2020 Revised Fiscal Framework: public hearings

Meeting report

The Chairperson said presenters had 10 minutes to present highlights from their submissions. He noted that all submissions are read by a team of excellent researchers and the two Chairpersons share responsibility to read all submissions on the weekend after the submissions have been presented. He asked that their summary of their submission captures best what they would like to emphasise to the Committees. The National Treasury would respond to all submissions on 03 July 2020.

COSATU submission on 2020/21 Supplementary Budget
Mr Matthew Parks, Deputy Parliamentary Coordinator: COSATU, highlighted the economic challenges faced both before and during the COVID-19 pandemic. These challenges include 40% unemployment rate, retrenchment, the collapse of municipalities and departments, high levels of corruption and wasteful expenditure, declining tax revenue, and the country’s economic recession and downgrades. COSATU believes a R1 trillion stimulus package should be assigned to deal with the economic crisis and counter GDP contraction. It welcomed the infrastructure programme but requested clarity on: contradictory budget amounts and time frames; key regulatory interventions by the state; job retention and creation interventions; local procurement; SOE turnaround plans; corruption and wasteful expenditure interventions; revenue interventions; and department reinforcement. Mr Parks provided a summary of the key COSATU proposals for the urgent development of a R1 trillion stimulus plan: key economic interventions; the COSATU Infrastructure Programme proposal; economic relief measures; consumer and social relief; Public Service Wage Bill proposals; state owned enterprises; expenditure interventions; and revenue proposals.

C19 People’s Coalition Submission on 2020 revised fiscal framework and revenue proposals
Dr Natasha Vally, Cash Transfers Subgroup, C19 People’s Coalition, said they opposed the Supplementary Budget as it failed the test of human solidarity. She presented recommendations based on engagements with grant claimants and organisations that represent them. These were:
• Clear and urgent communication on the status of relief measures in general and the COVID-19 Social Relief of Distress (SRD) grant in particular
• Drop the unethical exclusion criteria
• Address the massive shortfall in funding to #PayTheGrants
• Back payment of those who applied for COVID-19 SRD Grant, regardless of when application made
• Commitment to a Basic Income Guarantee for all
• Fix the patent laws
• Immediately audit all public debt
• Meaningful redistribution of wealth and income to support social welfare.

Institute for Accountability in Southern Africa (IFAISA) submission
Mr Paul Hoffman, IFAISA Director and Head of Projects, raised two points, specifically hunger and destitution. He spoke to the 30% of food produced in SA that goes to waste. Hunger and malnutrition in children and adults will increase. He recommended that the food that is surplus to the food chain be recovered and made available to people living in poverty. On destitution, he raised the need for a basic income grant and stated that public money that has been looted should and can be recovered through the criminal justice administration, the Asset Forfeiture Unit and by way of civil recovery of looted funds.

OUTA submission with analysis support from Public Affairs Research Institute (PARI)
Mr Matt Johnston, OUTA Parliamentary Engagement Manager, covered the economic outlook and conceded that zero-based budgeting could assist in removing dead wood and wasteful expenditure from government programmes. The submission covered the revised fiscal framework, public sector compensation and the state of local government finances. OUTA is in support of measures to bring spiralling debt under control and avert a debt crisis. OUTA strongly supports National Treasury’s decision to initiate a process of rationalising the cumulative cost of remuneration in the public service. OUTA emphasised the need to drastically prune state expenditure.

Discussion
Dr D George (DA) directed a few questions to COSATU. He said that it is known that many pension fund members are having difficulties and want access to their funds. He asked for COSATU’s position on pension-backed loan beyond just for housing. This would allow pension fund members access to some support from their own pension money. Should there be tax relief for workers who are forced to work from home and are not able to claim for a home office because they do not meet the criteria? Should the ‘working from home’ criteria be relaxed to provide for working people who are unable to go to work?

Mr W Aucamp (DA) said COSATU represents employees of the country but he does not think that COSATU represents workers in the agricultural sector. There was a lot of discussion on the increasing unemployment rate. Has a calculation been done of the number of job losses that will occur in the agricultural sector due to the drought and COVID-19? What should to stop the unemployment growth in that sector?

