2022 Revised Fiscal Framework and Revenue Proposals: public hearings

Meeting report

Chairperson Maswanganyi welcomed all delegates to the meeting. The two committees (Standing and Select Committees on Finance) were conducting public hearings on the 2022 Medium-Term Budget Policy Statment (MTBPS).

COSATU Presentation

Mr Matthew Parks, Parliamentary Coordinator, COSATU presented.

COSATU was deeply concerned by the lukewarm Medium Term Budget Policy Statement (MTBPS) tabled by the Finance Minister. Considering that the South African economy has been stagnant for over a decade and the country is experiencing periodical riots because of desperation and hopelessness; this budget was not bold enough.

The trade union welcomed the additional allocations of R37 billion to help key frontline service departments, State Owned Enterprises, and social security. It was however worried about an underspending of R5.8 billion in a climate of scarce resources.

It cautioned that the government needs to resolve the current impasse with workers to avert any disruption of public services because this economy cannot afford a strike, and no one wants a strike. A public service strike will cause major and extended labour unrest and a crisis of service delivery. The lack of sincerity and denialism about the political and economic costs of the government’s austerity strategy is astonishing.

It was puzzled that the MTBPS is not prioritising the fight against corruption. The country’s law enforcement agencies are not fully equipped to fight white collar crime and cybercrime. Police stations also do not have enough working tools to fix the crime situation which has left many people feeling insecure and leading to others taking law into their own hands. The Federation also expected a plan to fund a whistleblower protection programme.

It argued that the Social Relief Dispensation Grant (SRD) needs to be retained beyond 2024 and increased to the food poverty line of R624 and at the very least it needs to be adjusted for the significant inflationary erosion it has experienced since 2020.

MTBPS positives: SRD Grant extension, Eskom Debt Relief, e-tolls, Transnet & Denel relief.

MTBPS equally has deeply problematic aspects:
- Below Consumer Price Index (CPI) raises for public servants & social grants.
- Failure to protect public servants from CPI.
- Little on tackling corruption & wasteful expenditure.
- No additional support for the South African Post Office (SAPO), Metrorail & the South African Broadcasting Company (SABC).
- No plans to stabilise municipalities.
- No fuel relief.
- Little to grow the economy & support industrialisation

(See Presentation)

SAICA Presentation

Dr Sharon Smulders, Project Director: Tax Advocacy, SAICA, presented. She told the committees that she was resigning from SAICA, but they would be in the capable hands of her colleague after she departed.

SAICA welcomed the Minister’s recognition of the urgent need to address the concerns of South Africans and to restore fiscal stability to the budget amidst a concerning global and local economic outlook. The global economic uncertainty has meant that markets tend to treat countries harshly that show fiscal indiscipline as demonstrated by the UK recently.

It also welcomed the fact that the gross tax revenue estimates exceeded the 2022 Budget projections by R83.5 billion in the current year (on average R92.6 billion over the medium term) and that no further tax increases are projected.

However, as mentioned in its 2022 Budget Review submission, the main problem facing South Africa does not lie in the raising of financial resources, but rather in how those financial resources are being applied and invested into the economy in order to generate the returns we require to achieve the desired outcomes.

Attempts are also made to address supply constraints, particularly in the energy and transport sectors. This is critical considering the impact stated-owned entities (SoEs) in these sectors have on our economy.

Despite the above actions, what remains of serious concern, is the fact that it is admitted in the 2021 MTBPS and again in the 2022 MTBPS that higher expenditure by the government year-on-year, has not always been efficient or effective. Once again, a rising public-service wage bill continues to put a strain on the fiscus, yet a rise in productivity is still lacking.

Regarding legislative amendments, one of the matters highlighted by SAICA in its submission to Parliament in May 2022, was the economic and societal risks due to the lack of progress on interventions to address the findings of the Financial Action Task Force (FATF) and appropriations for law enforcement. Since then, various legislative amendments have been proposed, yet most of the FATF key recommendations deal with challenges in our law enforcement and not necessarily our legal framework.

SAICA proposed that the Police VIP Unit budget (that generally looks after the security of politicians and dignitaries) be halved from R3.4 billion to R1.7 billion to secure the funding the NPA required.

This would have demonstrated that the government and the Minister were willing to prioritise the budget to address the more important needs of the country. This did not happen, although the MTBPS does provide increased capacity in law enforcement and investigative agencies over the medium term.

SAICA believes this is too late because demonstrating, before February 2023, that we can investigate and enforce both the current and the proposed legislative changes and successfully prosecute people is the essence of the FATF findings. Yet that seems to be the exact matter we are procrastinating on.

Whether this will be enough is debatable considering the reports of alleged ‘money laundering’ that infiltrated certain banks in our country and the doubts that this raises about the due diligence of some of the frontline banks and the quality of the supervision by the South African Reserve Bank. These findings seem to overshadow the remedial actions of the Government to date. Taking all of this into account, South Africa’s grey-listing in February 2023 seems inevitable.

The actual conduct of government rather than its legislation, plans, and policies is of critical importance in various key areas to give credibility to its commitment to these plans, policies, and legislation. Keeping to expenditure ceilings set and ensuring actual enforcement and prosecution that will get South Africa moving forward, including off the grey list. Not prioritising funding to the NPA and other law enforcement agencies will not keep the country off the grey list. The eventuality of greylisting, like the Ukraine war in February 2022, does not seem to be factored into the MTBPS and could have a significant impact on GDP estimates, revenue estimates, and debt costs.

(See Presentation)

Institute for Economic Justice Presentation

Ms Cheryl-Lyn Selman, Researcher and Special Projects Lead, IEJ, presented.

