Finance Committee Report on 2016 Budget

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Finance Standing Committee

08 March 2016
Chairperson: Mr Y Carrim (ANC) and Mr CJ De Beer (ANC)
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Meeting Summary

The joint committee meeting with the Standing Committee and Select Committee on Finance was held to discuss their considerations of the 2016 Budget Committee Report. Among some of the points raised were:
• The need for National Treasury to provide the relevant information, assuming it was not market sensitive, to the Committee as a whole or to individual members. It came up because of detail involving reprioritising that a Member had asked for and still not received.
• On the six-month window period for people with illegally held offshore assets and income to regularise their financial affairs with SARS and the Reserve Bank, both committees expressed concern that the six-month framework (from 1 October 2016 to 31 March 2017) was not long enough. It was felt that an extension would encourage more people to come forward. The completion and arrangement of documents on offshore assets and income take a long time so they wanted this period to be extended. They discussed changing this to ‘no less than 12 months’. The Chairperson, who expressed his dismay at such people and such acts, said that it will be left at six months (due to lack of consensus and concern about detail) until they receive a further response from National Treasury.
• The need for Treasury to manage the budget far more strategically for the economic development of South Africa and realisation of the National Development Path (NDP). Government allocations for infrastructure development have not been spent over the last few years, in particular because of the lack of capacity in the state and the Committee expressed concern that National Treasury should try and meet the requirements set by the NDP. They stressed that National Treasury need to work with other departments and spheres of government to ensure that the capacity is developed over time to spend more effectively on infrastructure. The Committees were particularly concerned about the underspending in infrastructure at a municipal level.

The last major issue brought up in the meeting was the concern and dissatisfaction that Finance Minister will not be able to participate in the 9 March debate on the fiscal framework and the budget’s tax proposals as he would be overseas. The Democratic Alliance said it was unacceptable that the finance minister would not be present for the debate on what was the most important fiscal framework in decades. A request was made for the debate to be postponed. Members of the NCOP refused this and explained that it was not only a scheduling issue but that there would be ramifications for the adoption of the Division of Revenue Bill by the NCOP and the adoption of provincial budgets. The Chairperson agreed that it was unacceptable but said that exceptions need to be made and that the Deputy Minister would be competent and able to stand in for the minister. The Committee Report on the 2016 Budget was adopted, although not unanimously.
 

Meeting report

Consideration of the Committee Report on the 2016 Budget
The Chairperson said that he would go through each consideration by number and if there were any objections, recommendations or general comments, members must point these out. He noted that 5.12 should be 5.10. On 6.7, the Chairperson said that there was a greater scope for this and that there was lots of ineffective and unproductive use of limited resources that needed to be addressed.

On 6.7, Mr D Maynier (DA) said the essence of the proposal is captured and it is rather a question of sequencing. He had previously asked National Treasury to provide the detail behind reprioritising which goes beyond the table provided in the Budget Review. He wanted it to be provided not in quarterly reports but rather immediately. He was thus surprised that it had not already been provided.

Mr Carrim said that Treasury explained that some of the information requested, especially around tax issues, is market sensitive. Treasury is transparent about this fact as it is market sensitive and will affect anticipation. Free market oriented structures say that South Africa is one of the top three in openness and transparency on budget information. Thus to the extent that they can offer more information that is not found in the documentation, Treasury will. Both the Committee as a whole and party members as individuals, have the right to ask for extra information and should be encouraged to do so. He said that they will, as a Committee, ask that Treasury give Mr Maynier the relevant documentation and information that he has requested.

Mr Maynier responded that he is happy to go with what the Committee says and he will peruse the matter privately with Treasury. He said that he does not agree that National Treasury is transparent as they need to be.

Mr R Lees (DA) noted a change that needed to be made to 6.12. It should be over indebtedness and read: ‘The Committee recognises the over indebtedness of a significant number’.

On 6.15, Mr Maynier said that he was happy with formulation but that one should also try and find a private equity partner.

Mr Carrim said that he agrees. He made it clear that it is not privatization, but rather looking for a minority equity partner

On 6.20, Mr Lees said that he is happy with formulation but one should look not only at the formula and the distribution of the revenue but also the tax regime of these countries. This will ensure that it is not more competitive for investors to invest in the neighbours of South Africa rather than our own country.

Mr Carrim responded that the embassies read the reports of the Committee and Treasury. He said that South Africa wants to draw foreign investment so that they are more self reliant, and they do not purely look at the formula.

Dr M Khoza (ANC) said that she does not think that the recommendation made in 6.20 addresses the core issues. It is not necessarily about the formula but it goes beyond this. She would like to see more value out of what they are getting and see a situation where we have a greater say. We must find a way of crafting the resolution so that it addresses more than just the formula.

Mr Carrim said that he agrees with Dr Khoza but there is need for caution. South Africa has been arguing in a multinational forum about why some countries are in the Security Council and others are not. They want the same rights and clearly there are structural and other related issues beyond the formula. He said that they have the responsibility to help them grow.

Mr Carrim suggested dropping the word ‘voting’. This would eradicate the problems with the wording.

