Budget Vote Process, Sector Analysis, Legacy Report: briefing by Parliamentary Budget Office & Committee Staff

Meeting report

The Chairperson noted that he wanted the Committee to consider establishing a multi-party management committee. He welcomed Mr N Kwankwa (UDM) and Ms S Nkomo (IFP) to the Committee.

Briefing by the Committee Secretary
Mr Allan Wicomb, Committee Secretary, gave a presentation on the mandate of the Committee, on the role of the secretary and on key points of the Legacy Report of the previous Committee of the Fourth Parliament, detailing the oversight activities of the Committee, and the outcomes and the challenges they faced. These included issues which needed to be considered by the new Committee, as well as a list of recommendations to strengthen the operational procedures of the Committee.

The Director of the Parliamentary Budget Office (PBO) had been appointed. Key challenges that the previous Committee had encountered was limited time to process legislation and the fact that documents prepared by the Department on some legislation were very technical and needed to be prepared for the comprehension of Members. The Department should inform the Committee timeously of new legislation that it intended to process so that the processes could be better planned.

The Legacy Report recommendations were to enhance legal and research support to the Committee. There was a need to enhance sector specific skills of Members so as to improve its oversight capacity, and this should be done before the Committee dealt with technical legislation, such as tax legislation. The Committee had a legal expert available when dealing with this type of legislation. Vacancies within the PBO should be filled as a matter of urgency. A study tour should be undertaken to see how other legislatures performed oversight. There should be planning and alignment of the two Houses of Parliament so that the Committee could comply with legislative processes. Amendment to the Money Bills Amendment Procedures and Related Matters Act was to be continued in the new Parliament. 

Discussion
Dr D George (DA) wanted to have clarity on the amendment to the Money Bills Amendment Act. Was there a plan regarding this Act, as it was an important piece of legislation?

Mr D Ross (DA) commented on the lack of oversight on some entities of the Department, such as the Financial Services Board, the SA Reserve Bank (SARB), the Land Bank and the Government Employees Pension Fund. These should be a priority for the Committee.

Ms P Kekana (ANC) asked if the outstanding issues and challenges mentioned in the Legacy Report would impact on the Fifth Parliament, such as the issue of vacancies in the Department.

Mr D van Rooyen (ANC) said that there had been lots of progress regarding the PBO, but there were still challenges regarding its staff complement. On the question of the Money Bills Amendment Act raised by Mr George, he said that in the previous Parliament, a committee comprising the Chairpersons of the Finance and Appropriations Committees of both houses, together with the house chairpersons, had been working on the amendment. However, due to time constraints, they had not been able to complete the work. This working committee needed to be revived so that the alignment was maintained.

The Chairperson asked how far that working committee had progressed.

Mr Van Rooyen said no report had been drafted, except for one requesting an extension of time. It would be necessary to work with the Standing Committee on Appropriations and the Select Committees in a joint sitting on the matter.

Mr Wicomb said Adv Frank Jenkins, senior parliamentary legal adviser, would be in a better position to explain the Money Bills Amendment Act. Other outstanding legislation was on the Development Bank of Southern Africa (DBSA), and no work had been done on this previously.

The Chairperson said that the Committee would allow four to six weeks to get a sense of the issues involved and would then develop a broad programme.

Mr Van Rooyen said there were opportunities for the academic development of members of the Committee, and a brochure should be developed which could be shared with other committees.

Briefing by the Content Advisor
Ms Esther Mohube, Content Advisor for the Select Committee on Finance, gave a broad review of the annual budget process, the aim of which was to translate policy into service delivery. The presentation covered the legal framework of the budget, the role players in the budget, the budget cycle and where in that cycle the Committee currently was, and noted key government policy documents relevant for oversight of the budget.

The Chairperson asked how public participation fitted into the process. Were advertisements placed in the newspaper?

Mr Wicomb said an advertisement was placed two weeks beforehand, and stakeholders were informed.

Mr Ross asked if the elections had changed the budget cycle process.

Sector analysis briefing by the Researcher
Ms Bridgette Diutlwileng, Committee Researcher, gave a sector analysis covering global developments, developments in South Africa, South African policy pronouncements and what the implications of these announcements were.

