2021 Fiscal Framework & Revenue Proposals: public hearings

Meeting report

The Chairperson welcomed everyone in attendance and asked Members to please observe a moment of silence for all Members who had lost family members in the previous 2 weeks.

The Committee Secretariat noted an apology from Ms D Mahlangu (ANC, Mpumalanga) whose family member passed away.

Ms P Abraham (ANC) said there was an apology from Mr X Qayiso (ANC).

In a joint meeting, the finance committees of the National Assembly and the National Council of Provinces held a public hearing on the 2021 Fiscal Framework and Revenue Proposal. The Committees heard from the Fiscal Cliff Study Group (FCSG), the Research Unit on the Economics of Excisable Products (REEP), South African Institute of Chartered Accountants (SAICA), South African Institute of Tax Professionals (SAIT), Pricewaterhouse Coopers (PwC), National Council Against Smoking (NCAS), Healthy Living Alliance (HEALA), Congress of South African Trade Unions (COSATU), Organisation Undoing Tax Abuse (OUTA), Budget Justice Coalition (BJC), 1 Road Consulting and Amandla.mobi.

Briefing by Fiscal Cliff Study Group (FCSG)

Prof Jannie Rossouw said the 2021 Budget is not an austerity budget and there has not been an austerity budget in the past 10 fiscal years. The claims that it is an austerity budget are likely based on the small budgeted increases in expenditure over the medium term, which is roughly 0.7% per annum. FCSG believes this is a one-sided argument. Austerity measures are defined as “reductions in government spending, increases in tax revenues, or both. These harsh steps are taken to lower budget deficits and avoid a debt crisis”. South Africa has been running large deficits in the past 10 years, the highest deficit being during 2020/21. This and the fact that expenditure and debt continue to rise are evidence of highly expansionary fiscus. He warned that SA has reached its fiscal limit, which makes it seem as though austerity measures are being implemented.

Dr Fanie Joubert elaborated on the recent tax changes, highlighting South Africa’s relatively high personal income tax (PIT) burden when compared to developing countries. South Africa’s PIT burden is closer to that of developed countries, and warned that it could lead to emigration. The FCSG welcomed and supported the no general increase for civil servants, given the unsustainable growth in public sector wages for years. He warned that the whole budget rests on maintaining this position and if it slips, the budget falls apart.

Dr Joubert elaborated on the 2021 Budget specifics, and which items the Group found to be good, bad or maintained neutrality. FCSG warned against South African Airways (SAA) remaining on life support as it is a vanity project, and against the additional R7 billion to be given to the Land Bank, when it actually requires an urgent skills upgrade. He pointed out that the funding model for the Road Accident Fund (RAF) had not been finalised, and yet it is one of government’s largest contingent liabilities. He also warned against the tobacco excise duties increase as it could lead to increased illicit trade, and against the rising debt and debt service costs.

Dr Joubert summarised some of the FCSG’s recommendations such as the maintenance of civil service wage restraint and the protection of institutions that still function well. However the country should refrain from helping non-essential, failed SOEs like SAA and Denel.

Briefing by Research Unit on the Economics of Excisable Products (REEP)

Professor Corne van Walbeek, Director of REEP, showed how excise taxes have changed over the past 13 years. The new proposed 2021/22 excise rate is the largest nominal increase in the excise tax rate. In 2019/20 there was a decrease in illicit trade. An overview of the revenue collections for 2019/20 and 2020/21 show lost revenue from the tobacco sales ban [during the COVID-19 lockdowns] to be about R6 billion. Treasury is expecting to receive R13.09 billion in cigarette excise taxes. It is also expecting legal sales to decrease by 17% from two years ago. He said despite the excise tax increase, there is still room for National Treasury (NT) and South African Revenue Service (SARS) to do more.

He warned that the increasing illicit trade is a concern, however it is not the result of increased taxes. Illicit trade is an enforcement problem. During lockdown, exports to South Africa’s neighbouring countries spiked more than the general demand in those countries, presumably to smuggle the tobacco back into the country or through ghost exports. The markets in Lesotho, Namibia and Zimbabwe were oversupplied and the excess cigarettes were imported back into the country. In addressing illicit trade in tobacco, REEP hoped SARS will use its additional allocation for modernisation towards technologies that will reduce illicit trade in tobacco. REEP also calls for SA to ratify the World Health Organisation (WHO) Protocol to Eliminate the Illicit Trade in Tobacco Products.

