ATC120301: Report ON THE 2012 FISCAL FRAMEWORK AND REVENUE PROPOSALS, DATED 01 MARCH 2012

Finance Standing Committee

REPORT OF THE STANDING COMMITTEE ON FINANCE ON THE 2012 FISCAL FRAMEWORK AND REVENUE PROPOSALS, DATED 01 MARCH 2012

 

The Standing Committee on Finance, having considered the 2012 Fiscal Framework and Revenue Proposals, reports as follows:

 

1. Introduction and Background

 

The Minister of Finance (the Minister) tabled the 2012 National Budget (the Budget) before Parliament on 22 February 2012. In tabling this Budget, the Minister met his obligation under section 27 of the Public Finance Management Act (Act 1 of 1999), (PFMA) that requires the Minister to table the Budget for the following financial year in the National Assembly before the start of that financial year. In addition to that, the Minister also met his obligation under section 7(1) of the Money Bills Amendment Procedure and Related Matters Act 9 of 2009 (the Money Bills Act) that requires the Minister to table the Budget in the National Assembly. Section 7(2) of the Money Bills Act requires the Minister to include, among other information, the proposed fiscal framework and revenue proposals in the tabled Budget.

 

According to section 8(3) of the Money Bills Act, the Standing Committee on Finance and Select Committee on Finance (the Committees) must, within 16 days after the tabling of the Budget, report to the National Assembly (NA) and the National Council of Provinces (NCOP), respectively, on the proposed Fiscal Framework and Revenue Proposals. Fiscal Framework is defined in section 1 of the Money Bills Act as “the framework for a specific financial year that gives effect to the national executive’s macro-economic policy and includes-

• estimates of all revenue, budgetary and extra-budgetary specified separately, expected to be raised during the financial year;
• estimates of all expenditure, budgetary and extra-budgetary specified separately, for that financial year;
• estimates of borrowing for that financial year;
• estimates of interest and debt servicing charges; and
• an indication of the contingency reserve necessary for an appropriate response to emergencies or other temporary needs, and other factors based on similar objective criteria”.

 

In line with section 8(3) of the Money Bills Act mentioned above, the Committees report on the proposed Fiscal Framework and Revenue Proposals for the 2012/2013 financial year.

 

Following the tabling of the Budget on 22 February 2012 and the engagement with the Minister on 23 February 2012, the Committees held public hearings on 28 and 29 February 2012, receiving submissions from organised labour, organised business, public institutions, and civil society. This report reflects the main themes emerging from the engagement with the afore-mentioned stakeholders including the Minister and the National Treasury. This report includes two main sections, namely: Economic Policy and Fiscal Policy. The Economic Policy gives an overview of the economic outlook with specific reference to key macro-economic indicators within the context of the current global and national economic environment. The Fiscal Policy provides details of fiscal policy over the following Medium Term Expenditure Framework (MTEF) with specific reference to the fiscal stance adopted by government.

 

 

 

2. The 2012 National Budget

 

The 2012 Budget of R1.1 trillion was tabled as the global economy is going through a difficult time. The recovery from the financial and economic crisis of 2008 remains slow and uneven. Developed and developing economies confront weaker growth prospects. A solution to the European crisis eludes policymakers, casting a long shadow over the world economy. The South African economy is growing, though more slowly than originally projected. More jobs are being created, but not fast enough to keep up with growth in the labour market. Household spending is robust and private-sector investment is gathering pace. South Africa’s budget policy framework is guided by the challenges of growth, job creation and poverty reduction.

 

The 2012 Budget gives effect to the stance outlined in the 2011 Medium Term Budget Policy Statement (MTBPS), setting out a fiscal framework that will narrow the gap between spending and revenue, support the economy, strengthen capital investment and improve the performance of the public service. Faster economic growth must go hand in hand with job creation and generate the tax revenue that enables government to pursue progressive developmental policies. The Minister indicated in the 2011 Medium Term Budget Policy Statement (MTBPS) that fiscal policy would support initiatives towards higher growth and this is clearly illustrated by the 2012 Budget Speech whereby spending over the next three years will be shifted from consumption spending towards productive investment.

 

Although gross domestic product (GDP) growth is likely to be subdued in 2012, the strengths of the South African economy, and progress towards a global recovery, will contribute to higher growth over the medium term. South Africa’s macroeconomic framework includes a countercyclical fiscal and monetary stance that supports growth and investment. Stable and low inflation protects living standards, particularly of working families and low-income households. Low interest rates, regulatory certainty and enabling public-sector investments encourage the private sector to expand existing businesses and explore undiscovered opportunities. But, macroeconomic measures are not enough; they need to be complemented by trade support, competition policy and active labour market measures.

 

Policies and programmes for a healthy, educated, skilled and capable citizenry are the most powerful levers of social and economic change. The 2012 Budget Review sets out revenue and spending proposals in the context of the economic outlook. It includes a special focus on infrastructure plans, signalling a new impetus in public-sector investment as a foundation for long-term growth, employment and development. It also reinforces themes emphasised in several past budgets: industrial competitiveness and improving trade performance, moderation in consumption and higher savings, investment in skills, improving the quality of education and enhancing the efficiency of the public service.

 

 

3. Economic outlook

 

3.1 Global Economic Outlook

 

Since the 2011 MTBPS, the world economic outlook has weakened. The International Monetary Fund (IMF) expects global growth to decelerate from an estimated 3.8 per cent in 2011 to 3.3 per cent in 2012, down from the previous forecast of 4 per cent. Emerging markets are expected to remain the primary sources

of economic expansion, though growth will be slower than in past years. Advanced economies are projected to grow by only 1.2 per cent in 2012. Therefore, the Federation of Unions of South Africa (FEDUSA) argues that the deep recession affected countries to a much greater extent than was initially expected. The Business Unity of South Africa (BUSA) argued that, although the global economic outlook looks marginally better at the moment, the international economy presents lower economic growth and higher risks.

 

For some time, a shift in the composition of global trade, production and investment has been under way. Emerging markets now account for more than 40 per cent of global imports, exports and industrial production. Shifts in the global economy provide considerable opportunities for growth and employment in South Africa and the African continent. For example, the World Bank projects that China could shed 85 million manufacturing jobs in the following years as the economy’s comparative advantage moves away from labour-intensive production and as wages for unskilled labour rise. South Africa can capture a greater share of world manufacturing through focused efforts to achieve a competitive position in global production networks and supply chains. South Africa’s regional and global comparative advantages in mining, infrastructure development, retail, distribution, tourism, and financial and professional services offer significant potential for jobs and growth, particularly if underpinned by innovation and productivity gains.

 

 

3.2 Domestic Economic Outlook

 

With developments in Europe expected to hold back growth somewhat in 2012, South Africa’s financial institutions and public finances are sound, and serve as the foundation for higher growth over the medium term. The Financial and Fiscal Commission commented that the South African economy has been negatively affected by the uncertain global economic climate, and particularly due to its exposure to Eurozone economies through trade and financial markets. BUSA advised that South Africa needs to be globally competitive in a changing world and that there is a need for flexibility, innovation and leadership in both the public and private sectors in order to create a more adaptable economy.