The IEJ recommended that the Committee calls on the Minister of Finance to put the needs of all South Africans at the centre of the Budget and budget processes. This entails a radical shift in the fiscal framework, from focusing on short-term goals such as the primary budget surplus to targeting unemployment, poverty, and inequality. The urgency of resolving this triple burden is more pronounced in the context of a rising cost of living crisis that disproportionately falls on the majority, low-income households, and the unemployed.

It highlighted that over the years, government spending on basic education has fallen. In real terms, the average annual growth remains almost stagnant, at 0.3% over the medium-term. When the growth in learners is taken into account, expenditure falls each year from R20 156 per learner in 2021/22 to R19 478 in 2025/26. Class sizes have also increased from 30.7 learners in 2018/19 to 31.4 learners in 2021/22. This is on top of 73 000 vacant posts reported in public education. A fall in budget per learner, continued overcrowding in classes, lack of textbooks, and fewer teachers mean the quality of basic education will deteriorate over the medium term, especially for schools in township and rural areas. The decline in real expenditure on education is concerning. Vacant teacher jobs and overcrowded classrooms combined with the commodification of education through private schools mean that the existing gap in the quality of education will continue to grow.

The IEJ called for progressive taxation to be adopted. This could include:
● Reverse the CIT decrease: The CIT should be reversed back to 28% to enable the state to collect more revenue and alleviate inequality.
 ● A wealth tax: Implement a wealth tax for the top 1%. This will raise about R143 billion to finance development needs.
● A VAT on luxury goods: Additional revenue can be mobilised through a VAT on luxury goods of 25%. This would raise an average of R9 billion annually.
● A social security tax: A social security tax can be instituted to raise finances for the Universal Basic Income Guarantee. This can be taxed on personal income, with those earning more being net contributors while low-income earners are net beneficiaries. It is progressively levied on those earning income above R80 000 a year – at 2 to 3% of taxable personal income.
● Resource rent tax: Implementing a resource rent tax will allow for an expansion of the tax base which will raise an additional and permanent tax revenue stream.
● End to tax rebates for corporates and the wealthy: There are tax rebates extended to the wealthy through medical tax credits and pension fund contribution deductions. The IEJ has shown that eliminating medical tax credits for those earning above R500 000 could raise R5.7 billion. In addition, an end to retirement fund contribution deductions for those earning above R1m could raise R28 billion.

(See Presentation)

Public Economy Project Presentation

Mr Rashaad Amra, Public Economy Project (PEP), Southern Centre for Inequality Studies (SCIS), Wits University, presented.

The main points were summarised as follows in the presentation:
• Short-term improvement in the fiscal position on the back of nominal boom.
• Real economic stagnation points to continued fiscal weaknesses in future.
• Spending growth has been curtailed since the pandemic and the government plans for a larger consolidation next year.
• Consolidation to be continued over the medium-term with falling real per capita spending on core services, salaries rising below CPI and employment levels likely to be forced down further.
• Higher rates of inflation ease the debt constraint and makes real consolidation easier to achieve.
• Aggressive fiscal consolidation path appears to stabilise debt, but
- Spending trajectory implausible
- Revenue outlook optimistic
- Major risks not included in baseline.
• With slightly different and more plausible assumptions, fiscal targets set out in MTBPS are not achieved.
• MTBPS points to further weakening of fiscal institutions.

(See Presentation)

Budget Justice Coalition Presentation

Mr Elroy Paulus, Economic Justice Programme Manager at the Alternative Information and Development Centre (AIDC) (on behalf of the BJC)), presented. He was supported by Mr Zimbali Mncube, Researcher, IEJ (on behalf of the BJC).

The BJC was disappointed by the tabling of another Medium Term Budget Policy Statement (MTBPS) that prioritises debt reduction over investments in state capacity and human rights. The 1.7% real cut in per capita non-interest expenditure in 2022/23 is already doing great harm to public services that are essential for the protection and achievement of human rights.

It questioned the government’s obsession with achieving a self-imposed primary budget surplus,
first promised by former Finance Minister Tito Mboweni to a conference of Goldman Sachs
investment managers in 2020. A primary budget surplus is achieved when revenue exceeds
spending and the difference is channelled to paying down debt. Since the 1970s, this has been
the gold standard for IMF imposed austerity measures around the globe, with the institution's
own evidence directly linking such extreme austerity targets to long term negative
consequences on the economy, rising inequality and ailing public services. Elsewhere, evidence
abounds that such austerity measures result directly in multiple human rights violations against
people on low incomes and in particular against women and children.

By taking revenue out of our economy and channelling it to debt repayments, the primary
budget surplus target will slow down our recovery from the Covid-19 pandemic, which increased
unemployment to 40% by the expanded definition and crippled informal and formal businesses
alike. An MTBPS premised upon more real terms spending cuts to public services is also
unlikely to enable government or the country to “weather the storms that lie ahead”. What South
Africa needed to hear was a set of macroeconomic policy instruments suited to addressing our
developmental needs while at the same time supporting efforts to tackle the impacts of climate
change. This is because macroeconomic fiscal policies have significant implications for equality,
gender equality, and the well-being of South Africa’s people and the environment.

This submission sets out our vision for transforming South Africa’s macroeconomic fiscal policies in line with a transition to a green and just economy:
• Policy Credibility.
• Austerity Cuts are not inevitable; there are alternatives.
• Public Investment for a more inclusive South African economy and a healthy environment.
• South Africa’s Overall Tax Take Remains Inadequate.
• South Africa’s Rich - Poor Gap.
• Gender Budgeting keeps disappearing.

(See Presentation)

Healthy Living Alliance (HEALA) Presentation

Ms Eunice Montso, Project Assistant, HEALA, presented.