Briefing by South African Institute of Chartered Accountants (SAICA)

Dr Sharon Smulders, SAICA Project Director: Tax Advocacy, presented views on how government can restore trust and credibility and what it needs to prioritise and implement. SAICA’s expenditure analysis, she said, would enable Parliament to ask the Executive the right questions. Government was facing a credibility and accountability crisis that needs to be addressed in order for there to be economic growth. Obstacles that urgently need to be addressed include the implementation of an Economic Reconstruction & Recovery Plan (ERRP). Currently there was no agreement on the ERRP, there was failing service delivery and failing infrastructure. The biggest concern was oversight failure and a “vacuum” through all levels of government.

The main problem did not lie in the raising of financial resources, but rather how those financial resources were being applied and invested into the economy, in order to generate the returns required to achieve the desired outcomes. Firstly, government needed to prioritise rebuilding SARS. Secondly, it needed to address the lack of skills and accountability in employment relations by changing its approach. There were too many bureaucrats and not enough faces on the ground. If public employee numbers or salaries were not to be cut, then government needed to push for productivity increases. A no increase in nurses’ salaries was inconceivable. And government` needed to prioritise and implement infrastructure revitalization, especially with respect to water and sanitation, energy generation and logistical infrastructure. For each of the areas that needed to be reprioritized, Dr Smulders outlined specific concerns and the accompanying accountability measures. She said that the expenditure analysis shows that government mostly spends on compensation, consultants, contractors, catering, agency costs legal fees, fleet costs and travel & subsistence costs. There had been a significant increase in payments towards outsourcing.

Briefing by South African Institute of Tax Professionals (SAIT)

Prof Keith Engel, SAIT Chief Executive Officer, agreed that SA is at the tax limit for the top marginal tax rate. A rate above 50% leads to more cases of tax evasion and bailing out or emigration. Internationally, the limit is at about 40%. To make the corporate tax rate more competitive, government should work on ensuring the tax rate drops, instead of the current approach of limiting tax increases and focusing on planned tax reductions. Government needs to go after the non-compliant, instead of coming after the compliant for more and more. Lowering the rates whilst broadening the base must take be considered in the context of trade-offs.

Government’s stance on incentives needs to be rethought, as there is too much theoretical invention in this area instead of better understanding the need for incentive creation. The design of the incentive should align with the business practices and regulation that are already part of the environment. Prof Engel elaborated on the costs of ineffectual incentives design, such as administrative costs. Government needs to ensure that tax administration is fair for the generally compliant, and also needs a new model to tackle non-compliance, that is not over-reliant on computer systems. He added that the current tax policy engagement is too limited. More engagement opportunities for the industry are required, which do not take on the current ‘results orientated approach’ but should be more collaborative. An industry specific approach is needed for manufacturing, farming and mining.

Briefing by Pricewaterhouse Coopers (PwC)

Mr Kyle Mandy, PwC Tax Policy Leader, said the country is in a challenging economic environment with the highest historical fiscal deficit. Growth in expenditure had far outpaced growth in revenue in the past few years, resulting in the fiscal deficit. There is an expenditure problem, not a revenue problem. The driver of the structural fiscal deficit is unsustainable increases in expenditure (mainly the public sector wage bill, debt and pressures from COVID-19). PwC welcomes the 2021 Budget withdrawal of proposals for tax increases of R40 billion over the period of the Medium Term Expenditure Framework (MTEF). The revenue outlook has improved due to better than anticipated Value Added Tax (VAT) and PIT collections. The public sector wage bill is unsustainable and the biggest contributor to expenditure. PwC supports the Zero-based budgeting (ZBB) to be piloted this year and the shift of expenditure from consumption to capital investment. SA’s tax system is still highly progressive, however, it has reached the limit when it comes to the extent of wealth equality that can be achieved by fiscal measures. Reductions in inequality require higher and more inclusive economic growth. Progressivity will be enhanced through limiting tax incentives and certain tax deductions.

Mr Mandy elaborated on revenue proposals, such as PIT relief and a reduction in the CIT rate and base broadening by limiting incentives and deductions. He said that it would have been preferable for the increases in excise duties to be delayed, pending an outlook review on the alcohol and tobacco industries that suffered a severe strain during the lockdown sales bans.