 

FEDUSA commented that, according to the World Economic Outlook (WEO) of January 2012 of the International Monetary Fund (IMF), South Africa was more affected by the recession than other countries in Southern-Sahara probably because of its larger exposure to countries where the crisis originated –although South Africa was geared to mitigate negative effects of this crisis.

 

The Financial and Fiscal Commission reported that economic growth (in real terms) has increased from 2.8 per cent in 2010 to 3.1 per cent in 2011 which remains reflective of the ongoing economic recovery from the 2008 downturn. Healthy household consumption expenditure, improved business confidence and investment, rising exports and improved public-sector infrastructure spending are expected to boost economic growth to 3.6 per cent in 2013 and 4.2 per cent in 2014. The National Treasury reported that real growth in GDP is expected to average 2.7 per cent in 2012. BUSA agreed with these estimates of the National Treasury. The Financial and Fiscal Commission’s forecast for economic growth for 2012 is between 2.9 and 3 per cent. However, BUSA argued that these estimated rate of economic growth remain inadequate to South Africa’s socio-economic challenges.

 

Over the medium term, imports are projected to grow quicker than exports in response to strong domestic demand. This will contribute to the current account deficit widening from an estimated 3.3 per cent of GDP in 2011 to 4.4 per cent of GDP in 2014. This level of deficit should be comfortably financed through a combination of foreign direct investment, international investment in the bond and equity markets, long-term foreign loans to public entities and trade finance. Growth in private fixed capital formation is projected to rise from 4 per cent in 2012 to 6.8 per cent in 2014, underpinned by improving business confidence. Public investment growth will average 4.3 per cent per year over the following three years.

 

Table 1 (below) shows macroeconomic projections in other fiscal elements over the MTEF.

 

Table 1: Macroeconomic projection, 2008 - 2014
Calendar year	2008	2009	2010	2011	2012	2013	2014
	Actual			Estimate	Forecast
Percentage change unless otherwise indicated
Final household consumption	2.2	-1.6	3.7	4.9	3.6	3.8	4.2
Final government consumption	4.5	4.7	4.9	4.6	4.1	4.1	4.1
Gross fixed capital formation	13.3	-3.2	-1.6	4.3	4.1	4.5	6.0
Gross domestic expenditure	3.5	-1.6	4.2	4.1	3.9	4.2	4.9
Exports	1.8	-19.5	4.5	6.0	2.9	5.8	6.6
Imports	1.5	-17.4	9.6	9.4	7.2	7.1	8.3
Real GDP growth	3.6	-1.5	2.9	3.1	2.7	3.6	4.2
GDP inflation	8.3	7.7	7.9	7.2	6.1	6.2	6.1
GDP at current prices (R billion)	2,263	2,398	2,661	2,941	3,204	3,526	3,897
Headline CPI inflation	9.9	7.1	4.3	5.0	6.2	5.3	5.1
Current account balance (% of GDP)	-7.2	-4.0	-2.8	-3.3	-4.3	-4.5	-4.4

Source: Budget Review, National Treasury, 2012, 15

 

 

3.3 Employment

 

The labour market has shown signs of improvement over the previous year, with total employment rising by 2.8 per cent between December 2010 and December 2011. The Financial and Fiscal Commission commented that, similarly to the 2011 Budget, the 2012 Budget is aimed at growth and job creation, with the expenditure and revenue proposals reflecting government’s pursuit of progressive developmental policies. Job creation has been concentrated in the formal private sector. The economy is projected to add 850 000 new jobs over the following three years, with 80 per cent of these in the private sector, lowering the unemployment rate to about 23 per cent in 2014. Most of these jobs will likely be concentrated in services and construction as a result of steady growth in domestic demand and infrastructure expenditure, and a pickup in residential investment expected during the outer years of the forecast.

 

BUSA commented that there was an improvement in job creation during the 2011, but employment has not yet returned to its 2008 peak and the unemployment rate remains high at 23.9 per cent. BUSA argued that overall unemployment is unacceptably high and the employment targets are below targets of the NGP. Therefore, BUSA is of the view that the 2012 Budget strategy rightly adopts a stronger pro-growth stance to encourage faster and more inclusive economic growth.

 

The Financial and Fiscal Commission cautioned that there is a need to create policies and practices aimed at development, as well as leadership at national, subnational and departmental levels, that is willing to cooperate, is committed to attaining developmental objectives and that has a good understanding of incentives, both in the public and private sectors. According to the Financial and Fiscal Commission, the key to realising sustained and inclusive economic growth is for government to create high quality education systems that will teach its citizens the necessary skills for them to be able to obtain jobs.

 

Unemployment remains high at 23.9 per cent. Labour force participation is low, with almost 15 million South Africans not economically active. After doubling between 2008 and 2011, the number of discouraged work seekers has stabilised at approximately 2.3 million, and the broad unemployment rate stands at approximately 33 per cent. Weak job creation for young people and those who have not completed matric has exacerbated the challenge of low-skill and youth unemployment. Moderation in the growth of real wages and nominal unit labour costs since September 2010 has supported recent improvements in the labour market. Nominal wage settlements averaged 7.7 per cent in 2011 compared with an average settlement level of 8.2 per cent in 2010. More recently, slowing labour productivity growth has contributed to accelerated growth in nominal unit labour costs, which grew from below 6 per cent in the first quarter of 2011 to 8.3 per cent in September 2011.

 

FEDUSA argued that jobless growth, high unemployment with the resultant unequal income distribution and poverty remains South Africa’s most serious socio-economic challenge, despite all South Africa’s socio-economic strategies, namely the Reconstruction and Development programme (RDP), GEAR and ASGISA initiatives. However, FEDUSA commented that job creation is the central theme in the New Growth Path (NGP) and also forms part of the Report of the National Planning Commission and the 2012 Budget takes a broader approach with infrastructure development as the core. Therefore, FEDUSA welcomed further steps to create jobs.

 

The PBC reported that, in the New Growth Path, it was mentioned that monetary policy will be “loose” to ensure a competitive currency so that jobs are protected but the existing level of the real exchange rate does not help to stimulate the economy in a manner that preserves jobs and enhances broad-based industrialisation. The Manufacturing Circle argued that timely government intervention in the foreign exchange market aimed at depreciating the rand to a competitive level is crucial.

 

The Manufacturing Circle believes that policy intervention is called for not only for export promotion, but also, and more importantly, to ensure growth recovery and improve fiscal prospects.

 

 

4. Fiscal Policy

 

The Manufacturing Circle concurred with the view that the counter-cyclical stance adopted by the National Treasury some years before the 2008-2009 global financial crisis has subsequently proven its worth because it has allowed South Africa to maintain allocations to public works programmes, infrastructure and support schemes for companies in distress and workers who became unemployed.

 

In line with the countercyclical fiscal stance, the budget deficit remains substantial at 4.6 per cent of GDP in the 2012/13 financial year, but is projected to decrease to 3 per cent in the outer year as economic activity accelerates. Over the medium term, slower growth in public spending, combined with rising revenue, will strengthen the sustainability of the fiscus. The stabilisation of public debt will limit the growth of debt-service costs. Government will begin to shift the composition of spending from consumption towards capital investment. Moderating growth in the public-sector wage bill, and stabilising the growth in interest payments, will allow more funds to be spent on infrastructure and social spending.