HEALA said that since its inception, the health promotion levy (HPL) has already shown positive results in changing consumer behaviours, but it has the potential to do much more. It can protect South Africans’ health and human rights all while increasing revenue for the government to spend on projects that enhance our people's lives. It even has the potential to address climate change and the threat it poses to food security and human health. However, the HPL is constantly under threat through non-transparent dealings with the private sector that dilute, delegitimize, and delay the
increase of the HPL to 20% - an increase that would reap many rewards.

It called on the government to wholeheartedly commit to strengthening the health
promotion levy (HPL), an existing and successful health policy, that benefits both the public’s
health and the National Treasury’s pockets.

It recommended that the HPL needs to be increased to the recommended 20% rate and public consultations to decrease the 4g threshold and expansion of the HPL to include fruit juices are needed with urgency. HEALA also demanded that National Treasury provides transparent information
about any correspondence with the food and beverage industry in relation to the HPL.

(See Presentation)

Discussion
Dr D George (DA) thanked Dr Smulders for her contributions to the Committee, and for her very valuable insights. Dr Smulders mentioned grey-listing. Had she done some work on what the impact might be? There had been a bit of speculation about grey-listing. But what he was trying to figure out was what the impact might be, given it happened to other jurisdictions.

On the public economic project, Dr Smulders mentioned the debt-to-GDP ratio. What did she expect was going to happen with the debt once the Eskom debt had been transferred over to the national balance sheet? Had she looked at that closely? She also mentioned what the expected increase in interest payments might subsequently be, and obviously the possible crowding out of other areas of payment, service delivery in particular.

Dr George observed that Mr Parks mentioned economic and social relief. The Minister was silent on the cost-of-living crisis. What was COSATU’s view on expanding the zero-value-added-tax (VAT)-rated food basket, and so having more food items in the zero-rated basket?

Mr D Ryder (DA, Gauteng) addressed COSATU. With the public wage bill, there was a recent comment from the union that following discussions, its baseline had gone back up to 10%. What was the current status of that? What were the discussions and what did it look like? COSATU said that Government must resolve the issue with the impasse with the public wage bill, but “we all know these things are about two sides”. Could COSATU give some input on that? He was pleased that COSATU highlighted the issue that there was no real budget allocation to deal with corruption. When one looked at the judgement at the National Prosecuting Authority (NPA) or the Department of Justice &
Constitutional Development (DoJ&CD) there was not really much going on there.

Mr Ryder thought that Dr Smulders made an excellent point about the risk-based schedule of all guarantees that the Government had issued. There was also a comment about infrastructure spending, specifically the fact that just repairing South Africa’s current infrastructure was not really part of what was promised in terms of the infrastructure-led recovery. “Keeping stuff going” was one thing, but actually having a catalytic new infrastructure project that was going to drive the economy was something entirely different, and what was expected from the President's initial comments when he came up with the Economic Reconstruction and Recovery Plan (ERRP).

The Institute for Economic Justice spoke about the commoditisation of education, and almost “took a swipe” at private schools. Mr Ryder felt that that was a little bit strange. One really should not be blaming the private education industry for the quality gap. It should be the other way around; the public education should be trying to raise its game up to the same level as private institutions, “certainly with a chequebook”. He did appreciate the fact the IEJ raised the per capita spend issue, and he also appreciated the fact that there was a good strong focus on education. He believed that education was the long-term route out of poverty for most. The public economy project was quite a technical presentation, especially considering that the go Committee five or six presentations the previous afternoon. He would have liked it if more time had been spent unpacking that topic.

[Mr Ryder wrote in the chat box: If I can add a point to SAICA to respond to:  There was a comment about a need for Parliament to coordinate better between committees.  A good idea, but implementation is difficult.  A role perhaps for the Chair of Chairs in each house?  Please expand your idea.]

Ms P Abraham (ANC) thought that the interest that was shown by stakeholders was quite impressive. Some of the stakeholders who did not normally come to the Committee for presentations should be encouraged to do so, especially when it came to drafting legislation. That way, the Committee could also appreciate the comments and recommendations of the public, in matters of public importance. She could not really hear much of the video that was shown by HEALA. However, she felt that the point that was being made was that the organisation tried to make contact with the National Treasury (the Treasury), and the Treasury dropped them along the way. She thought that sometimes one could prevent such actions from being taken by public organisations if only one could deal with it because it meant the organisation had an interest in opening a conversation with the Treasury. But that did not come to fruition. She thought that that needed attention so the Treasury responded to that request. It was quite important for the committees that when the public reached out, government departments also met the public halfway. She appreciated the Chairperson’s stance the previous day towards the Department when it did not comply with the stipulations of the Committee, where he addressed the Department and the ministry in a firm way.  A time should come for the Committee to “reject the budget”. The African National Congress (ANC), (which was currently in power) gave its members a mandate to conduct rigorous oversight over government departments. Things were at a point where the Members felt that the budget was not working for the people of the country, because for instance, the stakeholders that had spoken in the meeting had spoken to what the President had said, which was not seen in the budget. She appreciated the fact that it had also been pointed out that there was no emphasis on gender, while the country was experiencing what the President referred to as a pandemic of gender-based violence (GBV). Generally, the fact that South Africa looked out for education, which was power in the hands of its future leaders, and for vulnerable groups, showed that the Government was a “caring government”. Through the interaction in the meeting, the Committee had been empowered, so that it could be more effective in doing its work. She appreciated the organisations that had come up with recommendations. It was one thing to present challenges with what the Treasury had presented, but it was quite another thing to say which way the Treasury should go.

Mr W Aucamp (DA, Northern Cape) wanted to thank Dr Smulders for her presence in meetings every year, and for giving the information that she gave over the years. Dr George had asked COSATU about its opinion with regard to the increase of the zero-VAT-rated food basket. He wanted to ask COSATU’s opinion on the revising of the fuel tax levy. If one looked at the contributions to the Road Accident fund (RAF), contributions to the RAF formed a substantial part of the fuel levy. There were a lot of people out there that were already paying third-party insurance to the private insurance companies that could cover for that. Fuel had a huge effect on the livelihoods of people, especially the poor people, on a daily basis. What was COSATU’s opinion on this and do they support this?

