2022 Budget: Treasury briefing, with Minister & Deputy Minister

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Finance Standing Committee

24 February 2022
Chairperson: Mr J Maswanganyi (ANC) and Mr S Buthelezi (ANC)
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Meeting Summary

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2022 Budget Speech & Key Documents

In this virtual meeting, Parliament’s finance and appropriations committees from both houses met jointly with the Minister of Finance, his Deputy and senior National Treasury officials to discuss the 2022 Budget. The Minister had tabled his budget proposals the previous day.

The spiralling debt-service costs was a major concern of Members and it preoccupied the Minister and his team at National Treasury. On average, 20 cents of every rand collected in revenue was used to pay debt-service-costs. National Treasury reported that the debt trajectory would improve as a result of the revenue windfall that would in part be used to reduce the deficit.

Members found the persistent high unemployment rate unacceptable and called for a moratorium on the culling of jobs. The observation was made that government was using the grant system to compensate for the lack of job creation. Nearly half of the population was dependent on a social grant from the state. National Treasury allocated R18.4 billion to support youth employment initiatives and the creation of short-term jobs.

The feasibility, sustainability and funding of the Basic Income Grant were scrutinised. National Treasury was planning a review of the entire grant system. The outcome of the review would be presented in the Medium Term Budget Policy Statement. Members were warned that any increase in social grant spending would be accompanied with an increase in taxes.

The wage bill would remain a problem in the absence of corrective measures to address the problem. Members raised concerns about the unsustainability of the increasing wage bill. The salary limits of municipal managers were found to be in excess of the salaries of directors-general and were in some instances even exceeding the salary of the President. National Treasury and the Department of Public Service and Administration were collaborating on keeping the wage bill within affordable limits. A Constitutional Court decision, relating to the 2018 wage agreement, could have an adverse effect on wage negotiations, scheduled to take place in March 2022. 

The 2020 Loan Guarantee Scheme was found not to benefit those who were in desperate need such as small operators and people in rural areas. Members were concerned that problems experienced with the R500 billion allocated in 2020 could be repeated with the R15 billion allocated in this budget. National Treasury reported that 15 000 loan applications were received during the Covid-19 period. On average loans of R1.2 million, to the value of R20 billion, were paid. The scheme came to an end in 2021 due to declining new applications. The new loan scheme was allowing the state to assist companies in collaboration with the banks and private companies who complied with prescribed criteria. This initiative would make loans more accessible to small business owners.
 

Meeting report

Opening Remarks
The Minister of Finance, Mr Enoch Godongwana, made a few observations to preface the National Treasury presentation. The Department was operating under difficult times. The higher-than-anticipated revenues provided space to slightly reduce the deficit. Some of the R182 billion excess revenue had to be allocated to KwaZulu-Natal and Gauteng after the unrests. A further R7.1 billion was allocated in the current budget estimate to support SASRIA. The budget was striking a delicate balance of fiscal sustainability, economic growth and supporting lives and income. Some of the funds were used to reduce the deficit as part of the debt strategy. In an attempt to strengthen the fight against crime, R8.7 billion had been allocated to the South African Police and R1 billion to the Department of Justice and the Office of the Chief Justice. Almost 60% of non-interest spending was allocated to the social wage to deal with the needs of poor and vulnerable people. In support of the economy, the budget was providing relief to tax payers in general including company tax. Despite all these challenges, the Department continued to restore the health of public finance.

The Minister explained that National Treasury was planning to present the Procurement Bill before Parliament but was stalled by two recent developments. The first Zondo Commission report dealt with the limitation of the procurement system. A decision by the Constitutional Court to uphold public service unions' appeal of government's bid to be excused from implementing a previous public service wage agreement could also upend government's efforts to contain the wage bill's growth. The Procurement Bill would have to be studied in light of these developments. In the interim, new instructions would be introduced within the next 14 days to provide flexibility to accounting officers. The instructions were aimed at enhancing reporting requirements to National and Provincial Treasuries and the Auditor-General (AG).

The Deputy Minister, Mr David Masondo, indicated that the Minister’s comments were sufficient and he would make a contribution during the deliberations.