Briefing by National Council Against Smoking (NCAS)

Dr Sharon Nyatsanza, NCAS Projects and Communications Manager, welcomed the tax of R18.79 per pack of 20 cigarettes. She pointed out that the increase in tax of R1.39 per pack of 20 cigarettes is beneficial however, there is still room for more tax given the health and tax revenue benefits. Every R1 increase in excise tax will result in about 66 000 people stopping smoking, 16 000 fewer deaths, and will generate R697 000 in additional revenue. WHO recommends that taxes should comprise 75% of the retail price.

She highlighted the determinants for setting the right level of tax, such as the impact on government’s ability to raise revenue, factoring externalities like the increased health care costs due to tobacco-related diseases, and also considering the general improvement to societal heath. Studies show that younger and poorer people are more price sensitive. She argued that increases in excise tax does not lead to more illicit trade. Some of the drivers of illicit trade are corruption, weak tax administration and limited deterrence. It can be tackled by improving enforcement. Lowering excise tax can actually increase consumption and reduces tax revenue. Lastly, she pointed out that every tobacco tax decision is a health decision.

(See presentations for full details)

Discussion

Mr D Ryder (DA, Gauteng), appreciated the SAICA presentation however, he disagreed with its strong appropriations focus. Some points were more about general trends than appropriation. He highlighted the comment that there were excellent plans but an inability to implement due to a lack of capacity at local and provincial levels. He said he was disappointed that the water supply issue was given to someone else and was resolved in 10 days, despite government having 20 years to do it. This shows an inability of politicians to hold other spheres of government to account. A change in the electoral system will help with making Members of Parliament more accountable to the people. He remarked that it would be see nice to see more comments from REEP on other excisable duties.

Dr Smulders welcomed Mr Ryder’s comments and said she will make recommendations to the Appropriations Committees as well and provide a summary of the shopping list. Being aware that PwC would also be presenting this year, SAICA tried to avoid a repetition of information and focused on a broader and more general perspective for its presentation.

Mr M Moletsane (EFF, Free State) asked if REEP has a recommended plan to try and cap the increase in illicit cigarette trade.

Prof van Walbeek pointed out that illicit trade is an international problem. South Africa should ratify the Protocol to Eliminate the Illicit Trade in Tobacco Products. South Africa has signed the Protocol but has not ratified it, whilst 62 countries have. The Protocol commits the country to impose strategies and tools that will reduce illicit trade in the country. The available tools are a tracking and tracing system where products have a unique tax stamp which can be traced. Countries like Kenya, Turkey and Brazil use this, and it has significantly reduced the illicit trade problems faced by each of these countries.

Mr Du Toit (FF+, North West) said government must take note of the number of high-income taxpayers who have left the country, and make it more attractive for people to stay. Would the revenue shortfall be as high as it is, if the ban on sales of alcohol and tobacco was not implemented during the lockdown. If not, how much would sin taxes have contributed in reducing the revenue shortfall?

Dr Joubert replied that there would have been slightly higher revenue if the sales ban was not imposed. However, looking at the bigger picture, it would have made only a small dent in the deficit of R600 billion. Larger, sustainable revenue growth is what is needed in the long run, in order to effectively reduce the deficit.

Prof van Walbeek said that excise tax on sin goods account for 3.5% of total revenue. 35% of the 3.5% income has been lost during the lockdown due to lockdown restrictions. About R18 billion has been lost in revenue due to the ban on the sale of alcohol and tobacco.

The Chairperson asked for Prof van Walbeek’s opinion on why NT has not signed the protocol.

Prof van Walbeek said that Treasury could be nervous about whether it would be able to meet the requirements of the protocol, such as the time limitations on some requirements. Ratifying it would mean NT forcing itself to do something it feels it might not be competent to do.

The Chairperson asked REEP why illicit trade has increased significantly. He suggested that the Committee request the Parliamentary Budget Office (PBO) conduct a study on how much government is losing from illicit trade. He said he was surprised at the 2020 finance committee attendance records presented by SAICA, given that attendance has supposedly been higher than previous years. He questioned the accuracy of attendance records and pointed out that there are many things that happen between meetings that might affect attendance and it is not the only indicator. The Chairperson also noted the different arguments on government austerity, shared by stakeholders. The Committee is empathetic with the NCAS, however it also needs to balance out other considerations such as jobs.

Dr Joubert explained that contractionary fiscal policy is typically used in a situation where the economy is overheated, and that would normally bring down the budget deficit. However, the economy is currently strained and requires stimulation. Yet the discussion seems to be on reigning in on spending at a time when the economy needs more spending. Austerity is not a choice but a necessity given the fiscal limit point government has reached.