Mr Aucamp observed that it was worrying to hear what the total debt of South Africa was, not only Government debt, but also the debt of institutions like the RAF, which were standing at R459 billion. Members were aware that a lot of Eskom's debt would be taken over. He wanted to put on record that South Africa’s debt was “running out of control”. South Africa needed to put measures in place to curb that. He asked SAICA what it thought those measures should be, and its opinion on better and increased consequence management with regards to people working in government departments, in order to curb South Africa’s debt and to have the right people in place.

Mr S du Toit (FF+, North West) disagreed with COSATU’s support of the district development model. He thought that the fact that there were so many amalgamated municipalities contributed to the dire state in which municipalities found themselves, and the oversight role could not be played efficiently. The decentralisation is needed for effective operating of municipalities. He then thanked Dr Smulders for always enlightening the Committee with her presentations. He stated that the FF+ supported Dr Smulders’s view on the funding of the VIP Protection Units, as well as law enforcement and the NPA. The FF+ also supported her view on the effective spending of funds. It was obvious that cadre deployment and tenderpreneurs were not yet weeded out, and South Africa was still sitting with that problem in municipalities and in Government as a whole.

What was Dr Smulders’s view on inflation and interest rates in the next two years? He observed that the South African Revenue Service (SARS) collected more funds than it anticipated, but the higher living costs would have a negative effect on people in the country. That would affect people’s spending trajectory. Up to now, the agricultural sector and the mining sector contributed to a great extent to the tax that was collected by SARS. Those two sectors were under tremendous strain at that stage, and it would definitely have an effect.

Mr du Toit addressed the IEJ. The basic education expenditure per learner was definitely concerning. The FF+ did not necessarily support the IEJ’s tax proposals, and it felt that businesses and individuals were already “taxed to the limits”.

Mr Y Carrim (ANC, KZN) addressed COSATU. What did COSATU mean by strengthening the Public Procurement Bill? On the Basic Income Grant (BIG): There had been support for that among various Members across the committees. It was about playing one’s respective role in pressurising the Treasury, bearing in mind the parlous state of the budget to actually implement it in some or other incremental form. He wondered if any of the organisations in the meeting – if they had research capacity – had any ideas on how Government could find the money for a BIG. Which were the sources of that money? It was a question addressed to all of the organisations who support the BIG who appeared before the committees.

What progressive model did COSATU have in mind for e-tolls? Surely, those in South Africa who had cars and earned the salaries they did needed to pay for the roads, not the working class and the poor. But then how would that happen? He then urged the committees to condemn the instances of the municipalities not paying their workers. It was outrageous. The councillors were getting their salaries, but the workers were not. The committees needed to take a position on this. Perhaps it was a matter for the Standing Committee on Appropriations (SCOA), but perhaps the committees needed to alert the SCOA, and urge it to look into that issue.

Mr Carrim observed that the post office remained something that the committees needed to support, for all the digitalisation of the economy and Fourth Industrial Revolution (4IR) and so on, given that large swathes of the South African population did not access the 4IR, unlike those in urban areas, and those who were part of the middle classes.

He then addressed the Public Economy Project, Mr Amra said that the spending ceilings were unreliable, and he talked about the lack of reliability of key budget metrics. There were also experts in the public domain who were pointing to that issue. Could Mr Amra elaborate a bit on that?

On the BJC, The majority party would not agree with an austerity budget. It depended on what one meant by austerity. There was no abstract definition. The definition depended on the context, the state of the economy, the state of the resources the country had, the budgets, and capacity. Given where South Africa was, it could be argued – although increasingly, on slender grounds – that the current budget was not an austerity budget. It was “austere”. But was it austerity? That was a debatable point. As a principle, the ANC would not support austerity. There was something that all were “bound” by whatever their political inflections are within the ANC. There was a need (especially from the appropriations side) for possible suggestions on how Government might shift funds from one programme to another, from one sphere to another, from one area to another, from one department to another, or to a public entity.

On HEALA, Mr Carrim agreed with what Ms Abraham said. He did not know why the Treasury did not reply, since it was about a matter of public interest. The Treasury took a decision and then retreated. The Treasury had an obligation to deliver. They should reply on Friday or later today. The committees were entitled to an answer from the Treasury, and the committees would then forward the answer to HEALA. HEALA had a right to the answer.

Mr Carrim observed that Dr Smulders had been in her role for a long time, and it felt like she had been there for almost every MTBPS and budget since Mr Carrim entered the finance terrain in 2014. He wished her well and thanked her for her calm responses to questions.

Mr M Moletsane (EFF, Free State) addressed COSATU. The Government had pronounced through the MTBPS that a 3% increment would be implemented. The trade unions were not happy, and they were intending to embark on a strike. As the umbrella body of the unions, did COSATU have any plans in place for interventions to bring all stakeholders back to the table, to prevent the looming strike?

Mr Carrim observed that with the BIG, stakeholders were “going around and round and round”. The ANC was clear in saying that it wanted a BIG, and Members of Parliament (MPs) needed to do the necessary lobbying as February approached. It was also true that as Covid-19 had eased, there was more scope for civil society to be active. He was aware that civil society also had its own capacity, funding, and other resource constraints. He felt that there was a need for more mobilisation around the issue; so many were committed to the BIG, and there were campaigns every now and then. He also felt that there was a need for civil society to put mass pressure on the Treasury as well. Both Parliament and civil society needed to do more, because it was only through massive pressure, and public pressure, that majority parties conceded. It was good to come to a meeting and present a strong case, but there was also a need for more mass activity around the BIG.

