National Treasury on its 2016 Strategic and Annual Performance plan, with Minister

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Finance Standing Committee

06 April 2016
Chairperson: Mr Y Carrim (ANC)
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Meeting Summary

The Department of Finance reported on the National Treasury’s strategic and annual performance plan. The Minister of Finance told the Committee that international institutions were no longer interested in plans, but rather in concrete milestones that were a demonstration of the intention to implement them. The Department sought to achieve an economy that grew faster and was less dependent on debt-financed consumption, to put more South Africans to work and reduce or eliminate poverty and inequality. The super-elites evaded tax and embraced money laundering.

The Department contributed directly towards the achievement of government outcomes as set out in the 2014-2019 medium term strategic framework (MTSF). This year’s budget was focused on fiscal consolidation. The subtotal for the revised Estimates of National Expenditure (ENE) were as follows: 2015/16 (R28 704.60 million); 2016/17 (R28 471.40 million); 2017/18 (R31 127 million); and 2018/19 (R32 310.5 million). Growth rates were 2015/16 (19%); 2016/17 (-0.81%); 2017/18 (9%); and 2018/19 (4%). The Department’s seven programmes covered administration; economic policy, tax, financial regulation and research; public finance and budget management; asset and liability management; financial and supply chain management systems; international financial relations and civil and military pensions.

As at 31 March 2016, the total staff complement was 1 218 (filled positions), and the total staff establishment was 1 341 (funded positions). The Department was 85% black, 56% female and had 13 employees with registered disabilities. The senior management service level was 72% black and 46% female. There was a vacancy rate of 9.17%. An additional 57 funded posts had been created during the year with 69 promotions within the Department. The Graduate Development Programme had been leveraged to address skills gaps. In 2015/16 there were 74 internship contracts and 33 interns had been appointed permanently.

Members asked about the “concrete milestones” which were being used to attract credit agencies, the uncertainties among critical partners, the high inflation and unemployment rates, and the steps taken in reforming retirement benefits. They asked if the differences within SARS had been resolved, and stressed the need to focus on skilling the population rather than relying on the Skills Education Training Authority (SETA). They warned that the country could be on the verge of a fiscal cliff, with no strong indication of a fiscal consolidation, and some state-owned enterprises (SOEs) were a serious concern -- SAA had to appear before them. Insufficient attention had been paid to the local government pension funds. The recent tax evasion exposé involving 11 million leaked documents was raised and Treasury was asked what it was doing about the people and institutions involved in tax evasion. Other issues raised dealt with the high rates of inflation and unemployment, and provinces spending money on advertisements despite calls for the tightening of belts.

Meeting report

Briefing by Minister and Department of Finance

Mr Pravin Gordhan, Minister of Finance, said international institutions were no longer interested in plans, but rather in concrete milestones that were a demonstration of the intention to implement the plans. Ten days ago, Moody’s had been in South Africa and had been having a second round of telephonic and video interactions with a number of people. Next week the Minister and the Director General would meet with various agencies in Washington in order to persuade them that South Africa had sufficient going for it as a country and an economy with the ability and willingness to pay its debts and a determination to work with all sectors of society. The National Treasury sought to achieve an economy that grew faster and was less dependent on debt-financed consumption, to put more South Africans to work and reduce or eliminated poverty and inequality. There were guarantees on public entities like South African Airways (SAA) and Eskom, and if there were problems with the guarantees, government would have to pay. He said the super elites evaded tax and embraced money laundering.

The National Treasury directly contributed towards the achievement of the following outcomes of Government as set out in the 2014-2019 medium term strategic framework (MTSF):

  • Decent employment through inclusive growth (Outcome 4);
  • An efficient economic infrastructure network (Outcome 6);
  • A responsive and efficient local government system (Outcome 9);
  • Create a better South Africa (Outcome11); and
  • An efficient public service and inclusive citizenship (Outcome 12)

Mr Lungisa Fuzile, Director General: National Treasury, said this year’s budget was focused on fiscal consolidation. The subtotal for the revised Estimates of National Expenditure (ENE) were as follows: 2015/16 (R28 704.60 million); 2016/17 (R28 471.40 million); 2017/18 (R31 127 million); and 2018/19 (R32 310.5 million). Growth rates were 2015/16 (19%); 2016/17 (-0.81%); 2017/18 (9%); and 2018/19 (4%).

