ATC140711: Report of the Standing Committee on Finance on the Strategic Plan and Annual Performance Plan of Budget Vote 10: National Treasury, dated 10 July 2014
REPORT OF THE STANDING COMMITTEE ON FINANCE
ON THE STRATEGIC PLAN AND ANNUAL PERFORMANCE PLAN OF BUDGET VOTE 10: NATIONAL
TREASURY, DATED 10 JULY 2014.
The Standing Committee on Finance, having considered Budget Vote 10: National Treasury, its Strategic and Annual Performance Plans for the 2014/15 2018/19 period, reports as follows:
Vote 10, which comprises the National Treasury and the South African Revenue
Service, was referred to the Standing Committee on Finance on 25 June 2014. On
2 July, the Minister of Finance, the Director-General, the Acting Commissioner and
senior officials of both the National Treasury and South African Revenue
Service (SARS) appeared before the Committee to discuss Budget Vote 10 and the
updated Strategic and Annual Performance Plans. This report presents the
Committees deliberations with the National Treasury and the SARS.
consideration of the budget and the processing of the report have been
finalised in exceptional circumstances, due mainly to the dates of the general
elections and convening of the 5
term of parliament. The onerous
legal and other deadlines for the adoption of the overall budget by parliament
meant that the Committee has had to process the Departments budget very
quickly. Moreover, the Committee has just been constituted, with almost all new
members, and is still finding its feet, as it were. There has not been the time
or space to engage sufficiently with key stakeholders and the public on the
budget. The Committee has, in the circumstances, not been able to be as
rigorous and effective as it would have liked to have been in processing the
budget. The Committee will certainly be more rigorous in its consideration of
the Departments budget next year, and will in different ways and forms in the
period leading to then, engage with the National Treasury and the institutions
that fall within its portfolio on matters related to their budget for this
Overview by the Minister
Minister of Finance, Mr
Nene, emphasised to
the Committee that the economy was growing at a moderate pace and performing
below expectations. The projected growth rate figure would be issued when the
Medium Term Budget Policy Statement (MTBPS) is tabled in October 2014. The
budget was aligned with the National Development Plan (NDP) and the country was
entering a new 20 year phase of development. South Africa had to grow faster in
order to improve the conditions of the poor and reduce poverty. The Minister said
that despite the challenging circumstances SARS stood to collect R1 trillion
during this tax season.
Mandate of the National Treasury
National Treasury derives its mandate from Chapter 13 of the Constitution of
the Republic of South Africa. According to section 216 (1) of the Constitution,
national legislation must establish a National Treasury and prescribe measures
to ensure both transparency and expenditure controls in each sphere of
government. The functions and powers of the National Treasury are contained in
Chapter 2 of the Public Finance Management Act (PFMA).
goals of the Department are set out in its plan for realising its mandate over
the medium term and structure its programmes. The goals are to:
Prepare, finance, publish and monitor the
execution of the annual national budget to provide accurate and clear financial
information and associated indicators of service delivery and performance;
Improve techniques employed to monitor and
analyse public expenditure by further refining applicable financial management
frameworks and policies to ensure the appropriate use of available public
financial resources for social and economic development, and infrastructure
Contribute to improved capacity in the areas
of financial management and resource planning in government;
Contribute to the development of a stable and
robust financial sector that leads to continued economic stability and growth
by continuing to monitor financial sector performance and developing financial
sector policies and regulatory frameworks;
Support infrastructure and urban development
through various programmes including the Infrastructure Development Improvement
Programme, the Neighbourhood Development Partnership Programme and the Cities
Support Programme, amongst others;
Promote public private partnerships as a
financing alternative for development, where feasible; and
Enhance supply chain management in government
through the establishment of the Chief Procurement Office, which will provide a
blueprint for addressing supply chain principles in order to reduce wastage and
maximise value in the public sector.
