ATC200604: Report of the Select Committee on Finance on Budget Vote 8: National Treasury, Dated 19 May 2020

NCOP Finance

REPORT OF THE SELECT COMMITTEE ON FINANCE ON BUDGET VOTE 8: NATIONAL TREASURY, DATED 19 MAY 2020

 

The Select Committee on Finance, having considered the National Treasury’s strategic plan (2019 to 2024) and the annual performance plan (2020/21), reports as follows:

 

1. INTRODUCTION
   1. The Minister of Finance tabled the strategic and annual performance plans of the National Treasury (NT), the South African Revenue Services (SARS) and other entities under the Finance portfolio in line with section 10(1)(c) of the Money Bills Amendment Procedure and Related Matters Act, Act No. 9 of 2009 (Money Bills Act), for consideration and report.
   2. The Minister, Mr. Tito Mboweni, Deputy Minister, Dr David Masondo, and the accounting and senior officials of National Treasury and SARS, through a virtual meeting,briefed the Finance Committees on 05May.
   3. The mandate of NT is based on section 216 (1) of the Constitution which establishes it to ensure transparency, accountability and sound financial controls in the management of the country’s finances and on the Public Finance Management Act of 1999 (PFMA). 
   4. Its mandate is to coordinate intergovernmental financial and fiscal relations, promote national government’s fiscal policy and coordination of macroeconomic policy, enforce transparency and effective management of revenue and expenditure, assets and liabilities, public entities and constitutional institutions, manage the budget preparation process and, ensure the stability and soundness of the financial system and financial services.
   5. SARS’s mandate isto contribute to the economic and social development of the country by collecting all taxes, duties and levies due to fund public service programs and priorities.

 

 

1. POLITICAL OVERVIEW BY THE MINISTER OF FINANCE
   1. The Minister of Finance reflected on the current socio-economic environment wrought by the coronavirus disease (COVID-19). He said that the country was facing difficult and challenging times. He said that the main challenge for NT was to come up with a set of numbers that make sense politically and from an accounting point of view, against which performance could be benchmarked.
   2. He said that NT was in a difficult position as it had to manage high expectations and demands for resources from other departments despite the heavily constrained public purse and declining revenues.
   3. He explained that the biggest challenge for the SARS was declining revenue collection caused by a shutdown in economic activity due to the COVID-19 lockdown. He said that this affect the ability of government to fund its programmes. He said that one of the key performance indicators for SARS would be the rate at which it tackles illicit financial flows.

 

1. OVERVIEW BY ACCOUNTING OFFICERS

NATIONAL TREASURY

1. The Director-General of National Treasury, Mr Dondo Mogajane explained to members that the National Treasury’s new Strategic Plan (2020 to 2025) was informed by, among others, the National Development Plan 2030 (NDP) and the new Medium-Term Strategic Framework 2019-2024 (MTSF) of the sixth administration. 
2. He said that the Strategic Plan was aligned to Priority 1 (economic transformation and job creation), Priority 2 (building a capable, ethical and developmental state), Priority 3 (education, skills and health), Priority 5 (spatial integration, human settlements and local government) and, Priority 7 (a better Africa and the world) of the MTSF. These priorities had led to three outcomes in the Strategic Plan; Outcome 1: sustainable public finances, Outcome 2: coherent economic policy and, outcome 3: sound financial controls and management of public finances. 
3. Other commitments in the Strategic Plan included:stabilising public finances; supporting structural reforms for investment and growth; improving spending efficiency and reducing waste;supporting infrastructure investment; enabling an intergovernmental fiscal framework that promotes financial sustainability; developing township economic development strategies that are resourced and integrated across government; developing a national policy approach to combatting; tracking and stopping illicit financial flows; rebuilding institutions and entities; reviewing governance and stabilising high risk state-owned companies;strengthening supply chain management; procurement and asset management in the public sector; conducting interventions and supporting initiatives that will reduce qualified audits, irregular expenditure andeliminate wasteful and fruitless expenditure; monitoring of municipalities’ performance and; accelerating the implementation of the Integrated Financial Management System (IFMS).

