2019 Pre-MTBPS: Parliamentary Budget Office briefing

Meeting report

Mr Maswanganyi, opened the meeting. He said the purpose was to receive a briefing from PBO staff ahead of the MTBPS to be delivered the following day and not to hold long and in-depth discussions. 

Briefing by Parliamentary Budget Office (PBO)

Economic goals

Ms Nelia Orlandi, Deputy Director, PBO, said the President had acknowledged in his State of the Nation Address (SONA) in June that not nearly enough progress had been made in implementing the National Development Plan (NDP). The SONA had spelt out five fundamental goals for the next decade:

• The economy should grow at a much faster rate than the population.
• Two million more young people should be employed.
• Schools should have better educational outcomes; every 10-year-old should be able to read for meaning.
• No person in South Africa should go hungry.
• Violent crime should be halved.

Macroeconomic review

Mr Seeraj Mohamed, Deputy Director, PBO, told the meeting that the macroeconomic outlook for the global economy had worsened. The IMF had revised its global growth forecast down to 3% for 2019. Low growth had led to the reintroduction of monetary stimulus measures such as quantitative easing and lower interest rates. However, interest rates were at an all-time low across the world and there was a growing global consensus that there should be an integrated fiscal and monetary policy approach.

Mr Mohamed said the IMF advocated fiscal consolidation in South Africa. This should be achieved by reducing the public wage bill; downsizing and eliminating wasteful spending by public entities; and expanding the tax base and strengthening tax administration. The IMF suggested structural reforms such as revamping the business models of state-owned enterprises (SOEs); improving competition in the market by reducing entry barriers and streamlining regulations; and increasing labour market flexibility.

The IMF believed that fiscal consolidation and sectoral reforms would improve private sector confidence and stimulate investment. However, United Nations agencies such as the UN Conference on Trade and Development (UNCTAD) and the International Labour Organisation (ILO) argued that governments had unrealistic expectations of the private sector. They supported fiscal expansion and a greater role for the state in supporting economic recovery. Investment in infrastructure, the green economy and services to uplift people would boost aggregate demand and increase gross domestic product (GDP) and tax revenue.

Mr Mohamed said there were questions about the logic of fiscal consolidation. The debt to GDP ratio was not determined only by the fiscal balance. Growth, inflation and interest rates were as important. There was no agreement in the economics literature about when government debt was too high. Empirical studies had shown that very high debt did not have an impact on GDP growth.

Fiscal expansion could be achieved by:

• Re-allocating public expenditure and considering the efficiency and composition of public spending.
• Increasing tax revenues and improving the efficiency of collection.
• Eliminating illicit financial flows and base erosion and profit shifting.
• Drawing on fiscal and foreign exchange reserves.
• Managing debt by borrowing or restructuring existing debt.
• Expanding social security coverage and contributory revenues.

Committee Members were presented with various tables showing trends in government spending and revenue collection for the first five months of the fiscal year. Based on these, the PBO estimated that there would be a revenue shortfall of R48 billion for the full year. It calculated that gross debt as a share of GDP would be 58.8%.

Dr Dumisani Jantjies, Deputy Director, PBO, said conclusions to be drawn from the PBO’s studies were that revenue would be lower and expenditure higher. The budget balance would be lower and therefore the debt to DP ratio would be higher. There had been challenges in implementing the NDP and in monitoring and evaluating NDP activities. The Government should provide greater clarity on priorities and how it would align its structures and budgets to achieve them.

Discussion

Dr D George (DA) said one part of the presentation had listed negative impacts of fiscal consolidation, while in another part it was said the IMF advocated fiscal consolidation for South Africa. He asked whether the PBO disagreed with the IMF view.

Mr Carrim said he found the PBO’s macro-economic review interesting. It “very big issues” and appeared to go against the views of the National Treasury. He complimented the PBO for taking an independent stance, saying they had been “a bit too sedate up to now.” He suggested that the Committees hold a separate session to discuss these issues.

Mr Buthelezi agreed, saying he would be interested to hear the views of the National Treasury.

Dr George said the PBO’s revised estimates for the fiscal framework made it clear that tax collection was down. Government spending was higher, but service delivery was not improving. “To me it seems that government spending and borrowing is crowding out service delivery, and that is gathering momentum. We’ve been talking about the fiscal cliff for a while. Am I wrong in my view that we’ve already gone over it?” he asked.

Mr Carrim suggested the Committees should reconsider the way in which they reported on hearings on the MTBPS. It did not make sense to produce separate reports on the revised fiscal framework and the projected three-year framework. He also appealed to Committee support staff to ensure that public submissions on the MTBPS were directed to the right committees. The public did not always understand the difference between a finance committee, which dealt with the fiscal framework, and an appropriations committee dealing with spending allocations.

Mr Mohamed said the PBO presentation on macro-economic issues was intended to provide a summary of work done by different institutions and to contrast the IMF views with those of UN agencies.

On the “fiscal cliff” issue, Mr Mohamed said people in government should be wary of the way in which they spoke of the country’s debt situation. There was nothing in the economic literature to suggest that South Africa had a dangerous debt to GDP ratio. Britain, for example, had a ratio of 90%.

Mr D Ryder (DA) asked about procedures for Committee Members attending a “lock-in,” where they would be briefed in confidence on the MTPBS on the morning before the Minister’s speech in the afternoon.

Ms Mahlangu asked Adv Frank Jenkins, Parliamentary Law Adviser, to brief Members.

Adv Jenkins said the basic principle was that there should be no communication of MTBPS information in any form. To publish such information on social media or anywhere else before the Minister’s speech would be a form of contempt of Parliament.

Mr Carrim said information in the MTBPS could have an impact on financial markets, and to leak this information would be a serious offence. While Members would be allowed to take electronic equipment into the “lock-up,” any breaches would entitle the National Treasury to ban such equipment in future.

The meeting was adjourned.