A summary of this committee meeting is not yet available.
FINANCE PORTFOLIO COMMITTEE, FINANCE SELECT COMMITTEE: JOINT SITTING
13 May 2002
NATIONAL TREASURY'S ANNUAL REPORT & STRATEGIC PLAN: BRIEFING
Co-Chairpersons: Ms Hogan (ANC), Ms Mahlangu (ANC)
Strategic Plan 2002 – 2005
Treasury Powerpoint Presentation
National Treasury briefed the committee on its achievements over the past year and ITS strategic plan for the next three years. The new procurement framework is taking shape, implementation of the Public Finance Management Act is on track, the debt management approach is saving the government money and the Financial Intelligence Centre will be partly operational in October 2002. During the discussion Treasury said that government was committed to privatisation and was of the view that the Telkom Initial Public Offering could still take place this year. Treasury also expressed a commitment to liberalising foreign exchange regulations but were adopting a wait and see approach.
The National Treasury delegation consisted of the following persons:
Mr Trevor Manuel Minister of Finance
Ms Maria Ramos Director-General
Mr Ismail Momoniat DDG – Intergovernmental Relations
Mr Ismail Mamoojee Accountant-General
Mr Lesetja Kganyago DDG – Economic Policy and International Relations
Mr Brian Molefe DDG – Asset and Liability Management
Mr Coen Kruger DDG – Specialist Function
Ms Simone le Hane DDG – Corporate Services
The Minister advised that the presentation wouldl be about the strategic plan document and handed over to Ms Ramos.
Ms Ramos gave an overview of the past year and the strategic focus of the next three years.
Six areas of focus were listed:
-Macro and micro policies for economic growth and income. Treasury would look at economic growth, what challenges there are and how these challenges would be met. The DG said that this year’s budget reflects five to six years of hard work to achieve fiscal stability and an expansionary budget. Over the past four to five years there has been extensive budget reform at all levels of government. The reforms are on going and include trying to find strong synergies between what departments produce and how to measure the outputs. She said that it is the beginning of the development of output measures.
-Sound budgeting and financial management and equitable division of resources between the three spheres of government.
-To ensure that tax policy is fair and in accordance with macro economic objectives. The DG said that there is a 2-way relationship with SARS because the administration of tax policy gives a sense of where policy needs to change.
-Sound management of government’s assets and liabilities. In this regard the PFMA has a very important role to play.
-Promoting and enforcing transparency and effective management of revenue, expenditure, assets and liabilities in all spheres of government.
-Refinement of organisational structure and modernising of human resource management, procurement and IT.
-The DG said that 2001/02 was a difficult year from a global economic perspective. There was global slowdown but South Africa did register important achievements. There was good growth, and a moderate budget deficit because of better than expected revenue performance.
- Budgeting and Planning was improved by a new format for Estimates of National Expenditure, improvement of provincial budget co-ordination and a new feature of publicising strategic plans. In respect of the format of the Estimates, the DG told the committee that they had to provide feedback on how to improve the format because it is for oversight purposes.
- Not only was the deficit reduced but also the debt service cost. Over the medium term government will save R750 million per year over the next ten years. Treasury borrowed $I billion at a low interest rate to bring down the Net Open Forward Position. This was very successful. The DG expected that government would buy back R11 billion in debt and this would generate medium terms savings.
- The Southern African Tax Institute to facilitate better tax co-ordination in SADC.
- Public Private Partnerships was developed
- An asset management framework was developed
- PFMA implementation is on track with the regulations being in place and the monthly and quarterly reporting.
Strategic Priorities 2002/02
- Support Economic Growth
- Focus on poverty reduction and strengthening infrastructure investment
- Implement a framework for procurement reform
Focus on measurable objectives and enhanced expenditure monitoring in line with the PFMA.
- Public sector Policy co-ordination. The DG said that 4x4 teams are set up to ensure better policy co-ordination. The teams consisted of officials from Treasury and Provincial Treasury making up the first 2. Then the other two members will be made up from the national department of health and the provincial department of health.
Consolidation of internal organisation and capacity building initiatives.
The DG said that the gender profile is not what it should be. There is a lot of work to do but progress is being made.
Programme 1 – Corporate Services – core capacity building initiatives
Corporate services renders effective management and administrative support to the core business divisions of National Treasury.
Review of the Corporate Services:
- The restructuring is near complete
- New staff recruitment is underway
- A revised human resource system is to be developed that is focussed on performance management and training
- The CFO was appointed on 1 June 2001
- Fixed asset register is in place
- Audit committee already established
- The preferential procurement policy implemented.
Programme 2 – Economic and budget planning
This division provides advice and professional support to the Minister on economic and fiscal policy, financial regulation and tax policy; oversees the management of public finances; co-ordinated South Africa’s international financial relations and the budget process.
