2020 MTBPS: public hearings

Meeting report

Ms P Abraham (ANC) was nominated Acting Chairperson.

COSATU
Mr Matthew Parks, Parliamentary Coordinator, COSATU, said COSATU’s first issue was that government was fixated on reducing expenditure through an austerity budget, and ignoring the need to stimulate the economy and save jobs and businesses. There was a need to balance the imperative to stabilise debt with addressing the recession and job losses. COSATU had hoped to hear more from government on how it would fix leakages in the state: corruption, failing SOEs.

COSATU had hoped to see more clear timeframes and budget allocations. It welcomed the Infrastructure Programme but noted the need to prioritise energy, rail, roads and water, and the need to amend Regulation 28 of the Pension Funds Act. COSATU was concerned that the Department of Communications was holding up spectrum auctions.

COSATU was pleased of the mention of the Eskom Social Compact, drafted by COSATU and agreed to by government and business at NEDLAC. COSATU was frustrated that government had still not signed off on the compact and hoped it would do so in the coming weeks. There was a need for clear roadmaps for key distressed SOEs, to be developed by social partners.
 
COSATU welcomed the extension of the R350 Special Relief of Distress grant, and proposed it needed to be extended beyond January. COSATU saw the grant as the beginnings of a basic income grant, which had been endorsed by all major political parties in the past

COSATU welcomed the TERS programme and said it had saved millions of jobs and companies. The President had announced on the 15th of September that the TERS would be extended to December. Despite this, the National Coronavirus Command Council had unilaterally decided to stop the grant in September despite the money being available and having no cost to government. COSATU condemned this.

COSATU proposed that relief for companies should be provided past January by the UIF, SARS, Treasury and banks. COSATU argued that the Loan Guarantee Scheme had been vastly insufficient and was unable to reach its targets. This was an urgent issue.

COSATU welcomed the Treasury agreement with COSATU on a proposal for workers in distress to withdraw limited amounts of their pension funds. A Bill to this effect had to be introduced as a matter of urgency.

COSATU proposed that the fiscal crisis was due to lost budget to corruption, the impact of state capture on SARS, endless SOE bailouts and a stagnant economy. The MTBPS had been silent on this, and had shifted the bill for state capture onto workers by slashing their wages.

COSATU advanced a number of proposals on fighting corruption, including establishing rapid response courts, using the Auditing Amendment Act to hold those responsible for wasteful expenditure liable, the removal of compromised politicians and manager, capacitation of SARS and central procurement of large-scale items. Colleagues in government had refused to ban the family of Politically Exposed Persons from participating in state tenders.

COSATU disputed that the public sector wage bill had been exploding. Politicians and management who earned huge salaries had to take huge pay cuts. Government had to honour the 2020 agreement and fast track a new, single collective agreement for the entire state, protecting lower and middle-income servants from CPI and providing affordable home loans for public servants via the GEPF.

COSATU proposed that saving jobs and the economy were key. COSATU wanted to know if the government was willing to engage labour in good faith.

South African Institute of Chartered Accountants (SAICA)
Dr Sharon Smulders, Project Director: Tax Advocacy SAICA, stated that in 2019, the Minister of Finance had said that South Africa’s problem was that it spent more than it earned: this was still the case and would not change for 4 years. South Africa had the highest projected three-year debt increase amongst developing countries. For every tax rand received, SA spent 21c on debt interest. SA was now spending more on interest than health.

Critical risks included:
-Low growth rate. The fiscal multiplier of government expenditure was no longer effective or efficient.
-Excessive public sector compensation was one of the largest culprits for growing expenditure. Average public service remuneration was more than 4 times per capita GDP. Public service compensation would reach 50% of tax revenue in the following year. This was not a problem if service delivery was expanding, but this was not the case. Government had committed to reduce expenditure substantially through a cut in the wage bill. SAICA was not sure why cuts were focused on the health, learning and security areas of the wage bill. It was unlikely that unions would accept a 3-year wage freeze. This was concerning given that government’s plan for SA’s finances was entirely dependent on the freeze. SAICA questioned whether government had a plan B. SAICA called for a transparent productivity enhancement plan for public sector workers.
-SOEs: many were insolvent, had insufficient funds for operational expenditure and were questionably linked to strategic targets. SOE debt was at R810bn and SOEs had to borrow from foreign partners rather than local ones, which made their debt more expensive.
-Municipalities: only 8% of municipalities had a clean audit, and 46 regressed in outcomes. Irregular expenditure was at R36bn. Municipalities had deteriorating financial health, 34% had a deficit, some were breaking governance laws and were not managing their finances correctly. Basic service costs had skyrocketed for the public, and yet municipalities had significant debt to Eskom and water boards. If municipalities were not fixed, there would be more and more unrest and instability