National Treasury Presentation
Mr Edgar Sishi, Head: Budget Office, National Treasury, noted some of the points in the presentation had been dealt with by the Minister. An overview of the budget showed that an average of 59.4% of spending was allocated to the social wage for additional funding to health, education and the presidential employment initiative and to extend the SRD grant for 12 months. Tax relief to the value of R5.2 billion was proposed to support economic recovery, provide relief from fuel tax increases and boost incentives for youth employment.
National Treasury projected economic growth at a moderate rate of 2.1% in 2022. GDP was expected to grow at an average rate of 1.8% over the next three years.

The global outlook is significantly being impacted by the two major economies. The withdrawal of the US fiscal support package and the volatility of the real estate sector in China, reduced growth projections worldwide. The trajectory of growth on the domestic front had been affected by various events such as the July unrests and the problems at ESKOM.

The fiscal strategy, which formed part of the recovery plan, was closely aligned to MTBPS that was presented to the Committees in October 2021. The focus was on reducing the budget deficit and stabilising the debt-to-GDP ratio. The fiscal outlook is subjected to significant risks such as weakening global and domestic economic growth, rising borrowing costs, high public-service wage costs and the poor financial condition of several SOEs.

The level of growth in the wage bill was unsustainable. A new round of collective bargaining was scheduled for March 2022. National Treasury was working with the Department of Public Service and Administration to keep compensation within affordable limits. Employees received a non-pensionable cash gratuity in 2021. The 2022 budget was providing for payment of a similar gratuity in 2022/23.

Almost 60% of non-interest spending was allocated to the social wage. Spending was directed to health, education, housing, social protection, employment programmes and local amenities. Nearly half of the population was dependent on a social grant from the state. Persistent joblessness was the main cause of poor economic performance. An amount of R18.4 billion was allocated to support youth employment and the creation of short-term jobs under the presidential employment initiative.

 

(See Presentation)

Discussion
The Chairperson of the Standing Committee on Appropriations (SCoA), Mr S Buthelezi (ANC), invited Members to engage with National Treasury officials on the presentation. He asked Members to be brief due to time considerations.

Dr D George (DA) drew attention to the warning issued by the Fitch Rating Agency on the rising debt levels. The fiscal framework showed that debt levels continue to rise, mainly due to the rise in the public sector wage bill. He asked what action the Minister was planning to take considering the pressure the wage bill was placing on the upward debt spiral. The reduction in the money allocated to SOEs was pleasing. The President mentioned the establishment of another SOE to oversee all the other entities. He regarded this as an exceptionally bad idea. He questioned how this new entity was going to be funded. More domestic savings were needed beside pension funds. He asked why measures were not implemented to remove the barriers of saving, such as increasing the limits on tax-free savings and relief on individual rental income. One of the key instruments to get capital investment in the economy was through domestic savings. He enquired about the timeframe for engaging with other departments to sort out the fuel price which was driving inflation and causing hardship.

Mr D Ryder (DA, Gauteng) congratulated the Minister on his appointment. He expressed sympathy with the situation that the Minister found himself in. There were positive signs in the budget but some aspects were missing. The announcements made my two Ministers prior the budget speech, were not reflected in the budget. He sought clarity on the direction of e-tolls mentioned by the Minister of Transport, Mr Mbalula and the source of the funding for SAA mentioned by the Minister of Department of Public Enterprises (DPE), Mr Gordhan. The tremendous costs associated with the rebuilding of Parliament were not catered for in the budget. He asked where the money was going to come from to support the continued working of Parliament and the temporary housing of Parliament while the rebuilding was taking place.

A comment in the Budget Review document showed that the school backlog infrastructure grant had been subsumed into the education infrastructure grant. He regarded this as an extremely bad idea given the under performance of the backlog infrastructure grant over the years and the importance of spending money specifically at schools with pit latrines and asbestos infrastructure. The focus would be shifted from catching up on the backlog. It was a bad idea to allow it to disappear into a bigger grant where it could not be controlled. He drew attention to the risks of scarcity on inflation. Not only did production decline due to the pandemic, but ships were also finding it difficult to dock in South African harbours. The backlog in ports resulted in ships bypassing Cape Town due to delays in South African harbours. The situation was creating scarcity in our shops which was increasing inflation. He asked if the Minister had been engaging on this matter with his cabinet colleagues whose entities had been impacting on National Treasury deliverables.