Mr D Ryder (DA, Gauteng) asked OUTA for more input on its position about underspending and performance and how historically it has been rewarded and those projects that seem to be redundant need to be eliminated. He was also interested in the situation with municipalities. OUTA’s view might be very metro-centric because they call it civil oversight on municipal spending. This then becomes difficult because people do not have the time or patience to deal with it. He asked what OUTA’s idea is on how best to provide that public participation in the financial running of municipalities going forward.

Mr E Njadu (ANC, Western Cape) said he is glad to hear that COSATU is happy with the feedback on UIF progress. The pension fund wait log is a progressive proposal. What is COSATU’s current position? He asked #PayTheGrants for more detail on its third recommendation.

Mr Z Mkiva (ANC, Eastern Cape) said that departments are not working together to ensure timely social relief and payment of the R350 unemployment grant. He directed this matter to Treasury. He suggested that organisations like Congress of Traditional Leaders of South Africa (CONTRALESA) present in these meetings to bring the issues that directly affect rural communities. The submissions made today are primarily focused on urban and peri-urban matters.

Mr M Moletsane (EFF, Free State) said that COSATU looks after the affairs of workers and that they should still look after them when these workers have been retrenched. He had hopes COSATU would consider wanting the R350 for unemployed individuals to go beyond COVID-19.

Mr Y Carrim (ANC, KZN), Select Committee Finance Chairperson, said that everyone should be modest and conciliatory because nobody knows what will happen soon. He agreed with the values of all the submissions made, particularly C19 and COSATU. However, the issue is about what can be done, what cannot be done, what the trade-offs are and what the sources of funding are. He spoke about the polarisation between civil society, government, business, labour and between political parties.

Mr Carrim responded to Mr Mkiva that CONTRALESA has the same rights as everyone else, but that they chose not to make a submission. Other organisations and community NGOs can also represent these communities and speak for constituents.

Mr Carrim said that while the organisations present claim to represent constituencies, the demographic representation is interesting across gender and racial line. Organisations need to be more representative. He asked who the C19 People’s Coalition is constituted of and who do they represent. This is the first adjustment budget and the second adjustment budget is being prepared. The Appropriations public hearing is coming up and the C19 matters fall more towards the appropriations framework rather than the fiscal framework. He referred C19 to make its submission at the Appropriations public hearing.

Responses
Mr Parks replied that COSATU's pension fund proposal was to help workers who have lost their income during the lockdown; it is to allow workers to recover six months of salary under the pension fund and it should be tax free. This proposal is to avoid having a lot of workers resigning from their jobs to cash in their full pension. Plan B would be what Mr George raised about expanding the loan option for workers to lend from their pension funds in case they cannot legally do the six-month pension salary withdrawal. COSATU would support workers, especially white-collar workers, students and learners to work from home. The digital economy spectrum roll-out needs to be prioritised. It is beneficial for congested transport as well as creating a new digital economy.

COSATU has three units which organise farm, agricultural and food workers including one union that has joined last month. COSATU is worried about this sector because agriculture is the backbone of the economy and the backbone of many rural towns especially in the Western Cape and Limpopo. Not enough has been done as a nation to strategically address this sector of the economy. They are keen to see how they can support the economy by creating access to capital, transport, export support, access to fertiliser, training and other measure to reduce the cost of running farms (such as reducing water and electricity costs) because it can in turn help in sustaining farm worker jobs. The land reform rights of farm workers need to be prioritised.

They are pleased that earlier this morning over 4 million workers received over R30 billion from the UIF. This is likely to push past R53 billion so this will exceed the commitment given by the President. There are challenges with employers who have not contributed to UIF for their workers. It is also shameful that the UIF has done more to stimulate the economy now than the banks and government departments have done. The Small Business Department has only released R100 million so far. Those are the current contradictions.