Programme 1 (Administration) provided strategic leadership, management and support services to the Department through maintenance of good governance, and enabled National Treasury to achieve its objectives and alignment of information communication technology (ICT) services to enhance delivery.

Programme 2 (Economic policy, tax, financial regulation and research) provided specialist policy research and analysis in the areas of macroeconomics, microeconomics, taxation, the financial sector, and regulatory reform.

Programme 3 (Public finance and budget management) provided analysis and advice on fiscal policy and public finances, intergovernmental financial relations, expenditure planning and priorities, managed the government’s annual budget process and provided public finance management support. It also involved implementing reforms and providing support to improve budgeting, financial management, reporting and value for money in the provinces and local government.

Programme 4 (Asset and liability management) involved managing government ‘s annual funding programme in a manner that ensured prudent cash management.

Programme 5 (Financial and supply chain management systems) facilitated accountability, governance and compliance, capacity building, oversight and equitable and cost-effective procurement in the public sector.

Programme 6 (International financial relations) managed South Africa’s multilateral financial relations through forums such as the Brazil, Russia, India, China and South Africa (BRICS) union, the G20, the International Monetary Fund (IMF), and the Southern African Development Community (SADC).

Programme 7 dealt with civil and military pensions.

As at 31 March 2016, the total staff complement was 1 218 (filled positions), and the total staff establishment was 1 341 (funded positions). The Department was 85% black, 56% female and had 13 employees with registered disabilities. The senior management service level was 72% black and 46% female. There was a vacancy rate of 9.17%. An additional 57 funded posts were created during the year with 69 promotions within the Department. The Graduate Development Programme had been leveraged to address skills gaps. In 2015/16 there were 74 internship contracts and 33 interns had been appointed permanently.

Discussion

Dr M Khoza (ANC) said the Minister alluded to the fact that credit agencies and international monetary institutions were no longer interested in plans, but wanted concrete milestones. What milestones did the Ministry have?

The Minister replied that the Ministry had a short term plan with the unions, the private sector and other departments of the Government, and were six weeks left for the National Treasury to see what could be put on the table by then on behalf of the country.

Dr Khoza said there were uncertainties among critical partners about the financial environment at home and abroad. Had the Ministry found a way of handling the issue between it and the Commissioner of the SA Revenue Service (SARS), as there was some disjuncture? There was need to have some stability -- what was the National Treasury doing about that?

Minister Gordham replied that there were no countries which did not have uncertainties. The dark side was if it was an emerging economy, as the countries who had the money called the shots. The Ministry was putting its best foot forward on behalf of South Africa. It was a good collective and national effort. On the question regarding SARS, the Minister replied that he would ask for a little more time, as it was work in progress.

DR Khoza said the recent tax evasion exposé involving 11 million leaked documents was scary. Had the National Treasury ascertained what was being done about the people and institutions involved in tax evasion? Were people coming up to say they were involved?

The Minister replied that he had asked agencies of the Ministry to look into the issue and find out the implications for South African tax payers. The phenomenon of a tax haven was not limited to Panama. There could be many more in the world. The Ministry wanted more exposés so that those affected would pay the taxes that were due. This type of exposure would give encouragement for people to actually come forward.

Mr Ismail Momoniat, Deputy Director General (DDG): Tax and Financial Sector Policy, added that the scope for hiding funds offshore was getting narrower. When there was a divorce between the parties, those who were aggrieved went to the newspapers. This issue was not handled by the National Treasury, but by SARS. When the stories were out, it took a while before agencies of the Ministry could get information. Even when SARS received such information, it was treated confidentially as the source of the information could sue SARS. Treasury would employ its agencies to use the best investigative policies, as offenders would not come knocking at the door.