Ms D Peters (ANC) congratulated the Minister and National Treasury for the good news budget with the emphasis on striking a balance between saving lives and growing the economy. She was satisfied that the focus was on the needs of poor people and workers. The announcement of the extension of the social relief of distress (SRD) grant and other grant increases was an indication of a caring government. She asked if the Minister and National Treasury were investigating taxing rich people more to fund the basic income grant (BIG). In her opinion, the administrative burden on SASSA and the challenges of the South African Post Office (SAPO) could be minimised if young people could graduate from the SRD grant to the BIG. She enquired if a study on the feasibility and sustainability of the BIG could be done. The bailing out of failing SOEs remained a problem. A list of SOEs, which had been red-flagged, was requested form National Treasury in the previous year. There seemed not be value for money considering the costs to the fiscus to administer the SOEs. She asked if it was correct that SOE leadership perks were equal or more than those of Ministers. It was painful to hear about SOEs and municipalities that were unable to pay salaries. She questioned the increasing debt-service costs and what could be done to get out of debt, especially debt owed to international institutions. She requested feedback on SOEs with positive news after turnaround plans were implemented.

Mr W Aucamp (DA, Gauteng) was pessimistic about the long-term effect of the spiralling debt-service costs on the economy. For the private sector to create jobs, both local and international investors require a conducive environment. A positive rating could not be expected considering the warning issued by Fitch. It was time to move away from controversial issues such as expropriation of land without compensation as this discouraged investors. He congratulated the Minister for his stance on the bail out of SOEs. He suggested that privatisation of SOEs was the way forward.

At this point, the Chairperson of the SCoA was experiencing connectivity problems. The Chairperson of the Standing Committee on Finance (SCoF), Mr M Maswanganyi (ANC) took over the role of Chairperson.

Mr I Morolong (ANC) congratulated the Minister on the delivery of his maiden budget speech. He asked for how long tax revenues would be boosted by the commodities cycle. He asked how the Minister intended to keep the wage bill under control during the current financial year. He sought clarity on the funding of the BIG. He probed the Minister about his long-term view on the BIG and the financing of a just transition to secure energy.

Mr X Qayiso (ANC) agreed with the intervention in the budget to allocate R76 billion for job creation. Small business could benefit from the budget allocation of provincial departments. The allocation for health services would assist in achieving the NHI objective of providing health care for all citizens. SOEs such as SAPO and Denel were playing a pivotal role in the developmental state. He sought clarity on which SOEs would be rationalised and which entities would be retained. The AG reported the lack of spending, as an issue on the performance of municipalities. He asked if the financial model of municipalities could be reviewed to make the plans more effective. The issue would result in a collapse of services if the approach on spending was going to persist in municipalities. He asked if the Presidential Task Force would be dealing with illicit financial flows which was contributing towards the crippling of the economy. He questioned at what stage the wealth tax issue would be seriously considered as it could contribute significantly towards raising revenue. In response to the comment by Mr Aucamp, he said the expropriation of land without compensation was a policy issue and could not be dropped. 

Mr Maswanganyi thanked the Minister for the positive trajectory portrayed in the budget. The improvement had to be acknowledged and credit must be given when it is due. He welcomed the increase in revenue from the mining sector, in an attempt to stabilise the debt. The R15 billion allocated to small businesses was a positive development. Accessibility to small business loans always seemed to be a challenge. He expressed the hope that R15 billion would reach small operations even in rural areas where the assistance was desperately needed. He urged the Minister to pursue discussions on the fuel price with the Minister of the Department of Mineral Resources. The high prices of food made it unaffordable for poor people who go to bed without having a meal.

Mr Maswanganyi sought clarity whether the Presidential Youth Initiative was the same programme as the YES initiative that was launched not so long ago. He asked if the programme would make a difference in the youth unemployment situation. He questioned the Minister on the economic policy of government considering that the Inclusive Growth Plan of the previous Minister of Finance, Mr Tito Mboweni, had been dropped. He was cautious of painting all SOEs with the same brush. Nany SOEs received clean audits according to a recent report from National Treasury. The role of the state remained important for the benefit of the poor therefore the economy could not be left to market forces. Even in the United Kingdom and the United States, the private sector was not in charge of every entity. He urged the Minister to present a clear economic policy direction and to deal with the challenges of the Zondo Commission report and the Constitutional Court decision on the wage bill.

