Budget Hearings: Organized Business & Labour

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Finance Standing Committee

05 March 2003
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Meeting report

FINANCE PORTFOLIO COMMITTEE
6 March 2003
BUDGET HEARINGS: ORGANIZED BUSINESS & LABOUR

Chairperson
: Ms Hogan (ANC)

Documents received:
Black Business Council: Comments on Budget
South African Chamber of Business: Comments on Budget
Federation of Unions of South Africa: Comments on Budget
Afrikaanse Handelsinstituut: Comments on Budget

Relevant document:
Cosatu letter to Portfolio Committee on Finance (see Appendix)

SUMMARY
The Committee was presented with comments on Budget 2003/4 from the Black Business Council (BBC), South African Chamber of Business (SACOB), the Afrikaanse Handelsinstituut as well as Organised Labour in the form of Fedusa. Members used the opportunity to discuss areas of concern with business leaders especially in the area of Small, Medium, Micro Enterprises.

MINUTES
Black Business Council (BBC)
Ms Futhi Mtoba (Deloitte & Touche), Mr Mandla Maleka (Chief Economist, Eskom Treasury) and Mr Veli Ntombela (Director Taxation, SizweNtsaluba) represented the Black Business Council. (See document for input)

Discussion
The Chair congratulated the BBC on their submission and especially for their proposed matters for consideration of the 2004/5 budget. She mentioned that this is something Parliament should also be doing.

Dr Koornhof (UDM) commented that their proposals to stimulate Small, Medium and Micro Enterprises (SMMEs) were commendable and agreed with the BBC on extending the definition of SMMEs. He asked them if they are doing anything further to remove obstacles that prevent small businesses from being successful. He also wanted to know how the BBC sees the government's role with regard to unemployment.

Ms Mtoba answered that they are currently working on a number of possible changes necessary for SMMEs to be more successful.

Mr Maleka responded that the economic environment opens opportunities for employment creation. He added that people should not rely on government to create jobs; they should rather create the right environment.

Ms Joemat (ANC) enquired about their proposal to reduce the pensionable age for women. She wondered what the constitutional implications would be. She asked the BBC what the government could do to stimulate savings.

Mr Ntombela told the committee that currently the retirement age for men is 65 and for women is 60. He remarked that this is already discriminatory. He added that to stimulate savings the government would have to allow for more disposable income.

Mr Mnguni (ANC) asked them whether they are working on a proposal to solve the problems that SMMEs have with paying VAT. They currently have to pay a lump sum, which affects their liquidity.

Mr Ntombela replied that they are working on submissions.

Mr Moloto (ANC) asked them whether they have had any feedback on the skills levy.

Ms Mtoba told the committee that they have had some feedback and that it is clear that not very many people are making use of it. She said that part of the problem is that the public does not know about it. She blamed it on a lack of information and education on the levy.

Mr Nene enquired about their proposal not to extend the child support grant to children over 14 but rather use the money for free primary education.

Ms Mtoba remarked that very often the intended beneficiaries are not the ones receiving the benefits. She added that this would be one way to make sure that the funding reaches those it was intended for.

Ms Botha (DP) commented on their proposal for reducing the pensionable age of women. She used the example of Mongolia where they had recently reduced the pensionable age for women to 55. It proved to be very unpopular, partly because it shortens a women's career which most of the time already started later than those of males. She also expressed her concern that much of the money made available for Black Economic Empowerment (BEE) gets stuck with those people who are already empowered.

Mr Ntombela replied that South Africa is a unique country and that they believe reducing the pensionable age could work.

Ms Mabe (ANC) enquired about women's access to the SMME sector. She asked whether there was anything government or business could do to enable better access to BEE funding.

Mr Ntombela said that his personal opinion was that access to BEE funding is improving every day but acknowledged that there is still some way to go.

Afrikaanse Handelsinstituut (AHI)
Mr Jac Laubscher (Chief Economist, Sanlam) and Ms Anne-Marie Whiehan (Sasol economist) presented the Afrikaanse Handelsinstituut's (AHI) submission to the committee. (See document for input)

Federation of Unions of South Africa (FEDUSA)
Ms Gretchen Humphries (FEDUSA Parliamentary officer) presented the submission. (See document for input)

South African Chamber of Business (SACOB)
Karl Muller, Des Kruger, John Lewis and Adv. Meiring represented SACOB. (See document for input)

Discussion
Due to time constraints a discussion was held only after conclusion of the inputs from AHI, SACOB and FEDUSA

Mr Moloto asked what types of indirect taxes the Afrikaanse Handelsinstituut was referring to in their submission. He also asked their opinion on the optimum level for the Rand.

Mr Laubscher answered that there are various indirect taxes of which the biggest is VAT. He believes that over time the VAT-rate should be increased. He added that if you compare South Africa's rate with those of other countries you would find that it is very low. On the Rand he commented that there have been many studies recently. He stated that a recent IMF study proposed R8.80 as the optimum level.

