Medium Term Budget Policy Statement 2013; Revised Fiscal Framework & Revenue Proposals: public hearings

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Finance Standing Committee

28 October 2013
Chairperson: Mr T Mufamadi (ANC)
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Meeting Summary

The BUSA submission focused on strategies for sustained growth and development, the global economic outlook of the developed (China, United States, Japan) and developing world (South Africa, Turkey and Indonesia), the International Monetary Fund's outlook for Growth Domestic Product in 2013/14 for countries such as Us, Euro area, China, Nigeria, Sub Saharan Africa and Angola and South Africa. BUSA outlined South African economic performance thus far, as well as how National Development Plan would help economic growth. BUSA welcomed some aspects of MTBPS such as the consolidation of the deficit, introduction of cost-containment, incentivising of businesses, and capital spending. In short, BUSA welcomed the MTBPS.

The NUMSA submission focused on the importance of creating jobs, reducing poverty and inequality. NUMSA welcomed the MTBPS proposals to address wasteful expenditure, encouraging local manufacturing industries, infrastructure development, the budget deficit, education, health and social protection. NUMSA said that the MTBPS should address land and agrarian reform, and NUMSA would continue to call for implementation of policies that were in line with the demands in the Freedom Charter.

The Solidarity submission emphasised that the MTBPS should look at taxation more clearly, and tax should not merely be increased. Tax revenue should be used in a manner that benefits the people, and wasteful expenditure should be reduced. In short, the Solidarity trade union welcomed the MTBPS.

Members asked questions about any MTBPS inconsistency with the national Development Plan, foreign investment in South Africa, overregulation of small businesses, consultants, and the budget deficit. Members were happy with the submissions made on MTBPS, as well as the fact that those who made submissions welcomed the Medium Term Budget Policy Statement 2013.
 

Meeting report

Business Unity South Africa (BUSA) submission on Medium Term Budget Policy Statement 2013
Professor Raymond Parsons, Special Advisor, BUSA, said that in fast-growing economies, policymakers understood that successful development entailed decades-long commitment, with a fundamental bargain between the present and the future. It was reported that even at very high growth rates of 7% to 8%, it took decades to make the leap from low to relative high incomes. That bargain would only be accepted if the country’s policymakers communicated a credible vision of the future and a strategy for getting there. Policymakers should be trusted as stewards of the economy and their promise of future rewards should be believed.

Mr Parsons said that the global economic outlook was slightly more positive, and the developed world looked a little better, but downside risks still existed. The United States looked more economically sustainable, despite fiscal uncertainties, Japan’s 'Abenomics' was successful, and the European Union had improved but was still vulnerable with long term structural questions. The developing world was more subdued but the challenges such as the possible end of quantitative easing in due course had implications for capital flows and cost of capital. China’s growth was holding at 7% plus but the economy was fuelled by massive and possibly unsustainable credit creation. Vulnerable economies with twin fiscal and current accounts deficits were coined the Fragile Five by Morgan Stanley which were the currencies of India, Brazil, Indonesia, South Africa, and Turkey.

Mr Parsons said that the global economic outlook had improved moderately in developed economies and growth continued in emerging markets, but at a slower rate that in 2012. South Africa should look internally to alleviate domestic growth and employment constraints if it wanted to raise its growth rate above the current 2% expected in 2013. The weak global economic outlook was not helping but South Africa should concentrate on the domestic factors over which it had control, to move forward with planned structural reforms to boost growth and create jobs. The assessment of South Africa's economic prospects by the MTBPS was seen by BUSA as realistic and balanced, as well as the challenges which arose out of those trajectories in addressing unemployment, poverty and inequality.

