Committee Report on Fiscal Framework and Revenue Proposals

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Finance Standing Committee

07 March 2017
Chairperson: Mr Y Carrim (ANC)
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Meeting Summary

The Standing Committee on Finance (SCOF) discussed the report of the standing committee on finance on the 2017 fiscal framework and revenue proposals. The DA had submitted certain comments and proposed amendments regarding the report which were appended to the report on pages 18 and 19. These points were discussed in the meeting. Amongst other, these included:

-The DA felt the growth forecast of 2% for the domestic economy in 2018 in paragraph 2.2.1 of the report was too optimistic. The ANC disagreed.

-The DA’s suggested that the following wording be added: there is a need for “government to work together to implement the structural reforms necessary to boost economic growth and create jobs”. The ANC was happy to include this.

-The DA had raised the issue of the sale of non-strategic assets and had requested in its submission that there be quarterly reports by the National Treasury (NT) on the progress of these sales. The ANC agreed that this would be useful but felt that it was unrealistic - sales can take a long time, NT is very busy and there are other factors such as market sensitivity which would make it unfeasibly difficult for the NT to compile quarterly information. The compromise was for the report to state that there should be “regular reports on the progress in disposing of non-strategic assets” under 7.1.2 of the recommendations section.

-The DA had asked for cost-containment figures but this was a puzzling request as NT already does this on a quarterly basis following the Committee’s 2015 report. No action was taken to change the report in this regard.

-The ANC and the DA did not agree on the need to request a comprehensive spending review as per the DA’s request. This was a point of policy disagreement between the ANC and the DA.

The majority of Members voted in favour of the report.

Meeting report

Committee Report on Fiscal Framework and Revenue Proposals
The Chairperson began by discussing the DAs proposed amendments to the report. He explained that the DA felt the growth forecast of 2% for the domestic economy in 2018 in paragraph 2.2.1 of the report was too optimistic. The ANC disagreed. The second part of the DA’s suggestion was to include a statement referring to the need for “government to work together to implement the structural reforms necessary to boost economic growth and create jobs”. The ANC was happy to include this. This discussion and the DA’s submission is captured in 6.4 under the observations section of the report.

The Chairperson continued. The DA had raised the issue of the sale of non-strategic assets and had requested in its submission that there be quarterly reports by the National Treasury (NT) on the progress of these sales. The ANC agreed that this would be useful but felt that it was unrealistic - sales can take a long time, NT is very busy and there are other factors such as market sensitivity which would make it unfeasibly difficult for the NT to compile quarterly information. The compromise was for the report to state that there should be “regular reports on the progress in disposing of non-strategic assets” under 7.1.2 of the recommendations section.

The Chairperson stated that the ANC agreed with concerns voiced by the DA regarding the accusation that SARS had been withholding diesel refunds and possibly VAT refunds as well. This was noted in the observations section under 6.12. SARS must answer to this accusation when it meets with the committee. Similarly, the Committee agreed with the DA’s submission regarding SARS’ operating model which was noted in the recommendations section under 7.24.

The Chairperson noted that the ANC and the DA did not agree on the issue of dividends withholding tax. NT explained why it had decided to immediately implement the dividends tax on 22 February rather than at the beginning of the tax year. If NT had withheld the change until the beginning of the tax year businesses would not have payed. As such this recommended observation/concern from the DA was not to be included in the final report.

The Chairperson stated that the ANC and the DA agreed that NT should provide a detailed report on the review of the Southern African Customs Union (SACU) and that this point was included in the report. However, the ANC felt that there was no need to include the cost of the review (at an estimated R55.95 billion) as this figure was known.

The Chairperson continued. The DA had asked for cost-containment figures but this was a puzzling request as NT already does this on a quarterly basis following the Committee’s 2015 report. No action was taken to change the report in this regard.

The Chairperson stated that the ANC and the DA did not agree on the need to request a comprehensive spending review as per the DA’s request. This was a point of policy disagreement between the ANC and the DA.

The Chairperson stated that the point about the national debt was already included in the report and as such was covered sufficiently. This was also true of the DA’s point about contingent liabilities.

The Chairperson explained that the report now had the DA’s additions underlined while his personal grammatical corrections were in italics. He asked Advocate Frank Jenkins to do a final grammatical proofread. He thanked Zakhele Hlophe, the Parliamentary Advisor, and Ester Mohube for their help.

The Chairperson Carrim noted that although there was poor attendance there were enough members for the Committee to have quorum.

The Chairperson Carrim summarised what had occurred so far in the meeting for Members that had arrived late.

Mr A Lees (DA) then responded on behalf of the DA. The DA found 90% of the report acceptable and was pleased by it. There were some issues however. The DA can not accept paragraph 6.3. [which states that government is committed to “radical economic transformation as defined by the President in the State of the Nation address (SONA)”]. Mr Lees noted that this was a point of fundamental difference between the DA and the ANC. The DA felt 6.3 should either be taken out or alternatively if kept the objection of the DA must be noted.

Mr Lees spoke to 3.2.2 and the sentence which states “The Commission welcomes the declining levels of contingent liabilities of State Owned Entities (SOEs)”. The Financial and Fiscal Commission may have put it as such in their report but this is not true; the levels of contingent liabilities are not declining, although it is true that their relative share to GDP is declining. This is a slightly technical distinction but clarity is important.

There was a brief discussion on this point but ultimately it was decided not to change the words of the Commission as it is the role of the Committee to summarise submissions and not to tamper with them.

Mr Lees continued. He was uncomfortable about 6.10 but was willing to leave it as is following the Chairperson’s adjustment to include the word ‘contributed’ to the paragraph. Paragraph 6.11 mentions a decreasing rate of Corporate Income Tax. This is misleading as the tax rate on corporate income is the same as before. It is the amount of tax received from this source as a share of total revenues that has decreased.

The Chairperson agreed that the text should note a “Decreasing amount of revenue from CIT as a percentage of total tax”.

The Committee agreed that 6.17 included a typo in “bucket creep” which should be “bracket creep”.

Mr Lees commented on 7.7 which opens a debate about inflation targeting. He felt that debating this matter and taking a position was not the role of the Committee.

The Chairperson explained that the paragraph states that NT must consider the views of stakeholders with regards to inflation targeting. The Committee as such is not taking a specific stance or making a recommendation.

The Chairperson stated that there is no rule that objections of opposition parties be included in committee reports. To resolve this Chairperson Carrim decided that in relevant places where there were objections the report would be worded to indicate that “the majority in the committee” supported the point in question.

The Chairperson joked asking if the DA really needs Mr Maynier given how efficient Mr Lees is. The reason is that he was happy with the DA’s recommendations.

The Chairperson concluded with a discussion of the political space around the Committee. He noted a polarisation along crucial questions in the public space. He felt that the country could not afford to be split according to differences in the ideological spectrum [left vs right, more socialist policy vs more unfettered capitalism]. He stated: “When you have 0.4% growth, you need to have a minimum degree of national consensus”. There are huge gaps between parties in ideology which are worrying as these differences slow progress.

Mr Lees brought up the response from the National Treasury. He felt that NT response was short on detail. Several direct questions were simply ignored. NT must ‘up their game’.

The Chairperson stated that he was sympathetic to NT as it was facing severe challenges and has a new and relatively young team. He did agree however and added that Mr Lees’ point was included in the report.

The Committee voted in favour of the report and the report was adopted.

The meeting adjourns. 

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