One of the achievements is that the Public-Private partnership unit was established in May 2000. Its primary function is to regulate Public Private Partnership’s (PPP). It also promotes sustainable PPP’s through technical support to implementing departments as a secondary function. The Unit builds capacity by conducting training and publishing guidelines.
Programme 3 – Asset & Liability management
The focus is on better cash management. Provinces are going to be encouraged to deposit surplus cash with the corporation for Public Deposits (CPD). The idea is that surplus cash is at a central level. This will contribute to savings.
Achievements are that a debt risk management benchmark has been approved and active debt management continues to make debt service cost savings.
Programme 4 – Procurement management, financial systems and PFMA implementation
The DG said that better procurement led to savings and the whole procurement system is being looked at. Government has about 150 000 employees doing procurement at some level and it is questionable whether that amount of staff is needed. The broad framework focuses on the establishment of a common service provider (CSP) to replace the State Tender Board. The CSP provides the regulator framework, compliance monitoring database management, training, systems support and be responsible for general term contracts.
Programme 5 – Financial Management Improvement
There were no problems with knowing the liabilities of government but knowing exactly what assets there are and how to value them is a problem. Policies on how to bring government assets on to the books are being workshopped.
Programme 7 – Civil and Military Pensions
The DG said that this was an area of risk because there are many employees who have significant health cover after public service. In 2001/02 the post retirement medical benefit stood at R1 billion and rises to R1.5 billion in 2004/05.
Ms Hogan said that the other programmes were self explanatory but wanted a quick presentation on the Financial Intelligence Centre that is listed under Programme 8.
Mr Michelle, the head of the Financial Intelligence Centre (FIC), gave a quick overview of the progress.
He said that from October 2002 the FIC would start receiving reports on suspicious transactions. The FIC has a small staff compliment but there are secondees from SAPS, Scorpions and SARS. The IT system form a basis for the FIC. From interaction it seems that Canada has the leading system but is very expensive and difficult. He was hoping that the FIC would get assistance in this regard. Full implementation of the FIC is scheduled for about 2005/06 and only then will cash transactions be reported. He advised that the FIC would be visiting the committee later in the year for a detailed briefing.
Ms Taljaard (DP) commented that the proceeds of privatisation were not forthcoming. She asked what could be done so that the deadlines could be met to prevent Treasury from taking additional steps to secure funds.
The minister replied that the amount of capital available today to purchase utilities was a very small fraction. In the light of Enron there is a need for sound accounting principles. AOL / Time Warner is another example where they had to write off $54 billion from their balance sheets because it was simply not there. The advice by analysts also determines where funds go. He used this as examples of factors that are outside the control of government. He said that if the deadlines were not met it was not because government is too relaxed. Government must understand when is the appropriate time and must not be careless, rather pragmatic, when taking decisions.
The DG added that she thought that the Telkom Initial Public Offering IPO could be done this year and said that nobody is slacking off. There is commitment to privatisation.
Mr Mnguni (ANC) said that there are views to the effect that privatisation added to poverty and wanted the Minister’s view on this.
The Minister used the rail accident in the UK to illustrate that privatisation could dilute the power of the regulator. Another example was that of the post office that serves an important social function. It is a point of communication for poor migrants and if the post office is destroyed because a private company delivers mail from Cape Town to Sandton and cannot cross subsidise other services then the lives of the poor would be damaged. He again said that a pragmatic approach is required and that one size does not fit all. Each situation needs to be examined on a case by case basis.
Ms Maabe (ANC) asked about the inter-relationship between the Ministries and what is being done to prevent another department from simply privatising. She also related this to NEPAD and the possible damaging consequences privatisation in other countries could have on NEPAD.
The Minister replied that inter-ministerial committees look at a whole range of issues and the oversight committee that is made up of the DG’s prepare for the meetings. He assured that no minister on his own could decide to privatise. In respect of the second part of the question the Minister said that South Africa could not tell other countries what to do save for giving advice.
Ms Taljaard asked if there was no possibility that the FIC could be up and running sooner.
Mr Michelle answered that the Canadians took three years to get set up and South Africa is trying to do it in two and a half years.
Ms Hogan recalled from dealing with the Bill that the suspicious transactions were the more important anyway. She directed that discussion would take place per programme.
Ms Taljaard commented on the strategic plan that states that legal support is needed in processing major legislation like the PFMA. She asked what capacity Treasury currently had in this regard.
The DG replied that a special unit is being built up for drafting of legislation. The unit will not be big because for very specialised legislation private sector help is needed. The use of outside help is determined on a case by case basis.