SAICA noted its concern over the lack of mention of contingent liabilities in the MTBPS, which were at R1trn. R593bn of this was from the Road Accident Fund. SAICA also noted its concern over unfunded long-term liabilities at the GEPF, to the possible tune of R8-10bn.

Policy certainty was key in changing Regulation 28 of the Pension Funds Act

Potable water was also a risk, as 37% of water was lost due to bad infrastructure and 80% of municipal sewage works were dysfunctional. Rivers had become part of the sewage system, and no action had been taken by COGTA.

Crime was also a key risk, including corruption.

SAICA called on government to stick to its cuts and monitor the performance of its expenditure. Performance monitoring was required across government. Convictions of those responsible for corruption at SOEs should be expedited, and government should consider its return on investment for funds given to SOEs. SAICA also called on government allocations to municipalities to be linked to their past performance.

SAICA called on COGTA to assist Eskom and water boards to collect outstanding revenue from municipalities. SAICA saw a need for monitoring contingent liabilities, and asked for an updated actuarial valuation of the GEPF. A detailed action plan on debt was needed to restore credibility.

Organisation Undoing Tax Abuse (OUTA)
Mr Matt Johnston, Parliamentary Engagement Manger, OUTA, said OUTA’s core message was the lack of impact of spending so far. OUTA saw the MTBPS as one of the most important moments in South Africa’s history, as it faced a fiscal crisis. This was due to the combined effects of Covid-19 and a failure to curtail looting of public resources over the past decade.

South Africa spent significant amounts on the public service, but instead of improved productivity, quality of service had declined.

OUTA recommended the establishment of a fiscal policy committee which could work on a fiscal rule for South Africa, focused on more productive spending. Crucially, OUTA wanted to see more transparency on how money was spent. He agreed with COSATU that the Preferential Procurement Bill had to be expedited.

The public service wage bill was unaffordable despite capped growth over the medium term. The wage bill accounted for 36% of spending, but labour productivity was lower in the public sector than the private sector. OUTA thus supported the move to reallocate spending away from public sector compensation.

OUTA did not agree with ad hoc bailouts for SOEs. Failing SOEs like SAA and Denel should be let go, or completely restructured. OUTA was shocked at the reprioritisation of funds from police to SAA.

OUTA saw domestic economic underperformance as largely due to domestic factors such as corruption and maladministration. SA had seen various economic disruptions due to political decisions and found itself in a technical recession in 2020. The combined impact of state capture and the hard lockdown was a significant revenue shortfall.

OUTA welcomed the announcement on infrastructure investment, but noted that infrastructure expenditure had declined over the past 10 years despite consistent promises from government. More capital expenditure would be welcome.

Stimulating local economic development was crucial. The financial state of the majority of municipalities was unacceptable. The impact of Covid-19 on the poor and vulnerable could have been mitigated by properly managed municipalities. OUTA called for more accountability in local government.

OUTA saw electricity, transport and digital tech as key economic enablers. OUTA thought subsidies for nuclear and fossil fuel energy should be curtailed. OUTA agreed that e-tolling should be scrapped in Gauteng, and the PIC’s SANRAL bonds should be renegotiated. Rail was in serious financial and infrastructural chaos, and OUTA called for a better use of the SAA money on this instead. OUTA stressed the need to auction digital spectrum and reduce data costs. 

