighter monitoring of progress. The budget review and speech had outlined initiatives intended to help with capacity across the country.
Mr Swart said that the budget was well received by business. There was understandable concern about the global economic context. He asked if those concerns had been allayed and if there would be greater investment from business and increased investor confidence.
Mr Gordhan replied that leaders in business and government needed to learn how to work in chaotic, risky or uncertain environments, and that required a new brand of leadership that, whilst working in uncertainty, could still take enterprises into waters that would become profitable.
Mr Swart noted that the
Mr Gordhan said that government respected the view of COSATU. However, different problems had been raised at different times; the debate had shifting from issues about the road, to the technology, to the system. This road system had provided huge benefits to communities. His answer also linked to a question (recorded below by Mr Ross) as to how best to pay for capital expenditure. Government, finding itself in a position where there was spare cash, had listened to the public’s demands in
Mr N Koornhof (COPE) also thanked the Minister for the budget. He said that it was debatable whether government would indeed manage to peg the state wage bill at 5%, but said that his party would be very concerned if it did not manage to do so. He asked what the effect on the deficit of not achieving this would be.
Mr Koornhof about consumption for investment, set to increase in 2014/15.
Mr Gordhan responded that in October 2011, government had noted the need to change the composition of the public service. Until the economy had grown more substantially, government would also have to find different way of finding income for investment. Five major projects had been outlined. He did not think that there was anything unreasonable in the proposals. Different stakeholders in the country, including government, business and labour, would have to find a middle ground, where all agreed what they were willing to sacrifice and contribute to get investment going, to increase the potential of the economy. He hoped that the dialogue would happen shortly and the normal bargaining process was synchronised with this dialogue.
Dr Z Luyenge (ANC) asked about the proposed establishment of a post of Chief Procurement Officer, and whether that office would review corruption, which was aggravated by the introduction of the tendering system, and the decay of moral fibre. Most corruption was found around tendering. He agreed that everyone had to be vigilant and called on all Members of Parliament to assist National Treasury and other departments in identifying and rooting out corruption. He also asked how the structural arrangement was likely to be cascaded down to the local authorities.
Mr Gordhan said that it would take a while to finalise all the details, but the idea was to create a more connective and transparent procurement system, and more analytical capacity at National Treasury to focus on trends. He agreed with the comments on the decay of moral fibre and the point that this was true of both corruptor and corruptee. He agreed that at least the larger municipalities would be part of this process.
Dr Luyenge appealed to the Minister for assistance in getting sport infrastructure improved at local levels, commenting that local government was responsible for allocating money for sports facilities, yet there was no ringfencing of funding.
Ms Z Dlamini-Dubazana (ANC) thanked the Minister for his encouraging speech. She noted that tax-preferent savings and investment vehicles would be introduced, to replace the tax-free interest. She asked if there was any model for this, whether this had been tested, and asked for further details to be provided when available.
Mr Nhlanhla Nene, Deputy Minister of Finance, answered that there was a need to encourage savings. At present, many households would borrow money for consumption and were not making investments or savings, and that had a major impact on what the country had available.
Mr Ismail Momoniat, Deputy Director General, National Treasury, answered that a few proposals on improving the current incentives around retirement had been outlined. These included the new savings proposals, that had considered the incentives for people to save more. More tax-free savings products were introduced, to allow people to put money beyond a retirement annuity and enjoy more tax-free savings. This should be in place by 2014. There were some proposals also for less traditional savings schemes, including Funisa, run through the Department of Education, with other partners, which was reasonably successful but which focused on the narrow saving towards children’s education. There were issues also around the costs of retirement products, which disincentivised savings. People were vulnerable even after retirement, perhaps taking on the wrong annuities, and further engagement was needed on this in the market. Many South Africans had saved through occupational pension funds, but were permitted to cash in those savings, and there had been instances of fabricated divorces or job dismissals, simply to access those funds. Incentives that were already in place included lifting the thresholds of tax but it was considered that tax deductions should be limited to R300 000 for those in the wealthier brackets. National Treasury intended to publish a series of papers on these proposals. He noted that this was over and above the social security reforms.
Ms Dlamini-Dubazana noted that a figure had been mentioned in relation to the possible takeover of manufacturing jobs from
Mr Nene said that although it was not exactly easy to predict how job losses in other countries could be turned to the advantage of
Ms Dlamini-Dubazana asked the South African Revenue Service (SARS) Commissioner to explain the effect of the medical expenses, set out in slide 13.
Mr Oupa Magashula, Commissioner, SARS, noted that the intention was that greater equity should be reached, irrespective of deductions. He explained that a tax deduction would lower taxable income, whereas a tax credit would lower the tax to be paid. He noted the introduction of a tax credit for the medical aid principal and first dependant, of R230, with another tax credit of R154 for the second and following dependents. SARS had prepared and was distributing pamphlets to explain how this would work. He gave the example of a taxpayer, who earned (in round sums) R16 000 a month, and contributed R1 200 to a pension fund and R2 000 to a medical aid. Under the current system, his take-home pay would be about R11 202. When the new tax credit system was applied, he would take home R11 402. A taxpayer earning R48 000 and making corresponding payments to pension and medical schemes, would take home currently take home about R28 500. Under the current system, he would actually take home R114 less than the first hypothetical taxpayer. Under the new system, he would also take home R224 more than he currently did.