Dr Khoza said that as a political leader, the Ministry had a greater responsibility to champion macro economy policy. She asked the Ministry to comment about the high inflation and unemployment rate, because if something was not done within the next five to ten years, the nation would one day wake up to the realisation that it had arrived at a fiscal cliff.

Minister Gordhan replied that there was a national consensus on how to address the issue of growth, gross inequality, poverty and unemployment. There was no text book on growth. Each country had its own idiosyncrasy. The DG would give indicators of fiscal consolidation and the deficit, and reducing debts over time would be some of them.

Dr Khoza said in the maiden budget speech, there had been no concrete indications of where the country was on fiscal consolidation. Provinces were spending more money on advertisements. The offices of the Premiers were for the coordination of structures. Had the National Treasury set a benchmark to say Premiers could not spend beyond a certain amount? Many Premiers employed so many people, whereas the money was needed to be spent on infrastructure.

Minister Gordhan replied that there had been some co-operation in 2013/2014, but there had been a shift back to the bad habits. It was not only spending on advertisements, but on many other things including paying for the kind of event that Mr F Shivambu (EFF) had talked about. The Ministry would reassess Cabinet decisions that had been made in this regard. There was an expectation of good sense from municipal and provincial leaders. There should be respect for the public. People knew those who stole and those who did not. The National Treasury would in the coming years take a more careful look and enforce more discipline.

Dr Khoza said the issue of state-owned entities (SOEs) concerning. Was there sufficient appreciation of what the National Treasury was doing? What punitive measures were being considered in order to get everyone to toe the line?

Minister Gordhan replied that the financial situation of SOEs was monitored on a regular basis. Strict conditions were attached to guarantees that were given. The Deputy President was leading a process to promote reforms for state-owned enterprises.

Mr Fuzile added that the SOEs were held responsible by the Ministry by putting them on a tight leash, but that was not good for the economy. Although there was no requirement in law, there were written reports between the entities and government. The Ministry informed the entities ahead of time of their status, the risks associated and the remedial action

Dr Khoza said Programme 7 was concerned about the narratives about the Public Investment Corporation (PIC). The Business Day newspaper had reported that the PIC had taken investment decisions that were not wise. Were there any concrete steps in terms of consolidating and reforming retirement benefits? Insufficient attention had been paid to the local government Pension Fund.

The Minister replied that anyone who wanted to start a business or takeover an existing one looked to the PIC, which put a lot of pressure on it. The Ministry frowned upon pressure to support A and not B in a particular kind of context. The PIC was on one hand an asset manager and, on the other, a used asset as well.

Dr Khoza said the DG had made an important point on the need to focus on skilling our population. One concern was that the nation was not focusing on real issues in terms of skilling. There was no value for money from the Skills Education Training Authority (SETA). Universities were knowledge providers, but the failure rate was scary. Would the National Treasury continue to pump money into the universities when there was an issue about the output?

Minister Gordhan replied that he was open about that, but the poor output was what had to be dealt with.

Dr Khoza said that regarding regional integration, jobs were being produced in the metropolitan areas. The challenge was that there was a large contingent of foreigners. When neighbouring countries had challenges, these extended to South Africa. Was there any engagement with such countries to help in resolving some of the challenges in order to stem the tide of the foreigners streaming into South Africa?

The Chairperson remarked that every question that had been asked by Dr Khoza had been raised every two years by Members of the Committee and not much progress had been made in that regard. The financial management belonged to standing Committee on Finance, while the governance and other issues belonged to the Public Enterprises Committee. The Minister should bring the two Committees together, as not much progress could be achieved without the involvement of the two. There was much more empathy for that than the Minister appreciated. This was an issue that needed discussion with the executives of the Ministry. Many of the questions he had wanted to ask had been covered by Dr Khoza

Mr A Lees (DA) referred to the Brics Bank, and asked if the National Treasury had looked further in terms of the returns the country would get from the financial and infrastructural point of view? A lot of the Members were excited about the question of a central procurement office. There was concern over the suggestion that Mr Kenneth Brown, the Chief Procurement Officer, might not stay on. It was not right to have an institution as important as the Treasury relying on only one person. The review of the SA Customs Union (SACU) agreement that was under way was a historic issue. How was the review going? The Democratic Alliance (DA) as a party was of the view that the expenditure reviews were essential. Was there any timetable for that? The comment about the budget alignment with the National Development Plan (NDP) was appropriate. How would the National Treasury be directly involved in the question of skills, as there was an obligation to guide more emphatically? He was glad that the question of PIC investment parameters had been raised?