Responses

Mr Paulus responded to Mr Carrim. What they meant by austerity was that it associated the word austere with “forbidding, rigid, stringent. acetic”. It was a term that was introduced in response to the February 2022 budget by the AIDC itself. In his mother tongue, the word was “snoep”, like cutting. The AIDC’s point was that Government could not do that (an austerity budget) as a political choice at the cost of section 27 realisation. That was the “sting in the tail” about what an austere budget does, and that austerity in the current context was actually inappropriate. Mr Carrim had said that organisations were going “around and round and round” regarding the BIG. One could go back as far as the early 2000s, with the Taylor Committee report, where four respected South African-based economists Pieter Le Roux, Charles Meth, Ingrid Woolard, and Mike Sampson, all said that a BIG (way back then 20-odd years ago), was necessary, and it was affordable. The economists never agreed on the sources of the BIG’s payment, but the point was, they said it was necessary, and so each of the economists proposed different sourcing of tax combinations. Some economists said it could be done by small adjustments to the Pay-As-You-Earn (PAYE) tax, others said corporate tax, and others said other combinations. The source that the economists avoided was VAT, because an increase in VAT would negatively affect people in Living Standards Measure (LSM) one to five, for example. An increase in VAT would cut into people’s purchasing power, for example, the power of people in this category to buy bread, meat etc... All were aware of what the persistence of apartheid spatial geography in South Africa meant if a person lived in a township and had to travel far to the centre of economic activity.

Mr Parks responded to Dr George on the cost of living. It was a difficult thing because workers and the poor were “really feeling the pinch”. There was a call by the previous Parliament to review the impact of an increase in the VAT about four years ago. COSATU thought that “there might be some space” to expand the zero-rated basket. The issue of VAT was a difficult thing: How would one enforce it etc., and would it impact the poor people it was meant to impact? A point that COSATU raised last time was to see if the amount of free basic electricity and water could be expanded for registered indigent households. One would have to make sure that those households were indeed registered within municipalities. Could Government supply essential goods for free, like sanitary pads in schools, universities or clinics, or provide free school supplies? COSATU felt that those targeted interventions could help the poor more. The government also needed to ensure that it retained the SRD grant, increased social grants in line with inflation, and looked into how it could expand the Public Employment Programmes, and the Presidential Employment Stimulus Package (PESP). Those could help to alleviate the impact upon the poor in a progressive way. Of course, it also meant that the Government needed to restore public transport such as Metrorail because the poor depended upon it. It needed to invest in public servants who helped the poor. Mr Parks observed that that was also why COSATU said that one of the most critical things that could be done to help cushion the impact of inflation was to relieve the Eskom debt burden so that it was not so dependent upon double-digit tariff hikes. Relieving that debt burden could be done by sorting out the fuel price regime. Those were things the Government could control, and Government seem to be very shy about doing that.

COSATU was quite disappointed when the Minister spoke about tackling corruption, and that there were additional budgetary allocations, but there were no actual details about what that meant in practical terms. What COSATU could say in practical terms was that the police headcount had decreased by about 38 000 people in the last decade. South Africa’s population was increasing, and crime and corruption were increasing. “We all know the State Security Agency [SSA] is a cesspool of corruption”. COSATU had seen no action. There were backlogs of two years in courts to get trials dealt with. It was unfair to charge people, and not bring them to trial. If one looked at the NPA’s targets in the current financial year’s annual performance plan (APP), it was “very far behind”. It was about 15% short for asset forfeiture cases until the target was met, 10% for asset freezes, and 1% for asset recovery. It had a backlog of cases  – 62 007 was the target, and the NPA had only done about 4 000. There were significant levels of vacancies in the NPA. All welcomed the arrests, but people wanted to see convictions, and to “see people in orange overalls”.

On the wage bill, Mr Parks observed that there was a Commission for Conciliation, Mediation and Arbitration (CCMA) remediation process. COSATU hoped that it would be successful. Negotiation was always about compromise. But South Africa could not afford to throw nurses, teachers and police officers under the bus. Such workers had a right for their salaries to keep up with inflation. The government had tabled a 3% increase plus the 1.5% cost of living, and a R1 000 gratuity. COSATU hoped that the Government would help to meet workers halfway. It needed to make sure that there was a CPI increase. COSATU was concerned about the rapidly-declining headcount levels. If the Government continued to impose 0% or below inflation increases for public servants, and if it did not fill vacancies, it would see the brain drain escalating. COSATU felt that there was space to assist Government. For years, COSATU had raised the issue of having a single collective bargaining process for the entire state to ensure more sustainable finances, and to help reduce the gaps in the public sector. COSATU thought that there was space to cut what management, senior officials and politicians earned.

Mr Carrim had asked where the money for a BIG would come from. Mr Parks suggested investing more in SARS so that it could reduce tax evasion and bring in additional revenue. If South Africa went on to address the real fiscal cause of its crises, it was about rebuilding local government and basic service provision so the country attracted investment. It was about stimulating the economy, addressing load-shedding, addressing the crisis affecting rail, etc. That was the real way to grow the economy and address the fiscal crises.

Mr Parks agreed with Ms Abraham that South Africa was “in a real crisis”. COSATU did not see enough bold measures in the MTBPS around corruption, the headcount, rebuilding public services, supporting SOEs, the fuel prices, the PESP, etc. “If we are not dealing with issues in a bold way, how do we expect things to turn around? Or would we simply pray, wing it, and hope that things would improve for the better?” It would be good if Parliament could put pressure on the Executive.

