Rates & Monetary Amounts and Amendment of Revenue Laws Bill: finalisation; Committee Report on MTBPS Revised Fiscal Framework

Meeting report

Deliberations on the Report on the Revised Fiscal Framework

Mr Carrim welcomed everyone in attendance then took the joint committees through the report on the revised fiscal framework. Inevitably, issues related to the 2017/18 revised fiscal framework overlapped with issues to the proposed fiscal framework for the Medium-Term Expenditure Framework (MTEF) period. Hence, several outstanding issues would be dealt with in the report on the proposed fiscal framework.

The joint committees noted the adjustment of the budget from R1.409 trillion to R1.413 trillion leading to an increase in expenditure in the 2017/18 Budget. Much of this increase was directed at bailing out State-Owned Enterprises (SOEs) and reinforces the concerns raised by lawmakers that there needs to be stringent conditions set for these bailouts, and that these should, as far as possible, be tabled in Parliament. In these extremely challenging economic times, it was obviously difficult to have a redistributive budget. Therefore, they welcomed the Minister’s commitment to retain social spending.

The low economic growth meant that there would be a R50.8 billion shortfall in tax revenue, and Members noted that borrowing will shoot up, with nearly 15% of the budget being spent on servicing debt by 2020/21. This means that, more than ever, focus had to be on the quality and efficiency of spending, more decisive and quick rooting out of wastage and corruption, and strengthen the South African Revenue Service’s (SARS) revenue collection capacity. While the joint Committee agreed that the primary reason for the revenue shortfall is the slow economic growth, it felt that SARS also needs to be more effectively capacitated and more efficient in its work. It also needs to effectively tackle Illicit Financial Flows (IFFS), including through working with other state agencies. It also needs to more actively address waning public confidence in SARS, decreasing tax compliance amongst tax payers and a decline in tax morality. Revenue shortfalls have become a risk to the fiscal outlook and the joint committee recommended that SARS and Treasury report more pointedly and in greater depth on progress in revenue collection in their Quarterly Briefings to Parliament.

Furthermore, the joint committee was seriously concerned that the percentage of debt to GDP was projected to reach 60% in the last year of the 2017 MTEF period. It recommended that Treasury should develop and implement a credible debt management strategy over the short to medium term, to effectively manage and monitor the “debt trap” and report quarterly to the Finance Committee. In addition to providing fiscal policy certainty, the Minister of Finance should indicate the timeframes and the levels at which debt is expected to stabilise. The joint committee noted that the Minister said that debt to GDP ratio need not reach 60%, provided government takes decisive actions on structural reform. This cannot be done by Treasury alone, but by government as a whole. However, Members recommended that Treasury reports to Parliament at its Quarterly Briefings on its role in ensuring progress in this regard. The Committees will also hold Treasury to account for this in all the work they do.

The joint committee appreciated the progress made by Treasury in implementing cost-containment measures since the 2012/13 financial year and noted that further cost cutting measures may compromise service delivery in departments. Costs need to be reduced without compromising service delivery to the poor. Executives across all three spheres of government could certainly reduce their costs, and this was being attended to by the Appropriations Committee. In light of the current expenditure breach of R3.9 billion, Treasury should implement a comprehensive spending review to identify savings areas, including a review of programmes in government departments that have over a reasonable period of time failed to achieve their intended objectives and a reduction of dual functions between line departments and implementing agencies and enhance oversight over these agencies. Progress made should be reported to the joint committees on a quarterly basis.

The joint committees noted that the South African economy has been performing at a rate that is relatively lower than its global and regional counterparts including Sub-Saharan Africa. This implies that the country’s challenges are largely domestic. A rigorous implementation of the 9-point plan and the Minister of Finance’s 14 confidence boosting measures was required to restore consumer, business and investor confidence in the short to medium-term and stimulate economic activity. Also, the Minister of Finance should have a plan for managing the credit rating agencies and keep the public and the Finance Committee informed. Upfront and timely policy statements on policy issues would assist in restoring confidence in the South African economy and trust in government.

The joint committees noted with concern Treasury’s reduction of the contingency reserves over the MTEF. They believed that this leaves a limited room for unforeseen expenses. They further noted the usage of contingency reserves, together with underspent funds to bail out South African Airways (SAA) and to manage the widening budget deficit. The use of unspent funds could compromise government’s frontline service delivery. They further noted that the extension of SAA debt by local financial institutions had come at increased interest rates. While the joint committees had been informed about the conditions set by these institutions in order to extend debt to SAA, Members requested more information on the revised interest rates and on plans to ensure that the repayment rates do not expose SAA to further liquidity pressures.  