 

Broadening South Africa’s social and economic development in the decades to come requires a sustainable fiscal framework. In 2012, the National Treasury will publish a report on the long-term dynamics that will inform fiscal choices beyond the three-year period. The proposed budget of R1.1 trillion in the 2012/13 financial year maintains the State’s contribution to growth and social development, while taking steps to ensure fiscal sustainability.

 

 

4.1 Features of the fiscal outlook

 

The 2012 Budget provides continued support for growth, investment and job creation, and maintains the value of the social wage. The key features of the fiscal outlook include the following:

• Real growth in non-interest expenditure averaging 2.6 per cent over the medium term, bringing spending in line with long-term revenue trends;
• Additional allocations of R55.9 billion over the next three years, including R9.5 billion for an economic support package;
• Tax revenue levels stabilising at about one-quarter of GDP;
• A reduction in the budget deficit from 4.8 per cent in 2011/12 to 3 per cent in 2014/15; and
• A shift from consumption to capital spending so that, from 2014/15, new borrowing will support productive investment.

 

South Africa’s period of transition is about building modern infrastructure, a vibrant economy, a decent quality of life for all, reducing poverty and creating decent employment opportunities.

 

South Africa’s fiscal position will consolidate in line with improved economic performance and rising revenue over the medium term. As the economy grows, government will build fiscal space to respond to crises that may arise in future.

 

Over the following three years, growth in the economy will outpace growth in non-interest expenditure, and spending as a proportion of GDP will decline. Accelerating GDP growth will lead to stronger growth in revenues. By the 2014/15 financial year, government is expected to narrow the primary deficit to 0.3 per cent of GDP, allowing debt to stabilise at approximately 38.5 per cent of GDP. Debt-service costs are expected to peak at 2.8 per cent of GDP in the 2013/14 financial year, declining moderately to 2.7 per cent in the 2014/15 financial year.

 

The budget framework for consolidated government is summarised in Table 2 (below).

 

Table 2: Consolidated government budget  framework, 2008/09 – 2014/15
R million	2010/11	2011/12	2012/13	2013/14	2014/15	Average real  growth 2011/12– 2014/15
	Outcome	Revised estimate	Medium-term estimates
Revenue	757,513	830,210	904,830	1,005,871	1,118,183	4.8%
Percentage of GDP	27.5%	27.7%	27.4%	27.8%	28.0%
Gross tax revenue	674,183	738,735	826,401	913,610	1,019,620	5.7%
Percentage of GDP	24.5%	24.7%	25.0%	25.2%	25.5%
Expenditure	874,172	972,547	1,058,321	1,149,125	1,239,699	2.9%
Percentage of GDP	31.7%	32.5%	32.1%	31.7%	31.0%
Non-interest expenditure	807,945	895,903	968,933	1,048,319	1,130,660	2.6%
Percentage of GDP	29.3%	29.9%	29.3%	28.9%	28.3%
Debt-service cost	66,227	76,645	89,388	100,806	109,039	6.7%
Percentage of GDP	2.4%	2.6%	2.7%	2.8%	2.7%
Budget balance	-116,659	-142,337	-153,491	-143,255	-121,516
Percentage of GDP	-4.2%	-4.8%	-4.6%	-4.0%	-3.0%
Primary balance  (% of GDP)	-1.8%	-2.2%	-1.9%	-1.2%	-0.3%

Source: 2012 Budget Review, National Treasury, 2012, page 38.

 

The consolidated budget includes the national budget, social security funds, RDP funds, provincial budgets and extra-budgetary institutions such as the South African National Roads Agency and the Trans-Caledon Tunnel Authority. Average annual real revenue growth of 4.8 per cent is projected to outpace GDP growth of 3.7 per cent over the following three years, while expenditure will grow by an average of 2.9 per cent in real terms over the same period. A large share of expenditure growth is absorbed by debt-service costs, which amount to R109 billion in the 2014/15 financial year.

 

The Manufacturing Circle reported that there has been some initial market reaction to the better than expected revised estimate of the budget deficit of 4.8 per cent of GDP for the 2011/12 financial year instead of 5.3 per cent of GDP that was predicted in 2011. The National Treasury reported that an improvement in the deficit from 4.8 per cent of GDP to 3 per cent in the 2014/15 financial year will stabilise growth in debt service costs as a percentage of GDP.

 

 

4.2 Revenue

 

Structural increases in revenue over the last 10 years were supported by healthy economic growth during the mid-2000s, along with improved tax compliance and administration. Tax revenue has been recovering since the 2010/11 financial year and, over the medium term, is projected to increase from 24.7 to 25.5 per cent of GDP. Budget revenue also includes non-tax revenue and, the income of social security funds, provinces, the RDP Fund and extra-budgetary institutions. Non-tax revenue, made up of departmental revenue and mineral royalties, will account for approximately 0.5 per cent of GDP. Social security fund revenue is boosted by increased contributions to the Unemployment Insurance Fund and Compensation Funds, while changes in the fuel levy increase the projected income for the Road Accident Fund. Provincial and extra-budgetary institution revenue is expected to remain in line with previously published estimates. A significant adjustment to revenue forecasts is made as a result of government’s payments to its partners in the Southern African Customs Union (SACU). Transfers rise to an estimated R42.2 billion in the 2012/13 financial year, up from R21.8 billion in the 2011/12 financial year, owing to a strong projected recovery in imports and intra-SACU trade, and the adjustment payment for an over collection in the 2010/11 financial year. Taking into account all revenue sources and the adjustments for SACU transfers, consolidated government revenue will improve to 28 per cent of GDP.

 

The 2012 tax proposals support a sustainable fiscal framework over the medium term, while facilitating economic growth and a more competitive economy. Reforms will improve the fairness of the tax system, ensuring that income from capital is taxed more appropriately. Measures are proposed to encourage household savings. Financing options for national health insurance as part of a strengthened public health system will be explored.

 

Audited revenue results show that tax revenue for the 2010/11 financial year of R674.2 billion was R75.5 billion or 12.6 per cent higher than actual tax revenue collected in the 2009/10 financial year. Higher customs duties (36.1 per cent higher than in the 2009/10 financial year), value-added tax (VAT) (24.1 per cent) and personal income tax (10.6 per cent) accounted for this increase. The revised tax revenue estimate for the 2011/12 financial year of R738.7 billion is R64.6 billion, or 9.6 per cent higher than in the 2010/11 financial year. This is the result of strong collections of customs duties (21.1 per cent), corporate income tax (14.4 per cent), and personal income tax (10 per cent).

 

To ensure that the direct personal income tax burden on individuals remains reasonable, personal income tax brackets and rebates are adjusted to take account of inflation, as well as provide limited real tax relief. The 2012 Budget proposes direct personal income tax relief to individuals amounting to R9.5 billion.