Mr Ross asked what the reasons were for the GDP estimates for April to June not being available until the Medium Term Budget Policy Statements (MTBPS). Was this normal practice?

Ms Mohube said she had looked for the estimates but had not found them, and expected them to be available in the next MTBPS.

Ms Kekana asked if revenue collection would mitigate the budget deficit and the cost of servicing that debt.

Ms Mohube said revenue collection depended on economic conditions.

Mr F Shivambu (EFF) said the Committee should discuss in great detail in a separate meeting what the reason for the reduced growth forecasts were. The ending of strikes or the resolution of the energy crisis would not necessarily increase economic growth. Why was the SA economy not expanding? The failure to have a proper diagnosis of what was wrong with the economy would lead to the application of the wrong remedies. This was the biggest mistake of the NDP, and had resulted in the wrong solutions being implemented -- like the obsession with foreign direct investment (FDI). SA was betting on the wrong horse because FDI had never been more than 4% of GDP. He said partisan politics should be left aside and a thorough analysis be done on what constrained growth.

Mr Van Rooyen said he agreed, but the biggest challenge was the availability of time to do these things.

Dr George said that at present the Committee was still in an orientation phase, but there was a need to have an in-depth policy discussion. The Medium Term Budget Policy Statement provided an opportunity for that to occur.

The Chairperson said he wanted to avoid the Committee being only a technical committee, and was looking at having a closed workshop in August.

Budget Vote Analysis by the Researcher
Ms Diutlwileng provided an analysis of the National Treasury Budget Vote, including an analysis of the South African Revenue Service (SARS) and Statistics South Africa budgets.

Treasury had set expenditure ceilings, and a balance had to be struck between service delivery and cost containment. For instance, what impact would the decrease in the Defence budget by 0.3% and Education budget by 0.63% in real terms, have on their service delivery?

The Department was anticipating a decrease in the budget for asset and liability management when the expenditure for the recapitalisation of the DBSA and the Land Bank occurred at the end of the 2015/16 financial year. The Department wanted to enhance Supply Chain Management in government, as this was a big area where fraud was involved.

Financial Intelligence and State Security comprised 16% of the Vote, and the Department should call for progress reports on its service delivery, implementation and performance. Similarly, many transfers by the Department needed to be monitored.

Program 9 - SARS
There was a reduction in the SARS budget, but SARS had accumulated a surplus over the years which they could fall back on. Tax compliance on PAYE had increased by 1% from 83% (2012/13) to 84% (20123/14).

SARS had identified a growing number of illicit economic activities, like smuggling. The perception of poor state service delivery would impact on taxpayers’ attitude to tax compliance. There was increasing tax evasion to offset the impact of a slow economic recovery, and businesses were using increasingly complicated financial schemes. SARS needed to be in control of that. Similarly, VAT fraud could increase.

Operations and administration comprised the bulk of the SARS programmes. Spending on consultants was expected to decrease by R32.3m from R238.2m (2013/14) to R205.9m (2016/17). The Committee could ask SARS about vacancies and filling critical skills positions, as well as the fact that 20% of the potential leadership might be leaving in the next four years as they came to the end of contracts or reached retirement age.

Statistics SA
Statistics SA received R2.2bn. The Committee could look at operational issues, because Stats SA had previously reported not meeting targets because of capacity constraints. The Committee could ask about the vacancy rate and request Stats SA to provide details of their staff establishment and skills retention and skills transfer strategies, and how they would address filling vacancies which demanded critical skills.

Ms Kekana said the presentation on the Treasury talked of a tightening of control over its expenditure on goods and services. Why was the wage bill so high while there were so many vacancies? Was the structure bloated? What was the impact of the budget on service delivery?

Regarding the reduced allocation to Defence and other departments, Mr Van Rooyen asked the researchers to what extent they had studied which programmes and services would be affected in terms of service delivery. Had SARS identified the risks that had been mentioned relating to SARS? What performance targets of Stats SA had not been met due to capacity constraints?

Ms Kekana said the presentation spoke about SARS tapping into their surplus. Did that mean that SARS did not return their surpluses, which other Departments were required to do?

Ms Diutlwileng said their sources were SARS documents, like the annual report, strategic plan and annual performance plans. Regarding cuts in goods and services, she said the biggest cut for Treasury was on travel and subsistence. On whether the wage bill was bloated, she said that there were several factors impacting on it, like the unionisation of workers and inflation.