Dr Smulders said that SAICA will provide the Committees with its attendance lists from sources such as independent monitoring.

Dr Seeraj Mohammed, PBO Deputy Director: Economics, commented on the state of the discourse on austerity. He said Macroeconomics was “a mess”. There is little agreement and much ideology shaping analyses and results. Economists have ideological perspectives and seem to choose how they want to define austerity to get the results they want. Dr Mohammed cited a 2019 paper by Klaus Gründler and Niklas Potrafke, “Ideologically-charged terminology: austerity, fiscal consolidation, and sustainable governance,” that studied austerity and fiscal consolidation in the top 400 economics journals. The authors find: “The inconclusiveness about how to measure austerity has drastic consequences for studies that investigate the economic effects of austerity. We use panel data for 34 OECD countries over the period 1960-2014 and show that empirical evidence on the association between austerity and economic growth is mixed and depends on the definition of austerity. Our empirical results show that the choice of the austerity measure influences the relationship between austerity and growth and that strategic selection of methods measures allows scholars to arrive at any desired results about the economic effects of austerity periods.” [The paper is available at: https://www.econstor.eu/bitstream/10419/198973/1/cesifo1_wp7613.pdf ]

The Chairperson proposed that the PBO write up a piece on what is an austerity budget to be included in the Committees’ draft report. He asked Members to look at what Dr Mohammed has explained and if it can be mentioned in the draft report.

Dr Nyatsanza said health should be at the centre of decision making. Tobacco control does not harm the economy but actually benefits it. Jobs will not be lost, but additional jobs can be created as consumers shift expenditure to more labour intensive products. The purpose of the purpose of the tobacco sale ban was to reduce the severity of COVID-19 cases. The National Income Dynamic Survey-Coronavirus Response Management (NIDS-CRAM) Survey found that about 500 000 people stopped smoking within the 6-month period. A study from George Hospital states that admissions for chronic obstructive pulmonary disease (COPD) declined during this period.

Mr Paul Greig said that SARS had been provided with technology to paint the boxes with a special ultra

violet paint to assist in minimising illicit trade but had not taken up this product.

Dr Mohammed commented that the Canadian tax report that Carter, Perry, and Stewart wrote during 1964-67 recommended abolition of all the tax privileges the wealthy had achieved over the years and establishment of full taxation of capital gains, including estates (people might be allowed to average a large inheritance over five years). Resource companies should no longer be allowed to pay only 20% in taxes on their profits when other corporations paid at the average effective rate of 42%. [The report is summarised at http://www.taxwealth.ca/the-carter-commission/ . It was referred to in the presentation by SAIT, slide 3.]

The Chairperson asked presenters to please respond to the issue highlighted by the PBO through Dr Mohammed.

Prof Engel replied that the Carter Commission had said that capital gains should be taxed equal to ordinary rates. The problem in SA is that the Minister of Finance is doing the best he can on his own, and seems to be the only one accountable for growth. The other departments are not moving along with the growth agenda and the level of accountability seen with the Minister Finance is not seen with other departments. He was concerned with the large push for wealth taxes by people outside of the country. There was a lot of redistribution already. More wealth tax might cause emigration.

Dr Dumisani Jantjies, Director: PBO, commented that the country had seen a decline in CIT revenue over the years. There was a need to try and understand reasons for this, which include base erosion and profit sharing (BEPS) and the evolution in value creation by business. Dr Jantijes agreed that some parts of the international tax system (including domestic tax) are outdated, and therefore require reform as United Nations (UN) panels and the Organisation for Economic Corporation & Development (OECD) reports and others have shown. There had certainly been tax policies that have led to forgone revenue without value added in the economy. There was a difference in how expenditures are seen, but they do reduce corporate taxpayers’ burden and significantly so in many sectors, hence lower effective tax rate. Prof Engel’s presentation has shown the point the PBO also argued - that SA CIT rates compare well with our peers. It is important to recognize that developing countries rely on income tax (including CIT) as a source of government revenue more than advanced countries. So it is unfair to compare SA’s rates with developed countries.

Mr Mandy said PwC supports Treasury’s proposal to reduce the corporate tax rate, which will be coupled with another policy resulting in a revenue neutral effect. International studies show that it is better to keep the tax at a lower rate on a broader base, than at a higher rate and on a narrower base and giving exemptions and incentives. He pointed out that being highly reliant on CIT is risky, especially in the context of a stagnant economy or in a recession. CIT is the most volatile amongst all the taxes. Even though SA has a high headline CIT and lower effective rate of tax, one must be cautious of effective tax rate measurements and also consider the high corporate tax burden. In global terms, SA’s corporate tax burden is relatively high.