 

The dividend withholding tax will come into effect on 1 April 2012, bringing an end to the secondary tax on companies. Pension funds that are exempt from income tax will receive their dividends tax free. It is proposed that the dividend withholding tax come into effect at 15 per cent – five percentage points higher than the previous secondary tax on companies’ rate. Income from capital can be derived as interest income, dividends or capital gains, all of which should be taxed equitably. High-income individuals tend to receive a larger portion of their income in the form of dividends and capital gains. The higher rate will also help to mitigate some of the revenue losses when switching from the secondary tax on companies to the new tax. The estimated net loss to the fiscus as a result of these changes will be R1.9 billion.

 

To enhance equity, effective capital gains tax rates will be increased. The inclusion rate for individuals and special trusts will increase to 33.3 per cent, shifting their maximum effective capital gains tax rate to 13.3 per cent. The inclusion rate for other entities (companies and other trusts) will increase to 66.6 per cent, raising the effective rate for companies to 18.6 per cent and for other trusts to 26.7 per cent. These changes will come into effect for the disposal of assets from 1 March 2012.

 

Medical tax credits are a more equitable form of relief than medical deductions because the relative value of the relief does not increase with higher income levels. As announced in the 2011 Budget, income tax deductions for medical scheme contributions for taxpayers below 65 years will be converted into such credits. Monthly tax credits will be increased from R216 to R230 for the first two beneficiaries and from R144 to R154 for each additional beneficiary with effect from 1 March 2012. From that date onwards (apart from those with disabilities), where medical scheme

contributions in excess of four times the total allowable tax credits plus out-of-pocket medical expenses combined exceed 7.5 per cent of taxable income, they can be claimed as a deduction against taxable income.

 

To encourage greater savings among South Africans, the National Treasury reported that tax-preferred savings and investment accounts are proposed as alternatives to the current tax-free interest-income caps in order to encourage a new generation of savings products and generated returns within these savings and investment vehicles (including interest, capital gains and dividends) -and withdrawals will be tax exempt. The National Treasury argued that aggregate annual contributions could be limited to R30 000 per year per taxpayer, with a lifetime limit of R500 000, to ensure that high net-worth individuals do not benefit disproportionately. The design and costs (banking and other fees) of these savings and investment vehicles may be regulated to help lower-income earners to participate.

 

However, the South African Institute of Chartered Accounts (SAICA) commented that it is not clear who will be providing these savings vehicles. Nevertheless, SAICA welcomed the fact that these proposals will only take effect in 2014 and that a discussion document will be published which will facilitate consultation and refine these proposals. On the other hand, the South African Institute of Professional Accountants (SAIPA) is concerned that the proposed tax-preferred savings and investment accounts to encourage saving among South Africans, which will replace the existing annual tax-free interest caps, will fail to yield significantly greater savings without a drop in the unemployment rate, availability to disposable income, security of security, and consistent inflation beating returns. SAIPA is also concerned that the proposed limits and scrapping of the tax-free interest caps could see investors placing their funds with non-interest-bearing accounts and reduce the access of these to banks that, in turn, use the funds for lending and financing.

 

To also encourage South Africans to save for retirement, contributions by employees and employers to pension, provident and retirement funds will be tax deductible by individual employees. Individual taxpayer deductions will be set at 22.5 and 27.5 per cent, for those who are below 45 years of age and those who are 45 years of age and above respectively, of the higher of employment or taxable income. Annual deductions will be limited to R250 000 and R300 000 for taxpayers below 45 years and above 45 years, respectively. A minimum monetary threshold of R20 000 will apply toallow low-income earners to contribute in excess of the prescribed percentages. Non-deductible contributions (in excess of the thresholds) will be exempt from income tax if, on retirement, they are taken as either part of the lump sum or as annuity income. Measures to address some of the complexities of defined benefit pension schemes will be considered. These amendments will come into effect on 1 March 2014.

 

Price Waterhouse Coopers welcomed the simplification and increase of the percentage deduction limits for retirement fund contributions and commended the decision to allow the deduction of contributions to provident funds and treatment of contributions to pension funds, provident funds and retirement annuity funds on the same basis under a single formula.

 

The South African Institute of Tax Practitioners argued that broadening the tax base is imperative that a simplified and understandable tax system lowers the cost of doing business for all business types, including micro, small, medium and large businesses

 

4.3 Expenditure

 

The 2012 Budget proposals focus on developing infrastructure, supporting job creation and improving local government services. Education, health care and social protection continue to account for the largest share of government resources, with spending on these functional areas growing in average real terms by 1 per cent, 1.5 per cent and 3 per cent, respectively. In addition to funds allocated in previous budgets, the budget proposes to add R8.6 billion to expenditure in 2012/13, R16.1 billion in 2013/14 and R31.2 billion in the 2014/15 financial year. Total additions to baseline over the medium term expenditure framework (MTEF) amount to R55.9 billion. The budget framework includes a contingency reserve of R41.6 billion over the MTEF – R5.8 billion in the 2012/13 financial year, rising to R24 billion in the 2014/15 financial year. The contingency reserve serves to finance any unforeseen and unavoidable expenditure that may arise during the 2012/13 financial year, and is available to finance additional policy priorities in the outer two years. The 2012 Budget makes allowance for a 5 per cent cost of living adjustment for all government employees, exclusive of pay progression.

 

Real gross domestic expenditure expanded by an estimated 4.1 per cent between 2010 and 2011, supported by growth in household and government consumption, and renewed growth in fixed capital formation following two years of contraction. Domestic expenditure is expected to expand at an annual average of 4.2 per cent over the medium term.

 

The current account deficit widened to an estimated 3.3 per cent of GDP in 2011 from 2.8 per cent in 2010. While the trade balance maintained a small surplus, net income payments were pushed up by higher dividend payments to non-residents. The current account deficit is projected to widen to 4.3 per cent of GDP in 2012 and reach 4.4 per cent in the outer year of the forecast as domestic demand boosts imports. South Africa’s trade balance recorded a surplus of 0.9 per cent of GDP in the first three quarters of 2011 compared with 1 per cent in the whole of 2010. Export volumes grew 5.8 per cent compared with the previous year, while imports of goods and services increased by 9.3 per cent.

 

In the 2010/11 financial year, the deficit was R51.9 billion lower than budgeted. Spending outcomes were R32.8 billion below budget estimates, largely as a result of under spending on payments for capital assets. Tax revenue was R26.3 billion higher than projected, with personal income tax, value-added tax and customs duties accounting for the bulk of the improvement. The revised estimate for the deficit in 2011/12 is R12.5 billion lower than budgeted. Spending is expected to be R6.7 billion lower than the budgeted figure. Under spending on capital spending is once again a significant contributor to this trend, albeit to a lesser degree than in previous years. The estimated outcome for compensation of employees is estimated to be R8.1 billion above the budgeted amount, as a result of the higher-than-expected salary adjustment. Revenue is also estimated to be R5.7 billion above the budgeted amount, contributing to a lower overall deficit. The 2012 Budget adjusts the forward estimates tabled in the 2011 Budget for the 2012/13 and 2013/14 financial years to take account of changes in the economic environment and policy priorities, and adds projections for the 2014/15 financial year.  