 

THE SOUTH AFRICAN REVENUE SERVICE

1. The SARS Commissioner, Mr Edward Kieswetter, explained to members that SARS had tabled a Strategic Plan and Annual Performance Plan. He said the latter will be significantly impacted by the COVID-19 lockdown and the general state of the economy following the country’s sovereign rating downgrade by Moody’s.
2. The Strategic Plan and APP were informed by SARS’s legal mandate “to collect all revenues due, ensure optimal compliance with tax and customs legislation, and provide a customs and excise services that will facilitate legitimate trade as well as protect the economy and society”, as derived from the SARS Act of 1997.
3. This mandate leads to SARS’s nine strategic objectives which are to: provide clarity and certainty for taxpayers and traders of their obligations; make it easy for taxpayers and traders to comply; detect taxpayers and traders who do not comply and make non-compliance hard and costly; develop a high performing, diverse, agile, engaged and evolved workforce; increase and expand the use of data within a comprehensive knowledge management framework to insure integrity, drive insight and improve outcomes; modernise SARS’s systems to provide digital and streamlined online services; demonstrate effective resource stewardship to ensure efficiency and effectiveness in the delivery of quality outcomes and performance excellence; work with and through stakeholders to improve the tax ecosystem and; build public trust and confidence in the tax administration system.
4. Mr Kieswetter warned of the looming job losses and business insolvencies as a result of the sluggish economy and the lockdown. He said that SARS expected anincrease in applications for business rescue and insolvencies. He warned further that the businesses that will fail will be difficult to regain once the pandemic is over, explaining that for every one business that is lost, it takes a hundred entrepreneurs to take the risk and create just one successfulone.
5. Mr Kieswetter said that SARS had clear evidence that the illicit and criminal economic activities were thriving during the lockdown. He said that recently SARS officials swooped on a factory that was producing illicit cigarettes, an activity prohibited by regulations under the lockdown.
6. He said that SARS will focus on detectingthe increasing non-compliance with tax laws and on countering the identified impacts on revenue collection. 

 

 

 

1. OVERVIEW OF THE NATIONAL TREASURY BUDGET AND PROGRAMMES
   1. A total of R33.1 billion will been allocated to the National Treasury in 2020/21. The projected allocations for the 2021/22 and 2022/23 are R35.8 billion and 32.9 billion, respectively. 

TABLE 1: National Treasury Budget Summary 2020/21 MTEF

Programme	Audited outcome			Adjusted appropriation	Average growth rate (%)	Average: Expen- diture/ Total (%)	Medium-term expenditure estimate			Average growth rate (%)	Average: Expen- diture/ Total (%)
R million	2016/17	2017/18	2018/19	2019/20	2016/17 - 2019/20		2020/21	2021/22	2022/23	2019/20 - 2022/23
Programme 1: Administration	436.3	437.9	424.3	511.4	5.4%	0.1%	536.9	578.7	609.1	6.0%	0.1%
Programme 2: Economic Policy, Tax, Financial Regulation and Research	151.2	151.9	138.8	143.1	-1.8%	0.0%	162.4	173.8	176.0	7.1%	0.0%
Programme 3: Public Finance and Budget Management	2,760.2	2,815.0	2,530.4	3,008.9	2.9%	0.4%	3,394.4	3,918.0	4,002.7	10.0%	0.4%
Programme 4: Asset and Liability Management	110.1	10,089.8	91.2	101.4	-2.7%	0.4%	124.2	130.9	133.3	9.5%	0.0%
Programme 5: Financial Accounting and SCM Systems	1,130.8	689.6	771.4	981.3	-4.6%	0.1%	1,033.8	1,097.6	1,159.0	5.7%	0.1%
Programme 6: International Financial Relations	4,955.8	5,469.8	5,807.7	5,828.1	5.6%	0.8%	6,398.6	6,780.0	2,386.4	-25.7%	0.6%
Programme 7: Civil and Military Pensions, Contributions to fund and Other Benefits	4,400.2	4,618.1	5,020.1	5,574.5	8.2%	0.7%	5,755.1	6,673.9	7,378.6	9.8%	0.7%
Programme 8: Revenue Administration	9,363.7	10,218.2	9,007.2	9,529.0	0.6%	1.4%	10,510.0	10,973.1	11,368.0	6.1%	1.2%
Programme 9: Financial Intelligence and State Security	4,812.5	5,105.6	4,763.5	4,951.1	1.0%	0.7%	5,207.7	5,496.4	5,698.8	4.8%	0.6%
Subtotal	28,120.7	39,595.8	28,554.6	30,628.9	2.9%	4.7%	33,123.2	35,822.5	32,911.9	2.4%	3.9%

 

 

1. Programme 1: Administration
   1. The Administration programme provides strategic leadership, management and administrative support and capacity building to the Department. A budget of R536.9 million is allocated for 2020/21, up by R28.5 from R511.4 million in 2019/20. The projected increase for this programme is R578.7 million and R609.1 million respectively in the two outer years of the 2020/21 MTEF.