Dr Khoza said that it should include that the Committees acknowledge South Africa’s diplomatic relations with its neighbouring countries but in view of the huge stresses on the South African economy, but believe that there is a need for mutually beneficial relations and greater process. This is all encompassing and this will be able to take into account all the other aspects that have been brought up. Dr Khoza said that she is including and bringing in the element of mutually beneficial relations.

On 6.22, Mr Carrim asked for clarity on the wording used. The report drafters only received recommendations from the Democratic Alliance (DA) on this point and it needed further clarity. 6.22 is about the six-month window period for people with illegally held offshore assets and income to regularise their financial affairs with SARS and the Reserve Bank. He needed clarity about what exactly was being said when referring to the expansion beyond six months.

Mr Lees agreed that this needed clarity. Clarity was needed on the time frame for finalisation and the time line for applications. He suggested increasing the window period for applications for offshore assets to 12 months.

Dr Khoza agreed with Mr Lees about the increased window period.

Mr Carrim asked why it was necessary to extend it beyond six months and furthermore why specifically did they recommend 12 months. He believed that it is too prescriptive.

Mr Lees clarified that he was referring to ‘not less than 12 months’. Thus it was not specified but some time frame is given.

Ms T Motara (ANC) cautioned against the strong use of language involving international agreements such as the use of the word ‘responsibility’ rather than ‘obligations’ so that it is not burdensome language.

Mr F Essack (DA, Mpumalanga) said that he recalled in the submissions made on the fiscal framework where it was explained in detail that this is a lengthy process. Thus stipulating ‘not less than 12 months’ is better than the short period of 6 months. This will give time for applicants to get their documentation in order.

Dr Khoza said that the economic period that South Africa is in should encourage the Committee to listen to what financial analysts and experts are saying. By extending the time period they are encouraging more people to come forward to SARS.

Dr Sean Muller, Parliamentary Budget Office Researcher, said that, without knowing the proposal in detail, Treasury is looking into relaxing the disclosure rules to six months. Thus they are not talking about the entire process. He also pointed out that there is a new OECD global standard for disclosure of international information coming into effect from 2017, and this is part of the motivation given by Treasury for six months. He warned the Committee against prescribing a period beyond this.

Mr Carrim stressed the need to be consistent with values and said that it is still important to place these people who secreted money out of SA illegally (he referred to them as ‘rogues’ and ‘absolute criminals’) under more pressure to come forward. In sum, they will have up to a cut-off point to come forward and say that they have illegal funds, in other words admittance of the act. The relevant cases and documentation will then be dealt with afterwards. The length of this can be as many years as is necessary to finalise it. He said that they should leave it loose as it is not about completing the process. He noted that economist, Jannie Rossouw, had mentioned that the process took very long. He asked the Committee if 12 months is necessary and they agreed to leave it at 6 months as it was reflected in the bill and get a further response from Treasury.

Mr Carrim referred to 6.9 which spoke about the ‘FFC’. He suggested this be removed due to lack of clarity.

Mr Carrim drew attention to an article from the Sunday Times quoting Finance Minister, Pravin Gordhan. It stated that when you consider the credit rating agencies and their concern about the performance of South Africa, one must not only look at Treasury (debt to GDP ratios, budget deficits, ability to repay debt and so on) but also the growth path that they set out. Agencies expect a country to have a clear economic growth path if the country is on a low, sluggish or minus growth path. The Chairperson thus asked what is the role of the Economic Development ministry and in contrast what is the role of Treasury. He said that Mr Gordhan was not trying to deal with internal issues but rather the issue of who is responsible for economic growth: the Economic Development Department (EDD) or Treasury. Mr Carrim said that the question that the Financial and Fiscal Commission (FFC) is raising may be that when looking at issues of downgrade, one needs to look at not only fiscal and monetary policy but also economic growth.

Mr Maynier said that Minister Gordhan had talked in the budget speech about common purpose and the problem is that government does not have a common purpose because Treasury and EDD are on opposing sides and at ‘loggerheads’ about structural forms. He said that the report is trying to say that the government needs to set out a new economic growth path. The NDP infrastructure growth path is not working and infrastructure spending (as shown in the national budget speech) is below the 10% threshold. This needs to be made clearer in the report.

Mr Carrim said that he believed that the report does say this and stressed that they are not at ‘loggerheads’ as Mr Maynier had said, but rather there are differences. South Africa is doing very well with internal conflict. He said that, as a member of the ANC, given their infrastructure-led orientation, the report should include the concern that over the medium term expenditure framework, infrastructure will fall below 10%.

Ms Esther Mohube, Content Adviser to the Select Committee on Finance, clarified that the FFC proposal is saying that if we do not achieve the economic growth that is currently set, it will derail South Africa from the fiscal consolidations. Thus it is about saying to Treasury to pay more attention on growing the economy.

Mr N Kwankwa (UDM) said that it needs to be phrased differently. It is making it sound as if the two are mutually exclusive and they can actually be achieved concurrently.