 

FEDUSA applauded the Minister for the efforts made over the medium term to bring the deficit back to an acceptable level and that a sustainable fiscal framework, based on the principles of counter-cyclicality, debt sustainability and intergenerational equity underpins Government’s growth strategy. BUSA supported the commitment in the 2012 Budget to keep the fiscus on a sustainable track (to control State spending) and stressed that South Africa should draw lessons from the current Eurozone crisis.

 

 

 

 

5. Asset and Liability Management

 

5.1 Developments in South Africa’s debt markets

 

The JSE Securities Exchange of South Africa (the JSE) registered an increase of 23.7 per cent in annual bond turnover in 2011, reaching a record high of R20.9 trillion. The bond market is becoming an increasingly important source of funding for the private sector. During 2011, net issuance by corporations increased by R4 billion to R49 billion, with financial corporations responsible for the largest proportion of this issuance. Outstanding municipal bonds increased from R11.6 billion in 2010 to R13.2 billion in 2011. Johannesburg, which accounts for 60 per cent of this market, issued R850 million in new debt and Ekurhuleni issued R800 million in new debt. Turnover in municipal debt, however, decreased by R6.9 billion to R17.1 billion. During 2011, the Treasury bill rates were anchored by the monetary policy stance. The South African Reserve Bank kept the repurchase (repo) rate unchanged at 5.5 per cent.

 

The primary aim of the debt management strategy is to meet the financing requirements of the public sector at the lowest possible cost. This is done within prudent risk levels and in support of government’s broader economic policies. The principles of openness, transparency and predictability support this goal. Government works to develop the country’s capital markets, maintains benchmark bonds, and actively manages the maturity structure and composition of debt.

 

In recent years, to develop the domestic bond market and broaden the investor base, government expanded its portfolio from mainly Treasury bills and fixed-income bonds to include inflation-linked bonds, floating-rate notes and retail bonds. The introduction of Islamic bonds (called sukuk) is now under consideration. The Treasury bill portfolio has been expanded from 91-day and 182-day bills to include 273-day and 364-day bills. Retail bonds were first issued in 2004 to bolster South African savings, and now consist of fixed and inflation linked bonds.

 

Financing in international capital markets is intended to meet government’s foreign currency commitments, broadening the investor base and establishing benchmarks for state-owned entities to borrow. This strategy reduced the share of foreign debt as a proportion of total net debt from 19.9 per cent in the 2007/08 financial year to 5.4 per cent in the 2011/12 financial year, reaching 2.9 per cent in the 2014/15 financial year. Low levels of foreign debt reduce currency risk and contribute to the sustainability of the public finances.

 

5.2 Consolidated borrowing and financing

 

The consolidated government borrowing requirement includes the financing requirements of national and provincial government, the social security funds, and national extra-budgetary institutions. Consolidated borrowing in the 2012/13 financial year will increase to R152.3 billion before declining to R120 billion in the 2014/15 financial year. The consolidated borrowing requirement is lower than that of the national government mainly because of large investments held by the social security funds and capital reserves held by extra-budgetary institutions, which constitute pre-funding for infrastructure investment. Extra budgetary institutions raise loans to finance large scale infrastructure investment. These include the South African National Roads Agency Limited (SANRAL) and Trans-Caledon Tunnel Authority (TCTA) project loans, which amount to about R16.5 billion over the medium term.

 

In the 2011/12 financial year, the net borrowing requirement is expected to amount to R152.7 billion, increasing to R168.8 billion in the 2012/13 financial year before declining to R140.9 billion in the 2014/15 financial year.  In the 2012 Budget Speech, the Minister alluded to the fact that the public sector borrowing requirement would rise rapidly as government’s infrastructure programme accelerates. Therefore, high public debt is likely to remain a feature of the South African economy for some time into the future and government will have to closely monitor debt levels and ensure that it is aligned to fiscal sustainability objectives.

 

A total of R4.4 billion in extraordinary receipts is expected in 2011/12, consisting of premiums of R3.5 billion on bond transactions, proceeds of R228 million from government’s liquidation of its investments in the South African Special Risk Insurance Association, revaluation profits of R660 million on foreign currency transactions and cash owed to government from the curatorship of Saambou Bank of R30 million. Over the medium term, premiums of R4.2 billion on bond transactions are projected.

 

Government is reviewing its substantial investments in enterprises and public entities. Some of these enterprises and entities hold cash, excess financial reserves or assets that are not associated with public-service delivery. Where such resources can be more productively applied to finance policy priorities, the sale of such assets, or the return of surplus funds to the fiscus, will be considered.

 

5.3 Financing the national borrowing requirement

 

Short-term borrowing consists of Treasury bill issuance and borrowing of surplus cash from the broader public sector through the Corporation for Public Deposits. In the 2011/12 financial year, Treasury bill issuance increased by R20.8 billion to R157 billion. Demand for Treasury bills remained strong, with auctions on average oversubscribed by 2.3 times. Of the total amount of Treasury bills issued, 76 per cent is held by South Africa’s commercial banks; 1 per cent is held by international investors and the rest is held by other investors. Over the medium term, Treasury bill net issuance is expected to average R22 billion a year, concentrated in longer-dated maturities.

 

Domestic long-term loan issuance amounts to R155.4 billion in the 2011/12 financial year. Fixed income bond issuance was concentrated in the longer maturities. Bonds with a maturity of more than 12 years constitute 43.7 per cent of total fixed-income bond issuance. Over the following two years, domestic long term loan issuance will average R151.2 billion, decreasing to R142.3 billion in the 2014/15 financial year. It is anticipated that current weekly auction levels in domestic bonds will be broadly maintained in the 2012/13 financial year.

 

Over the medium term, government intends to borrow about US$3 billion in global markets to maintain benchmarks in major currencies and meet part of its foreign currency commitments. The balance of these commitments will be met from foreign currency bank balances and purchases of foreign currency in the domestic market. To diversify funding options, government is considering entering the Islamic bond (called sukuk) market. Banking institutions have been invited to submit proposals on advisory services for the structuring and issuing of Islamic bonds.

 

5.4 Government’s debt portfolio

 

Net loan debt consists of total domestic and foreign debt, less cash balances. Net loan debt is expected to be R1 trillion by the end of the 2011/12 financial year, or 33.3 per cent of GDP, increasing to 36 per cent of GDP in the 2012/13 financial year and reaching 38.5 per cent of GDP in the 2014/15 financial year. The Manufacturing Circle is of the view that public spending is on a moderation path leading to lowering deficits with net debt level that will encourage net debt service costs to retreat to 2.7 per of the GDP in the 2014/15 financial year.

 

The Financial and Fiscal Commission advised that South African government should exercise caution by conserving fiscal space which can then be used to deal with future shocks – a similar strategy that was implemented in averting negative effects of 2009 crises. The Financial and Fiscal Commission argued that this crucial in response to the projected increase in gross government debt which rises to 40 per cent of GDP in the 2011/12 financial year after which it is expected to gradually increase over the medium term.

 

BUSA argued that the debt profile in the 2012 Budget appears more sustainable than the picture presented in 2011 but fiscal space remains with gross debt levels expected to be just below 43 per cent by 2015. Therefore, BUSA proposed that the National Treasury should be encouraged tofinalise its promised long term outlook study for public finances, drawing on certain accepted principles, and taking into account South Africa’s demographic trends and socio-economic challenges –including the appropriate balance between consumption and investment spending by the State.