 

1. Programme 2: Economic Policy, Tax, Financial Regulation and Research
   1. This programme is dedicated to economic research, analysis and advisory services, modelling, and financial sector, taxation and regulatory reform. The 2020/21allocation is R162.4 million, up from 143.1 million in 2019/20. Over the medium term, the National Treasury aims to conclude proposals for tax policy amendments including the Financial Matters Amendment Bill, Public Procurement Bill and Financial Services Laws General Amendment Bill.

 

1. Programme 3: Public Finance and Budget Management
   1. This programme provides analysis and advice on fiscal policy and public finances and intergovernmental financial relations and manages the annual budget process and public finance management support. It has been expanded to incorporate what was previously programme 8 “Technical Support and Development Finance” in the previous strategic plan. The programme will be allocated R3,3 billion in 2020/21, growing by an average of 10% to R4 billion in 2022/23.
   2. The objectives of this programme include facilitating high-impact government initiatives, employment creation and strengthening infrastructure planning and delivery. Some of the targets are to: publish budget legislation and documentation; enhance provincial and local government fiscal framework; produce 36 capital investment framework assessment reports per year over the MTE; approve 20 catalytic projects (per year) in spatially targeted areas within metros, secondary cities and rural town;place 70 technical advisors through the Municipal Finance Improvement Programme (MFIP); ensure that requests to draft financial recovery plans are responded to efficiently and; ensure the creation of 150 000 new jobs and 80 000 placements and 250 000 training opportunities under the Jobs Fund. The target for projects to be approved over the life of the Jobs Fund is 150.

 

1. Programme 4: Asset and Liability Management
   1. The Asset and Liability Management programme manages financial assets, national debt and liquidity requirements of the fiscus to facilitate national expenditure and maintain favourable sovereign debt ratings. Over the medium term, the strategic focus of this programme is to continue its oversight of state owned companies (SOCs) by enabling them to meet government’s policy objectives in a financially and fiscally sustainable manner, as well as promote sound corporate governance. This programme will build a framework for reducing the number of government guarantees issued to public entities and improving the risk exposure from such guarantees. This programme’s budget allocation for 2020/21is R124.2 million, increasing to R133.3 millionin 2022/23.

 

1. Programme 5: Financial Accounting and Supply Chain Management System
   1. This programme has been allocated R1,0 billion in 2020/21. This will increase to R1,1billion in the outer year of the MTEF. The programme seeks to promote effective and efficient government financial management and accountability across the three spheres of government. A major focus has been placed on improving government procurement processes and identifying malpractices as a result of procurement irregularities through the Office of the Chief Procurement Officer sub-programme. The sub-programmes under the Office of the Accountant General will focus on maintaining and improving financial management systems, develop and implement the IFMS.

 

1. Programme 6: International Financial Relations
   1. The programme’s mandate is to manage South Africa’s interests in shaping regional and global policies that advance the economic, financial and development objectives of the country and the African continent.
   2. The programme houses the following sub-programmes: Programme Management for International Financial Relations which oversees South Africa’s representation in international and regional financial institutions, International Economic Cooperation which focuses on improving South Africa’s participation in international and regional economic institutions which includes such institutions as the African Development Bank, the United Nation’s Economic Commission for Africa, the New Partnership for Africa’s Development, the G20, the Brazil-Russia-India-China –South Africa (BRICS) and, the International Monetary Fund; Africa Integration Support and International Development Funding Institutionswhich provides for subscriptions and contributions of South Africa to international development institutions and multilateral banks such as the African Development Bank, the African Development Fund and, the World Bank Group and;International Projects which transfers funds to international projects and interventions to support health in disaster—hit and impoverished areas though such organisations as the Commonwealth Fund for Technical Cooperation and the International Finance Facility for Immunisation which in turn contributes funds to the Global Alliance for Vaccines and Immunisation (GAVI).
   3. This programme has been allocated R6,3 billion in 2020/21, which increases to R6,7 billion in 2021/22 and then decrease by R4,2 billion to R2,3 billion in 2022/23.