Mr W Wessels (FF+) acknowledged the positive aspects of the budget however, everybody was aware that the country was fiscally in trouble. The attitude should be to create an environment in which the private sector could spend money and create jobs. Implementing a wealth tax would be detrimental and unsustainable. The debt across the country was worrying. Municipalities were struggling because of non-payment for services by government departments and entities. He enquired about the position of SAPO who was reported to owe more than R300 million to landlords. The outstanding municipal charges of SAPO was unknown. He suggested that getting rid of the Road Accident Fund (RAF) would stabilise the fuel price. The RAF had been dysfunctional and was bankrupt. On food affordability, it was a shame that 40% of South Africans go hungry. He asked if money had been allocated to assist farmers who was suffering due to the recent floods and previous droughts. The wage bill would remain a problem if a review of vacancies was not done. The upper salary limits at municipalities should be reviewed. Municipal senior managers were earning more than directors-general and in some cases even more than the President. The extremely high salaries were a burden on municipalities. 

Mr J Mpisi (ANC, Gauteng) welcomed the increase in bursaries. He enquired about the reforms that would assist the working class youth to access education. He questioned how the structural constraints that were having a limiting effect on the recovery of the economy, was going to be addressed. He asked if the relief for the poor, was a long-term or short-term measure. The working class was finding it difficult to get to work because the railway lines were dysfunctional and the taxi and bus fares were very expenses. He questioned whether the budget allocation for the Transport Department would be sufficient to install railway lines in this financial year. He asked what informed the Minister and National Treasury to not increase the SRD grant to R400 or R500. In rural areas, where there are no Post Office, people have to incur very expensive taxi fare to access the money.

Mr F Shivambu (EFF) had a few observations to make. In 2020, the government allocated R500 billion for Covid-19 relief. Without presenting a report on how the R500 billion was utilised, another R15 billion had been added in this budget. He asked for a breakdown of the demographics of the people who gained access to the money. It would be prudent to reflect and report on what the impact of the 2020 allocation was. He questioned the impact of the R301.8 billion debt-service costs considering that between 11 and 14 million people were unemployed. National Treasury had consistently been doing the same budget with no impact on the lives of ordinary people. No allocation was made in the budget for the 11 million unemployed population. The statistics showed an average of 1.8% economic growth while the population was increasing by 1.4% year. This meant that the situation of the unemployed would remain unchanged. He said it was misleading to present the NSFAS budget allocation as fee-free education when NSFAS was administering loans to students.

Mr Shivambu noted the President had been opening infrastructure projects that had not been budgeted for. This indicated the lack of a mega government infrastructure programme. Progress had been made with deliberations on the establishment of a state-owned bank. National Treasury was asked to provide a framework for the disposal of African Bank shares. He suggested that the request was met with silence because Rothschilds had been appointed as advisors on the issue of African Bank. He demanded a report on the creation of a state-owned bank. He enquired about the role of the Public Investment Corporation (PIC) in the creation of mega projects to facilitate job creation. It was the only institution that could have a meaningful impact, unlike the Land Bank. There was a deliberate attempt to conflate tax avoidance with tax evasion. Clear guidelines were needed to maximise revenue collection. He asked if it was not time to amend the Public Finance Management Act (PFMA) and the Municipal Finance Management Act (MFMA) to centralise local procurement. It was problematic for National Treasury to be the custodian of national procurement. The role of developmental partnerships in creating jobs and expanding the revenue base in South Africa needed to be investigated. China was playing a meaningful role in the development of projects in other African countries through the Belt-and-Road initiative while. This is not the case in South Africa who was relying on loans from the World Bank and the International Monetary Fund. National Treasury was not doing anything to stimulate the economy. In his view, government should be ashamed of celebrating this budget.

Ms P Abraham (ANC) appreciated the strides made by government but said issues of concern needed to be raised. She asked if issues about the 2020 guaranteed loan scheme had been resolved. She was concerned that the same problems might happen with the 2022 loan scheme. She sought clarity from the Minister on the meaning of Secondary Market Instruments. She enquired about the strength and weaknesses of the economy and how it was going to be managed differently this financial year. The Capital Management Framework allowed for 45% off-shore investment. She questioned the rationale of this policy and the effect on local investment.