Briefing by 1 Road Consulting

Mr Ernie Lai King, 1 Road Consulting Managing Director, said the country is on a knife-edge with too much debt, not enough revenue and a paper thin tax base. The expected Debt to GDP ratio in this fiscal year is expected to be 80.3%, rising to 87.3% in 2023/24. Debt‐service costs will rise from R232.9 billion in 2020/21 to R338.6 billion in 2023/24. Debt service costs are drawing 19.2 of revenue this year, which could have been used on pressing economic and social priorities. He highlighted the current economic context of a falling real GDP since 2013/14, an increasing unemployment rate, and lower tax revenue collection.

The Budget rightly focusses on the economy and removing structural constraints that obstruct faster growth. It emphasises structural reforms for inclusive growth by improving access to reliable electricity, water and sanitation services; enabling cost effective digital services; promoting the green economy; and supporting industries with high employment potential, such as tourism and agriculture.

Exports are a key sector for economic growth. Many export companies are owned by foreign investors and it is a valuable source of foreign currency and job creation. A major concern for the export industry however is the structure of the VAT Act and the Tax Administration Act (TAA). The concern is mainly the manner in which SARS is able to conduct VAT audits and withhold refunds due. It was revealed during the Nugent Commission Investigations that VAT refunds were withheld to manipulate the tax revenue collection numbers during the period of state capture. These refunds are included in the cash flow projections of businesses.

Mr King recommended that a discussion be held with the export industry representatives, SARS and NT to find an acceptable resolution to the valid concerns raised. The Office of the Tax Ombud, SAIT and 1Road Consulting are prepared to engage directly with SARS and NT. Lastly, he recommended some provisions that may be introduced into the VAT Act and TAA, such as a requirement for SARS to complete VAT audits within 2 months from the date all required materials are provided and a provision that SARS may not withhold VAT refunds simply on the basis of pure conjecture and suspicions. There must be a factual basis for withholding refunds.

Briefing by the Congress of South African Trade Unions (COSATU)

Mr Matthew Parks, Parliamentary Coordinator, COSATU, said the country was in the worst economic recession in a century, with rising unemployment levels and company closures. Government needed to stimulate economic recovery and address the causes of the fiscal crises, such as the billions lost to tax evasion, illicit outflows, and saving SOEs that are run into the ground. The Fiscal Framework failed to protect workers, the poor and social grant recipients from inflation. COSATU proposes that government’s macro-economic framework be overhauled to one that balances debt reduction with stimulating the economy and plugging fiscal leakage. Tax reform needs to ease the burden on workers and increase taxes on the wealthy. In response to COVID-19, COSATU proposes that the vaccine plan be urgently ramped up to ensure 70% immunity levels are reached in 2021 as the economy cannot sustain lockdowns.

Mr Parks outlined proposals for economic and social relief measures, such as the extension of the R350 grant for 2021/22 and the tabling of the agreed amendment bill to allow workers limited access to pensions, by April and to enact this by October 2021. In tackling corruption, the entire state needed to implement a single online transparent public procurement system. The public procurement bill should be tabled in 2021. Corruption cases should be prioritised and commercial crimes courts should be resourced. Regarding Public service, government needed to honour the 2020 wage agreement and engage the bargaining council on the next agreement. The number of politicians and executives, and the excessive packages in public services need to be reduced. Public servants needed to be protected from inflation. With the ERRP, government needs to prevent corruption in the infrastructure programme, prioritise investment in ports and fast-track the SOE shareholder Management Bill.

He called on Parliament to exercise its legislative powers and reverse the cuts to the Departments of Health, Basic Education, Trade, Industry & Competition, the South African Police Service (SAPS), National Student Financial Aid Scheme (NSFAS) and the Commission for Conciliation, Mediation and Arbitration (CCMA). Vanity spending must be removed, such as the R900 million spent on upgrading embassies overseas. NT and Cooperative Governance and Traditional Affairs (CoGTA) must explain the plan to deal with the billions lost to corruption and wasteful spending in local government, and explain the collapse of some municipalities. Mr Parks pointed out areas of concern COSATU feels the budget has not addressed adequately, such as tackling corruption and wasteful expenditure, and providing economic and social relief for workers, the unemployed & businesses.