Mr Parsons said that aside from a few short wind-fall episodes, South Africa had remained a modest 3.0% to 3.5% growth performer. South Africa had not yet discovered within itself the magic to transform itself towards 5% or 6% or even higher average growth performances as some other emerging economies had done. There had been slippage in South Africa’s global competitiveness in recent years. South Africa was even beginning to lose economic ground in Africa. Thus far, after a short, speculatively driven consumption-dominated boom during 2004-2007, and after a short sharp recession following the global economic crisis in 2008/09, South Africa found itself constrained in a 2.5% to 3% growth trajectory with a significant loss of growth drivers and focused purpose. Labour relations and collective bargaining were under unprecedented strain. Many analysts believed that South Africa’s long run growth performance could not exceed 3.5% at best, unless the present constraints and bottlenecks were progressively lifted. The good news was that South Africa now had the National Development Plan (NDP) that outlined a clear roadmap and firm proposals to tackle South Africa’s economic challenges.

Mr Parsons said that the NDP as a roadmap would enable the economy to be bigger and better by 2030. BUSA supported the point of departure in the MTBPS that the NDP was now the framework within which policies and projects would be increasingly aligned. South Africa’s economic performance was well below its potential given that the NDP wished to see an average of 5.4% growth in due course which could almost triple the size of South Africa’s economy by 2030. Several red lights were flashing about South Africa’s present sluggish economic performance. South Africa needed long termism in its economic planning and decision making in both the public and private sectors. Business needed a more certain and predictable policy environment through the NDP which would underpin investor confidence. Key stakeholders needed to collaborate and cooperate on a much bigger scale to address the socio-economic challenges facing South Africa and made the NDP work. The NDP provided such a platform for collaboration and partnership to achieve faster job-rich growth. South Africa needed to carve out a bigger share of global trade and investment to support its growth and development goals at a time when South Africa’s share of world exports was declining.

Mr Parsons said that BUSA saw the MTBPS as a frank and transparent process. MTBPS would meet the 2013/14 fiscal deficit target of 4.2% as newly defined. The MTBPS planned to consolidate the deficit so as to level off the public debt trajectory, and saw South Africa’s debt to Growth Domestic Product ratio as sustainable. He noted the introduction of cost-containment measures in the public sector by imposing restrictions on the use or purchase of items such as motor vehicles, credit cards and catering. Those steps would not in themselves necessarily made a big difference to South Africa’s public finances but BUSA believed that the measures send a powerful message that wasteful expenditure in the public sector needed to be curbed and it would help to reinforce a culture of financial discipline.

Mr Parsons said that BUSA welcomed several aspects of the 2013 MTBPS such as the commitment to improve decision-making to speed up delivery of infrastructural projects as the main drivers of growth, competitiveness and jobs, the introduction of tax legislation to incentivise business to employ youth and to facilitate the introduction of youth to the world of work, and  the continued emphasis on improving access to finance and support services for small businesses which were expected by the National Development Plan to create the bulk of the jobs required by 2030. The creation of business incubators needed to be accelerated.

Mr Parsons noted some risks and vulnerability in the MTBPS and these included: the projection-growth rate of 3.5% by 2016 was woefully inadequate to meet South Africa’s socio-economic challenges; the National Development Plan, New Growth Path, and the Industrial Policy Action Plan (IPAP) needed to be aligned; there were several key quantitative targets in both the MTBPS and the NDP which were important to the successful implementation of both; the fiscal outlook in the medium-term was less favourable than that presented in February 2013; and the MTBPS said that the main budget deficit was offset by surplus within provincial government, public entities and social security funds. That could be a temporary situation as provincial surpluses were apparently the result of underspending – and that offset would stop if provincial government were encouraged to spend their budgets in ways which promoted implementation of worthwhile projects.

National Union Mineworkers of South Africa (NUMSA) submission on MTBPS 2013
Mr Woody Aroun, NUMSA Parliamentary Officer, said that NUMSA welcomed the measures in the MTBPS to reduce costs and eliminate wasteful expenditure. The proposed measures to reduce expenditure such as travel and catering costs would ensure that government departments no longer squander taxpayers’ monies on frivolous expenses. Although those proposed measures were a welcome step in the right direction, NUMSA however believed that they were minimal and that more severe measures to deal with the far more pressing problems of corruption, fraud, misappropriation of public funds and non-compliance with procurement policies and regulations, were required.