 

The National Treasury is expected to monitor contingent liabilities and their potential impact on the fiscus. As at 31 March 2012, net loan debt, provisions and contingent liabilities are expected to amount to 46.8 per cent of GDP, and are projected to reach 49.8 per cent of GDP by the 2014/15 financial year. This remains below the Southern African Development Community’s macroeconomic convergence target of 60 per cent of GDP, and compares favourably with many developed countries. However, although BUSA if of the view that South Africa’s headline fiscal ratios appear healthy, they argue that that can mask vulnerabilities because State debt costs remain the fastest growing item of State spending

 

The Financial and Fiscal Commission reported that the most recent downgrading of the outlook for the South African sovereign debt by international agencies was driven by the belief that government’s ability to finance debt and debt deficit is deteriorating, partly because major banks and state enterprises are linked to the fiscus through bonds. On the contrary, the Financial and Fiscal Commission is of the view that the downgrading is not warranted owing to the following two main reasons:

• Government’s own commitment to fiscal prudence as articulated in the 2012 Budget; and
• A well regulated financial sector relative to the rest of the world.

 

 

5.5 Financing borrowing by state-owned entities

 

To invest in infrastructure that contributes to long-term economic growth and broader developmental goals, state-owned entities need to borrow against their balance sheets. Government helps these entities to access financing wherever possible, and provides guarantees where necessary.

 

During the 2011/12 financial year, government support through the provision of guarantees reduced the state-owned entities’ costs of borrowing on the domestic capital markets by an estimated R70 million. Domestic bond issuances by the entities amounted to R19.8 billion in the 2010/11 financial year. During this period Eskom and Transnet increased their foreign bond issuances, while demand for SANRAL and Transnet’s domestic bond issuances declined.

 

Over the medium term, state-owned entities will increasingly fund capital expenditure through higher internally generated cash flows, which are estimated to increase from R88.1 billion in the 2012/13 financial year to R145.2 billion in the 2015/16 financial year. The National Treasury forecasts that total borrowing by state-owned entities will amount to R76.9 billion in the 2012/13 financial year, R77.5 billion in the 2013/14 financial year and R74.1 billion in the 2014/15 financial year.

 

6. Social security and National Health Insurance

 

Over the long term, government spending on social services has to complement rising employment, productivity and real wage improvements, alongside a broader contributory social security and health financing framework. These reforms need to be managed in a way that maintains long-term fiscal sustainability. BUSA commented that it is essential to maintain an effective social safety net system in South Africa to alleviate poverty and the social grant system has been very necessary in this regard.

 

BUSA advised that the more South Africa can push up its levels of growth economic growth and employment, the less a large proportion of the population will be dependent on welfare. The National Treasury argued that active labour market policies help people find work and accelerate job creation. Labour activation policies include the following:

• training programmes that enhance skills;
• incentive schemes that provide subsidies to employers, employees, entrepreneurs and new firms;
• public works programmes; and
• job-search and job-matching services.

 

Because labour activation programmes are expensive, and demonstrate varying results, they need to be well designed and customised to meet national and local circumstances.

 

The National Planning Commission’s proposed National Development Plan recommends several policies to improve labour market efficiency and speed up job creation. These include a placement subsidy to get matric graduates into work, staff retention schemes that offer short-time work during periods of low demand, and a more open approach to skilled immigration to boost the supply of high-skilled workers in the short term.

 

Government’s green paper on National Health Insurance (NHI), released in 2011, sets out the principles and direction of proposed reforms. Within this framework, a wide range of technical, operational and financial aspects require further elaboration. Recognising the cost and complexity of these plans, the green paper proposes a 14 year transition over three phases. The first five years will focus on strengthening the public sector in preparation for the new system. The Financial and Fiscal Commission is of the view that the pilot route taken by government is a sensible way of going about such a reform with far reaching consequences for sustainability of fiscal frameworks and the advantage of such a strategy is that key shortcomings will start to emerge in the pilots and can be addressed before full scale launch of the scheme. The PBC is of the view that the continued support for the implementation of the NHI is a step in the right direction and argued that the successful implementation of the NHI requires ongoing budgetary support towards addressing key deficiencies in the public healthcare system, including improvements in the following:

• Management and skills in the running of health facilities;
• Procurement of medication and other supplies required to run health facilities; and
• Quality, responsive and timeous health care for patients.

 

FEDUSA is concerned about the “lack of consultation on the NHI process between the Department of Health and relevant stakeholders. FEDUSA argued that, in addition to “lack of consultation”, the 2012 Budget Review contains no new information relating to NHI funding and advised that the matter should be subjected to thorough discussion at the National Economic Development and Labour Council (Nedlac) by all relevant stakeholders.

 

Regarding funding the NHI, the PBC rejects any consideration of an increase in value added tax (VAT) and user charges as part of the funding mechanisms for the NHI.  The South African Institute of Chartered Accountants (SAICA) argued that the proposed 3 methods of proposed funding will create severe hardship on taxpayers. The PBC recommends that the NHI should be funded by the wealthy in line with “the wealthy in line with the spirit of the Constitution and the Freedom Charter and efforts to redress historical inequalities”.

 

South Africa spent approximately R258.4 billion (8.6 per cent of GDP) on health services in the 2011/12 financial year, split about equally between public and private expenditure. Provincial health departments are the largest public providers of health services. Private health spending is largely paid or reimbursed by medical schemes.

 

Over the medium term, general taxes will remain the primary financing mechanism for the public health system and national health insurance pilot projects. Over the longer term, new sources of financing will be required to fill the funding gap associated with improved access to more comprehensive health services. Funding options could include a payroll tax (payable by both employees and employers), a higher value-added tax (VAT) rate or a surcharge on taxable income, or some combination of these.

 

It is expected that an additional revenue source will be needed in 2014/15 amounting to R6 billion in that year, which is not currently provided for in the MTEF. The National Treasury argued that longer-term financing requirements will depend on the progress of institutional reforms and health service delivery capacity, and cannot yet be reliably determined. Preliminary modeling suggests that full implementation of national health insurance by 2025 may require public health financing to rise from about 4 per cent of GDP at present to 6 per cent. Alongside options for increased tax revenue, the role of user charges is also being investigated. A discussion paper on revenue options will be released in 2012, together with a review of associated transition issues, including the role of medical schemes.

 

In the 2012/13 financial year, pilot sites will be established in selected districts to begin laying the foundations of national health insurance improved facilities, skilled managers and re-engineering of primary health care. A new conditional grant for these pilot projects is established in the 2012 Budget, with allocations amounting to R150 million, R350 million and R500 million over the MTEF period. The pilot projects will provide practical lessons on the new models for primary care services.

 

The national health insurance’s conditional grant will serve as an interim funding mechanism. It is likely to exist for five years until a permanent funding stream for the new system is established.

 

The social assistance programme is government’s most direct means of combating poverty. At the end of 2011, approximately 15.3 million people were eligible for social grants, up from 2.5 million in 1998. Although grants are targeted to assist potentially vulnerable members of society, namely the young, the old and the disabled, more than half of all households benefit from social assistance.