Ms Mahlangu referred to the staff profile and said that senior management did not reflect the desired gender profile. She asked what is being done to attract women.
The DG said that with every opportunity Treasury gets the gender as well as the race profile changed. She added that it is an enormous effort to bring in competent women. There is a limited pool of resources and Treasury is unable to compete on a remuneration basis. Treasury is investigating setting up learnership programmes whereby graduates will be recruited and trained. One can just hope that they will stay with treasury.
Ms Joemat referred to the acquisition of the Reserve Bank Building by Treasury. She noted that it was transferred to public works. Also that the new building is accessible to the disabled and wanted to know what is being done to change the employment profile in respect of the disabled.
He DG replied that Treasury spent a lot of money on refurbishment and sold the building to public works for R1. Treasury pays no rental but there is a question of maintenance since the building is a national monument.
Ms Le Hane added that treasury does employ disabled persons but the percentage is not as it should be. She said that Treasury is engaging with agencies that seek employment for the disabled.
Programme 2 & 6
Prof. Turok (ANC) asked where and how economic policy was generated because the strategic plan was a bit confusing to read in that it was difficult to say how across all the divisions economic policy is generated.
The DG replied that economic policy was an interrelated process. Most of the areas that deal directly with economic policy is covered in programme 2 but that does not mean that what happens in other programmes does not impact on economic policy.
Prof. Turok followed up and said that he understood that economic policy was determined by a unit in the Presidency. He said also that he was under the opinion that treasury would focus more on the South African situation that internationally.
The DG replied that the unit in the Presidency tries to ensure coherence and policy co-ordination across government. This was a very difficult task because sometime it is even difficult to do it within a department.
Mr Moloto referred to the series of tax cuts over the years. He asked if the impacts of these cuts are monitored.
The DG said that it was important to see if the tax cuts over the past few years improved people's lives. She added that the immediate impact could be seen when one looked at household’s consumption. Increases in spending in turn increases demand thereby contributing to growth. Because the relief was focussed at the lower income earners the DG believed that there are positive effects. In many households one salary supports many and in this way tax relief does have positive effects.
Mr Moloto was not sure who is responsible for exchange control but if it was Treasury he enquired what investigation had been done in lifting exchange control regulations. He also asked if SADC member countries would be sanctioned when they overstep targets such as budget deficits as percentage of GDP as is done in the EU.
The DG replied that the Minister and the Treasury are responsible for exchange control policy. There is a commitment to liberalising exchange control but it must be done in an organised fashion. The approach would be a cautious one. Treasury is waiting to see the Report by the Rand Commission to find out what needs to be done faster and what needs to be done better. The movement is to eliminate exchange control but in an ordered manner.
In response to the second question the DG replied that the EU has strict requirements for deficit targets and inflation targets. Last year Germany and Italy were outside the targets but it was ignored
Mr Kganyago (Treasury) added that enforcement is important and when governance of SADC is discussed it would have to be addressed.
Ms Maabe asked if Treasury has done anything about plugging the tax gap of the informal sector.
The DG replied that the collection is an administrative issue undertaken by SARS. It is their mandate to close the gap. Everyone by law is required to pay tax.
Ms Nqodi (ANC) said that the government’s international priorities this year includes the financing of NEPAD. The member enquired what are the budgetary implications of this.
The DG said that NEPAD is part of the President’s Budget.
Mr Kganyago added that the financing only relates to the secretariat not to the projects.
Ms Taljaard asked if there was a concern that SARS is over-stretched by all the changes in tax policy especially in the light of transformation taking place at SARS. Secondly, she asked to what extent South Africa could leverage its role on international bodies to ensure private capital flows for NEPAD. An example is that the Minister chairs the Development committee of the IMF.
The DG replied that SARS and Treasury sit together to work out what can and what cannot be done. For this reason there are no big policy changes this year.
In response to the second part of the question the DG said that government is trying to do exactly that – keep NEPAD alive and on the agenda to ensure an ongoing commitment to finance development. It was possible to keep NEPAD alive by chairing the Development Committee NEPAD is also s high profile at the G8 briefing in Canada later this year. She added that Nigeria now manages the project for capital flows.
Ms Mahlangu asked if there would be a review of all the poverty relief programmes. Secondly, she asked if after the results of census 2001 there is going to be a change to the equitable share formula. She was specifically referring to the costed norms approach by the FFC.
The DG replied that poverty relief projects that succeeded and those that failed will be looked at to get a better understanding because lots of money is spent on poverty relief.
Mr Momoniat (Treasury) replying to the second question said that in the Budget Council provinces are reluctant to change the formula. They prefer stability. Depending on the results of census 2001 would determine if the formula changes. He added that the formula is continuously under review. The problem with a new proposal is that there is no data available.