Mr Carrim clarified that Mr Kwankwa said that one cannot get growth and thus there is a need to fiscally consolidate, yet one cannot fiscally consolidate without growth. He said that they must include what was put in the previous year’s report that, while recognising that this is not the task of Treasury alone, more proposals should be put in Treasury’s Budget Policy Statement (BPS) on economic growth. The link to the old report will ensure consistency. They will also drop the reference to FFC.

Mr Carrim said that they also need to deal with the concern on infrastructure and asked for clarity from the Committee’s researchers.

The committee researcher explained that the money that is being allocated is not always utilised and if the small amount that is budgeted for is utilised, then there will be progress and we will see growth. At the moment, what is being allocated is not the expected outcome.

Dr Muller said there was a small summarising point which indicates that National Treasury’s view was that underspending in grant programmes is a major reason for lower expenditure on capital projects rather than the actual allocation of funds. He said that the view of Treasury was that measuring actual capital expenditure complicated the matter. Treasury intended to maintain spending on capital infrastructure and development. This was the response from Treasury.

Mr O Terblanche (DA, Western Cape) said that when the question was put to the Director General last week, he said the 10% is not cast in stone and rather is what they are aiming for; he acknowledged perhaps changing that amount. He also said that it was necessary for government to capacitate.

Mr Carrim asked where this figure of 10% comes from – from Treasury or government?

It was clarified that this was set out in the NDP.

Thus in summary, Mr Carrim said that government allocations for infrastructure development have not been spent over the last few years, in particular because of the lack of capacity in the state and there is a need for Treasury to manage the budget far more strategically. The Committee feels that Treasury should try and meet the requirements set by the NDP and Treasury needs to work with other departments and spheres of government to ensure that the capacity is developed over time to spend more effectively on infrastructure. The Committee is also concerned particularly about the underspending in infrastructure at a municipal level.

On 6.24, Mr Kwankwa referred to the second sentence that states that fewer levies may have a disproportionate effect. He clarified that this is regressive in nature and therefore it should say that ‘it may place a disproportionate burden’ on poorer communities.

On 6.25, Mr Carrim said that they must include that this has been covered in previous reports. The issue deals with R&D and this has been dealt with by the Committee at length on many previous occasions. There have also been meetings with the Portfolio Committee of Science and Technology, Treasury and a KPMG representative.

On 6.29, Mr Carrim asked the researcher what the main issue was and whether it was raised in the public hearing.

Dr Muller said that in response to the questions on the Jobs Fund, they acknowledged that there were challenges because when they roll out such initiatives, they do not always take into account the capacity to implement.

Mr Carrim responded that they must include; ‘as raised in the public engagements around the budget’.

Ms Motara that 6.29 was not necessary for inclusion in the Report as Treasury had already explained the Jobs Fund and the challenges.

Mr Maynier said that it needs to stay and be included. The Jobs Fund has problems with implementation and the Committee needs to be briefed on this. Equally, Treasury has committed to a review on the tax incentive and at some point they need to be briefed on this.

Mr Carrim said that they will reformulate it and say that the Committee wants to be briefed on the review of the employment tax incentive and on challenges in the implementation of the Jobs Fund as raised in the discussions on the public hearings. He also said that this must be done within six months

Mr Maynier drew the Committee’s attention to 6.12 and said that the parliamentary programme currently sets down the debate on the fiscal framework for Wednesday 9 March yet Minister Gordhan will not be present at this meeting. Mr Maynier asked for the debate to be postponed. He said it is crucial that the Minister is there for the debate on the fiscal framework. According to the Money Bills Act, there are 16 days to deal with the fiscal framework, which lapses on March 17. Thus there should be no difficulty in postponing the meeting.

Mr S Swart (ACDP) said that he finds it strange that the debate will tomorrow. He said that if they have the latitude, they must find out when the Minister is available and postpone the meeting.

Ms Motara argued that postponing the debate on the fiscal framework has great implications on the budget process. It is not just the National Assembly process but the National Council of Provinces is waiting for the NA to adopt the fiscal framework so that they can begin the Division of Revenue process.

Mr de Beer pointed out that the Deputy Minister of Finance will be present at the meeting. A postponement would have a great effect on the Division of Revenue Bill process in the NCOP and affect nine provinces, and not just one House.

Mr Maynier insisted that Minister Gordhan, and not only his deputy, is there. He said that the parliamentary programme committee need to work harder to ensure these scheduling issues are resolved.

Ms Motara said that it is not only a programming issue but it also has budgetary implications.

The Chairperson said that the Committee is not happy that the Minister of Finance will not be there. However, there are exceptional circumstances and they will show some understanding in this circumstance. He said that they must communicate this to the parliamentary programme committee and it should not happen in future. They do need to place more faith in the Deputy Minister who is there to assist in cases such as these.

Voting on the Committee Report
The Committee Report was adopted as amended.

Mr Lees and Mr Essack noted that the Democratic Alliance objected to the Report.

A number of Members expressed concern that the DA committee members objected to the Report yet they agreed with the majority of the points in the Report. They said that this was a contradiction.

Meeting adjourned.

 

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