give effect to its strategic goals, the Department is structured into the
Administration - which
strategic management and administrative support to the department
Economic Policy, Tax, Financial
Regulation and Research which
specialist policy research and analysis in the areas of
macroeconomics, microeconomics, taxation, the financial sector, and
Public Finance and Budget Management -
analysis and advice on fiscal policy and
public finances, intergovernmental financial relations and expenditure
planning and priorities. It manages the annual budget process and provides
public finance management support
and Liability Management which
prudent management of governments financial assets and liabilities
Financial Systems and Accounting which
accountability, governance and oversight by promoting transparent, economic,
efficient and effective management in respect of revenue, expenditure,
assets and liabilities in the public sector;
International Financial Relations
manages South Africas
multilateral financial relations with various stakeholders through various
Civil and Military Pensions,
Contributions to Funds and Other Benefits which
provides for noncontributory civil
pensions, post-retirement medical contribution subsidies and other
benefits for pensioners and their beneficiaries, administered on behalf of
National Treasury through a Service Level Agreement with the Government
Pensions Administration Agency (GPAA)
Technical Support and Development Finance
assistance on project and programme management, support for public-private
partnerships, local government financial management assistance, funding of
neighbourhood development projects and support for employment creation
Revenue Administration which
comprises transfers made to the South African Revenue
Service for purposes of undertaking core tax administration activities and
maintaining the information technology competencies that support these
Financial Intelligence and State
provides for the
allocation of funds to combat financial crimes, including money laundering
and terror financing activities, and to gather intelligence for purposes
of national security, defence and combating crime
The Department directly contributes towards achievement of outcomes 4 (
employment through inclusive economic growth);
6 (An efficient, competitive and responsive economic infrastructure
A responsive, accountable, effective and
efficient local government system); 11 (Create a better South Africa and
contribute to a better and safer Africa and world); and 12 (An efficient,
effective and development oriented public service and an empowered, fair and
The National Treasury supports the aims of:
The National Development Plan (NDP) as incorporated
into other government plans;
The Industrial Policy Action Plan (IPAP);
New Growth Path (NGP);
National infrastructure programme coordinated by the
Presidential Infrastructure Coordinating Commission (PICC); and
Governments Outcomes approach.
Policy Priorities for 2013/14
According to National Treasury, in order for the objectives of the NDP
to be realised, a stable and enabling macroeconomic platform is required to
achieve sustainable growth and employment creation.
2014 budget speech, the former Minister of Finance, Pravin Gordhan, stressed
the importance of the NDP by stating that it
reflects the priorities underpinning the 2014 budget, and prepares the
ground for the next phase of our economic and social transformation
Minister said that in order to make
rapid progress in creating jobs and reducing poverty, we have to grow our
economy at 5 per cent a year or more
Treasury stresses the need to cut wasteful expenditure and drive efficiencies
throughout all national departments to enforce the self-imposed debt ceilings. National
believes that fiscal consolidation is well
underway and it will be conducting regular spending reviews to examine
programme performance and value-for-money.
addition, the Minister stated that the introduction of regulations will
strengthen the National Treasurys oversight of public entities by requiring stronger
compliance with reporting requirements for expenditure, revenue, borrowing and
According to National Treasury, economic activity contracted in the
first quarter of 2014, largely owing to protracted strike action. Confidence is
low, which negatively affects consumption and investment in the short-run.
Employment growth remains sluggish with 9 000 jobs created in the formal sector
in the first quarter of 2014, according to the Quarterly Employment Survey (QES).
Growth over the medium term is supported by an environment of stable macro
economic conditions with interest rates at 30-year lows, public-sector capital
investment, additional electricity-generating capacity and robust growth in
Sub-Saharan Africa. Investment growth is expected to reach 6 per cent by 2017.
Public sector investment is expected to average annual growth of 4 per
cent over next three years, with projected infrastructure investment of R827
billion over the medium term. South Africas financial markets are deep and
liquid, enabling government to finance the bulk of its borrowing requirement in
the domestic market. Foreign debt is low, as compared to international
According to National Treasury, domestic risks to the economic outlook
remain. There is an urgent need to reduce industrial actions in the economy and
reinforce government communication to increase confidence. Further risks are
delays to the introduction of infrastructure, high debt levels of consumers,
and social tensions due to the slow pace of employment creation.