Mr Parks responded about the R350 for unemployed individuals. This is quite frustrating to COSATU because it is a small amount of money and it has been so delayed by the South African Social Security Agency (SASSA). Millions of unemployed persons have got their hopes up and they are now sitting and waiting in limbo. There is serious under capacity by SASSA, so government needs to intervene. It would be beneficial to discuss having a universal income grant, what the options, modalities and amounts are, and how it can be scaled. The funding of it will be critical but it has a broad societal consensus.

He responded to a question from Mr G Skosana (ANC) which was messaged about state-owned enterprises (SOEs). There has not been any plan around the SOEs in the Supplementary Budget. COSATU is a bit optimistic about Eskom because there has been extensive engagement with government and business surrounding their compact which should be signed in the next two weeks. All the other SOEs are in ICU. They are collapsing and retrenching or have threatened retrenchment of thousands of workers. They are a burden to the state and the economy. There seems to be no plan seen for Transnet, Metrorail or SABC. All that is seen are workers being thrown under the bus.

COSATU agrees with the comments made by the Chairperson that now is the time for compromises and a social compact. This has informed COSATU on accepting the International Monetary Fund (IMF) financial assistance, reducing the debt trajectory in a sustainable way. It also motivated COSATU to intervene in the Eskom crisis and to encourage UIF to release massive amounts of capital into the economy. Mr Parks agreed that there is not an unlimited source of funding, but it is critical to deal with the budget as it can be seen now that the government is dealing with corruption. Some small tax reform is still possible for the wealthy. The only real solution for growth of the economy is to get the private sector on board through investments. This must be done because government on its own will never have enough money, but it means the government must deal with corruption and wasteful expenditure.

Ms Sacha Knox explained that they are here as an autonomous Cash Transfers Subgroup in the C19 People’s Coalition and that they are part of an economic working group. The submissions forms part of the #PayTheGrants campaign which is focused on the just implementation of the COVID-19 SRD Grant and the building of a broad alliance towards a Basic Income Guarantee for all. The C19 People’s Coalition was formed in response to the COVID-19 pandemic. It is an emerging collective which includes community structures, trade unions, informal workers’ organisations, civics, social movements, rural groups, national and provincial NGOs across all social sectors, frontline responders such as community health workers and shelters, migrant and refugee organisations, public interest law firms and faith based organisations. Over 310 organisations have endorsed the Coalition’s Programme of Action, which commits us to ensuring that South Africa meets the coronavirus crisis in ways that prioritise those who are most vulnerable, who face the pandemic with hunger, weakened immune systems and poor access to housing, health care and social safety nets.

Mr Hoffman, IFAISA, agreed with the Chairperson’s sentiments on COVID-19. He asked to draw the attention of the Committee to the Namibian experience in which a basic income grant was given to everyone in a specific town. This is something that South Africa can learn and benefit from. This is if it is decided in the post pandemic world that the task of finding everyone jobs is simply not possible and those who do not have jobs as a result of the economic crisis cannot be left behind.

Mr Johnston, OUTA, replied about underspending, performance and the elimination of wasteful programmes. He would confine his response to what OUTA believes this Committee and Parliament can do. In general, there has not been significant scrutiny and that this committee has the power to reject spending plans and to recommend very strongly how a certain budget plan should change. When it comes to the budget review and recommendation, and the reports done by specific portfolio committees, it is not really seen how that feeds into the job of the finance committees, the appropriations committees and whether it approves budgets or not. When there is engagement with those budgets, it is quite limited. This is a very important question and underlines the point of zero-based budgeting. All ordinary expenses for departmental budgets cannot be taken for granted. Besides capping allocations to those departments and entities that have underspent or overspent, there should be a very strong focus on performance; whether these spending items really achieve their objectives and if there is social impact for those expenses. If there is not, that must be questioned. It can also be seen how much money has been wasted on SAA. These are the kinds of questions that need to be asked. It must be asked if funds in each entity have been used effectively and efficiently. With the Department of Defence there are moveable assets that are not being used productively or used as they were intended to be used, and this department does not serve an immediate social purpose over the long term. Why should those funds not be reprioritised as opposed to being awarded additional allocations?