 

1. Programme 7: Civil and Military Pensions, Contribution to Funds and Other Benefits
   1. The mandate of this programme is to ensure that government’s pension and post-retirement medical benefit obligations to former employees of the state and retired military members are fulfilled. Its allocation amounts to R5,7 billion in 2020/21, increasing to R7,3 billion in 2022/23.

 

1. Programme 8: Revenue Administration
   1. The Revenue Administration programme receives an allocation of R10,5 billion in 2020/21, increasing to R11,3 billion 2022/23. The budget allocation is a transfer payment to the South African Revenue Service, which is responsible for administering the country’s revenue system. This programme is covered further below.

 

1. Programme 9: Financial Intelligence and State Security
   1. Financial Intelligence and State Security comprises transfers to the Financial Intelligence Centre (FIC) to combat financial crimes, including money laundering and terrorism-financing activities. The 2020/21 allocation for the Financial Intelligence Centre and the South African Secret Services is R5,2 billion increasing to R5,6 billion in 2022/23. Of the total transfers under this programme in 2020/21, the FIC receives R311.4 million.

 

1. OVERVIEW OF THE SARS’S BUDGET AND PRIORITIES
   1. SARS receives a transfer from National Treasury under Programme 8. In 2020/21 SARS will be allocated a total budget of R10,5 billion. R42.5 million of this is a grant to the Office of the Tax Ombuds (OTO). The allocation to SARS will increase to R11,3 billion in 2022/23, while the allocation to the OTO will increase to R44,8 million. The Office of the Tax Ombuds will receive 44.9 and 46.5 million in the outer years of the MTEF.

TABLE 2: SARS Budget Summary 2019/20 MTEF

Revenue Administration
Subprogramme	Audited outcome			Adjusted appropriation	Average growth rate (%)	Average: Expen- diture/ Total (%)	Medium-term expenditure estimate			Average growth rate (%)	Average: Expen- diture/ Total (%)
R million	2016/17	2017/18	2018/19	2019/20	2016/17 - 2019/20		2020/21	2021/22	2022/23	2019/20 - 2022/23
South African Revenue Service	9,363.7	10,218.2	9,007.2	9,529.0	0.6%	100.0%	10,510.0	10,973.1	11,368.0	6.1%	100.0%
Total	9,363.7	10,218.2	9,007.2	9,529.0	0.6%	100.0%	10,510.0	10,973.1	11,368.0	6.1%	100.0%
Change to 2019 Budget estimate				–			400.0	300.0	300.0

           

1. SARS will focus on resolving significant taxpayer disputes, the illicit economy, border management and rebuilding its leadership and organisation. The revenue collection estimate for 2019/20 is R1,422 trillion. The largest sources of this revenue collection estimate, about 80 per cent, remain Personal Income Tax, Corporate Income Tax and, Value Added Tax.
2. SARS seeks to achieve five key outcomes, namely; Outcome 1: Increased customs and excise compliance, Outcome 2. Increased tax compliance, Outcome 3. Increased ease and fairness in doing business with SARS, Outcome 4. Increased cost-effectiveness and internal efficiencies and, Outcome 5. Increased public trust and credibility. A number of measures/targets have been set for the 2020/21MTEF to achieve these five outcomes.

 