Mr Buthelezi agreed that the budget was delivered in difficult conditions. The better-than-expected revenue was a welcome development. The SRD grant extension was a temporary measure as government would want people to get employed to sustain themselves. The Credit Guarantee Scheme was a new approach by the Minister which could have prevented job losses if introduced earlier. Only 20% of the money had been accessed. The provincial Development Finance Institutions (DFI’s) should be brought on board for this scheme. The 30-day payment issue was a song that had been sung forever without any changes. He asked what would be done differently to ensure payments were made on time. He queried the hypothesis of National Treasury on the decrease of company income tax and if it had been adopted by the private sector. The introduction of VAT was, at the time, supposed to be a temporary measure. He expected an amendment of the VAT rate instead of the company tax rate. The reduction in the rate would encourage companies that were not reinvesting to pay more bonuses to executives. There should be a commitment to reinvest because the economy was bleeding jobs. A moratorium should be called on the culling of jobs. The rating agencies identified Covid-19 and inequality as risk indicators. He asked if these indicators were being monitored on a quarterly basis. Plans were needed to address the lack of spending on capital expenditure to make sure government would be in a position to stimulate spending.

Mr Buthelezi called on the Minister and National Treasury officials to respond to the questions raised by Members.

Minister Godongwana stated that a response was not necessarily needed to some observations and comments. In summary, the overriding issue that concerned Members was the rising debt levels. The issue was preoccupying him and his team as well. The debt would increase as more expenditure items were added. Over the last two years, for example, fiscal rules had to be amended to address the pandemic situation. Members made reference to SOEs from different perspectives. He acknowledged that SOEs are useful but emphasised that it applies only to the extent that the developmental mandate is fulfilled. The ANC follow the approach of being guided by the balance of evidence as documented in the Ready to Govern guidelines. He would have difficulty to justify that SAA and Autopax were still fulfilling that mandate. However, entities that were fulfilling the mandate needed continued support, even if they were failing.

Minister Godongwana suggested that with R6 trillion in domestic saving, South Africa was not short of saving. The concern was that savings were not being spent speculatively. The fuel price was a problem because more than 40% was administered prices. National Treasury was busy investigating the matter. OUTA initially argued that e-toll levies should form part of the fuel price.  Realising that this would have a massive impact on the working class, OUTA subsequently wrote a letter, asking that different options should be considered. He advocated for the user-must-pay principle to be complied with. He was aware of the statements made by Minister Gordhan about SAA funding but at the moment, SAA was not in this budget. National Treasury was evaluating the DPE submission of R2.7 billion.

 

Addressing the lack of funds in the budget for the rebuilding of the Parliamentary building after the 2 January 2022 fire, the Minister informed Members of the requests and pledges received from citizens to rebuild the national asset. Members would have to decide if it would compromise the independence of National Parliament.

The Minister confirmed that a view on the BIG had not been formed. The idea was to review the entire grant system. South Africans must be prepared to pay in taxes, should the outcome lead to an increase in the current amount. A view on the BIG would be placed on record at the time of the Medium Term Budget Policy Statement (MTBPS). Responding to the issue of local government procurement, he explained that inclusive growth was an ideal to strive for but the problem was at the level of implementation. In a conversation with an international counterpart, his attention was directed towards the problem of South Africans being excluded from production activities but were rather compensated through the grant system. He was not taking a definite position on the wage bill but agreed that, as a percentage of GDP, the wage bill was high. A meeting was scheduled for 28 to 31 March 2022 to identify the causes and find solutions to this problem. The request for an increase in the R350 SRD grant contradicted the view of cutting debt-service costs.

Minister Godongwana noted the observations of Mr Shivambu who had interesting proposals on what should be done. On the issue of developmental partnerships, he replied that money had been raised through the New Development Bank, which included China. The remaining issues were policy positions of his party which they can implement once they win elections and take over government. National Treasury acknowledged that they have dropped the ball in terms of reporting on the 30-day payment issue. The team would return to the Committees to report on the matter. Rating agencies were on the radar of National Treasury. The outlook was reported to be changing from negative to stable. The debt-service costs were being cut because it was rising and not because of the rating agencies. It would be a bonus if it gets the attention of the rating agencies.

Deputy Minister Masondo said the Minister addressed a number of the issues and officials would be making contributions where needed. On the debt-service costs issue, the only way to reduce the rising debt-service costs was to reduce the quantum of borrowing. The rate of repayment is determined by the institutions that provide the loans. Expenditure needed to be carefully monitored. Unfortunately, borrowing in the last few years was mainly for the purpose of financing SOEs, the wage bill and corruption. The most sustainable way to avoid borrowing is to grow the economy. The best way to avoid the IMF and World Bank taking over National Treasury is to avoid growing debt levels. At this stage, the Minister was still able to present a budget without being influenced. In response to the decrease in the company tax rate, the Deputy Minister explained that it was done to stimulate investment. It was not guaranteed that savings from tax would increase investment. Structural reforms were being investigated to address the constraints that were restricting private investors. It would be impossible to attract private investors without the availability of skilled workers and without sustained electricity and water supply.