Briefing by the Organisation Undoing Tax Abuse (OUTA)

Mr Matt Johnston, Parliamentary Engagement Manager: OUTA, said that Budget 2021 fails to address the root causes of South Africa’s problems. Reviving the economy requires structural changes and old policy impasses to be confronted and actioned. There is long difficult road ahead, as the country’s increased debt service costs compound SA’s debt and risks and an irreversible debt spiral over the medium to long term. He pointed out that despite various economic plans and increased government spending over the years to help resuscitate the economy, the decline in GDP continued. This shows that there is a spending problem not a funding problem, especially the composition of spending. The outcomes of expenditure have not met expectations. The spending reviews launched in 2020 must include new forms of public participation, including a civil society-led intervention to provide input and solutions on the collapse of local government. The value of every SOE needs to be assessed with a clear plan presented for some to be closed, sold or amalgamated, within six months.

The composition of the public service wage bill, and wage inequality within it, need to be looked at. Government needs to ensure that in its efforts to trim wages, it does not affect the wages of frontline workers and on the ground public servants. Those earning huge sums of money with unresolved allegations of enabling corruption and rent-seeking behaviour against them should get immediate wage reductions or be suspended without pay. There should also be targeted caps on salary growth especially for high earning, underperforming public servants.

Mr Johnson elaborated on tax policy proposals such as increasing the PIT brackets by 5% and the ringfencing of fuel levies for capital expenditure on infrastructure instead of compensating for the near bankruptcy of the Road Accident Fund (RAF). He spoke of the high borrowing levels and said that debt costs are crowding out social spending. OUTA supports the Fiscal Rule to constrain spending levels. The use of the contingency reserve to bail out failing SOEs with maladministration is unacceptable. Crisis control cannot be a mode of everyday operations at SOEs. Mr Johnson raised concerns around zero-based budgeting and areas of governance improvement. He pointed members to OUTA’s key recommendations on the last 2 slides of their presentation.

Briefing by Healthy Living Alliance (HEALA)

Mr Lawrence Mbalati, HEALA Programmes Manager, said the COVID-19 pandemic magnified SA’s health and economic challenges through increased hunger and malnutrition, as well as food insecurity. He argued that SA needs a health promotion levy of 20% as it could lead to an additional estimated R2 billion in revenue that can be used to purchase vaccines and employ more health workers. Additional economic benefits include an estimated R5 billion savings in healthcare costs over the next 20 years. The Health benefits of such a policy include increased productivity as a healthier population is more productive. It is also estimated that it would save 72 000 lives over the next 20 years, and reduce risk factors for severe COVID-19 like obesity and diabetes. The levy is an important policy tool to protect and improve the health of South Africans over time. Also, there is no evidence to date from SA or globally, that implementing a levy on sugar leads to job losses. He elaborated on the success of the 2018 sugar tax hike and the public support for a 20% health promotion levy.

He pointed out to Members that every year that NT delays doubling the levy to 20%, more South Africans will die from diseases the levy could help prevent. He urged government to act now to protect and improve the health of its residents.

Briefing by Budget Justice Coalition (BJC)

Ms Busi Sibeko, BJC representative, said the 2021 budget will disproportionately impact the poor and women, and that it represents an austerity measure. It is an austerity budget that withdraws the state from its constitutional responsibilities and continues SA’s unequal development path. The COVID-19 crisis has laid bare the deeply-rooted and structural inequality inherited from apartheid and maintained through neo-liberal capitalism embraced by NT through liberal trade and financial policies. The BJC recommends that the Committees call on the National Treasury to defend their proposals in light of the Constitution and the human right to dignity and care. The BJC rejects the 2021 Budget for one that advances a fiscal framework based on meeting the human rights obligations of a caring state. She recommended the Committees call on the Parliamentary Budget Office (PBO) to assist in supporting it to make the necessary amendments to the 2021 Fiscal Framework.

Ms Sibeko said the current fiscal consolidation economic policy promotes an unequal, private sector led recovery. Fiscal policy continues to dump the burden of fiscal consolidation on the backs of the poor and vulnerable. She referred to the impacts of the budget on health, education, social grants and public sector wages.

Mr Dominic Brown, BJC representative, explained how the tax policy continues to reinforce excessive wealth at the expense of social equality, and elaborated on the tax policy proposals. The BJC argues that the tax measures announced in the 2021 budget should not be approved, as the measures will contribute to the declining progressivity of the tax framework. Instead, it proposes implementing a resource rent tax, an annual net wealth tax and increasing personal income tax on the two highest brackets. Mr Brown spoke on the state’s debt position, debt vulnerabilities and proposals to tackling the country’s debt crisis. He pointed out that there will be no debt reduction without economic growth.