Briefing by the Parliamentary Budget Office
Professor Mohammed Jahed, Director of the Parliamentary Budget Office (PBO), said the presentation focused on what the PBO could do for the Committee. He talked of the legislative mandate of the PBO, its core functions and organisational structure, the scope of its work, how work was assigned to it and the reporting lines of the PBO.

Section 15 of the Money Bills Act provided for the establishment of a PBO which would provide independent, objective and professional advice on the budget and any money bills. Its core functions were to support the Committee in dealing with documentation tabled in relation to money bills, by doing annual reviews and analysis. It provided advice and analysis on proposed amendments, specifically on the fiscal framework and the Division of Revenue Bill. Specific pieces of work that the Committee wanted investigated and needed to take a decision on could be referred to the PBO. It monitored and synthesized reports tabled and adopted, and the Committee could ask for an assessment or an analysis. It kept the Committee abreast of policy debates and developments.

Three deputy director vacancies still existed and people were being headhunted to fill these positions. Work was demand-driven from the Committee. It would produce two brief reports annually, one of which would be the Policy, Economic and Fiscal Review report. Public participation in terms of the budget process and monetary and fiscal policy was a critical and important issue, and public input had not really occurred in the past. The PBO wanted to address this through a stakeholder survey. It could also assist in building the capacity of the Members of Parliament, as well as of researchers and content advisors.

The work it would do would be identified by the four committees of finance and appropriation in the two houses, and requests were to be submitted to the Speaker and the Chairperson of the NCOP. These would be forwarded to the PBO director and the reports would be given to the executive authority. The four committee chairpersons and the House chairpersons acted as an advisory body to the PBO. This group should be revived with regard to the amendment of the Money Bills Amendment Act. He said the new Standing Committee was expected to lead the drive to pass this legislation.

Dr George asked if Members could get support from the PBO if they were drawing up a private member’s bill, for example.

Mr Shivambu recommended that the PBO look into the Davis Tax Review Committee with regard to corporate tax and transfer pricing by natural resource extractors. SA was the victim of the transfer pricing phenomenon. The mining sector was supposed to be one of the biggest in the world, yet it contributed only R20bn-R25bn to the fiscus -- which would cover only the education budget of the KZN province. This should be investigated.

The Chairperson asked if the PBO would send a representative to every meeting. Was there not a blurring of lines between the PBO, researchers and content advisors?

Mr Jahed replied to Dr George’s question. He said that when a study tour had been conducted in Korea, the equivalent PBO type body had 1 000 staff members, and private member’s requests could be accommodated. In South Africa, there were 54 parliamentary committees. A start had been made with the four committees on finance and appropriations in both houses. The PBO would monitor how this developed, and then it could be rolled out to other committees and then to individual members.

Regarding the functions of the PBO, these were different from that of committee researchers and content advisors, in that it undertook sectoral analysis and the cost and revenue implications of the Money Bills Amendment Act.

Regarding Mr Shivambu’s comments, he said that a review of Davis Tax Committee recommendations was an excellent idea and recommended that it should be a Committee decision, in the interests of independence and non-partisanship.

Mr Van Rooyen said the previous Committee had made a decision that this be taken on board, after some of the Davis Committee’s recommendations had been included in the Minister’s budget speech. Therefore, the PBO should look into the Davis Tax Committee.

Mr Ross said he would like the PBO to research what the factors were that inhibited direct foreign investment, and whether the factors were important or not. What was the current percentage of foreign investment, and could these investments be increased?

The Chairperson said he was not clear whether the Davis Committee could be called before Parliament.

Mr Van Rooyen said that the Committee should recommend to the Department that the Committee be informed by the Department when it was briefed by the Davis Tax Committee. This could be done, because the Department could be held accountable by the Committee.

Dr George said transfer pricing was a very technical issue in the tax law.

The Chairperson said that after the budget review, the Committee would be working on the Development Bank of Southern Africa (DBSA) Bill.

He said the SA Reserve Bank had invited the Committee to a one to two day programme.

He said the Committee should be rigorous, as it would be in the interest of the executive for the Committee to be strong.

The meeting was adjourned.