Mr Moloto asked what measures on the expenditure side are they referring to in their submission.

Mr Laubscher replied that these are measures aimed at poverty relief. These would include more money for social grants for example.

Mr Kruger added that they had done a study on foodstuffs that are VAT zero-rated. They had found that the savings came to R2 billion of which only R400 million actually reached the poor. He stated that the poor are often too poor to buy even the zero-rated foodstuff. He proposed scrapping the zero-rating.

Dr Koornhof asked the AHI about their statement that full employment could only be achieved by sustainable economic growth over a length of time. He stated that this would not only include the level of growth but also the type of growth. He asked for comment.

Ms Whiehan agreed with Dr Koornhof. She added that South Africa needs to grow at a higher rate than 3% (current predictions) to create jobs. She stressed that a rate of 6% is necessary merely to employ the new entrants to the economy.

Dr Rabie (NNP) asked SACOB what they meant by the phrase "bad laws" in their submission.

Mr Muller replied that a lot of SMMEs are not clear on what incentives they qualify for. He stressed the lack of information. He added that the general business environment needs to be improved to facilitate smaller businesses.

Adv Meiring continued by saying that the tax system is too complex and that simplification of tax laws is necessary. The complexities make compliance very difficult, especially for SMMEs. Bigger businesses can afford specialized tax teams etc.

Ms Mabe asked what measures South African businesses want in order to increase foreign direct investment (FDI).

Ms Whiehan replied that they would like to see more effective use of available resources. That also includes a more effective government.

Mr Laubscher commented that for more FDI they would have to get rid of all exchange controls. If local businesses do not want to invest in the country then foreign investors would look elsewhere. He remarked that during the past few years local businesses have been investing locally and that business confidence is at its highest level since 1994.

Ms Mabe asked FEDUSA what they would have liked to see in the Budget for HIV/AIDS.

Ms Humphries responded that they would like to see the government sign the HIV/AIDS treatment agreement that was reached at Nedlac. She added that FEDUSA supports the Treatment Action Campaign and wants the government to cooperate.

The Chair thanked everyone for their contributions and adjourned the meeting.

Appendix:
Cosatu letter to Portfolio Committee on Finance
6 March 2003

To: Portfolio Committee on Finance c/o Ms B.A. Hogan, Chairperson

Dear Ms Hogan

Thank you for your invitation to COSATU to present our views at tomorrow's Budget Hearings.

As you are aware, COSATU has not made a submission on the budget since March 1997, when I stated before Parliament's Finance Portfolio Committee that:

"We are frustrated … by the nature of the budget process which renders meaningless both contributions from civil society and the deliberations of the elected people's representatives. For this reason we have, after some deliberation, decided that unless the budget process is fundamentally transformed to accommodate real public input and effective parliamentary oversight, this submission on the 1997/98 budget will be our last. We will only participate in future parliamentary budget hearings if meaningful participation is made possible through a reformed budget process."

As you are aware, the Constitution (at s77) requires the enactment of legislation which will empower parliament to amend money bills, such as the budget, instead of the current system of voting to accept or reject them. Our legal advice is that government is in breach of the Constitution in this regard. Without such legislation the participation of parliament in respect of money bills is reduced to a ritual. Participation in parliamentary discussions after release of the budget, even if there is a process prior to finalisation of the budget, is a futile exercise for organs of broader society, as no changes can be effected. It is for this reason that COSATU has not made formal submissions to parliamentary budget hearings for the last five years, although we have publicly released our detailed analysis of and position on the budget every year.

The ANC Elections Manifesto contained a commitment to ensure that elected representatives in national, provincial and local spheres have the appropriate powers to shape budgets. COSATU calls on the Portfolio Committee on Finance to ensure the urgent tabling of an adequate Money Bills Amendment Procedure Bill, consistent with the Constitution and the ANC Manifesto. The Committee has in the past expressed support for such legislation, but were not satisfied with the draft tabled previously by the Department of Finance. The spirit and letter of the Constitution expressly states that an important aspect of South Africa's democracy is the transformation of the highly secretive and centralised budgetary process inherited from the apartheid regime into a more open and participatory process. Over and above the legislative challenges of democratising the budget process, there is a need for increased participation - of parliament, Nedlac, and society at large - in the budgetary process.

There are no developments which have given us cause to review our position since 1997. In fact, we are disturbed that for yet another year, the budget will be passed without elected representatives having any meaningful influence over it. We will as a result not be making a submission in this year's hearings. If however the Committee would like to engage in discussions with us on the procedural questions of budget reform raised in this letter, we would be willing to do so, and if required appear before the committee on this question.

We would appreciate it if this letter were distributed to all members of the Committee. I am also taking the unusual step of releasing this letter to the press, to ensure that our decision is correctly reflected and broadly understood.

Yours faithfully
Zwelinzima Vavi

COSATU General Secretary

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