Ms Sibeko concluded by sharing the BJC’s concerns around transparency and public participation processes. She urged the Committees to ask whether the underlying logic of this framework supports the kind of state envisaged in the Constitution. A state that must make the maximum possible resources available for promoting, respecting, protecting and fulfilling fundamental human rights, including socio-economic rights and ensuring environmental sustainability.

Briefing by Amandla.mobi and Pietermaritzburg Pensioners Forum

Ms Tlou Sepo, Amandla.mobi Junior Campaigner, played a video for Members containing messages from abo Gogo from the Pietermaritzburg Pensioner’s Forum, elaborating on the need for an increase in pension grants. The gogos shared personal testimonies on the inadequacy of the current pension grants, and the additional strain on finances during the pandemic. During the lockdown, family members lost jobs and also rely on this source of income. The organisations call for pro-poor interventions and commitments, an increase in PIT for those earning above R1 million annually, and for the implementation of a Basic Income Guarantee for those aged 18 to 59 years.

(See presentations for details)

Discussion

Mr Moletsane asked COSATU how it is assisting government to combat the rise in retrenchments?

Mr Parks said COSATU’s major contribution is that it has pushed and will continue to push for the extension of R60 billion from the Unemployment Insurance Fund (UIF) towards assisting workers facing wage losses and job losses and to keep businesses open. He pointed out the UIF is composed of workers’ funds and does not affect the fiscus at all. Other contributions include its participation in saving Eskom and in the ERRP by driving local procurement, ensuring the infrastructure programme happens at all sectors, and exposing corruption. COSATU has also developed a retrenchment guide of good practice, and a pension withdrawal proposal, which gave guidelines on how to help companies avoid retrenchments and how to give relief to workers.

Ms Abraham expressed concern with the BJC’s call for the Committee not to pass the budget. She asked if this would be a responsible thing to do given the societal impact. Regarding the social grants, the ANC wants an increase in grants however, it needs to consult Treasury on a feasible grant increase. Members of Parliament are not implementers at this level.

Ms Sibeko said that the BJC calls for the rejection of the budget for several reasons. Firstly, it hinges on the assumption that the wage negotiations will go in NT’s favour. Fundamentally, the constitutionality and progressive realisation of people’s rights is lacking in the budget in many ways. It will regress the rights of learners in no-fee paying schools for instance. It is the duty of NT to deliver on these rights. With rejecting certain parts of the budget, one needs to consider what the collective plan is. It must be approached holistically. The entire budget needs to be rethought as there are implications of multigenerational equity and implications on private public partnerships. The Budget fundamentally states that human rights today must be sacrificed for an economic growth in the future, that will supposedly secure human rights in the budget. However, Treasury cannot guarantee this.

Ms Sepo noted Ms Abraham’s comment and will take it back to abo Gogo to respond for themselves. The Committee needs to do more in pressuring Treasury regarding this austerity budget that is anti-poor.

Mr Parks said that Parliament has the right to amend the budget and the scope to do so without being reckless. The cut to the social grants is about R4 billion and the cost of extension would be R2 billion, which is affordable. Public participants were unsure of the extent to which government takes the inputs of civil society seriously. For instance, the President responded to COSATU’s pleas in the SONA, but then there’s a walk away when the budget is tabled like with the loan guarantee scheme.

Mr Johnson said that the statement by Ms Abraham on MPs not being implementers was disempowering. Parliament is not powerless in changing the budget.

The Chairperson said that Ms Abraham was essentially saying that Parliament is not the executive organ, not that it is powerless. Parliament makes policy decisions, conducts oversight and demands accountability of the executive.

Mr E Njadu (ANC, Western Cape) suggested that NT include a breakdown of the calculations for a feasible grant increase, in its response on Friday that week. He asked OUTA to please clarify on how it would like the assessment on SOEs to be done? He asked COSATU how far the public wage negotiation process is?

Mr Parks said the 2020 wage agreement, which government walked away from, is at the Constitutional Court. Government has mentioned an offer to settle on the 2020 wage agreement, but it has yet to come to the bargaining council regarding this.  

Mr Johnson said the same question on the assessment was posed last year by Chairperson Maswanganyi, who then recommended that the human resource composition and salaries of higher ups in SOEs be reviewed. The financial models and sustainability of SOEs need to be reviewed in the context of the current fiscal situation. The proposal is for a cost benefit analysis or a consolidation of entities with overlapping mandates.