Minister Gordhan said South Africa, like all Brics partners, had submitted projects to the bank and those that would be sponsored had been considered. It would be a huge additional funding. There was a need to save small economies that depended on the SACU for 50-70% of their yearly revenue. They had to create economic activity in their own countries that would provide them with the revenue required to supplement what they had. South Africa was also promoting the idea of a parallel development fund. It was not an easy objective to achieve. As regards the central procurement office, an excellent job had been done to build good and capable units around Mr Brown in the last 24 months. The task of the DG, among others, was to ensure a proper succession plan. The Minister disagreed that there was no alignment between budgets and the NDP. There were job creation budgets being funded within the budget framework of the government

Ms P Kekana (ANC) said her question revolved around a transversal issue on what the Minister said about growth and the capacity to implement the plans, and what the DG had said about infrastructure being a catalyst to mitigate the unemployment issues. There was a need to source contributions from some of the agencies that were affiliated to the National Treasury. This would enable such agencies to assist. She was in agreement with Dr Khoza on the issue regarding the PIC. Was National Treasury hands on regarding the PIC, or did the Ministry just throw in money? A firm suggestion was that there should be a meeting with the PIC so that the stakeholders could find each other on some of these issues.

The Minister said that there had been a World Bank report published last year on doing business in eight metros. It gave a graphic example of how bad bureaucratic practices limited business investment in municipalities. Municipalities that had access to water, electricity, approval of zoning plans and refuse removal would likely get investment. On the question of capacity, there was a need for South Africa to become a developmental state.

Mr C De Beer (ANC), though not a Member of the Committee, asked about lessons learned in terms of the Section 100 intervention to deal with financial mismanagement in Limpopo.

The Minister replied that it was a long story and the DG would be able to comment more on that.

Mr De Beer said in terms of spending by provincial departments and premiers, the Committee should zoom into the report of August 2015 and see what progress had been made. What were the plans for Intergovernmental relations, because if that succeeded all other related issues would succeed? Monetary evaluation was done at the provincial level, but it should be boiled down to regions as he could not pick them up in the region where he was deployed. Just as heads of departments sat once a week, the regional directors should also sit once a week in a forum.

Minister Gordhan replied that it was an important question, and the Committee’s thoughts and guidance in the governmental context would be very useful. Calling provincial treasuries to order was good as a way of knowing what was going on the one hand and putting pressure on the other.

The Chairperson asked what criteria would be used for the non strategic assets that the Ministry wanted to dispose of.

The Minister said that many countries continued to find themselves in a state of fiscal or non-fiscal distress, and there was a lot of out of the box thinking .South Africa was still using old ideas. It was an ideological and tough issue, but one that had to be confronted..

The Chairperson said there was nothing in the briefing about the integrated financial systems. The Committee wanted a concerted reply on the different pension funds. The Property Rates Act must be applied to people who had property to a certain value, no matter where they were located. The issue of the Property Rates Act had been on the agenda since 2004. Customs and traditions should be respected. The Committee was aware that the Ministry had to deal with Cooperative Governance and Traditional Affairs (COGTA) and the Presidency.

The Minister replied that he agreed with the Chairperson on the Property Rates Act. The Ministry would ask the relevant officials to work on that.

Mr Shivambu said the EFF had written to all the Ministers and Deputy Ministers to request information on the amounts that had been spent on Gupta platforms. It was unethical for a Minister to appear on a breakfast programme and be paid R520 000. Why would so much money be spent on a platform that was supposed to be free? The National Treasury should give accounts and directives on how such expenses should be handled. What was the SARS restructuring programme? In an interview, the Commissioner said if the restructuring had been stopped as a result of the Minister’s instructions, SARS would have collected R10 billion less. What had been the motive behind the instruction? There had been reports of professional or personal differences between the Commissioner of SARS and the Minister.