Domestic Product (GDP) growth declined from 2.5 per cent in 2012 to 1.8 per
cent in 2013 and is expected to increase to 2.7 per cent in 2014. National
Treasurys projections in the beginning of 2014 were that GDP would increase
from 1.8 per cent to 3.5 per cent by 2016.
outlook deteriorated and inflation edged upwards. The weakening currency, high
inflation, and rising unemployment are causes for concern as they affect the
overall economic outlook of the country. Consumer Price Inflation (CPI) increased
from 5.2 per cent in 2012 to 6.1 per cent in 2013 and now stands at 6.6 per
costs are among the highest-growing expenditure items on the budget, reflecting
a 6.85 per cent real growth rate from the 2013/14 financial year. Debt service
costs are also R5 billion higher than projected, with contributing factors
being the currency, inflation, and changes in the Repo rate.
outcome of the wage negotiations could put pressure on the fiscus due to
above-inflation wage settlements, particularly in view of current inflation
figures. Deterioration in the economic outlook would require the government to
consider additional expenditure and revenue measures to ensure fiscal
The fiscal framework is built on a
non-interest expenditure ceiling
, set at the main budget level.
The spending levels announced in the MTBPS are regarded as three year limits.
This approach will ensure sustainability and predictability of fiscal policy.
For the past two fiscal years, government has achieved the spending targets set
by the ceiling. Ensuring sustainability will require continued adherence to the
expenditure targets set out in the 2014 Budget.
7. South African Revenue Service
mandate of SARS is contained in the South African Revenue Service Act (1997).
The primary objectives of SARS are to collect all revenue due to the State,
eliminate illegal trade and tax evasion, as well as to serve as the
administrator of trade activity so as to support governments developmental
revenue collected by SARS is crucial in capacitating government to fulfil its
policy priorities. The collection of legislated tax revenues can only be
realised if SARS implements effective systems whereby it is easy to comply with
tax legislation and avoidance and evasion is minimised.
SARS fulfils a crucial role in ensuring that
the objectives of the fiscal framework are realised.
mandate is to ensure optimal compliance with tax and customs legislation. Such
compliance must be achieved in a manner that does not unduly impede trade,
economic growth and development by imposing an excessive and unfair
administrative burden on taxpayers, traders and businesses. Moreover,
compliance must be achieved in the most efficient and cost effective manner.
ultimate goal is to support the NDPs economic and social objectives by
ensuring a sustainable revenue stream for government to meet its policy and
established four core outcomes that will serve as the foundation of all current
and future organisational activities. These are increasing customs compliance;
increasing tax compliance; increasing the ease and fairness of doing business
with SARS; and increasing the cost effectiveness, internal efficiency and
institutional respectability of its operations.
outcomes are interdependent and mutually reinforcing, as the pursuit of one
enables the achievement of the other, for example, increasing cost
effectiveness, internal efficiency and institutional respectability garners
trust and confidence, which results in increased compliance (i.e. tax and
customs) and ultimately leads to greater revenue collection.
many risks facing SARS with regard to achieving the four outcomes and ultimate
goal of greater revenue collection:
Growing illicit economic activities, which
include smuggling, sale of contraband goods, and
illegal immigration have a negative effect by eroding the formal tax base from
which SARS can collect revenue tax;
Perceptions of poor state service delivery
and corruption negatively affects taxpayers attitude towards compliance;
Businesses are increasingly using
sophisticated and complex financial schemes to evade their tax obligations and
minimise the impact of slow economic recovery on their profitability; and
VAT fraud could increase as businesses try to
protect their profitability in response to slow economic recovery.
actively addressing these risks by deploying officers to reach all current and
potential taxpayers; carrying out outreach and education and other compliance
activities; developing and procuring mobile registration kits to facilitate the
registration of new taxpayers; increasing border control activities; and
pursuing information exchange agreements and introducing regulatory and
legislative reforms to counter tax avoidance schemes.