Mr D van Rooyen (ANC) asked what informed the R5.8 billion injection into the
This question was answered in part by an earlier response of Mr Gordhan to Mr S Swart’s question.
Mr Lungisa Fuzile, Director General, National Treasury, added that
Mr van Rooyen said that the input of the private sector was required to drive investments, and he asked if this would expand the role for the private sector, and what implications this was likely to have on public/private partnerships and Broad Based Black Economic Empowerment (BBBEE).
Mr van Rooyen commented that it made sense to put more funding into addressing service delivery problems, but wanted to know what would be done to simultaneously address the root causes of the problems and challenges. He asked if there was aggressive investment into addressing problems around service imbalances, underspending caused by lack of skills, and other issues.
Mr M Swart (DA) expressed a hope that the youth subsidy would be finalised shortly.
Mr M Swart asked about the Expanded Public Works Programme, pointing out that there had been major under expenditure. Rural municipalities seemed to have difficulties accessing the money because of the way in which this system was operating. He asked if the Department of Cooperative Governance and Traditional Affairs (COGTA) and other departments were working out any programmes to access money for job creation.
Mr Fuzile noted that the government had recently changed the rules, giving a bigger upfront allocation, which was hoped would help the cash flow situation. Municipalities should be able then to access resources, and if they implemented their projects with due speed, their future allocations could increase, commensurate with their performance. If R100 million was received this year, and was spent by the end of the financial year, they would get points to get more allocations in future.
Mr D Ross (DA) commented that the funding infrastructure was complex and the state owned entities would have to generate funding for the expansion programmes. He was concerned that the huge increases in capital prices, then led, for instance, to large increases in electricity charges. He felt that consumers should be paying for consumption, and should not be expected to fund capital expansion. He wondered if there were not alternatives. The public saw the increase in these administrative charges as a kind of increased tax, and it was perceived in a very negative way
Mr Fuzile suspected said that the Minister of Energy would no doubt take these perceptions and concerns into account when reviewing the energy prices. The concept of user fees must be incorporated into any system that was to offer top-class infrastructure. It must be appreciated that it was the underinvestment in energy in the past that had led to the energy crisis a few years ago.
The Chairperson of the Finance Committee in the Gauteng Provincial Legislature asked about procurement and the unbundling of tenders.
Mr Gordhan said that there was a problem at the moment with unbundling of tenders and it was hoped that the procurement approach would help to rationalise the situation.
The Chairperson of the Finance Committee in Gauteng Provincial Legislature said that there was no indication of what the borrowing requirements would be after 2014.
Mr Fuzile noted that nationally, borrowing would fall for the next three years, assuming the economy continued to grow at same rate but the total amount of debt of government would be larger because the deficit was added to for as many years as the country was running with such as deficit.
The Chairperson of the Finance Committee in Gauteng Provincial Legislature asked about the baseline figures for health
Mr Gordhan responded that some of the provinces had tended to under-budget for health issues, and in some finances that should have been spent on health ended up being put to other matters. There was a problem also in that many of the provinces were employing administrative staff instead of frontline service staff, so the budgets were not being effectively managed. Provincial legislatures’ committees could play a very important role in monitoring and demand more answers and accountability. No department should hire staff if it did not have money to pay. There had been challenges around hiring for the last few years and there was a need for more accountability in this area.
Mr Harris asked about government debt and borrowing, as set out on page 71 of the budget review. The upward trend in the total loan debt had been outlined, and page 9 of the budget speech spoke to the fact that public sector borrowing would decline but was likely to rise again after 2014. He was concerned as to how those two trends might conflate, and commented that the precise details of what would happen after 2014 were not known.
Mr Fuzile said that although public sector borrowing was falling at present, it would rise again with the infrastructure projects came on track, but that must be seen as a positive. The projects included initiatives to improve Transnet and Eskom.
Mr Harris asked how it was envisaged that infrastructure development would progress and whether there was a suggestion that the private sector could be represented on the Public Investment Corporation, or a similar board.
Mr Gordhan noted that this and other issues would be discussed at a summit in April.
Mr L Ramatlakane (COPE) asked what it was intended to offer as an incentive for the private sector to become involved in more investment. He also asked about the funding model that was proposed for foreign direct investment, which was not a new concept.
Mr Gordhan said that the motivation for the private sector would be both profit and patriotism. It should be recognised that huge business opportunities would be presented, and there would need to be engagement, due diligence done, and attention to ensuring that the right prices were charged by the construction industry. This industry would do itself a service by coming forward proactively to announce what measures it had put in place, to ensure better management and delivery of services. In respect of foreign direct investment, the infrastructure process would be the main incentive. Interesting sources of funding were likely to be found, and these were likely to grow in the future. The Minister noted that more of
Mr Ramatlakane asked, as a follow up to the earlier questions on the
Mr Gordhan confirmed that the figure quoted was in respect of the current year. The increases in future years would be kept at the level of inflation.