1. OVERVIEW OF PUBLIC ENTITIES REPORTING TO THE MINISTER OF FINANCE
   1. A number of entities report to the Minister of Finance and are accountable to Parliament for their financial and non-financial performance. Some of these entities receive transfers from the fiscus (National Treasury) and others rely on government guarantees to issue debt for the markets and others are mainly self-funding through levies, fees and charges. These entities are theAccounting Standards Board (ASB), the Co-operative Banks Development Agency (CBDA), the Development Bank of Southern Africa (DBSA), the Financial and Fiscal Commission (FFC), the Financial Intelligence Centre (FIC), the Financial Sector Conduct Authority (FSCA), the Government Pensions Administration Agency (GPAA), the Government Technical Advisory Centre, the Independent Regulatory Board of Auditors, the Land Bank, the Office of the Tax Ombud, the South African Reserve Bank (SARB), the Prudential Authority (PA), the Public Investment Corporation (PIC), the Government Employees Pension Fund (GEPF), the South African Special Risk Insurance Association (SASRIA), the Office of the Pension Funds Adjudicator (OPFA) and, the Office of the Ombud for Financial Services Providers (FAIS Ombud).
   2. ACCOUNTING STANDARDS BOARD
      1. ASB’s mandate is to develop uniform standards of Generally Recognised Accounting Practice (GRAP) for all spheres of government in terms of section 216 (1)(a) of the Constitution and the PMFA. Its function is further to promote transparency in and the effective management of revenue, expenditure, assets and liabilities of the entities to which is standards apply. The estimated transfers over the medium-term are R15.3 million in 2020/21 and R16.1 and 16.7 million in the outer years.
   3. CO-OPERATIVE BANKS DEVELOPMENT AGENCY
      1. Established through the Co-operative Banks Act of 2007, the CBDA’s mandate is to create a strong and vibrant cooperative banking sector in South Africa.  It also registers co-operatives that take deposits and savings, and credit co-operatives (co-operative financial institutions), facilitating, promoting and funding their education and training. Its focus over the medium-term is to increase opportunities for historically excluded and vulnerable groups, small businesses and cooperatives by promoting a sustainable cooperative banking environment that contributes towards providing affordable financial services. Its activities and targets contribute to priority 1 (economic transformation and job creation) of the MTSF.  The estimated transfers over the medium-term are R25.2 million in 2020/21, increasing at an average of 4,5% per annum to R27.7 million in 2022/23.
   4. DEVELOPMENT BANK OF SOUTHERN AFRICA
      1. The DBSA is mandated to promote economic development and growth, human resources development and institutional capacity building in South Africa and the African continent. It is a development finance institution (DFI)that is established in terms of the Development Bank of Southern Africa Act of 1997. Over the medium-term, it will focus on: driving financial and non-financial investments and support in education, energy, health, housing, transport, water and communications sectors; accelerating the financing of infrastructure in South Africa’s municipalities, state-owned companies, independent power producers (IPPs), public-private partnerships and; provide infrastructure support in the rest of Africa. It operational expenditure is expected to be R6,7 billion in 2020/21, R7,2 in 2021/22 and R7,5 billion in 2022/23.
   5. FINANCIAL AND FISCAL COMMISSION
      1. The FFC’s mandate is to advise relevant institutions on financial and fiscal requirements for national, provincial and local spheres of government. In the medium-term the FFC will focus on generating and disseminating influential policy recommendations to strengthen intergovernmental system. The FFC is projected tol receive transfers of R 66.5 million in 2020/21, increasing to R71.8 million in 2022/23.
   6. FINANCIAL INTELLIGENCE CENTRE
      1. The FIC is mandated to assist in identifying and combatting money laundering and financing of terrorism activities, particularly proceeds and instrumentalities of crime. In the medium-term the FIC will focus on stabilising that maintaining its ICT networks and systems. The FIC is projected to receive transfers (from NT’s Programme 9 above) of R353 million in 2020/21, increasing to R356 million in the outer year.
   7. FINANCIAL SECTOR CONDUCT AUTHORITY
      1. Established in 2018 by the Financial Sector Regulation Act of 2017 as one of the two pillars of the twin peaks financial sector regulatory model, the FSCA’s mandate regulating market conduct of financial institutions that provide financial products and services and those that are licensed in terms of financial sector laws. It assumed the business operations of the Financial Services Board which ceased to exist at the end of March 2018. FSCA generates its revenue through collecting levies from financial institutions and fees charged for the licensing of financial institutions. Its expenditure is projected to be R827 million in 2020/22 and grow to R906 million in the outer year of the medium term.
   8. GOVERNMENT TECHNICAL ADVISORY CENTRE
      1. GTAC was established in terms of the Public Service Act of 1994 to assist organs of state in building their capacity for efficient, effective and transparent financial management. It renders consulting services to government departments and entities and advises on the feasibility of infrastructure projects, among other functions. Its estimated transfers over the medium term are R393 million in 2020/21, increasing to R438 million in 2022/23.
   9. GOVERNMENT PENSIONS ADMINISTRATION AGENCY
      1. GPAA’s mandate is to provide pension administration services to the Government Employees Pension Fund. GPAA will focus on its modernisation project (enhancing IT infrastructure). GPAA will receive transfers of R1,1 billion in 2020/21, which will increase to R1,2 million in the outer MTEF year. 