The Minister replied that as Parliament, the Committee was welcome to call the Department to order

The Chairperson said the Committee understood the complexities and challenges, and were sympathetic. The last request for an extension by SAA had obviously been the last. It was not negotiable that SAA had to appear before the Committee.

The Minister replied that the Ministry would reschedule a date when that could be done. There was no board yet. A proper management team was required to take the enterprise to a new level. All sorts of foreign airlines that were going out of fashion and did not have space two years ago were now operating international flights from South Africa.

Mr Dondo Mogajane DDG, Public Finance, said the fiscal consolidation agenda had started in 2010. The second phase was the pronouncement on the issue of the broadly reformed procurement, and the third phase was the expenditure review which concentrated on small programmes. This was a critical pillar in the fiscal reform, with the view to seeing the impact of the Ministry’s programmes and to do so with the idea of informing allocations to programmes that could generate more economic growth. This week the National Treasury would meet with the Department of Performance Monitoring and Evaluation (DPME) on how to approach next year’s budget process and what the Ministry should be focusing on moving forward in order to see if there was a need to add more resources to boost economic growth, or to cut down on some of the expenditures. On the complexities around municipalities’ standard chart of accounts and standard rating for spending in terms of the budget reform agenda, he said the Ministry had a road map it could learn from and was at the point where it could introduce standard charts of municipal finances as there now was reasonable experience.

The Chairperson said there was a need to look at the relationship between legislation and oversight. Many of the agencies, like the Financial Services Board (FSB) and the PIC, were over challenged. The Standing Committee on Finance looked at every clause and spent twice the amount of time on bills. None of the Committees he had chaired had the quality and dedication of the Ministry. The Committee wanted the Ministry to engage with stakeholders, as there was a need for more consultation. There was much more synergy between the NDP and the Budget. What Members were saying was that the synergy was not clear.

Minister Gordhan said that government did not create jobs, the economy did. The Ministry would follow the Committee’s lead in this regard, and would get back to Committee.

Mr Momoniat said in terms of the special Voluntary Disclosure Programme (VDP), the Ministry was scheduled to come to Parliament in mid-April.

Mr Fuzile said fiscal consolidation was the narrowing of the gap between what the Ministry spent and what it received as revenue. If the rate of growth in gross domestic product (GDP) outpaced the rate of growth in expenditure, it meant that there was consolidation. GDP growth in 2016 was projected at 0.9% while the real growth in expenditure was 0.2%. Many people had said there was interference when one monitored them on the guarantees. This had to happen, because it was the ministry’s job. The PIC was the fund manager but the money belonged to the Government Pension Fund (GPF). The PIC should be managing the money on behalf of the GPF.

The priority setting process was not sufficiently developed as regards the alignment between the NDP and the budget. Often the temptation was to make sure the rest of the government saw itself in the list of the priorities that had been set. When the budget tended to please everyone, it could not be right. When the list exceeded five, it was no longer a priority. As long as the system did not have priorities, there would be scapegoats. The DG said there were questions that he had skipped, and he would answer them during the quarterly report.   

Mr Chivambu said the National Treasury always referred to the Financial Sector Regulation Bill as a “twin peaks” bill. It was not, and the misnomer was problematic.

Closing Remarks

Chair Person said no one had submitted a comment on the report. The Ministry should look in the report to see what the Committee requested for the last year. Seven Committees should be brought together for the Panama “leaks” issue. On the issue of SOEs’ financial management, the Committee would engage with the Committee on Public Enterprises. On economic growth, it would engage with relevant departments -- about six or seven of them. Regarding the advertisements in newspapers, the Ministry should be unrelenting in putting pressure on premiers and provincial offices. A lot of money had been invested in the automotive industry, but the number of jobs created was too small. He would speak to the Committee concerned on the nuclear energy bill.

The meeting was adjourned 

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