 

In the 2012/13 financial year, R104.9 billion is allocated to social assistance, rising to R122 billion in the 2014/15 financial year. The number of grant recipients is are expected to increase from 15.6 million in the 2011/12 financial year to 16.8 million in the 2014/15 financial year.

 

Following the release of the discussion paper proposing the implementation of a youth employment incentive, government has undertaken a process of consultation, engaging key stakeholders. This has not only involved consultation with social partners in Nedlac, a process that began in May 2011, but also within government at meetings of the Economic Sectors and Employment Cluster, and the Joint Social Protection, Community Development and Human Development Cluster. These discussions and engagements are on-going.

 

7. Infrastructure

 

South Africa’s critical infrastructure needs are in part the outcome of two decades of underinvestment. Public infrastructure spending tailed off from the early 1980s. From 2003, prudent management of the economy created the fiscal space for long-term investment. Private-sector capital formation has also increased strongly, rising by 84 per cent between 2002 and 2008.

 

The experience of other developing countries shows that capital investment equivalent to about 25 per cent of GDP is generally needed for a substantial rise in per capita income. In previous years, government has sought to accelerate public infrastructure spending, while encouraging greater private-sector investment. South Africa’s public sector capital investment amounted to 7.4 per cent of GDP in 2010, while investment by private enterprises amounted to 12.2 per cent of GDP.

 

The sectoral breakdown of the estimated R3.2 trillion worth of large-scale projects is currently under consideration or in progress. Of this total, about a quarter of these projects are being financed and implemented, and the remaining three-quarters are under assessment. The PBC welcomed the increased allocation towards infrastructure expenditure because it meant that infrastructure investment will grow at a rate higher than the economic growth rate. BUSA is pleased with the central priority that the 2012 Budget placed on the expanded infrastructure program as this initiative should not only aid in building modern infrastructure, but will also help to reduce poverty, create decent work and expand employment opportunities.

 

There is insufficient affordable housing stock for middle-income households above the income thresholds for RDP-type housing, but who cannot afford high mortgage finance. To address this “gap market”, a tax incentive for developers (and employers) to build new housing stock (at least five units in compliance with prescribed standards) for sale below R300 000 per dwelling is under consideration. Options include either a tax credit or a deduction at either a fixed rand amount per unit or as a percentage of the value of the dwelling. This proposal will be refined after public consultation. Policy alignment with existing housing incentives and attempts to unblock regulatory bottlenecks will also be considered.

 

The Manufacturing Circle welcomed the spending plans in respect of improving rail and general transport infrastructure which, although focused on supporting the primary sector, will provide spin-offs for manufacturing. The Manufacturing Circle is of the view that these improvements will definitely address long-term concerns relating to the following:

• General inefficiencies, service predictability and equipment availability of the rail network;
• Upgrading Transnet’s rail and port infrastructure in order to boost capacity on the rail lines that transport coal and iron ore to export terminals;
• Relieving congestion and damage on our road network system by shifting other goods from road onto rail;
• Providing appropriate inter-modal facilities that would facilitate seamless movement of cargo; and
• Enhancing competition amongst and within ports.

 

The PBC also welcomed the proposed establishment of the municipal infrastructure support agency to assist with regard to enhancing the infrastructure development capacity of rural municipalities because increased infrastructure investment should be accompanied by the need to increase the capacity of the State to appropriately spend the allocated amounts. BUSA commented that, in view of the fact that approximately 60 per cent of socio-economic delivery takes place at local level, it endorses the emphasis placed in the 2012 Budget on support for local municipalities which will serve to stimulate local economies.

 

However, the PBC is concerned that, over the years, South Africa experienced under-spending and the Department of Public Works continues to experience challenges. Therefore, the PBC argued that the 2012 Budget should have included further ways to build internal capacity to directly deliver basic services and public infrastructure. BUSA emphasized that the rollout of infrastructure projects mainly depends on a skilled and professional public service.

 

The Manufacturing Circle cautioned that cost recovery for such expansions should at all times be prioritized to be done as equitably, cost effectively and gradually as possible to avoid unnecessary cost shocks. The National Treasury noted the under expenditure (32 per cent in the 2010/11 financial year) in infrastructure implementation and urged for the implementation of infrastructure spending plans to be executed much more consistently. The Manufacturing Circle further cautioned that, if these infrastructure projects are to impact job creation positively and expeditiously, steady delivery momentum must be achieved and maintained.

 

BUSA supported the anti-fraud and anti-corruption initiatives that aim to combat these offences through the changes to procurement policies and practices and argued that the role of the proposed Chief Procurement Officer in the National Treasury will be crucial. The Committees commend the National Treasury for proposing the establishment of this position. Furthermore, BUSA welcomed the introduction of a national price reference system to detect deviation from acceptable prices in the tender system and the possibility of using the system to allay fears of line departments who are not comfortable with the designation of locally manufactured goods for fear of price premiums having to be paid.

 

The Financial and Fiscal Commission argued that, even though it seems that government is being consistent over the medium term with regard to infrastructure, figures provided in the 2011 MTBPS have all been adjusted downwards in the 2012 Budget, in contrast with government’s commitment to investment in infrastructure.

 

 

8. Summary of discussions

 

The following salient points were derived from deliberations on the 2012 Budget:

• The South African Institute of Chartered Accountants (SAICA) expressed their dissatisfaction about the capital gains tax implementation date of 1 March 2012, and suggested that SARS look at aligning the implementation date with the company’s financial year end dates.

 

• All tax practitioners who attended the public hearings indicated that they were complying with tax regulations and those who may be defrauding tax may be the other 50 per cent which does not belong to any tax professional body. This non-compliance is bringing the integrity of the profession into question.

 

• The People’s Budget Coalition (PBC) welcomed the commitment of R20 billion from government for the establishment of the two new universities for the province of Mpumalanga and the Northern Cape, but raised a concern about the actual implementation of these projects.

 

• PricewaterhouseCoopers cautioned the Committees about the 4.5 per cent of wealthy tax-payers that contributes 38 per cent of total revenue, and that government should look at ways of increasing the percentage by creating more jobs as to be able to have more people paying tax.

 

• The Federation of Unions of South Africa (FEDUSA) expressed their disappointment with the way that the government has handled the E-Tolling system in Gauteng Province, stating that proper consultation was not done and there is a need for the phasing-in approach when implementing the project. The PBC indicated that they were against the fact that workers had to pay from using Gauteng roads to and from their work places.

 

• FEDUSA further raised concern about the lack of consultation on the National Health Insurance (NHI) consultation with stakeholders. The budget contain no new information on the NHI funding, therefore the expectation remains that it would be funded from an increase in Value Added Tax, payroll taxes of employers or additional tax on individuals.

 

• BUSA welcomed the cash injection on infrastructure but pointed to the fact that the country is faced with the challenge of the lack of skills and there is a need to look at the funding models as a substantial amount of money has been committed to projects. 

 

• The Financial and Fiscal Commission is of the view that in order for the government to realize sustained and inclusive economic growth, it is critical to create a high quality education system.

 

• The Commission informed the Committees that they have done some research work on the issue of the administered pricing and is willing to share that with the Committees.

