2014 Fiscal Framework and Revenue Proposals: Committee Report deliberations

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Finance Standing Committee

04 March 2014
Chairperson: Mr T Mufamadi (ANC)
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Meeting Summary

The Standing and Select Committees on Finance, sitting jointly, discussed the draft Committee Report on the 2014 Fiscal Framework and Revenue Proposals. According to section 8(3) of the Money Bills Amendment Procedure and Related Matters Act, the Standing and Select Committees on Finance must, within 16 days after the tabling of the Budget, report to the National Assembly (NA) and the National Council of Provinces (NCOP), respectively, on the proposed Fiscal Framework and Revenue Proposals.

The Committee Members thoroughly discussed the draft Report, page by page, and raised amendments, considerations, additions or insertions and technical or grammatical issues. The suggestions that they made included concerns that corruption was still a major issue and the current government needed to root out corruption, especially at the municipal level, as this would ensure effectiveness of public spending, and the need to enhance accountability of the public officials on performance. The Members also suggested the need for South African Revenue Service (SARS) and National Treasury to simplify registration for the Value Added Tax (VAT) on e-commerce services, and ensure that all businesses in this sector were registered as required. Some Members suggested that government was lagging behind in addressing the triple challenge of unemployment, poverty and inequality, and suggested that it was not correct to say that the government had “made strides” but others disagreed and felt that it was indeed appropriate, pointing to fulfillment of needs such as education, housing, water, electricity, and quality healthcare. Members wanted to emphasise the point made by the Auditor-General that about R5.87 billion was incurred in spending that was classified as “wasteful and fruitless”, and pointed out that this trend had to be reversed, as the money should have been spent on provision of better services to the ordinary South Africans. They welcomed the cost-containment measures but said that government should enforce stringent measures to curtail excessive expenditures by ministers and government officials, and impose clear consequences for failure to adhere to those measures. They agreed that the Fiscal Framework needed to elucidate further on how to overhaul taxation and realign expenditure priorities, in line with the government’s plan to for growth and jobs, to put South Africa on a path of job-creating growth. They fully supported  that the National Development Plan (NDP) be a policy platform to underpin job-creating growth, and stressed the need to eliminate broken promises on infrastructure expenditure with interventions to increase actual investment on infrastructure to 10% of GDP. A suggestion was made that the rand needed to be stabilized to avoid increases in goods and services, which would adversely affect the poor. Infrastructural development would be vital in addressing critical challenges facing the South African economy, would boost economic growth and reduce massive unemployment. They debated whether the flexible exchange rate that South Africa adopted had effectively “absorbed” external shocks”, with some suggesting that “managed” would be more appropriate, but the phrase was left as it was, and also did not change the reference to a “sustainable” fiscal framework.

 

Meeting report

2014 Fiscal Framework and Revenue Proposals: Draft Committee Report
The Chairperson tabled the draft Committee Report (the Report), and pointed out that according to section 8(3) of the Money Bills Amendment Procedure and Related Matters Act, the Standing and Select Committees on Finance must, within 16 days after the tabling of the Budget, report to the National Assembly (NA) and the National Council of Provinces (NCOP), respectively, on the proposed Fiscal Framework and Revenue Proposals. He asked Members for their input.

Mr R Lees (DA, KwaZulu Natal) indicated that he had a problem with the word “strides”, on page 2, first sentence of paragraph 1 He felt that the current government had not made enough strides in tackling poverty, unemployment and inequality. He would prefer that this word be replaced by “attempts”.

Mr D van Rooyen (ANC) disagreed with Mr Lees as he felt that the current government had indeed made many strides to tackle the issue of unemployment, poverty and inequality. He also added that the majority of South Africans were in a better state than they were under the apartheid regime, as more people now had equal access to opportunities. He emphasised that indeed the word “strides” was appropriate to illustrate the current government’s achievement in providing access to education, housing, water, electricity, quality healthcare and other matters. 

Dr Z Luyenge (ANC) also agreed that the word “strides” was appropriate as the current government had managed to drastically transform the lives of the majority of South Africans. However, he admitted that there was a lot that still needed to be done in terms of accelerating access to equal opportunities, especially for those located in rural areas. 

Mr T Harris (DA) also agreed with Mr Lees that the word “strides” was a bit of an exaggeration as it failed to reveal failures of the current government.