The joint committees strongly believed there should be far more stringent conditions set for any financial support for SOEs. They welcomed the Minister’s commitment to ensuring far more effective government oversight of SOEs, appointing effective Board members, ensuring that Boards appoint competent managers, tackling wastage and corruption, and, very crucially, acting against those who do not perform. The joint committees asked to be briefed on progress in this regard and urged that the stringent conditions for bailouts be finalised as soon as possible.

They noted that 95% of the wealth of the country is in the hands of 10% of the population. This was completely unacceptable and reinforces the need for radical economic transformation that benefits all people, but primarily the poor and disadvantaged. The promotion of Black industrialists programme was an important part of this. The decision to introduce the Public Procurement Bill next year to provide for set asides for disadvantaged strata of society, including the youth, will also contribute to radical economic transformation.

The Minister of Finance must strengthen his collaboration with the relevant stakeholders and Ministries to address corruption and illicit financial flows (IFFs) and Treasury must continue to regularly report on progress. The Committees reiterated their previous recommendation that government considers establishing an Inter-Ministerial Committee, led by the Minister of Finance, to more effectively tackle IFFs. The release of the Paradise Papers has reinforced the need to tackle IFFs far more effectively. They recommended that Treasury crack down more on unauthorised, irregular, wasteful and fruitless expenditure as this puts unnecessary pressure on the fiscus. They also expressed their appreciation to those who made submissions at the MTBPS public hearings. Members would incorporate the concerns in their oversight and legislative roles.

Lastly, the joint committees welcomed the Minister’s statement that “procrastination and dithering must end, we must demonstrate decisive leadership.” They also supported his statement that “government must improve its productivity and decisiveness.” They will certainly hold Treasury to account for this.

Discussion

Mr D Maynier (DA) noted that the budget process was a creature of the statutes and was set out in terms of the Money Bills Amendment Procedure and Related Matters Act. He felt the Committees had not complied with the relevant Act. Section 6, dealing with the proposed fiscal framework was to be used to take decisions. However, the Committees erred in two respects. Firstly, in terms of the process, the Committees had omitted to comply with Section 6 in terms of deliberating on the fiscal framework within 30 days. It seemed the Committees’ report conflates the revised and proposed fiscal framework but then omits to apply the Section 6 criteria about how the said frameworks should be dealt with. Furthermore, debt levels were not reasonable, and the joint committees, in the application of Section 8 of the same Act, should take that into consideration. Debt levels were not reasonable and based on that, there was need to rethink the process by reconsidering the report. The joint committees had to go back to the Money Bills Act and comply with its prescripts. Two reports had to be produced; one based on the revised fiscal framework, and the other based on the proposed fiscal framework. The joint committees could not plausibly recommend that Parliament adopt the Treasury fiscal frameworks. He proposed that the Committees take a pause and rethink the approach completely. 

Mr A Lees (DA) said the joint committees had an obligation to make a determination about the reasonableness of the debt level. The difficulty was that Treasury and the Minister also did acknowledge the debt level challenge but the frameworks the Committees were being asked to adopt did not include the remedial steps and measures to deal with the unsustainable debt levels. Therefore, the joint committees could not make any decisions based on the information presented before it. 

Mr De Beer emphasised the need to restore confidence in the economy to ensure economic growth as had been acknowledged by the Minister. That was crucial.

Mr O Terblanche (DA) expressed concern about the apparent disjoint between what was happening in the South African economy in relation to other economies. There seemed to be silence about dealing with the real issues affecting economic growth. He noted that the economy was growing at a rate lower than SA’s global and regional counterparts in Sub Saharan Africa which implied that the challenges were largely subjective.

Mr Carrim said the points Mr Maynier was raising were not new. The joint committees had decided to do one report as the issues were related and it was difficult to find enough time and capacity. At this stage, there was no need to take any drastic decisions. Issues had to be separated. There may be a need to make the report tougher and express greater concern about the debt levels. However, that was a policy issue which could attract endless debates. The issues could be resolved by striking compromises without being sectarian about it. The Committees could not deal with budget issues in a philosophical but concrete way.

Ms T Tobias (ANC) said Parliament needed to be alive to its responsibilities. She persuaded the DA to support the adoption of the report as per Mr Carrim’s suggestions. The three concrete proposals articulated by the report should be adopted.

