Appropriation Bill 2018: Financial and Fiscal Commission briefing

Standing Committee on Appropriations

08 May 2018
Chairperson: Ms Y Phosa (ANC)
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Meeting Summary

The Financial and Fiscal Commission (FFC) came before the Standing Committee on Appropriations (SCOA or “the committee”) to present comments and recommendations regarding the 2018 Appropriation Bill (“the Bill”). The presentation was thorough and discussed the Bill, economic outlook, investment and job creation, baseline changes across votes, risks to the fiscal framework, government’s five priority areas in the Medium-Term Strategic Framework (MTSF), infrastructure investment spending, challenges and opportunities facing State-Owned Companies (SOCs), possible new institutional arrangements for SOCs, and policy areas or mechanisms that could stimulate efficiency.

The FFC noted and welcomed efforts by the state to consolidate the budget, in particular by effecting budget cuts, which forced departments to seek efficiency and “ask tough questions”. However, it was concerned by the cuts in infrastructure grants and by the lack of transparency regarding how these cuts were decided upon. The Commission was also concerned that a reduction in spending would negatively affect service delivery and stressed the need for improved operational efficiency to provide services without increasing expenses.

Members’ questions focused on the decision to raise the Value Added Tax (VAT) rate by 1% and the effects thereof, the drought, infrastructure and maintenance, the legacy of apartheid, and the failures of economic growth and employment creation. An ANC Member was concerned about the crisis at VBS mutual bank and the effect this would have on municipalities and service delivery in Limpopo. Members were also curious about fluctuations in Gross Domestic Production forecasts and the exchange rate. Member noted concern regarding the financial and operational state of SOEs and sought further information on the proposal by FFC for a review of the guarantee framework.

The FFC explained that by its analytic methods, VAT was one of the least “painful” ways to reduce the fiscal deficit. It was unfortunate but necessary given the risk of a credit-downgrade (amongst other risks), which could destabilise the fiscus. The Commission agreed that infrastructure maintenance was necessary to save water, while large scale infrastructure spending was crucial to long-term economic growth. In this regard, FFC felt that the 2018 Appropriation Bill did not properly address long-term economic concerns. Significant state intervention would be necessary to solve address socio-economic problems and the legacy of apartheid, particularly in education and housing. FFC welcomed the steps that had been taken to improve outcomes at the South Africa Social Security Agency and South African Airways and other steps taken to deal with SOE performance. FFC responded that the review of the guarantee framework needed to be “fast-tracked”.

Meeting report

The Financial and Fiscal Commission (FFC) came before the Standing Committee on Appropriations (SCOA or “the committee”) to present comments and recommendations regarding the 2018 Appropriation Bill (“the Bill”). The presentation was thorough and discussed the Bill, economic outlook, investment and job creation, baseline changes across votes, risks to the fiscal framework, government’s five priority areas in the Medium-Term Strategic Framework (MTSF), infrastructure investment spending, challenges and opportunities facing State-Owned Companies (SOCs), possible new institutional arrangements for SOCs, and policy areas or mechanisms that could stimulate efficiency.

The FFC noted and welcomed efforts by the state to consolidate the budget, in particular by effecting budget cuts, which forced departments to seek efficiency and “ask tough questions”. However, it was concerned by the cuts in infrastructure grants and by the lack of transparency regarding how these cuts were decided upon. The Commission was also concerned that a reduction in spending would negatively affect service delivery and stressed the need for improved operational efficiency to provide services without increasing expenses.

Members’ questions focused on the decision to raise the Value Added Tax (VAT) rate by 1% and the effects thereof, the drought, infrastructure and maintenance, the legacy of apartheid, and the failures of economic growth and employment creation. An ANC Member was concerned about the crisis at VBS mutual bank and the effect this would have on municipalities and service delivery in Limpopo. Members were also curious about fluctuations in Gross Domestic Production forecasts and the exchange rate. Member noted concern regarding the financial and operational state of SOEs and sought further information on the proposal by FFC for a review of the guarantee framework.

The FFC explained that by its analytic methods, VAT was one of the least “painful” ways to reduce the fiscal deficit. It was unfortunate but necessary given the risk of a credit-downgrade (amongst other risks), which could destabilise the fiscus. The Commission agreed that infrastructure maintenance was necessary to save water, while large scale infrastructure spending was crucial to long-term economic growth. In this regard, FFC felt that the 2018 Appropriation Bill did not properly address long-term economic concerns. Significant state intervention would be necessary to solve address socio-economic problems and the legacy of apartheid, particularly in education and housing. FFC welcomed the steps that had been taken to improve outcomes at the South Africa Social Security Agency and South African Airways and other steps taken to deal with SOE performance. FFC responded that the review of the guarantee framework needed to be “fast-tracked”.

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