The Chairperson interjected and believed that it was unnecessary for the Members to spend so much time on technical and grammatical issues, and therefore, asked the Committee Members to proceed with the content of the Report

Mr Harris indicated that he had a problem with page 2, third sentence in paragraph 4 and he suggested that there was a need to insert the phrase “over the medium term”, after the statement “public finances are sustainable and debt levels are manageable”.

Members agreed with that suggestion.

Mr Lees referred to page 2, paragraph 4, and the sentence: “The flexible exchange rate that South Africa adopted has effectively absorbed the external shocks”. He had the problem with the word “absorbed” and suggested that the word “managed” would be more appropriate.

Mr T Chaane (ANC North West) disagreed with Mr Lees, as in his view the flexible exchange rate that the current government adopted had indeed effectively absorbed the impact of the external shocks. He went further and argued that the government’s prudent economic macroeconomic framework cushioned the South African economy against global economic turmoil, and enabled it to continue growing.

Other Members indicated their support for Mr Chaane’s view and no changes were made.

Mr Lees had a problem with the word “sustainable” at page 3, first sentence in paragraph 1. He believed that the fiscal framework was, rather, grounded in an “unsustainable” manner in managing revenue and expenditure. He said the word “sustainable” was not a true reflection of over- expenditure and mismanagement of the revenue by the current government.

Mr van Rooyen disagreed with Mr Lees as he felt that indeed the South Africa’s Fiscal Framework remained grounded, with a sustainable counter-cyclical manner approach to managing revenue and expenditure.

Ms J Tshabalala (ANC) pointed out that on page 6, first sentence of paragraph 3, the reference to the South African Reserve Bank (SARB) increasing the interest rates by 50 basis points should bear a reference to the date of January  2014. 

Members agreed with that suggestion.

Mr Lees felt that the word “volatile” on page 7, third sentence in paragraph 3 was inappropriate to describe the situation in the mining sector and asked the Members to find a more suitable word.

Mr Harris seconded Mr Lees as he felt that this was not the right word to describe the current growth in the mining sector.

Mr van Rooyen suggested that the word “erratic” may be more appropriate, and other Members agreed.
 
Mr Harris repeated the need to insert the phrase “over the medium term” also on page 8, first sentence in paragraph 2.

Mr Harris suggested that the word “The” should be inserted on page 9, third sentence in paragraph 2.

Members agreed to both these suggestions.

The Chairperson proceeded to the Recommendations section of the Report.

Mr Harris suggested that “earlier” on point 7.1, page 25, second sentence, and paragraph 1 should be changed to “early” to correct the grammar, and that was agreed to.

Mr Lees suggested that “further” should be inserted after “measures” in point 7.2, page 25, first sentence, paragraph 2.

Mr Ross and other Members agreed that the sentence made more sense with that addition.

Ms Tshabalala indicated that there should be a full stop after “job creation” in point 7.3, page 25, second sentence, to ensure that there was a differentiation between the two separate topics.

Mr Harris felt that there was no need to add a full stop as the sentence was speaking of two relevant matters that could be included in one sentence.

Ms Tshabalala then suggested that the word “unsustainable” in point 7.3, on page 25, third sentence was unnecessary, and should be deleted, as it did not relate to prioritising the implementation, Monitoring and Evaluation of programmes that targeted job creation.
 
Mr Harris agreed, as did other Members.

Mr Harris indicated that there was no indication of reduction in core spending, and in fact the current government showed clear signs of wasteful expenditure, as suggested in point 7.4, page 25, first sentence, and paragraph 1. The Democratic Alliance (DA) was concerned that according to the Auditor-General (AG) about R5.87 billion was incurred in spending that was classified as “wasteful and fruitless”. He felt that this money should have been spent on the provision of better services to more South Africans.
 
Mr van Rooyen agreed that indeed wasteful and fruitless expenditure was a concern and needed to be addressed promptly. The current government had introduced measures to contain excessive expenditures at ministerial level, as Mr Pravin Gordhan, Minister of Finance, had pledged that government members would be reducing excessive expenditure.

The Chairperson agreed that there was a need to introduce further strict measures to curtail wasteful and fruitless expenditure.