Ms Taljaard wanted details of the risk in respect of the post service medical aid benefit.
Mr Kruger (Treasury) replied that there was an extensive investigation and the projection of R1.5 billion for 2004 /05 was come up with. He said that the figure is stabilising and that he feels comfortable since the report of the investigation was completed.
Mr Moloto asked if the model for debt management takes into account currency risks.
The DG replied that it takes into account the optimal relationship between domestic and foreign borrowing. Currently South Africa is well within the band suggested by the model.
Ms Mahlangu asked if the Corporation for Public Deposits also applied to local government.
Mr Molefe replied that provinces are encouraged to keep money at the Corporation for Public Deposits is housed at the Reserve Bank. The Bank invests the money on a short-term basis in the money market. Provinces will then be able to see what money is available instead of going to commercial banks for bridging finance. Any Corporation for Public Deposits profits will go back to government. At the moment there is no discussion to include local government.
Ms Maabe commented that local government is a high risk for the private sector and asked why it was not part of the Corporation for Public Deposits
Mr Molefe said that it was something new for provinces. It is a learning curve. There are only nine provinces so the small number of accounts would be easy to handle. Maybe later local government could be included. It was simply a question of opening an account at the Corporation for Public Deposits and depositing money. There is not a shortage of banks for local government to simply open an account.
The DG clarified by saying that the Corporation for Public Deposits is for very short-term deposits. Provinces cannot borrow or run overdrafts.
Ms Maabe was of the opinion that local government could perhaps get a better interest rate.
The DG said that the Corporation for Public Deposits could not give better rates than the market. It is just to prevent an overdraft facility from developing for short periods. She added that local government often keeps money for longer periods and the Corporation for Public Deposits cannot keep funds for long periods.
Ms Hogan left and Ms Mahlangu now chaired the meeting.
Programme 4 & 5
Ms Maabe asked what Treasury was doing to capacitate local government in the area of procurement.
The DG replied that the best that Treasury could do is to give the framework and the guidelines and help institutions develop training. It is up to the accounting officers in each department to set aside money for capacity building. Treasury would also facilitate the service providers and say which courses are good and which are not. The reality is that Treasury cannot train a lot of people from local government.
Ms Maabe was interested whether treasury would provide financial assistance.
The DG replied that this is done through allocations that have a capacity building component built in.
Ms Taljaard asked how successful were the pilot projects that implemented e – procurement. She also asked which departments were involved. Lastly she wanted an update on how Treasury was assisting department with capacity building in respect of the PFMA.
The DG replied that Treasury reports biannually on the PFMA rollouts. The accreditation standards board has been set up to accredit courses. The Accountant General has done much work on roll out of the PFMA and there had been workshops to get provinces on board. The update on PFMA implementation is due at the end of June.
Mr Kruger said that a year ago the Tender Board proceeded with the electronic tender evaluation system if satisfied with the testing it would be available to other users in government. The electronic tender evaluation and the electronic receipts has been tested signature authentication is still a problem however. The second phase of the process is the receipt of quotations that is invitations for quotations are invited. The Department of Defence pilots this. It is currently being evaluated and the initial feedback is positive.
The last phase is how to manage the supplier database if government as a whole is going to use this. He concluded that the system is only a possible solution but this far progress is satisfactory.
Ms Maabe asked if the dismantling of the Tender Board would be achieved by June 2002.
The DG said that a lot depends on the agenda of the committee because legislative amendments are required. September seems a more likely date.
Ms Mahlangu asked if the CSP would eliminate the problem giving contracts to the same people over and over again. Would it ensure that women are empowered?
Ms Taljaard asked if there would be problem if CSP is responsible for all procurement except IT that will be done by SITA. She was concerned about co-ordination because with the purchase of IT products there could be the need for ancillary products.
The DG replied that the CSP sets standards and monitors. The PFMA says that the accounting officers must make procurement decisions. The CSP could aggregate the information but the best place to get the information required by the chair is from the department. There was also a process of identifying transversal contracts to benefit from economy of scale. These will be a limited amount of contracts administered by the CSP.
The DG did not foresee any problems between SITA and the CSP. Billions are spent on IT. SITA is responsible for better contract management to ensure value for money. It is up to the accounting officers to determine the IT needs then feed it through to SITA who negotiates the contracts.
Mr Mamoojee (Accountant General) added that SITA will ensure that that the technology is up to date, that it fits in with the national architecture and that it is appropriate for the intended purpose.
The DG stated that procurement is going through a change in culture. One should not underestimate how long it would take to remedy. Historically there was a cash accounting approach; departments just bought supplies no matter if did not need it. The assets just lie in stores not being used. Procurement must be seen as part of asset management.
The meeting was adjourned.