Mr Dondo Mogajane, Director-General, National Treasury, said he was trying to capture the essence of the budget in the foreword to the budget. He acknowledged that the budget being proposed to Parliament was a difficult balancing act. The higher-than-anticipated revenue was being treated as a windfall to decrease debt. The unsustainable rising debt levels should concern everyone. On the BIG, the Director-General said there was room to support the poor. The entire grant system needed a review if the BIG was to become a permanent item. The positive spin-offs of the tax relief to companies, was that it could ignite the economy and attract investment. There is light at the end of the tunnel. Planting seeds which could be reaped at the right time. This was the philosophy.

Mr Ismail Momoniat, Head: Tax and Financial Sector Policy, National Treasury, explained that the Loan Guarantee Scheme was hastily implemented when Covid-19 started. At the time, there was uncertainty about what the take-up would be. Banks had to make certain provisions for their own customers who were in distress. By the time the scheme came into being, many customers had received some form of assistance from the banks. A take-up of R20 billion was reported. A higher take-up was expected but this could possibly be attributed to the conservative approach that was followed in granting the loans. The scheme was relatively successful in line with the capacity of small business to take on debt. The scheme came to an end in 2021 because not many new applications had been received. For the new scheme, applications from small companies, i.e. with turnover of R100 million, would be considered. The new product is allowing the state to accept more risks and for companies that were struggling during the pandemic to use this mechanism. In addition to the banks, DFIs and companies who are funding providers and who meet certain criteria would be allowed to participate in the new loan scheme. The option of five-year medium-term loans was being considered. Linking to this would be the small business equity component that some DFIs could offer to ensure a mix of products. These programmes were experimental in nature but should be monitored and overtime the quality of the products should enhance. Many small businesses had a direct impact on employment and National Treasury should be doing more to assist small businesses.

Mr Vukile Davidson, Director: Financial Sector Policy, National Treasury, was asked to expand on the R20 billion loan take-up. He explained that, on average, the loan size was R1.2 million. More than 15 000 applications were received. Regulatory measures that were identified included restructuring support facilitated by the Reserve Bank totalling R350 billion which represented 10% of the bank’s portfolio. The Reserve Bank provided significant relief to businesses and individuals over the worst period of lock down in addition to the R20 billion that small businesses were able to access from the Loan Guarantee Scheme.

Mr Momoniat informed Members that the expansion of Regulation 28 of the Pension Fund Act should be gazetted in March 2022. The amendment deals with the removal of limits on the types of asset classes that pension funds could invest in. In future, trustees could invest in different forms of infrastructure including venture capital and private equity. Investment in crypto assets would be gazetted in March 2022 to make it easier for pension funds to invest in the long-term. Many companies with Head Quarters in South Africa feel that they have to shift Head Quarters to invest in other parts of the world. The policy of National Treasury is to encourage investment abroad from the South African base. In an attempt to accommodate these business, cash management practises had been amended to allow investments abroad without needing approval from the Reserve Bank.

 

Responding to questions about the sustainability of the mining boom, he said it depended on the global economy. Uncertainty in the economy would be introduced if it appeared that tax rates were being changed on an ad-hoc basis. The golden rule is to widen the tax base. It became more difficult to widen the tax base after 2015 during the period of state capture, erosion of tax morality and lower growth. The composition between direct and indirect taxes need to be considered. When one sector is growing, more revenue is generated but the same sector may experience a period of decline in revenue and would then need support. The fuel levy was initially introduced for road construction but today it is being treated as general revenue. VAT is similarly viewed as a critical tax and part of the permanent tax structure. It raises a significant amount of revenue. Tax avoidance was technically not illegal. National Treasury annually reviews tax laws, dealing with tax restructuring, to close down the incidence of tax avoidance. There were no easy solutions to this problem which was legally complex.

