Medium Term Budget Policy Statement 2008: consideration & adoption

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Finance Standing Committee

16 November 2008
Chairperson: Mr K Moloto (ANC)
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Meeting Summary

After a page by page consideration of the Committee Report on the Medium Term Budget Policy Statement (MTBPS) report, the Committee adopted that report. It noted that technical corrections were required to amend grammatical errors or improve the flow of the wording. Members debated whether the use of “devaluation” or “ depreciation” was more appropriate in the context, and discussed the link between the new inflation weighting and the recent depreciation of the Rand.
The Committee noted that there was scope for expanding the recommendations to include a recommended period of heightened vigilance for the National Treasury around monitoring and intervention, given the current global economy. Members then adopted the Report, and noted that time would be allocated for a debate in view of the recommendations listed in it.

Members noted their formal congratulations to the Committee’s former Chairperson, Mr N Nene, and Committee Member Ms B Hogan, on their recent appointments as, respectively, Deputy Minister of Finance and Minister of Health respectively.

Meeting report

Mr Bradley Viljoen, Committee Secretary, stated that, due to the recent appointment of the former Chairperson, Mr N Nene, as Deputy Minister of Finance, the Committee must now nominate and elect an Acting Chairperson in accordance with Rule 130 of the National Assembly Rules

Mr B Mnguni (ANC) nominated Mr K Moloto as Acting Chairperson.

Mr N Singh (IFP) seconded the nomination.

Mr Moloto took over the Chair.
 
Mr Singh noted that the Committee should formally congratulate the former Chairperson on his recent appointment as Deputy Minister of Finance. He added also that the Committee had not yet also formally congratulated former Committee member Ms B Hogan on her appointment as Minister of Health, and should do so.

Mr S Marais (DA) seconded the suggestion. He had already, in his personal capacity,  congratulated Mr Nene but thought it appropriate that it also be expressed by the Committee.

The Acting Chairperson agreed and said that he would draft a letter on behalf of the Committee, that could be signed by Members.

The Acting Chairperson then asked that Members go through the report.

Mr J Bici (UDM) queried the timeframe for the circulation of the MTBPS report as he had only come across the document at the meeting.

The Acting Chairperson responded that the he had been advised that the report had been circulated on the previous Friday. He allowed a period during which Members could read the report.

Dr D George (DA) pointed out a grammatical error in paragraph 1 on page 2. He further noted that the reference by Mr Jac Laubscher (SANLAM submission) to the second and more optimistic view of the National Treasury was not adequately explained in this paragraph. There was a fuller explanation of this view elsewhere in the document, and he suggested  that perhaps the paragraphs could be reshuffled, to improve understanding. He noted that in paragraph 3, the first bullet  point started with the words “resulted in a reduction", but the sentence did not seem to follow and he thought that a word was missing.

The Acting Chairperson, referring to page 5, noted the use of the word "devaluations". As he understood it, devaluation referred to government intervention in the foreign exchange market, whereas "depreciation" referred to a market force determined loss of currency value. As this referred to the market, he suggested that "depreciations" should be used instead of "devaluations".

The Acting Chairperson also referred to the mention that portfolio inflows were a workable solution for the current account deficit. As he understood it, this had always been the case with South Africa, as it had financed its current account deficit with mainly portfolio investment inflows  and limited foreign direct investment (FDI).

Members considered this point but decided that no change was necessary to the latter point.

The Acting Chairperson referred to the section following the hyphen in the first bullet, under " The following three fundamental issues stood out in the 2008 MTBPS:” on page 10. He was not sure how this section related to inflation, as it was difficult to link the two sentences.

Mr Mnguni responded that, as of next year, the new Consumer Price Index (CPIX) weighting would actually reduce inflation. However (as the report stated), due to large imports and as the Rand depreciated, it had the effect of increasing inflation - that was where care had to be taken.

The Acting Chairperson responded that the explanation made sense but that it remained difficult to establish the logic in the section.

Dr George suggested that the section after “care” be removed.

Mr Marais asked if the Committee was happy with just one recommendation and that perhaps it should address the possibility of future fiscal intervention. He suggested that perhaps the Committee should recommend that the National Treasury must monitor what happened in the macroeconomic environment of South Africa, and that the National Treasury should take action and be required to come to the Committee timeously, and not wait too long.

Dr George agreed and added that perhaps the Report could say that bearing in mind the current unusual global financial situation, the National Treasury needed to have heightened vigilance and, where necessary, should intervene.

Mr Mnguni responded that Dr George had phrased it well. Fiscal policy at the present time was very actively addressing the financial crisis, whilst also in line with policy, and he asked Dr George to clarify the wording.

Dr George suggested revised wording, to the effect that under the prevailing circumstances, the Committee recommended that the National Treasury adopt a period of heightened vigilance towards international economic events and take appropriate intervention, as required.

Mr Singh queried the process as to which report on the MTBPS would be tabled before the National Assembly (the House). He asked this in light of the report of the Joint Budget Committee on its deliberations on the MTBPS, and asked which report was to be debated.

The Chairperson replied that the two Committees were expected to produce two different reports according to their individual mandates and what had transpired at the hearings.

The Committee Secretary clarified that because this Committee had made recommendations, the report would be  placed on the Announcements, Tablings and Committee reports (ATC) for debate in the House according to the programme. The Portfolio Committee report would thus also appear on the Order Paper.

Members adopted the MTBPS Report, with the agreed changes.

The meeting was adjourned.

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