Mr Ramatlakane noted that the land targets were a moving figure, and asked whether there were any costings.
Mr Ramatlakane asked if there was already a funding model for the National Health Insurance (NHI) proposed, and, if so, asked if there had been any projections on the costing.
Mr Gordhan said that there were no models as yet; options would be proposed at the end of April.
Mr Ramatlakane asked for more clarity on the Special Economic Zones, asked if these were similar to the Economic Development Zones, and if there had been any special deliberations with the trade unions about them.
Mr Gordhan said that there was discussion of tax incentives with the dti. The intention was that the Special Economic Zones would provide infrastructure and other facilities that would allow them to attract investment.
Mr Ramatlakane noted the Minister’s comment about stricter control of costs, and said that the costs in respect of the FIFA World Soccer Cup had ballooned out of control. He asked how prices would be managed, and if there would be engagement with the building sector particularly around the prices of materials.
Mr Gordhan’s answer to another question, noted earlier, applied to this question. There would need to be engagement, due diligence done, and attention to ensuring that the right prices were charged by the construction industry. This industry should announce what measures it had put in place, to ensure better management and delivery of services.
Mr N van Rooyen (ANC,
Mr N van Rooyen noted that there had been reference to tax practitioners in the budget speech, with mention of the high amount that they owed to SARS. He asked whether it was not apposite to regulate the industry, either through self-regulation or through SARS interventions. The rogue practitioners were giving the industry a very bad reputation.
Mr Magashula said that there were about 34 000 registered tax practitioners, but only about 55% of them were registered with professional bodies, and unfortunately their attitudes influenced the rest of the taxpayers. The Minister had been trying to emphasise that there were around 18 000 outstanding tax returns. Those who had submitted returns owed a debt of about R260 million, and that in itself raised concerns about the way that they were advising their client taxpayers. This issue had been identified as one requiring special attention at SARS, and a Tax Practitioners Bill would be introduced, although there was not yet finality on whether a self-regulated or statutory framework would be proposed. SARS was aware of the unethical conduct, and was seeking to resolve the non-compliance.
Mr N van Rooyen asked about the section 100 interventions into the
Dr Kenneth Brown, Deputy Director General: Intergovernmental Relations, National Treasury, responded that the first phase of the intervention had concentrated on paying the contractors who had done the work, and there would be negotiations with the service providers in the following weeks. Engineers had been placed in this department, to strengthen it, who had done some scoping exercises and made recommendations on the engineering side. The Free State Provincial Treasury was assisting to create greater accountability and it was hoped that some positive headway would be apparent within the next three months.
A Member asked if there were already negotiations to ensure that the fuel levy increases would not be passed on to the detriment of commuters.
Mr Gordhan noted that the fuel levy had actually declined in relation to the overall cost of fuel, and it was hoped that the levies would not be passed on to commuters. Government was aware of and was planning around risks arising from the geo-political problems in the
A Member asked if there was a balance on borrowing and expenditure.
Mr Gordhan felt that the proper balance was maintained. Expenditure had dropped to just over 2% at present.
A Member asked whether the proposals to increase revenue from taxpayers would include collecting tax from foreign-owned businesses.
Mr Gordhan said that a general principle was that all businesses in
A Members asked if there was any likelihood of free education, over and above the no-fee schools. This applied particularly to higher education.
Mr Gordhan answered that it really came down to affordability. The National Student Financial Aid Scheme received large allocations already to assist with higher education, and it was hoped that as the economy grew, different ways would be found to assist with education, particularly bursaries and development from the private sector.
Mr E Sogoni (ANC, Chairperson, Standing Committee on Appropriations) said that only about R168 of the infrastructure budget was used. The Division of Revenue Act required any department planning to do an infrastructure project to plan in the year prior to the allocation of the funding. He asked if that was done, and, if not, what other reasons for underspending had been found.
Mr Gordhan referred to earlier responses about spending on infrastructure, and added that questions of planning and designing had been addressed in the Mid-term Budget Policy Statement. Many of these issues were linked to the work of the Department of Cooperative Governance. Hopefully the work of the Development Bank of
Mr Sogoni asked if the health challenges in
Mr Gordhan said that all crises were preventable. There had been poor financial management, and mismanagement of funding over the last four to five years, and those guilty of such mismanagement should be held to account. No bail-out was needed, as there had been substantial work done in finding money from the budget, and paying for backlogs.
Mr Sogoni asked what it was intended to do to address informal settlements. Some allocations had been given for the next three years, but he wondered what plans there were after that period.
Mr Gordhan pointed out that this budget only set out the position for the next three years, but obviously the question would need to be addressed in future budgets.
Mr Gordhan summarised again that this budget was all about getting South Africa back on track, ensuring that it moved further along the investment-led path of growth, focused on implementation capacity and improved at all levels of government, in a fiscally-sustainable manner.
Co- Chairperson Mufamadi noted that there would never be enough time in any meeting to engage fully on budget issues. There would be further engagement, including more engagement on appropriations issues.
The meeting was adjourned.
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