Mr Edward Kieswetter, Commissioner, South African Revenue Service (SARS), acknowledged that the capability and capacity of the institution had been weakened with the loss of over 2 000 staff members since 2014. In addition, SARS had to pause on the modernisation programme. The ability to detect areas of non-compliance and the capacity to respond were important requirements to administer the law. In the current year SARS had to follow up and resolve 2.4 million debt collection cases. 24 000 letters of demand were issued to individuals and third party agencies and 5.5 million civil judgements were instituted. SARS engaged 336 000 collection agencies to do telephonic and SMS follow-ups. All of these debt collection activities yielded revenue of R47 billion which formed part of the budget that was presented by the Minister of Finance. SARS conducted 650 syndicated crime investigations which raised R11 billion in additional assessments. These were complex investigations which involved bringing smart people and criminals to book. The Commissioner acknowledged that not enough was being done to fight the scourge of tobacco and cigarette smuggling. During the pandemic period, 400 million sticks of cigarettes to the value of R430 million were confiscated. Through the audits in this sector, an additional R18 billion of assessments was raised. Licences of three illegal agencies were cancelled. SARS handed over eight cases for further criminal investigation and 220 prosecution ready cases to the NPA. This included 43 PPE procurement corruption cases. Search and seizure operations at customs totalled 3 700, which led to 348 successful detentions and a customs value of R3.5 billion.

On the issue of VAT refunds, the Commissioner reported that the VAT system was being targeted to commit fraud. To date about 3.5 million VAT returns were processed. This included 650 000 VAT refunds with the potential of R266 billion in payments. To date R212 billion had been paid. An audit on 37% of VAT returns were conducted which prevented an outflow of R30 billion in unlawful refunds. For this year, SARS prevented outflow of R55 billion in refunds, collected R6.6 billion from syndicated crime and R5.5 billion from non-compliance to customs. These activities led to SARS securing the additional revenue of R182 billion that the Minister was able to report in the budget.

Commissioner Kieswetter stated that modernisation requires investment in data technology, data sites and artificial intelligence to detect the fraud. Investment in technology allowed SARS this year to produce assessment outcomes of 3.4 million individual tax payers who experienced a seamless assessment process. The Commission acknowledged that SARS had service failures and other challenges. The tax collection system was progressively being strengthened to fulfil the mandate of SARS and to ensure that every cent was collected.  SARS was aware of its shortcomings both in technology and human resources. 
Information exchange difficulties exist between the African cities. With the launch of the Africa Free Trade Agreement, this would be a huge concern that could compromise the economy of South Africa if it remained unresolved.

The Minister said National Treasury officials had concluded their responses.

Mr Maswanganyi allowed for a quick follow up during the remaining ten minutes of the meeting.

Mr Shivambu requested an update on the process that was started on the state-owned bank. He explained that on the issue of developmental partnerships, he was referring to partnerships with institutions in China, on the same basis as the mega projects in Tanzania, Kenya and Morocco. He added that there was no empirical relationship between cutting taxes and investments. Even the IMF questioned the causality between cutting taxes and investments.

Mr Ryder requested an update on the position of National Treasury on the pilot project on zero-based budgeting. In 2020, Minister Tito Mboweni commented on the 50 million US dollars that went missing from the State Security Agency. He asked for an update on the issue and what the position of the Minister was on this matter.

The Minister replied that he needed better information to express an opinion on the 50 million US dollars issue. A team was set-up to examine the zero-based budgeting matter. A statement would be made in the MTBPS. The Minister said he received an instruction from the President to sort out the regulatory issues of the Post Bank for the transition into a state-owned bank. He reiterated that developmental partnerships could be pursued once Mr Shivambu’s party is in government.

The Deputy Minister said National Treasury must ensure better returns on savings regardless of the investments that are made on behalf of the client. The funds are the deferred wages of civil servants and must be invested responsibly. In doing so, the investment should also contribute towards economic growth. The capital should be deployed to grow the economy. Transformed and inclusive growth should not only be in terms of the gender and race demographics of the country but should also be for the benefit of workers who manage companies. The private, financial and manufacturing sectors should not be excluded.

Mr Maswanganyi thanked all participants of this meeting including the support teams of all the Committees. He reminded Members of the next meeting scheduled for Tuesday, 1 March 2022, for a briefing on the budget by the Parliamentary Budget Office and Financial and fiscal Commission.

Mr Shivambu repeated his request for an update on African Bank.

Mr Maswanganyi said the matter would be discussed in the next meeting.

The meeting was adjourned.
 

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