Mr Aroun said that NUMSA was pleased to see that the Auditor General of South Africa (AGSA) report on the indiscriminate use of consultants by national, provincial and municipal government departments totalling some R102bn over the previous three financial years had finally caught the attention of the Minister. Reporting for Eye Witness News, Lindiwe Mlandu said that ‘government spent R33.7 billion on consultants in the last financial year’. The Minister’s announcement that there would be reductions on expenditure on consultant services was therefore welcomed by the union.

Mr Aroun said that further to that, given the tight financial situation the country found itself in, the Minister’s proposals to combat excessive consultancy fees should be reinforced by a thorough evaluation of all projects. Government would do well to take the advice of the Executive Director of the Community Agency for Social Enquiry (CASE) that accurately stated:

“Not everything should be done by a consultant and I would also argue that not everything could be and should be done by government ... More importantly, there were some things that I think government could do and should not do. For example, projects should be managed from inside government and handing over the management responsibility to consultants was wrong. But measuring government performance for example, that can't be done by government itself. That was where you did need people on the outside to be able measure government’s performance”.

Mr Aroun said that the union was pleased with the announcement that the rollout of the infrastructure programme would be “accompanied by programmes to support the local manufacture of components, ranging from buses to energy components” in order to support that industry and create more decent jobs. The union had long advocated for greater support to be provided to key sectors of the economy in order to ensure the improved competitiveness of these sectors.

Mr Aroun said that further allocations had been made to the Passenger Rail Agency of South Africa for its procurement of rolling stock. In accordance with the objections that NUMSA had continually raised as a union, NUMSA was still displeased with the manner in which government had managed the infrastructure programme. NUMSA’s 2013 budget submission raised the issues that a big Transnet tender in the amount of R2.6 billion was awarded to a Chinese company. Such conduct undermined the procurement accord signed by government and its social partners to ensure the growth of the local industry and the creation of decent employment. It was unacceptable that our tax monies could be used to export jobs that the country was in desperate need of. Therefore any further infrastructure allocations should strictly adhere to local content requirements.

Mr Aroun said that the MTBPS made it abundantly clear that the NDP was being firmly entrenched as the bedrock of the countries fiscal policy framework.  That was in spite of the fact that the NDP wanted to perpetuate the failed neo-liberal macroeconomic policies which had been pursued since the inception of GEAR. In the foreword of the MTBPS, it was clearly stated that one of the key goals of the country’s fiscal stance was to reignite growth. However, the policy prescriptions of the NDP would not advance this goal but would instead ensure greater de-industrialisation of the South African economy.  The adoption and bulldozing of the NDP as the bedrock of the country’s development strategy would guarantee the further de-industrialisation of the South African economy which was extremely disappointing.

Mr Aroun said that in outlining proposals for the fiscal policy framework, the Minister of Finance had called for the need to narrow the budget deficit from 4.2% in the current year to 3% in 2016/17 in line with the failed ‘Washington Consensus’ prescription, in order to stabilise public debt and ‘contain spending growth on wages and goods and services’. Such a policy pronouncement was inappropriate in the prevailing challenging economic environment that the country found itself in. During an ongoing crisis of the sort NUMSA remained within, deficit spending should rise to make up for a stagnant private sector by all accounts and in order to ensure the country’s developmental needs were meet.

Mr Aroun said that the union’s sentiments had been echoed by the recently released Trade and Development Report released by the United Nations Conference on Trade and Development (UNCTAD) which presented a more balanced analysis of the global economic crisis and its impact on both developed countries as well as on developing and transition economies. In outlining the pitfalls of export led growth, the UNCTAD report argued that development strategies that give a greater role than in the past to domestic demand for growth could be pursued by all countries simultaneously without beggar-thy-neighbour effects, and without counterproductive wage and tax competition’. The report was further critical of some of the short term measures such as ‘compression of labour costs and fiscal austerity’ that had been adopted by many of the world’s leading economies and argued against proposals for ‘more flexible labour markets, lower social security coverage and a smaller economic role for the State’.