Tax revenue was expected to have an historic shortfall. OUTA proposed that stringent action was needed against tax evaders and fraudsters. OUTA thought that SARS and the NPA were underfunded and that investments in their capacity would pay dividends many times over.

OUTA welcomed the introduction of zero-based budgeting.

Fiscal Cliff Study Group (FCSG)
Mr Fanie Joubert, member of the FCSG and Senior Lecturer at UNISA, said the greatest issues were GDP contraction and the revenue downside of R300bn. FCSG raised the question on when zero-based budgeting would be implemented, and noted increasing debt service costs.

FCSG proposed it was evident that there had been no austerity in the budget in the past 10 fiscal years, as budgets had not even been balanced, and in fact had been relatively expansionary.

SA had a comparatively high public debt and budget deficit. Debt service costs, caused by budget deficits and expanding debt, had a crowding out effect on expansionary budgets. It was ironic that big expansionary items were being crowded out by the debt service that had allowed them to happen.

Regarding civil service remuneration, FCSG noted talks about real reductions for civil servants.

Treasury had to find much of its liquidity on its short-term loans, and had borrowed an extra R100bn from short-term loans, as well as an R100bn expansion in foreign borrowing.

The fiscal cliff was where civil service remuneration, social assistance and debt service absorbed all government revenue. This was 55% in 2007/8, 75% in February and was actually more than revenue in the MTBPS. This was to be expected due to the huge decline in revenue.

Only rapid economic growth could turn this situation around, and FCSG hoped a forecast of a V-shaped recovery was correct. Global lenders’ willingness to provide funds should not be confused with SA’s ability to repay its debt.

FCSG proposed that at least balanced budgets were now inevitable to avoid a fiscal cliff, that the state should avoid funding non-essential SOEs and capping remuneration of executives at SOEs.

Discussion
Dr D George (DA) asked COSATU about its discussion with Treasury regarding relief to distressed workers using their pension funds, and requested clarification. He noted that his private members’ bill on having pension fund beneficiaries take pension-backed loans had been referred to the Committee had a narrow formulation, but he would be willing to discuss broadening the provisions of the Bill with COSATU.

Chairperson Carrim proposed that, where presenters had proposed certain cuts or interventions, they should make clear what the trade-offs inherent to these were. He requested clarity from OUTA on its proposal for a fiscal policy committee, especially regarding its location and function. He noted that many of the proposals and interventions of presenters were issues for the Appropriations Committees of both houses. He agreed with presenters that municipalities were in an extremely compromised state, and problems were huge and structural.

Acting Chairperson Abraham agreed with COSATU that the full government was facing a fiscal crisis. She noted her concern over the loan guarantee scheme’s lack of performance. She asked COSATU how it viewed progress in NEDLAC on economic recovery. She asked SAICA to clarify its point on policy certainty. She noted that freezing the wage bill would be detrimental to the public service and the country. She asked OUTA what its proposed solution to the size of the wage bill was. She asked presenters where the failures of the Preferential Policy Procurement Framework Act were, that required the introduction of the Public Procurement Bill. She asked FCSG how it advised National Treasury should cut the budget deficit.

Mr Parks replied to Mr George, noting that COSATU did not want workers to resign their jobs or withdraw their full pensions. This was why it had proposed allowing workers to access limited amounts of their pension savings. Treasury had committed to introducing a bill to this effect. COSATU hoped this would be done by the following Budget Speech. The idea was for the Bill to be passed by August 2021. He added that further engagement with Dr George would be appropriate.

Mr Parks agreed with Mr Carrim that they were all in the same boat, and the boat was leaking in all directions. The question was about where the boat was going. He noted that leakages due to corruption and state capture were not addressed. For instance, SARS only inspected 5% of containers coming into South Africa. Fixing the SOEs was also vital. Reprioritisations in the budget should be done prudently.  Significant savings on the public sector wage bill could be achieved through a single wage agreement for the state, including workers at entities and SOEs. A management salary cap was needed: at Eskom there were 800 managers earning over R2m per year. Inflation had plummeted by half, giving breathing room on the wage bill. Fixing the loan guarantee scheme was essential. COSATU had had to lobby the UIF to agree to extend the TERS every time the state of disaster was extended. The PIC’s investments had also been of questionable public value. Freezing wages of public servants would lead to them moving elsewhere where they were better paid. COSATU had offered to assist government through an Eskom debt relief plan, through better use of the PIC and through expanded use of UIF funds. COSATU wanted to see government and private sector contribute more.