Mr Lees suggested that “with respect to performance” in point 7.5, page 25, third sentence, paragraph 5 should be replaced by “all spheres of government”.
 
Mr Ross agreed with Mr Lees’ suggestion, saying that this point was broad and inclusive of all public officials in government.

Mr Harris suggested that “and report to the Committee” should be added to point 7.8, page 25, last sentence of the eighth paragraph. He went further and indicated that although the government supported the implementation of cost containment measures, but it was not clear what the consequences would be for ministers who did not adhere to these measures. He added that if the current government could not curtail excessive expenditures by the ministers and senior government officials, the country would be in trouble on the debt front. Last year’s forecast that government debt would peak at 40% in 2015 had now been revised, with a new peak of 44% in 2016.

He also suggested that “introduced by National Treasury” should be added to point 7.8, page 25, first paragraph; this was to ensure that the sentence would make sense.
 
The Chairperson agreed with Mr Harris and added that there were supposed to be consequences for the ministers and government officials who did not adhere to the cost containment measures. Other Members similarly indicated their acceptance of the suggestion.

Mr Chaane suggested that “levels of corruption” needed to be deleted from point 7.9, page 25, fourth sentence, paragraph 1, as was irrelevant to the sentence.

Mr Ross indicated that corruption was extremely high at government level and believed that it  was extremely important to highlight it in the report.

Mr Chaane conceded that indeed corruption was a matter of extreme concern for the current government; but still felt that “corruption” was irrelevant to that particular sentence.

Mr van Rooyen supported Mr Chaane, and no change was made.

Mr Lees suggested that the phrase “fast-track” in point 7.9, page 25, first sentence, paragraph 1 was inappropriate and needed to be replaced by “simplify”. He said there was no way that SARS and National Treasury could fast-track registration for Value Added Tax (VAT). In a nutshell, both SARS and National could merely find innovative strategies that would simplify registration for VAT on e-commerce services and ensure that all businesses in this sector were registered, as required by law.

Other considerations
Mr Harris suggested that the Fiscal Framework needed to elucidate further on how to overhaul taxation and re-align expenditure priorities, in line with the government’s plan to for growth and jobs, to put South Africa on a path of job-creating growth. He expressed his concern that the current economic growth (at 2.8%) was not adequate to create job opportunities, especially for those located in townships and rural areas. He also added that there was a need re-establish investment in South Africa, by showing that the government had a plan to boost economic growth and scale-up actual spending on infrastructure, which had fallen short of promised investment, by around 22%, over the past three years.

Mr Harris emphasised that the National Development Plan (NDP) needed to be supported as a policy platform to underpin job-creating growth. He also said that there was a need to eliminate broken promises on infrastructure expenditure with interventions to increase actual investment on infrastructure, to 10% of GDP. He mentioned that infrastructure development was important to address critical challenges facing the South African economy, to boost economic growth and to reduce massive unemployment.

Mr van Rooyen suggested that despite all the challenges, the flexible exchange rate regime that South Africa adopted had effectively absorbed the external shocks. He also added that he was pleased to see that government’s prudent macroeconomic approach framework cushioned the South African economy against the global economic turmoil, especially in parts of Asia and Europe, and enabled it to continue growing.

Mr Chaane suggested that there was a need to stabilise the weakness of the rand, as it was indicated that the rand had depreciated by 17.6% against the US dollar in 2013. He feared that the weaker exchange rated posed a significant risk to the inflation outlook, and poor people would be the most affected by a continual increase in the price of goods and services. He also supported and said government needed to implement the cost containment measures to curtail excessive expenditures, but also should introduce consequences for ministers and senior government officials who did not adhere to the measures.

Mr Ross emphasised that the government needed to continue its strong focus on rooting out corruption especially at the municipal level, as this would ensure effectiveness of public spending. It also needed to enhance accountability of the public officials with respect to performance. He felt, however, that the current government was presently failing to deal with the problem as there were no stringent measures in place to tackle the issue of corruption, and this was affecting the delivery of service for the ordinary people of South Africa.
 
The Chairperson accepted the amendments, considerations, and suggestions proposed by Committee Members, and thanked them for their contributions that would ensure that the Report was properly presented to both Houses. He urged Members to continue working together to improve the lives of ordinary people in South Africa.

The meeting was adjourned.  
 

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