In response to Mr Aucamp, Mr Parks observed that there was space to reduce the fuel price. South Africa could do nothing about the international oil price, the war in Ukraine, etc. but at a 32% tax regime, COSATU thought that there was space to reduce it. The current Minister of Finance, the current Minister of Mineral Resources and Energy, and the previous Minister of Mineral Resources and Energy made commitments in 2022 and four years ago to review the fuel price regime. Yet, nothing was heard from Government afterwards. There would be fuel price hikes that day for petrol and diesel. COSATU felt that it would be helpful for Parliament to put pressure on the Department of Transport (DOT) to re-table the RAF Bill and the Road Accident Benefit Scheme (RABS) Bill, because those bills were in Parliament, and were rejected for what COSATU felt were “suspect reasons”. There had been a lot of lobbying by the road accident lawyers, who had a “vested, profiteering interest” in maintaining the status quo, because they “make a killing” out of it. The money that was meant to go to the road accident victims did not go to them at times; the road accident lawyers profiteered. The lawyers did play a role because the RAF was managed so badly. If those bills could get back to Parliament by the next State of the Nation Address (SONA), then it could be geared to turn around the RAF and make it less dependent on fuel levy hikes.

Mr Parks observed that COSATU was not saying it was married to a district development model. The point was that local government was in free-fall. A decade ago, 10% of municipalities were in crisis; today it was 90%. There were reports that some municipalities may not last beyond December. If South Africa continued to collectively turn a blind eye, then it should be expected that in a year or two year’s time many municipalities would have collapsed. The fact that there were about three dozen (36) municipalities that continuously did not pay workers in many provinces (Eastern Cape, the Free State, North West, Mpumalanga, etc.) meant that things would get worse. There were companies such as Clover in Lichtenburg and Frankfort because there was no action by the Department of Cooperative Governance and Traditional Affairs (COGTA) and by the South African Local Government Association (SALGA).

He responded to Mr Carrim on the Public Procurement Bill. COSATU appreciated the good faith with which the Treasury engaged with it at the National Economic Development and Labour Council
(NEDLAC) on that. The parties had managed to make significant consensus. COSATU felt that there was space to further enhance the Bill when it came to Parliament. COSATU wanted to see Parliament prioritise the Public Procurement Bill because it was a very important bill. Tightening measures to ensure that there was full access to the public to tender information was something that needed to be considered. People would know who got which tender, and such access would “shine a spotlight” on the process. The Chief Procurement Officer (CPO) needed to be empowered to instruct Government entities on what to do, and to resource that office adequately so that it was fully empowered. There needed to be a provision in the regulations to disclose when politicians or their families did business with the state. The CPO needed to be empowered to make sure that Government’s localisation commitments were binding upon all Government institutions. With the Bill, there was a need to incentivise and reward people who blew the whistle on corruption in procurement, and as the President said, to protect whistle-blowers from victimisation and from being assassinated, etc.

On the BIG, COSATU thought that the SRD grant was a positive intervention; it had “done wonders for many people”. But the SRD grant needed to be linked to the food poverty line or at least increased for inflation. The SRD grant was affordable at R44 billion; even if one increased it to the food poverty line, it would be about R80 billion. It was a lot of money, but COSATU thought it was affordable. A question that needed to be asked was: Could South Africa afford not to have the SRD grant? Could it afford to leave 12 million people with no source of income? Mr Parks suggested linking the grant recipients to skills programmes, so that people would get help finding jobs.

On e-tolls, COSATU felt that a more progressive funding model was needed for e-tolls, as opposed to a regressive, uniform approach. Another issue was carrying out the insourcing of some of the functions of the state as opposed to outsourcing them to private companies, or to foreign companies, who would want to profiteer at taxpayers’ expense.

On the post office, in the budget, there was a target of retrenching 6 000 workers out of the 16 000 employees. That would “collapse” the SAPO. There had been criminality at the SAPO, where the employer deducted medical aid and pension contributions, and did not hand them over. There was a road map for the SAPO, and there was a Post Bank Bill before Parliament, which would help unleash the Post Bank. COSATU felt that was going to give growth to the SAPO and provide injection to the banking sector. It was, in a sense, a state bank, and COSATU felt that development finance institutions (DFIs) and the state should support it. There was a Post Office Amendment Bill coming to Parliament soon, which would “re-pivot” the SAPO into the courier space, which would allow it to become a multi-purpose Government site. The state also needed to give support and use the SAPO and the Post Bank for its needs.

On the sugar tax, Mr Parks observed that COSATU thought it was correct for the Treasury to delay the increase of the Health Promotion Levy (HPL) for one year. That was part of the commitment in the master plan on the sugar industry between the Government, labour, and business. The one-year postponement was to give cushioning to jobs in the sugar industry. This was part of the original three-year commitment to ensure a just transition for the sugar industry value chain.

On a strike in the public sector, COSATU did not want a strike. A strike was never a worker’s first port of call, because the issue of “no work, no pay” was implied. Workers were struggling. But workers were also deeply frustrated that for two years, maybe three years, they had not seen an inflation-linked increase in their salaries. Workers were “drowning in debt”, and they wanted to see Government engaging with them in good faith. COSATU hoped that the CCMA process would give good results and that Government would engage in good faith. The damage that was done to collective bargaining by the previous Minister of Finance, Mr Tito Mboweni, was “huge”. He had “shattered the trust” by going to Parliament and imposing a wage freeze, and then saying that a four-year wage freeze would be imposed. It would take real efforts by Government to rebuild that trust. The government had to do that. All stakeholders had to find a way to close the 2020 chapter in order to take workers forward. All needed to be creative, and find one another. Mr Parks felt that it would take serious efforts by the Government to rebuild trust with public servants after what happened in 2020.
 