Mr Parks noted that NEDLAC had seen a significant turnaround in its performance in past years, and had passed through agreements such as the minimum wage, jobs summit and the Eskom Compact. COSATU was concerned over the behaviour of government at NEDLAC and with NEDLAC agreements, as it often simply walked away from negotiations or took decisions unilaterally, or was extremely slow in implementing NEDLAC agreements either through legislation or the executive.

COSATU saw it as critical to overhaul the public procurement system through the Public Procurement Bill, and take advantage of a central, online and transparent procurement system for all spheres of government. This system would help in tracking local procurement.  COSATU had raised the issue of fast-tracking the PPB with the President in 2019, and was shocked that Treasury was seeking another 2 years to fully implement the Bill.

In terms of policy certainty, Dr Smulders noted that there was much speculation over what the amendment to Regulation 28 would mean for investors, and whether they would be forced to invest in specific products. SAICA was also concerned that government often did not stick to its policies and promises. SAICA agreed that one could not make wage cuts in critical sectors, but there had to be better performance management of public servants. Those who did not meet their job expectations should not be retained. Clear performance indicators for each individual would be key in this regard. SAICA had done a major analysis of government expenditure in preceding years, and agreed that senior management wages had to be cut. It also noted huge expenditure at Police that had dubious value, especially in transport and catering. She argued that spending had to be reallocated in many areas and given to critical functions and areas. If government had stuck to its promises in the past, South Africa would not be in the state it was. Wasteful and misdirected expenditure was making it very difficult for South Africa to invest its way out of an economic crisis.

Mr Johnston agreed that presenters were talking about appropriations, but noted that many submissions regarded revenue-side issues which were in the Committees purview. OUTA believed it was necessary for several SOEs to be let go, which would help alleviate budget pressures.

If OUTA looked at the real outcomes of much of policy and many programmes over the past 15-20 years, economic transformation and development outcomes had been disappointing. This was why OUTA supported zero-based budgeting. Wages had to be linked to performance, especially at municipal level.  

The fiscal policy committee’s location and composition would be at the committees’ discretion. However, OUTA proposed one that was apolitical and more inclusive and transparent than NEDLAC, and included fiscal and financial experts.

OUTA wanted to see change on the ground in municipal jurisdictions. It proposed that there should be consequences to not achieving goals and outcomes, especially for executive and accounting authorities at municipal level, rather than indiscriminately awarding wage increases despite bad performance. OUTA welcomed the President’s proposal that those accused of corruption should step aside and not earn wages from the state. OUTA proposed serious consequences for public servants who did not meet their targets.

OUTA echoed the Acting Chairperson’s question on problems with the PPPFA. OUTA noted that SA had seen increased expenditure without any benefit for historically dispossessed and marginalised people.

Regarding solutions to debt issues, Mr Joubert said the FCSG had long proposed letting SAA go, which was obviously no longer possible. The FCSG had also proposed government and officials only use motor vehicles made locally.

Mr Joubert also raised the household debt issue in South Africa, with specific reference to retail store credit and its impact on financial hardships in South Africa. he submitted that it was frustrating for civil society that decisions were made in a “black box” at NEDLAC and announced, rather than made transparently. Finally, he argued that SA had been spending as if it was a rich country. The only way to bring increases back was to grow to a point where there was room for these increases again.

Chairperson Carrim echoed concerns over the extremely low take-up of the loan guarantee scheme, and proposed engaging Treasury on this matter. He agreed with Mr Parks that public sector workers were extremely important. He reiterated his point on wanting a better idea of trade-offs at a micro-level in government expenditure. He proposed that better regulation of the communications sector and reducing data costs were essential interventions. He asked OUTA for more detail on its proposed fiscal policy committee, noting that since spending decisions were inherently political, making it apolitical would be different.