2014/15 financial year, SARS received an allocation of R9.7 billion, up by
R671.9 million or 7.5 per cent in nominal terms (or 1.2 per cent in real terms)
from the previous years allocation of R9.0 billion. Over the medium-term, the
budget is expected to increase at a nominal average rate of 6.1 per cent,
reaching R10.8 billion by 2016/17.
budget is divided among five programmes, with the bulk (i.e. R5.6 billion or
57.8 per cent) allocated to the Operation programme, followed by the
Administration programme at R.1 billion or 32.3 per cent.
programmes are mainly concerned with rolling out importer and exporter
solutions for clients that have preferred trader status; strengthening border
control and intergovernmental coordination at border posts; and strengthening
risk management in customs.
two-thirds of the programmes spending is on compensation of employees,
specifically on skills such as audit, information technology (IT), and tax
administration specialists which are critical for SARS to deliver on its
mandate. In instances where SARS lacks capacity, consultants are used for
legal, auditing and IT related services, of which spending on consultants
amounted to R238.2 million in 2013/14. As SARS intends building internal
capacity in these areas, spending on consultants is expected to decrease to
R205.9 million by 2016/17.
Committees Observations and Proposals
The Committees responses to the inputs from National Treasury and SARS
are as follows:
The Committee welcomed
the appointments of the new Minister and Deputy Minister and wished them well.
The Committee stressed
that it was also in the interests of the executive that the Committee is active
and effective in its oversight and other roles. This is particularly the case,
given the major challenges being experienced in respect of economic growth,
job-creation and development.
The Committee understands that it is an
evolving process, but is keen to see greater synergy between the NDP, Strategic
Plans and the allocation of budgets to departments. The Committee feels that
National Treasury has a crucial role to play in this regard, and will be keenly
While welcoming National Treasurys
proposals on addressing the economic growth challenges, the Committee believes National
Treasury needs to give more attention to the structural constraints to economic
growth and job-creation. This has in any case been put firmly on the agenda by
President Jacob Zuma in his references to the need for a more radical, second
phase of the transition, with an emphasis on socio-economic transformation.
There needs to be greater clarity on what radical structural transformation
means and how it is to be given effect to.
The Committee noted the vacancy rates in
the Department. However, Minister Nene suggested that it may well be that many
of the vacancies need not be filled and suggested that the Committee might want
to consider how effective the different programmes and the Department as a
whole were rather than focus unduly on the vacancies. The Committee agreed with
The Committee expressed its concerns
about the stresses placed on the national budget by the constant
re-capitalisation of state-owned-entities and their inability to meet the goals
they set for improvements in their financial position and capacity to deliver.
The Committee feels that while recognising the important role of many of the
SOEs to the countrys developmental goals, National Treasury needs to be more
stringent in its engagement with the SOEs, even if they fall within the responsibility
of other departments. The Committee requests National Treasury to brief it on
the recapitalisation of SOCs, and if necessary, with appropriate
representatives of the Department under which the relevant SOCs fall.
While recognising that SANRAL fell under
the portfolio of the Ministry of Transport, the Committee feels that National
Treasury needs to monitor its financial performance actively.
The Committee feels that National
Treasury needs to work closer with the Department of Cooperative Governance to
significantly improve the capacity of municipalities to spend the funds
allocated to them from the national budget. The two departments also have to
work together to monitor the financial performance of municipalities against
the background of the NDP and the medium term strategic framework.
The departments also need to contribute to
ensuring that the Integrated Development Plans of municipalities are consistent
with the NDP. It was also noted that while the Property Rates Act is
administered by the Department of Cooperative Governance, National Treasury
needs to work with that Department to ensure that the increasing number of people
owning huge properties in rural areas are subject to rates.
The Committee noted that departments
often rented office space far above market values and requested National
Treasury to work with the Department of Public Works (DPW) to address this. It
subsequently emerged that DPW has established a structure to address this
The Committee believes that National
Treasury needs to be more effective in ensuring that departments spend and
account for public funds appropriately.
The Committee requests National Treasury
to brief it on the twin peaks legislation reasonably soon.
The Committee requests National Treasury
to brief it on issues of retirement reform reasonably soon.