Mr Johnston responded to Mr Ryder’s question about local government, rural oversight, the municipality and people not having the time and patience to participate in budget oversight. That may be true, but people should ask themselves why people are uninterested. It cannot be assumed there is proper capacity and financial expertise in those municipalities to ask oversight questions and to budget effectively. There are significant resources in the public that are not used by organs of the state. It is a question of organisational or institutional culture that senior members of political parties can drive this change in saying there should be more consultation with the public. If there was the perception, the belief and trust among people that consultation and their input can have an impact, they would be willing to do so. One way OUTA is willing to do so is through modernising participation. People are operating in the fourth industrial revolution, there are new avenues in which people can participate in the comfort of their own homes. There are engagements on how these kinds of participation can be enhanced.

He agreed with the comments made by the Chairperson. The essence of the current situation is that we have much less with which we must do much more and that demands serious reprioritisation and massive trade-offs. This also demands fundamental changes in the structures of government, in the size and the role of the state in society. Government must play an independent role to enhance society driven economic growth, rather than state driven economic growth which is not sustainable in the current fiscal context.

Budget Justice Coalition (BJC) submission
Ms Busi Sibeko stated that the BJC submission considers how the relief funds have fared so far and what measures would help citizens and the economy to recover from COVID-19. The COVID-19 relief package has not been properly implemented which has left many people vulnerable. The R500 billion rescue package proposals have not panned out in the Supplementary Budget – there is only R36 billion net new spending (less than 1% of GDP) in this financial year to deal with the current grave challenge.

Mr Daniel McLaren continued focussing on the government’s regression on socio-economic rights; COVID-19 and other spending plans.

Ms Sibeko spoke to revenue; public debt and international loans; and transparency and participation. The key recommendations from the BJC are:
• The immediate abandonment of austerity budgeting
• A revised social and economic relief package that injects new spending into the economy
• The establishment of a “human rights baseline” for budget allocations and revised spending plans that eliminate sources of corruption and wasteful expenditure
• A new revenue framework that adequately taps into the wealth and high incomes of individuals and companies and ends rampant tax evasion once and for all
• A universal work guarantee and basic income grant, funded from the new revenue framework
• A green new deal
• The achievement of womxn’s equality by systematically eradicating destructive patriarchy
• Enhancing opportunities for public participation in all of the above.

Fiscal Cliff Study Group (FCSG) submission
Prof Jannie Rossouw, FCSG Head, stated that South Africa suffers bureaucratic oversupply and the tax base can no longer support the bureaucracy that has been haunting the country. There are only 600 000 individual taxpayers that already contribute more than 20% of the government’s tax revenue.

Mr Fanie Joubert, economist on behalf of FCSG, spoke about the lack of budget austerity in the past 10 fiscal years; government debt; nominal GDP; civil service remuneration; and gave an update on the fiscal cliff. In conclusion the following points were made:
• Only very rapid economic growth can turn the position around
• South African should be the investment conduit into the subcontinent
• FCSG was sceptical on medium term forecasts as these are based on a strong “V”-shaped recovery
• FCSG urges members to take note of the Minister’s warning about a looming “sovereign debt crisis”
• Global lenders’ willingness to provide funds should not be confused with South Africa’s ability to repay.

Economists Initiative submission
Mr Gilad Isaacs, Economists Initiative representative, said the Supplementary Budget proposes budget cuts of R230bn over the next few years. The Supplementary Budget reneges on the President’s rescue package, it undermines the constitutional obligations to advance the rights of all. The measures announced, although welcome, do not match the scale of the challenge. The call is for greater rather than less government expenditure in the face of deepening poverty and social distress and unemployment increasing. Economic interventions must therefore aim to support households and communities, protect workers, sustain businesses, strengthen public health interventions; and strengthen the economy. A series of measures were outlined which have been supported widely. This Supplementary Budget moves in the opposite direction, it is economic suicide. If the economy falls and revenue falls, debt levels rise. Under this budget, debt levels will rise. Economists Initiative called on the Committees to take the unprecedented step of rejecting this budget outright. It requested that Members to stand by the policy already announced by the President and supported by labour, civil society and business.