Mr Aroun said that the MTBPS outlined that it would decrease the wage bill by restraining growth in administrative posts in the education, health care and criminal justice departments. That announcement was especially disconcerting because those departments continued to underperform because of a lack of adequate personnel. The drive of Treasury to decrease the budget deficit at the cost of service delivery was appalling to say the least. The government could not expect to address the challenges that people confronted in schools and hospitals if they were not adequately staffed.

Mr Aroun said that NUMSA’s submission on the 2013 Budget had welcomed proposals to establish a Chief Procurement Office and the establishment of the Parliamentary Budgetary Office (PBO) which would assist Parliament in ensuring that fiscal policy was aligned to government’s five priorities of education, health, rural development and agrarian reform, taking forward the fight against crime and creating decent work. Apart from appointing Professor Mohammed Jahed to oversee the establishment of the PBO, the relationship between the PBO and the general public was not clear. Whether the PBO was there to rubber stamp government budgetary decisions, or include in its mandate the task of listening to community voices on matters of the fiscus, remained vague.

Mr Aroun said that NUMSA welcomed the increased funding for the Green Fund, and the union reiterated that government should ensure that its renewable energy programme benefits the working class and the poor, which had previously not been the case. For example, for the Solar Water Heaters (SWH) project municipalities dished out contracts to companies that rely on imported rather than locally produced units and components. That kind of conduct flew in the face of commitments given by several government departments to roll out 1 million SWH by 2014, to consolidate our local SWH industry and create decent work opportunities in the emerging renewable energy sector.

Mr Aroun said that NUMSA was extremely disappointed to observe that Treasury had announced intentions to decrease the school infrastructure backlogs grant and the education infrastructure grant. The issue of bricks and mortar pertaining to our schools was still a very serious challenge. It was unconscionable that such an announcement could be made when there were still thousands of children who were taught under trees and who had to be educated in buildings with no windows and classroom doors. That proposal should be reversed, it could not be acceptable.

Mr Aroun said that although the State of the Nation Address discussed land reform and agrarian reform, no clear proposals had been outlined to address the challenges in land reform and agrarian reform. Given that 2013 marked the centenary of the 1913 Land Act, and given the dismal failure of government to successfully redistribute land ownership according to its own targets, NUMSA would like to express its disappointment that such an important matter did not occupy a place of prominence in the MTBPS 2013. The MTBPS only mentioned that funds would be reprioritised for investment for farms that had been acquired through the land reform programme. However funds for further land acquisitions were being curtailed even though there were still huge backlogs in the land reform and agrarian reform programme.

Mr Aroun said that it was pleasing to see that the Department of Health would be introducing a new vaccine to reduce the incidence of cervical cancer. Cancer continued to be a leading cause of death among women and any advances made in its treatment should be made freely available. It was however unacceptable that there had been little progress on the National Health Insurance initiative. No new allocations from the fiscus had been made, and no model had been identified for the funding of the NHI. The slow progress of the NHI and the absence of a coherent health policy framework were problematic especially considering the enormity of our health care challenge. NUMSA therefore believed that the countrywide implementation of the NHI should be fast tracked. NUMSA also welcomed the establishment of more shelters for victims of gender-based violence and substance-abuse centres. As South Africa approached the country’s 16 days of activism of no violence against women and child abuse in November, it was great to see such projects being advanced by the government.

In conclusion, Mr Aroun said that NUMSA had consistently called on government to implement policies that were in line with its demands in the Freedom Charter and NUMSA would continue to organise the working class and social formations to join in this struggle for social and economic justice.