Mr Ryder expressed his appreciation for the presentations, particularly OUTA, who raised key issues and should note the Fiscal Responsibility Bill and consider supporting it and/or mobilising support.

The Chairperson said the pensions grants matter largely lies with the Appropriations Committees. He proposed that the finance committees can recommend supporting an extension of the R350 grants given that COVID is still around and the situation is still dire. There is a Cabinet committee looking into the possibility of a basic income grant (BIG). Regarding the request for more time when engaging with civil society on finance matters, the Chairperson said this may not be the case. The same stakeholders have been appearing and have made similar arguments for a long time. There needs to be a concrete proposal on what more is going to be said. It is more complex than giving more time for public participation given Parliament’s complex schedule and not wanting to hinder capacity for other tasks. He noted OUTA’s stance that Parliament is not doing its task of oversight effectively. He agreed that more needs to be done, however, this view, which was also coming out of the Zondo Commission, is not entirely balanced. It is not true that corruption is not spoken about. HEALA is not taking not taking sufficient account of emerging farmers, the tax revenue raised and the economy as a whole. Most Members would agree with values underpinning the BJC’s proposals, however, the Committees cannot reject the budget as a whole. There are aspects the Committee can reject and there are ways to deal with this. He noted Amandla.mobi’s argument. It is not true that the pleas of pensioners have been ignored, however, the proposed R2 500 grant is not a realistic figure due to technical issues. He expressed disappointment with the way the Minister conveyed that pensioners will not receive a real increase, as it was lacking in empathy. He suggested that this also be included in the Committee report. He said that after Mr King spoke he understood that there is only so much the Committee can do and proposed starting the debate with SARS and NT to achieve more balance.

Mr Parks said that if everyone supports the extension of the R350 grants, then now is the time to do it. If Treasury does not bring the pension withdrawal proposal before the end of March, COSATU requests Parliament to proceed with the bill of Dr Dion George (DA). He agreed that the Minister’s comments that “pensioners do not have a right to inflation increases” were offensive.

Mr Johnson agreed with the Chairperson that improving public participation is not a matter of giving more time. However, participation can be improved by addressing capacity and implementing the oversight and accountability (OVAC) model for Parliament, which has not been implemented for 10 years. The Budgetary Review and Recommendations Reports (BRRRs) from Portfolio Committees should include public participation processes. The timing of these processes within the budget cycle can also be improved. The public hearings hosted around this time leave little room for major adjustments. He added that what has been raised in the Zondo Commission is what civil society has seen, which is a lack of accountability with finances in government, hence the existence of OUTA and the support it receives. Parliament is accountable to the public, not political parties.

Mr Mbalati said HEALA would like to see a progressive realisation of next steps in the Parliamentary process. HEALA is willing to engage Parliament more.

Ms Sepo agreed that the Minister of Finance’s attitude is a slap in the face to the poor majority. The BIG is long overdue and Amandla.mobi applauds those championing its implementation this year.

Ms Sibeko said the BJC has made a submission on how public engagement can be more accessible and participatory.

Mr Du Toit asked the BJC to please explain how it understands an "Austerity Budget" ?

Ms Sibeko replied that austerity is defined as fiscal policy implemented by a state aimed at solving debt and growth problems during a period of economic stagnation. In an effort to “balance the budget”, commonly implemented austerity policies by the state include: spending cuts, regressive tax increases, or a combination of both. The implementation of austerity is indicated by, but not limited to:

• Regressive tax policies;

• Government spending which is not increasing in real terms (that is, after inflation);

• Reassignment of funds away from investments in the public sector;

• Cyclically adjusted deficit (government borrowing adjusted for cyclical variations) shrinks;

• Policies which fail to close the gap between a country’s actual and potential GDP; and

• Tight monetary policy (i.e. high interest rates) and an overvalued exchange rate.

The choice of austerity is not purely a technical one, it also reflects a political process.

The Chairperson urged organisations to continue being present and to participate in public hearings, despite frustrations with the process.

The Co-chairperson, in closing the meeting, remarked that in terms of rejecting the Budget, once it has been tabled, it falls under the Money Bills Act. There are strict procedures to be followed in order for money bills to be amended. There are binding structures. He added that Ms Abraham’s comment was not insinuating that Parliament is not a decision-making body.

The meeting was adjourned.