South African Institute of Chartered Accountants (SAICA) submission
Dr Sharon Smulders, SAICA Project Director: Tax Advocacy, stated that SAICA welcomes the large-scale relief to those most vulnerable due to COVID-19; zero-based budgeting as a guiding principle; tax revenue collection mainly through better enforcement; and taking the “active approach”. She outlined SAICA concerns about revenue projections, expenditure and debt. SAICA recommendations dealt with crime reduction, policy stability, quality education and appropriate skills; stable employment relations and productivity; long-term currency stability; prioritised and aligned infrastructure build plan; and accountability.

Mr Peter Meakin submission
The submission spoke about replacing income taxes and VAT with land rents.

Discussion
Mr F Shivambu (EFF) said that an admission should be made broadly that public hearing submissions are mostly talk shops because they do not get to translated into anything that gets represented in the budget. None of the points made here, whether valid or not, will be elevated into concrete consideration by National Treasury because it has defined its programme as neo-liberal and authoritative, which is not based on reason. What needs to be considered is the demographic profile of people who interact with the budget each year. It should be of concern that the majority of people who make submissions do not look like Co-Chairperson Maswanganyi who looks like the majority of South Africans. Where are the voices of Black people in informal settlements and villages? How will their voices be elevated to this platform for consideration of what should happen? This is not insignificant in a country that has been defined by a history of racism and racial discrimination. He asked BJC and the Economists Initiative for their view on the zero-based budgeting.

Ms D Mahlangu (ANC, Mpumalanga) said that CONTRALESA does not have to wait to be invited, because for public participation an advertisement is made in advance for people to bring their contributions. She was excited to hear the submission from the Economists Initiative but was disappointed by their rejection of the Supplementary Budget and their lobbying for the Committees to also reject the budget. If the Committees reject the Supplementary Budget, how should these national issues be dealt with? People should be careful about separating the Minister of Treasury and the President. There should not be divisions, but rather there should be constructive criticism and recommendations.

Mr Ryder agreed with Ms Mahlangu that everyone is welcome to make a submission and there is no limitation on who is given an opportunity make a submission. There have been some written submissions where people have chosen not to present to the Committee. SAICA made the important point that the "skills pool to do zero-based budgeting is questioned". The way zero-based budgeting is to be done is asking the turkeys to plan Christmas dinner. It is getting departments to cut off their own limbs and sacrifice projects that they have felt are important. This is often a difficult decision for departments to do so they may need to be assisted by Treasury. He asked for the FCSG and SAICA proposals for the best way to approach zero-based budgeting, which is necessary. Everyone agrees that government needs to change materially.

Dr Smulders, SAICA, replied that zero-based budgeting is something that is needed, but it cannot be done without knowing what the broader base policy is, where the budgeting needs to be aligned. The concern is that there is no plan of the items that should be spent on and how much should be spent on these items. Money is being given to provinces and municipalities but they are not being told where the money needs to be spent. The money is just being allocated with no detailed plan.

Mr Pieter Faber, Senior Executive: Tax at SAICA, referenced New Zealand as an example. Zero-based budgeting is a cost mitigation exercise. Within the public sector and government, costs need to be mitigated, but that cannot alone be the focus of what is done. Zero-based budgeting does have shortfalls. SAICA proposes zero-line increases and to put together different departments having to make submissions. This will create a balance in cost mitigation and enforce efficiencies as well as ensure that government is focusing its money on its spending priorities.

Mr Pieter Faber, SAICA Senior Tax Executive, said zero-based budgeting is a cost mitigation exercise. Within the public sector and government, in general, costs need to be mitigated but it cannot, in perpetuity, be the focus of what we do. Once we have spending under control, there will be shortcomings. Zero-based budgeting does have shortcomings even though quite a large grouping of listed entities do adopt it. In the written submission, SAICA proposed something called the zero-line, which is New Zealand based. This is to take the budget and have zero-line increases going forward. Then, various government departments would come together and make joint submissions; identify priorities; and then lobby and present why they should receive a part of those allowances, together. The departments that do not get it would then need to start identifying the deficiencies. This would create a balance between cost mitigation and enforcing efficiencies as well as making sure that government is actually focussing its money on its spending priorities. This creates a nice balance between the two contexts rather than it being one or the other.