 

• The People’s Budget Coalition (PBC) argued that the 2012 Budget does not represent a shift but rather continues upon the same old path and that is why the PBC has characterised it as a conservative macroeconomic framework predicated on a neo-liberal paradigm –mainly because spending does not prioritise job creation and retention, when the country still suffers from more than “1 million job losses over the crisis period”.

 

9. Conclusion and Recommendations

 

Having considered the 2012 Fiscal Framework and Revenue Proposals and conducted public hearings on the 2012 Fiscal Framework and Revenue Proposals, the Standing Committee on Finance recommends that the House accepts the 2012 Fiscal Framework and Revenue Proposals.

 

The Standing Committee on Finance further recommends as follows:

 

• The Minister of Finance should ensure that low income taxpayers do not finance the National Health Insurance in order to reduce tax hardship on these employees;

 

• The Ministers of Finance and Cooperative Governance and Traditional Affairs should submit a detailed plan on the proposed establishment of the municipal infrastructure support agency. This plan should include clear functions and reporting lines of the agency and should reach Parliament within 2 months after the adoption of this report by the House;

 

• The Minister of Higher Education and Training should table a detailed plan (including financial implications) on the proposed construction of the new universities in the provinces of the Northern Cape and Mpumalanga. This plan should reach Parliament within six months after the adoption of this report by the House;

 

• The Ministers of Finance and Health should prioritise discussions on the technical, operational and financial aspects of the National Health Insurance. In order to comply with the recommendation, the Ministers may consider tabling of the White Paper to Nedlac and then to Parliament;

 

• The Minister of Public Works should submit to Parliament a turnaround plan (including clear quarterly targets) on how it would address the persistent under spending in the Department of Public Works. This plan should reach Parliament on or before 30 April 2012;

 

• The Minister of Energy should review the pricing policy of electricity prices and identify how the pricing policy could be used to contain electricity price increases and work towards having prices in line with the inflation rate, in light of the impact of electricity increases on administered prices and therefore inflation;

 

·         The Minister of Finance should investigate the status of the consideration of the Youth Wage Subsidy at Nedlac and, within 3 months, propose a plan on how they can amend the proposal to facilitate its progress;

 

·         The Minister of Finance should monitor spending in government departments on a quarterly basis and advise relevant Ministers on the spending patterns of their departments.

 

·         The Minister of Finance should consider establishing a procurement office rather than creating a position of a procurement officer, and provide Parliament with a plan on how it intends capacitating such an office;

 

·         The Minister of Finance should provide an assessment of their achievements in terms of their stated commitment to shift the composition of spending from consumption to capital investment in their forthcoming long term fiscal plan;

 

·         The Minister of Finance should take all necessary steps to ensure that they meet their commitment to constrain the increase in the public sector wage bill to within the inflation target range;

 

·         The Minister of Finance should provide an overview on the success of its stated commitment to mobilize private sector capacity in the expansion of infrastructure investment;

 

·         The Minister of Finance should provide an overview of new policies that will have a direct impact on accelerating economic growth from the low forecasted level of 2,7 per cent in 2012; and

 

·         The Minister of Finance should investigate the matter of Denel having to be bailed out on a yearly basis by government, and come up with a clear and sustainable resussitation strategy and report back to Parliament within 6 months.

 

10. Oral Submissions

 

Table (below) contains a list of people who made oral and/or written submissions before the Committees, some in their personal capacity.

 

List of Presenters

 

Name	Position	Organisation
Mr. Pravin J. Gordhan	Minister of Finance	National Treasury
Mr. Lungisa Fuzile	Director-General	National Treasury
Mr Oupa Magashula	Commissioner	SARS
Ms. Gretchen Humphries	Deputy General Secretary	FEDUSA
Ms Lauren Uppink	Social Policy Officer	FEDUSA
Mr. Coenraad Bezuidenhout	Executive Director	Manufacturing Circle
Prof Raymond Parsons	Deputy CEO	BUSA
Mr Matthew Parks	Deputy Parliamentary Co-ordinator	COSATU
Mr. Woody Aroun	Parliamentary Officer	NUMSA
Ms Boniswa Ntshingila	Economic Institute	NUMSA
Mr. Bongani Khumalo	Acting Chairperson	FFC
Ms Tania Ajam	Commissioner	FFC
Dr Ramos Mabunga	RRP Director	FFC
Mrs Marina Marinkov	Senior Researcher	FFC
Prof. Osman Mollagee	Director: Tax Technical and Training	PricewaterhouseCoopers
Mr Nicolaas Van Wyk	Technical Support Executive	ACCA
Mr Stiaan Klue	Chief Executive	SAIT
Mr Muneer Hassan	Project Director: Tax	SAICA
Mr Piet Nel	Project Director Tax Suite	SAICA
Mr Mike Schussler	Economist	SAIT & ACCA
Mr Ettiene Retief	Chairperson: Tax Committee	SAIPA

 

 

The written submissions by the above-mentioned organisations/representatives are available on request from the Committee Secretariat.

 

11. References

 

The Manufacturing Circle, (2012), Submission To The Standing And Select Committees On Finance On The Fiscal And Revenue Proposals And Documentation Related To The 2012/2013 Budget, 28 February 2012.

 

Association of Chartered Certified Accountants & South African Institute of Tax Practitioners, (2012), 2012 Budget Speech, Cape Town, Parliament of RSA, dated 28 February 2012.

 

Financial and Fiscal Commission, (2012), Briefing To The Standing And Select Committees Of Finance On The 2012 Fiscal Frameworks And Revenue Proposals, Cape Town, Parliament of RSA, dated 29 February 2012.

 

Gordhan, P. (2011), National Annual Budget 2012’s Speech, Parliament of RSA, Cape Town, available online at: www.treasury.gov.za, dated 22 February 2011.

 

Federation of Unions South Africa, 2012 Budget submission to the Joint Portfolio Committee on Finance, Cape Town, Parliament of RSA, dated 29 February 2012.

National Treasury, (2011), Medium Term Budget Policy Statement, Pretoria: Government Printers, also available online at: www.treasury.gov.za

 

National Union of Mineworkers South Africa, (2012), NUMSA Response to the 2011/12 Budget, Cape Town, 29 February 2012.

 

Peoples Budget Coalition, (2012), Peoples Budget Coalition statement on the National Budget speech, Cape Town, Parliament of RSA, dated 29 February 2012.

 

Price Water House Coopers, (2012), Budget 2012 Tax Proposals, Cape Town, Parliament of RSA, dated 29 February 2012.

 

South African Institute of Chartered Accountants, (2012), Call For Comment: 2012/13 Tax Related Budget Proposals, Cape Town, Parliament of RSA, 28 February 2012.

 

Business Unity South Africa,  Business Unity South Africa Submission to the Standing Committee On Finance Fiscal And Revenue Proposals For 2012/2013, Cape Town, Parliament of RSA, 28 February 2012.

 

South African Institute of Professional Accountants, SAIPA’s Comments on the Fiscal Framework and Revenue Proposals, Cape Town, Parliament of RSA, dated 29 February 2012.

 

 

Report to be considered.