Mr Mncube responded to the question on austerity. The IEJ defined austerity as the reduction of public spending and/or raising taxes in order to reduce public debt. This was a key strategy of the fiscal strategy that was seen in the MTBPS, and what had been seen since 2012. This phenomenon was not new; it was ongoing, as some of the presenters had shown. One of the ways to see that phenomenon was to track non-interest expenditure. Overall, over the past decade, non-interest expenditure had been cut. Therefore, when one looked at the amount spent per learner, it had been declining, from around R20 000 to R16 000 between 2021 and 2009. Those were some of the key ways to see that the budget was an austerity budget. Even in the MTBPS, there was an acknowledgement that there was an aim for a primary budget surplus. That was a “classic example” of an austerity budget, and it was usually forced on countries in economic difficulty, in which the revenue exceeded the spending. The difference from that was channelled into paying debt. That was why South Africa’s revenue was being significantly used to pay the debt. Some of the proposals that colleagues had elaborated on clearly stated that the revenue should have been used to expand social relief measures including the SRD grant and other social priorities, especially given the rise in the cost of living. That was the best way to see that the current budget was an austerity budget. Usually, a problematic way of viewing the issue was to include debt service cost as part of Government expenditure. When one included debt service costs, it may show that the Government expenditure had increased with CPI. That was not an accurate way of defining an expansionary budget. Thus, when one looked at non-interest expenditure, which excluded the debt service cost, it was clear that it had been increasing below inflation and population growth. That was austerity. Mr Mncube was keen to hear what was meant by “it was not an austerity budget”, and how that was defined.

On the BIG and how it could be financed, the IEJ had raised a number of financing measures itself, and other civil society organisations had done extensive research on how South Africa could finance it. The key point to start with was that the gross cost of a universal basic income grant (UBIG) was not the same as the net cost. When one looked at the net cost, that took into account how many people would take up that grant over time, as well as some of the multiplier effects that a UBIG would have in stimulating the economy, and some of the VAT that would be recouped as people spent money in the economy. Those were some of the key issues that influenced the net cost of the UBIG. With the stimulus effect, the VAT, and the use of progressive measures such as the social security tax, much of the money “could be clawed back” to the Government. Those were some of the ways the IEJ thought it was important to view the cost of the UBIG.

On taxation, a Member had said that they were not in favour of increasing taxes. But if one looked at the rate of inequality in South Africa, there was clearly further scope to use progressive taxation as a lever to redistribute income to poor households. When the IEJ said “progressive taxation” it meant tax that was usually imposed on wealthier people to contribute proportionally greater amounts since they had more wealth than those who were poor. It was not taxation that affected everyone in a uniform manner. Some evidence from the ITUC– one of the progressive institutions that did work in the area of tax – showed that progressive taxation (including through corporate taxes and the wealth taxes) was one of the key measures that led to improved growth. That needed to be looked at when considering how to fund a basic income guarantee. There were also “untapped resources”. Ms Selman mentioned points on tax rebates for high income earners in her presentation. There were subsidies on pension fund contributions, which were estimated to be approximately R87 billion, and there were also subsidies and return on investment on retirement fund assets. Such assets were estimated to be approximately R46 billion. When one looked at those rebates, which were approximately R130 billion for wealthier South Africans alone. There was scope to look at what other financing mechanisms could be looked at in introducing a BIG. The key question was whether there was political will from those that had power currently. Mr Carrim was correct in saying that pressure needed to be increased via mobilisation. Whilst civil society organisations had done that consistently, there was also a need for the Treasury to open up the space for participation (the IEJ had raised that in its submission), and for the organisations to interrogate some of those regressive fiscal policy measures it had imposed. The meeting was one of the platforms that the IEJ was using to raise awareness and to say that Parliament must reject the budget. Mr Mncube was encouraged by how Ms Abraham had raised the point of rejecting the budget. It was a “bold statement”, and a “step towards the right direction”. He felt that those were some of the inputs that civil society organisations needed to be seeing from a finance committee in working together to ensure that all stakeholders protected human dignity and human rights.

Dr Smulders responded to Dr George’s question on the impact of grey-listing. SAICA had not done its own research, so it relied on what had already been presented in the media. The impact of grey-listing is that it affected foreign direct investment (FDI), currency, the inflation rate, gross domestic product (GDP) growth, etc. Turkey, for example, was grey-listed in 2019. It had a decrease of capital inflow of 7.6% of GDP, and a decrease in FDI of 3% of GDP. If one took that 3% of GDP from a South African context, that was almost R300 billion, which was basically doubling what South Africa’s current budget deficit was. Those were “scary numbers”. There were two scenarios presented in the budget, specifically a positive scenario and a worst-case scenario. She could see why the budget did not include the impact of grey-listing, because it was really severe. Pakistan lost $38 billion in GDP, and $3.6 billion in FDI in one year. The implications were very bad. It was not only the financial implications, but also the negative impact on the banks, and access to the banks for Turkish people. People could not access the banks. The banks were more risk-averse, so there was narrower access to the banking services. That inhibited further economic growth. The value of the Turkish Lira fell significantly to new lows, and it shed 20% of its value in 2021. Inflation skyrocketed to 19.89%. In summary, grey-listing added to South Africa’s barriers for FDI, and cross-border trade would be prohibited. Dr Smulders “did not want to think about what it will do to South Africa”. Everything possible needed to be done, and all potential resources needed to be allocated to prevent grey-listing from happening. She did not think that the South African economy could withstand that shock.

Mr Ryder asked a question in the chat box about the coordinating of the parliamentary committee, and how everybody was informed about what was going on. Mr Ryder had suggested a Chair of Chairs discussion. SAICA appreciated the difficulty of knowing what was going on in all of the committees. SAICA understood the rationale for splitting the different committees and their different functions, because they did have different functions. It was a collective process, and ultimately, all of the parliamentary committees were responsible for that, and it required a holistic overview, 360 degrees oversight role. SAICA was aware of the process – it was first the SCOF, then it went to SCOA, and then it went to the Standing Committee on Public Accounts (SCOPA). SAICA would not propose how to align the process, but Parliament could still come up with a solution; for example, there were joint meetings like the one held that day. Just coming together to hear what was going on was valuable. The Chair of Chairs discussion recommendation was a very good one.