Solidarity’s submission on Medium Term Budget Policy Statement 2013
Mr Piet Le Roux, Senior Researcher, Solidarity Trade Union, said that South African taxpayers were increasingly displeased about the heavy tax burden in South Africa. The ongoing e-tolling saga and the public resistance to its implementation was not so much about the tolling of some public roads as it was a general symptom of the larger tax situation in South Africa. Therefore, Solidarity’s position on government revenue and expenditure in South Africa was as follows; firstly, willingness to contribute to the public good - Solidarity members were willing to contribute substantial proportions of their income to causes that delivered little personal gain, but did improve the general level of well-being in society. In so far as Solidarity members felt that social-wellbeing was furthered by tax, Solidarity members were willing to pay tax. Secondly, Solidarity members were tired of wasteful expenditure, public inefficiency and corruption by public office holders in South Africa. Solidarity members were increasingly convinced that had they have had to pay so much tax – they would have been able to improve social wellbeing better than the government did.  Thirdly, Solidarity was of the opinion that the further tax increases were not a viable answer to current government and public sector problems. Lastly, Solidarity maintained that South Africans should be eligible for tax rebates on personal security expenditure in the same way that they were eligible for tax rebates on personal medical expenditure. In short, Solidarity whose members contributed 5% of annual personal income tax receipts was concerned that taxpayers were being taken for granted.

Discussion
Mr N Koornhof (COPE) asked BUSA if foreign investment would take risk and invest in South Africa.

Dr Z Luyenge (ANC) asked BUSA to give clarity on inconsistencies found in National Development Plan, and he asked if NUMSA was aware of Parliamentary budget Committee.

Ms Z Dlamini-Dubazana (ANC) noted that economic growth was a complex issue and NUMSA should avoid using words that would discourage investors to invest in South Africa. She wanted clarity on balance of payment that MTBPS mentioned consultants, and skills transfers.

Mr T Harris (DA) asked NUMSA if the position of COSATU was still the same of opposing Tax bill and he asked BUSA why there was no enough money for infrastructure, and whether the implementation of National Development Plan would help economic growth.  He asked Solidarity to give clarity on tax increase.

Mr D Josephs (DA) asked BUSA if the current protests in South Africa seemed to have any impact on the economy and whether small businesses were overregulated in South Africa. He asked NUMSA to give clarity on corruption and fraud. He then asked Solidarity to give clarity on the statement “future generations would pay the price for the decision taken currently by government”.

Mr D Van Rooyen (ANC) noted that Solidarity had presented a baseless statement by saying that tax revenue had been abused because the very same tax revenue had helped in improving essential services to the people out there.

Ms P Adams (ANC) noted that the tax bill that had been opposed was going to create job for South African youth. Therefore, it should be welcomed as a step towards the right direction.

Mr Parsons replied that there was a commission of inquiry that deal with taxation and tax system. National Development Plan was above other government plans; therefore all government plans should be consistent with the National Development Plan (NDP). BUSA replied that it could not reply to the question of deficit, but it would come back next week and give a brief reply. The research done on labour laws had indicated that the amendment would result in job losses. South Africa was making a different in Africa economically. South Africa needed inclusive growth, and the regulations in place should be smarter. Red tapes should be avoided.

Mr Aroun replied that parliament was here to promote participatory democracy. Unions had their own ways of conveying messages and investors knew that already, so those words were not of a threat to investors. NUMSA would continue to encourage the support of local manufacturers. Consultants were very difficult to deal with, but it was important to avoid duplications of work. The role of the union had always been undermined as it represented majority of the working class. NUMSA did not have a broader mandate, so it would not answer the question related to COSATU. It would be fair enough for COSATU to come forward and answer questions that had to do with COSATU.

Mr Le Roux replied that the position of the Solidarity union remained explore the old fiscal framework, and tax should not be increased from time to time because majority of Solidarity members contributed to tax revenue.

The Chairperson said that it was important to understand key drivers of South African economy, and make sure that we speak to those key drivers. The government had been active in initiating economic growth programmes, so it was very important to businesses to follow suit. He then thanked all the submissions as they were very informative and valuable.

The meeting was adjourned.
 

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