The Committee noted that the budget of the
Financial and Fiscal Commission had been decreased and raised questions about
how seriously the Commission is being taken. The Committee expressed its
concern that the FFC CEO was serving in an acting capacity for too long and
that the matter needs to be finalised soon. The Minister explained that part of
the reason for the delay was the anomaly that the FFC CEO also served as
Chairperson. The matter is being addressed. The Committee feels that there may
be a need to re-consider the role of the FFC taking into account the
experiences since its establishment and developments since then. Government,
parliament, the FFC, civil society stakeholders, experts and others need to
review the role of the FFC over time.
The Committee welcomed the Ministers
statement that the allegations of corruption by the CFO of the Financial
Services Board were being investigated and once the process was completed the
Committee would be informed and could engage on the matter.
Following questions raised by the
Committee on the Davis Tax Review Committee (DTRC) and the transfer pricing,
tax base erosion and profit shifting challenges, the Department agreed to
brief the Committee as soon as it has processed key aspects of the DTRC.
The Department agreed to brief the
Committee on the long term fiscal report and public sector risks.
The Committee welcomed SARS
survey to assess the attitudes on compliance to find out what motivated
compliance. The survey would be done every year and SARS would develop an
The Committee welcomed
SARS decision to provide more regular tax clearance certificates, but felt that
this might serve to prejudice small businesses that do government work and are
not paid within the 30-day period stipulated, and requested National Treasury
to give more attention to this matter.
The Committee feels that
more attention needs to be given to the management of our borders, especially
. While welcoming the progress at
and some of the other borders, including the use
of more scanners, the committee feels that more needs to be done. The Committee
agreed that it would engage further with SARS about progress on the
One-Stop-Border Posts (OSBP).
The Committee feels that
given the effectiveness of SARS, it should do more to assist other African
countries. SARS pointed out that South Africa leads the African Tax Administrators
Forum (ATAF) and has been assisting many other countries on the continent. SARS
played a role in the Southern Africa Customs Union (SACU), which had a trade
facilitation program encompassing information technology and the building of
capability amongst member states. SARS had established a customs academy which
provided for regional and continental training.
SARS was training detector dogs for Mauritius and Namibia, and Kenya
also wanted similar assistance.
While recognising the challenges, the
Committee feels that SARS needs to increase its efforts to be more
demographically representative. SARS explained that it had a graduate scheme
with about 300 people annually and some of these graduates were placed within
the organisation. The Committee believes that there is also a need for better
The Committee will
keenly monitor this.
The Committee feels that given the
importance of SARS, it should not continue to have an Acting Commissioner for
much longer and government needs to decide on a Commissioner reasonably soon.
The Minister said that the government recognises this and is attending to the
The Committee commended SARS for
constantly seeking to modernise its operations and improve its functioning.
Despite its challenges, the majority in the Committee feel that SARS is
performing very well and is deserving of the accolades it often receives both
domestically and internationally. The Economic Freedom Fighters (EFF) disagrees
with this view. The EFF believes that SARS should be raising much more revenue and
has failed to deal with transfer pricing, tax base erosion and profit
The majority in the Committee feels that
National Treasury, for all its challenges, is performing well overall. Of
course, it can and needs to be more effective, as the Department itself
needs to be more effective
The Standing Committee needs to be more
effective in its oversight and other roles. It needs to make more effective use
of the newly established Parliamentary Budget Office; secure appropriate
research and other support staff; work more cooperatively with the
Appropriations and other relevant parliamentary committees;
The Committee will meet
with all the entities that fall under National Treasury within the next six
weeks and thereafter develop a more structured programme.
The Committee believes that the form and
formats of parliamentary reports need to be reviewed and the Chairperson of the
Committee will engage with the relevant structures within Parliament on this.
The Standing Committee on Finance, having considered
Budget Vote 10: National Treasury recommends that the House supports Budget
Vote 10: National Treasury.
The Democratic Alliance (DA) reserves its position on the Budget
The Economic Freedom Fighters (EFF) opposes National
Treasurys Budget Vote.
Report to be considered.
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