On consequence management and debt management, Dr Smulders observed that SAICA had previously made submissions on consequence management in its February 2022 budget submission. In essence, it was that the money allocations had to reflect responsible spending. There needed to be disciplinary action if there was no responsible spending. The law around such processes was clear. The Public Finance Management Act (PFMA), the Municipal Finance Management Act (MFMA) and the Constitution clearly set out who was responsible, and at what level. The accounting officers had to be held accountable. On a larger scale, SAICA had suggested that the Government use the New Zealand model, where there was a budget available, and money got allocated to specific projects where there was a direct need. No department, or municipality would get an increase year-on-year. If an entity wanted an increase, it would have to apply for an increase and motivate why it should be getting an increase. Such a model would be able to give Government a holistic overview of what the needs were and prioritise those needs. The budget would then be spent according to those needs.

On inflation, that morning, Dr Smulders had heard the South African Reserve Bank (SARB) Governor saying that in the next six months, South Africa was going to be under heavy pressure. It was not when the interest rates would increase, but how much the interest rates would increase by. In the next six months, South Africa was “in for a big knock” – interest rates were going to go up, inflation was going to go up, and there was “no question” about that. That was not even taking into account what would happen in February 2023 when the FATF did South Africa’s review.

Dr Smulders thanked everyone for their kind comments and knew that the committees would be left in good hands. SAICA would continue in the same vein to make things better for every single person in South Africa.

Mr Amra responded to a question on the PEP’s Eskom scenario. He used the relevant slide to explain his point. Its scenarios were those that were most plausible; they were not a best-case or worst-case scenario. What it had done in its presentation was based on what the Minister of Finance mentioned; the PEP assumed a midpoint between a third and two-thirds of Eskom’s debt. That was half the debt, R200 billion, over the medium-term. That added to the  Government’s “sovereign balance sheet”. The graphic on the slide showed what the PEP had estimated, along with the interest costs that were now transferred to Government. The government had to pay the interest cost, and also service that debt. That debt was added to Government’s debt stock. That explained a significant portion of the difference between the Government’s projections over the medium-term and the PEP’s projections. The two big components in the PEP’s scenario going forward, in addition to Eskom’s debt, were the expenditure items that had not really taken place over the MTBPS. Such items had not been written in, and that arose from the extension of the SRD, from the PESP, and from what was likely to be a higher compensation outcome from wage negotiations. That affected the expenditure side. Similarly, on the revenue side, the PEP’s estimates for revenue over the medium-term were not as strong in terms of nominal growth compared to what the Treasury presented in the MTBPS. As a consequence, there could be a larger debt-to-GDP ratio arising from a lower primary surplus, and that only being realised in the third year of the Medium-Term Expenditure Framework (MTEF).

Ms Montso stated HEALA’s recommendations, which were the list of demands it handed over to the joint Standing Committee Member who received the memorandum the previous week. The demands were: To increase the HPL to 20% for better health and financial status in South Africa; and for an annual inflation-related HPL to be increased every year. The latter was needed to protect the effectiveness of the HPL. Another demand was for public consultations on decreasing the 4 gram (g) threshold (4g of sugar per 100ml), and expanding the HPL to include fruit juices were needed with urgency. Lastly, HEALA asked the Treasury to respond to any correspondence with the food and beverage industry in relation to the HPL. She thanked Mr Carrim and Ms Abraham for recognising the need for the Treasury to honour and respond to HEALA’s PAIA application. 

Mr Carrim said that meeting participants had given the committees ideas of where to fund the BIG. Since it was an allocation of money, the committees should perhaps refer the submissions to the SCOA. He suggested getting the committees’ researchers to draw up a document, which Members could then act on. When he said that stakeholders were going “round and round”, it was not a critique of Mr Paulus and others; it was more that MPs “kept mouthing” that they supported the idea of a  BIG, but how long would they continue like that? More action was needed on both sides.

Mr Carrim did not think that Parliament could have acted more swiftly on the FIC bills; the problem was the tardiness on the Treasury’s side. The Committees had said that they were “appalled” at the tardiness of the Treasury, and it expressed its utmost disapproval. But if one looked beyond the surface, the complexities in the Treasury were understandable.

On HEALA, the answer from Mr Parks was what Mr Carrim thought would be the answer. The delay may have been justified, since one had to find all the balances between including emerging African farmers, other farmers, and workers losing their jobs. On the other hand, there was the need to get the sugar content of beverages down. The delay was something that the Treasury could explain. Mr Carrim did not feel that the PAIA application needed to go to court. Could the committees demand that the Treasury give an answer, and avoid the PAIA matter going to court? Treasury got recognition around the world for being open and transparent, so could the committees think about that?

On austerity, It was not so much that the Members did not understand the technical definition; there was also a contextual meaning. One could have economic growth, while also cutting spending, which was austere. On the other hand, one could get no economic growth, and one could be “sliding”, but seeking to do the best one could. He was not offering an answer; instead, he was encouraging debate and flexibility on all sides. The Members kept coming to certain issues, and kept engaging around them, but there was not enough movement, on the side of both civil society and Parliament. In the committees’ reports, they needed to be “more activist[-like]”. He agreed with what Ms Abraham said earlier.

The Chairperson said that moving forward, the Treasury, SARS, and other entities that reported to the Treasury needed to be in Friday’s meeting. The meeting would be at 09:00 on Zoom to respond to the submissions of the stakeholders. The committees would be meeting the following Tuesday to consider and adopt the reports on the MTBPS.
 
The meeting was adjourned.