He explained SAICA questioning the skills pool for doing zero-based budgeting. The current budget process starts off mid-year and takes more than six months to finalise. Obviously, having to redo the budget each year without any base that you are working off, redoing and re-evaluating becomes a very time-consuming exercise. The skills are needed in which everyone is informing the department budget at their level so you would need to have it decentralised. Skills cannot just be sent via Treasury and divvied up; they must lie within each department where the spending priorities need to be identified.

Mr Rossouw, FCSG, replied that they agree with the skills problem that SAICA has alluded to. Zero-based budgeting is an opportunity to rethink the whole bureaucratic structure where they have too many bureaucratic rules that must all be applied thus increasing the cost of government. It is important to ask questions about whether we indeed need the respective bureaucracies that we pay for.

Mr Rossouw replied about Mr Shivambu’s comment about this platform becoming a talk shop. He agreed and said that Parliament also runs the danger of becoming a talk shop inasmuch as parliamentary committees fail in their oversight of the executive of government. These committees become talk shops when they engage the executive or call the executive to order and the executive simply ignores these committees.

Mr Isaacs, Economists Initiative, replied that zero-based budgeting is different in what it is in reality and what it is in intent, in certain instances. In reality, if there is budgeting according to actual needs, the budget will increase significantly because there are massive needs in South Africa. Zero-based budgeting is being used as a rhetorical device and as a cover and process for increasing budget cuts.

Mr Isaacs replied to Ms Mahlangu that he had presented before Parliament about 12 or more times and he has never been in a call for the rejection of a law. He cannot impress on Members enough the scale of the crisis and the extent to which this budget does not address that. South Africa’s economy will contract by at least 7%. They are not radical economists but are showing an approach to fiscal stimulus. The R36 billion represents 16% of what was promised in the R500 billion relief package. He is not trying to draw a wedge between the President and the Minister of Treasury. If the type of plan that the President laid out is not implemented, this economy is in absolute crisis. A rejection is the only option available because what has been presented is not good enough.

Ms Sibeko, BJC, said that the BJC is concerned about the capacity to implement a zero-based budget that progressively realises human rights. As seen in the past, cuts are usually done in programmes that target poor people. Zero-based budgeting is supposed to cut R230 billion over the next three years. It is supposed to help us get to a surplus. What is zero-based budgeting supposed to resolve? Why has National Treasury not resolved these issues before? Why have they not asked programmes to be justified? That is what zero-based budgeting is about, but it is not going to solve the high fiscal distress. There are high performing corrupt programmes and zero-based budgeting is not going to help sift those out because they deliver at a cost borne by people. By cutting programmes targeted at the poor through zero-based budgeting, poor people are being punished for their government failing to deliver at local, provincial and national level.

Mr Meakin added that everyone must look to the Constitution as it tells us what to do.

Ms Mahlangu said that she has known Mr Rossouw make submissions on the same subject. She can confirm that she and other members have heard the same points and the President has responded to these issues during the State of the Nation Address (SONA). The Members and the public have a responsibility and they must feel free to raise matters because this is their Parliament. They can criticise but if they do not get a response, it does not mean that they should be angry and view the government as non-cooperative. Members of the public should be encouraged to participate. Public participation is very important. The decisions of government must be informed by the needs of the public.

Mr Carrim replied that the matter raised by Mr Rossouw is being dealt with outside the Handbook and the process is underway. Parliament did not get the necessary cooperation from the Presidency as it should.

Mr Carrim said to the Economists Initiative that the entire budget cannot be rejected as such. There is however a discrepancy with what the President has said and what Treasury has offered. This is something that does need to be addressed in the Committee Report's observations and recommendations. It is not clear that the Supplementary Budget sufficiently represents what the Presidency said.

Mr Carrim reminded civil society that there would be meeting on 3 July in which Treasury responds to the submissions. He asked that the presenters submit a summary of their submission for inclusion in the Committee Report.

Mr J Maswanganyi (ANC), Finance Portfolio Committee Chairperson, thanked all the presenters.

The meeting was adjourned.