Adv Frank Jenkins, Senior Parliamentary Legal Advisor, said the previous joint committees had decided to do a consolidated report.  However, having two reports would not be in contravention with the Money Bills Act. The stipulated timeframes were there to allow Parliament to make amendments within the budget cycle timelines. In terms of the Act, the Committees were not required to make any improvements to the MTBPS. They had to make recommendations and the Minister must respond to those recommendations. If such recommendation were not taken into consideration, then Parliament could go on and amend the fiscal framework.

Mr Carrim said realistically, having two reports would not make much or a difference as it would not change the contents and the Committee recommendations. He asked if Mr Maynier had a way forward that encompassed his concerns as well as other Members’ legitimate concerns.

Mr Maynier emphasised the need to comply with the Act ultimately. He was not agreeable with having just one report. One report would have to deal with the revised framework as the case may be whereas the other must deal with the proposed framework. This ought to be done separately by the two Committees.

Ms Tobias said Mr Maynier was not bringing any new proposals to be added into the report. He had no concrete proposals; he just wanted the DA to govern in parallel to the ANC. However, procedure had to be followed.

Mr Carrim said Mr Maynier was being extremely difficult as the outcomes were not going to be different. Was having two reports or extended timelines going to change the substance and quality of the reports?

Mr Maynier said it was not about changing the contents but ensuring that due process was followed. The process was currently deficient. He would make proposals after the process is back on track. The report would be of more significant quality when the Money Bills Act is abided to.

Mr Carrim said that was fundamentally untrue. He asked for the Legal Advisor’s opinion.

Adv Jenkins said when amending the fiscal framework, the joint committees need to ensure that principles of fiscal discipline must be complied with. It had to be ensured that debt levels and interest costs were reasonable- that was the meaning of section 8(5) and what the joint committees can do. The recommendations could be done in two reports provided both were in compliance with the Act and deal with the MTBPS.

Mr De Beer said the Committees could have a consolidated report; one part dealing with the revised fiscal framework whereas the other part with the proposed fiscal framework.

The Committees, having considered the 2017 Revised Fiscal Framework tabled by the Minister of Finance on 25 October 2017, adopted the Revised Fiscal Framework Report.

The DA reserved its position on the report.

Rates and Monetary Amounts and Amendment of Revenue Laws Bill

The Chairperson highlighted that extensive discussions were done during public hearings, before and after the Bill was formally introduced. The National Economic Development and Labour Council (NEDLAC) also produced a report and the Committee had to decide whether to table that report in the Announcements, Tablings and Committee Reports (ATC) so that Treasury and the Department of Health (DOH) are held to account on decisions taken at NEDLAC. Also, the Senior Parliamentary Legal Advisor had been asked to go through the Bill to check if it was in accordance with what the Committee had informally agreed to. He asked for Treasury’s comments on the current version of the Bill.

Mr Ismail Momoniat, DDG: Tax and Financial Sector Policy, National Treasury, indicated that they had nothing more to add to the current version of the Bill even though they would have preferred a higher tax threshold for the Health Promotion Levy (HPL). 

The Chairperson wanted to know about what else was being done to tackle health challenges apart from the HPL.  Also, could a fraction of the HPL revenue be ring-fenced to tackle the challenges related to excess sugar consumption? The majority felt that should be done.

Mr Momoniat said ring-fencing was really not an efficient path to take. It was essentially a budgeting issue and currently there were no revenue estimates from the HPL. The commitments to deal with health challenges as spearheaded by the Department of Health and the budget-spend would hopefully be presented during Budget Speech in February.

The Chairperson felt Treasury’s response on why it was not agreeable to ring-fencing was weak. He asked Treasury to submit a paragraph on the reasons why ring-fencing was not the right path to take, to be inserted into the Committee Report.

Ms Tobias pointed out that ring-fencing would present challenges as it could create imbalances in the budget process in its entirety. Treasury could reassure stakeholders that initiatives to tackle health challenges which the HPL sought to address would be adequately funded. She asked Treasury to explore such a possibility.

Voting on the Bill

The Chairperson then took the Committee through the Rates Bill page by page.

The Bill was adopted and the Chairperson thanked everybody who contributed to the HPL debate on behalf of the Committee. All stakeholders had grievances but unfortunately this was how the process had to be managed- it was a give and take process and the aim of the Bill was to open the door for the HPL. Its impact on job losses within the sugar industry value chain was yet to be seen. The Committee would have to get regular reports on the impact of the tax on job losses and on health. Members had to mediate between conflicting interests. Hopefully, job losses would be far less than projected and if the impact was worse than anticipated, Treasury would need to review the rates.

Mr D Hanekom (ANC) expressed appreciation of the Chairperson’s mediatory role during the HPL deliberations. It turned out to be a great exercise in public participation. 

The meeting was adjourned.