Healthy Living Alliance (HEALA)
Mr Lawrence Mbalati, Programmes Manager, HEALA, clarified that HEALA’s major interest was in policies on food that helped to save lives. SA had high rates of obesity, and this was a mounting crisis which placed unwelcome strain on the public health system. Covid-19 had highlighted the burden of non-communicable diseases, especially Type 2 diabetes. The death toll of Covid-19 disproportionately represented overweight people and those living with diabetes.

The cost of Type 2 diabetes in SA was currently R2.7bn, which would increase 8-fold by 2030 if it was not addressed.

HEALA had been instrumental in driving the introduction of the Health Promotion Levy (HPL). In April 2018, SA was the first country in Africa to introduce a tax on sugar-sweetened beverages. This had raised R3.2bn in revenue in its first year.

Results had shown that the HPL was working, and could go further. The consumption of excessive sugar had been reduced. HEALA was pushing for an increase of the levy from 11% to 20% in line with WHO recommendations. HEALA also noted the false impression that 100% fruit juices had similar sugar content to sodas, and argued that they should also be subject to the HPL. The HPL could contribute to the funding of health programmes such as the NHI in the long-term.

Peter Meakin
Mr Meakin agreed with the Minister of Finance’s annexure in his 2018 MTBPS that there should be a change from income tax to land tax, noting that this was more efficient. This instrument could improve the efficiency of the tax system. Land taxes were used in Hong Kong and Singapore, and were a multiple of rates and taxes, excluding all improvements made on land. Land taxes yielded the same revenue as income taxes. Citizens could thus work without paying income taxes. Land taxes were dependent on size, location, access to state infrastructure and natural endowment. Income taxes made life difficult and increased the cost of living in South Africa by R70 000 per annum per household. He proposed that income taxes were akin to robbery. This replacement could be phased in over 4 years. Replacement of income taxes with land taxes would save R667bn.

Mr Meakin saw land taxes as an actionable structural reform which already conformed to the Constitution. The Constitution prohibited taxes if they contradicted the policy of the state in developing the economy. Land taxes were also a matter of sovereign funding. The Government should print money to build houses. Land taxes would also allow investment in infrastructure without tax, and would increase property values substantially.

Discussion
Acting Chairperson Abraham asked Mr Mbalati about his submission on fruit juice, asking how he would legislate for fruit juice that had no added sugar but only fruit. She also enquired how HEALA was involved in prevention.

Mr Mbalati replied that fresh fruits were healthy, but that when converted into juice, the sugar was concentrated, and the benefits of fibre were lost. The body’s processing of natural and added sugars was the same, making fruit juices equally unhealthy. HEALA was involved in raising awareness of the harms of excess sugar, and community education about the need for healthy eating and diet transition. he proposed that tax and education combined could yield the same results in diet as it had in tobacco.

Acting Chairperson Abraham asked Mr Meakin to explain his point about income taxes being akin to robbery

Ms D Mahlangu (ANC, Mpumalanga) noted questions about the definition of 100% fruit juice, raising the issue of the distinction between fresh 100% fruit juice and long-life fruit juice, which did not have the same contents.

Chairperson Carrim noted that the majority of the Committee at the time of the HPL were very supportive of HEALA and its inputs. However, this had to be balanced with the interests of agriculture and emerging farmers, and unions. While he agreed with HEALA in principle, its policies had to be balanced with economic considerations. he appreciated Mr Meakin’s right to be heard and argued that, although he was sure that National Treasury and the government did not agree with his proposals, Treasury should respond to his proposals.

Mr Meakin argued that income tax and VAT were unconstitutional. He proposed that enabling people to access the land was enshrined in S25.5 of the Constitution. He compared income tax to someone coming into one’s house and taking a quarter of their goods.

Acting Chairperson Abraham thanked presenters. She ceded the Chairpersonship back to Mr Carrim.

Co-Chairperson Carrim highlighted that presenters would be responded to by National Treasury on Friday, 6 November.

He noted complaints about the lack of time between the MTBPS and hearings, but pointed out that hearings were only the beginning of the passage of the Medium Term Budget.

The meeting was adjourned.