 

1. INDEPENDENT REGULATORY BOARD OF AUDITORS
   1. IRBA’s mandate is to protect the public by regulating audits performed by registered auditors. Over the medium term, IRBA will focus on protecting the financial interest of the public by ensuring that only suitably qualified individuals are admitted to the auditing profession and that they deliver highest quality services and adhere to the highest ethical standards. It is expected to spend R169 million in 2020/21, increasing to R188 million in 2022/23. About R140 million (26%) of its revenue over the MTEF is transfers from government, as the bulk is from the registration of auditors and trainees, annual renewal charges, and fees for the inspection of registered auditors. 
2. LAND AND AGRICULTURE DEVELOPMENT BANK OF SOUTH AFRICA
   1. The Land Bank’s mandate is to address agricultural and rural development in South Africa, operating in primary agriculture and agribusiness sectors.  Its mandate is transformational and developmental as it seeks, among others, to promote equitable ownership of agricultural land, development programmes for historically disadvantaged people and food security. Its loan book expected to increase from the current R45.2 billion to R49 billion in 2022/23. Its operating expenses are expected to be R5 billion in 2020/21, increasing to R5,2 billion in 2022/23.
3. OFFICE OF THE OMBUD FOR FINANCIAL SERVICES PROVIDERS
   1. TheFAIS Ombud’s mandate is to consider and dispose of complaints against financial services providers, primarily intermediaries selling investment products. Over the medium term the Office will focus on resolving cases timeously through strengthening its capacity and enhancing communication with stakeholders. Its revenue is mainly derived through levies collected from financial services providers. The estimated expenditure for 2020/21 is R62.1 million, increasing to R66.3 million in 2022/23.

 

1. OFFICE OF THE PENSION FUNDS ADJUDICATOR
   1. OPFA’s mandate is to investigate and determine complaints in terms of the Pension Funds Act of 1956. Over the medium term, OPFA aims to reduce turnaround time of resolving complaints through developing its organisational capabilities.  It derives its revenue through levies collected from pension funds. It is expected to spend R74 million in 2020/21, increasing to R81 million in 2022/23.
2. OFFICE OF THE TAX OMBUD
   1. OTO’s mandate is to review and resolve any complaint by a taxpayer regarding a service matter, or a procedural or administrative matter arising from the application of the provisions of a Tax Act by SARS. It is projected to receive transfers of R42 million in 2020/21, growing to R46 million in 2022/23. 
3. PUBLIC INVESTMENT CORPORATION
   1. The PIC is a registered financial services provider wholly owned by government with the Minister of Finance as shareholder representative. As fund manager, it is mandated to invest on behalf of its clients, the largest of which is the Government Employees Pension Fund. It is expected that total assets under its management will grow from the current R2,3 trillion to R2,8 trillion in 2022/23. The PIC derives its revenue through fees from managing its client’s assets with revenue projected to grow from the current R1,7 billion to R2,3 billion in 2022/23. Its projected expenditure is R1,5 billion in 2020/21, increasing to R1,7 billion in 2022/23.
4. SOUTH AFRICAN SPECIAL RISK INSURANCE ASSOCIATION
   1. SASRIA’s mandate is to offer insurance to all individuals and businesses that own assets in South Africa. It also insures government entities against special risks that may lead to the loss of or damage to their assets caused by events related to civil commotion, public disorder, strikes, riots and terrorism. It is expected to spend R3,8 billion in 2022/23 from the current R3 billion (2019/20). It derives its revenue mainly from its business of underwriting policies.

 

1. OBSERVATIONS AND RECOMMENDATIONS
   1.  The Committees received the briefing on the plans of National Treasury and SARS under very dire and changed socio-economic circumstances as a result of COVID-19. In this regard, the Committees note that the annual performance plans, budget and the overall fiscal framework will be severely affected due to reduced economic activity. There is no doubt about the negative impact of COVID-19 on the health and socio-economic wellbeing of our society and the world. What is uncertain, however, is the extent of the damage as projections from various institutions abound.
   2. The Committees were briefed by the Minister on the implications of COVID-19 on the economy and the proposed fiscal and tax measures. It also received a briefing from the National Treasury on the proposed Disaster Tax Bill aimed at responding to COVID-19 shocks. The Committees generally support sustainable fiscal and monetary measures that seek to alleviate the socio-economic hardship and shocks wrought by the pandemic. The Committees will await the tabling of the special adjustment budget and revenue measures in Parliament by the Minister of Finance. These proposals will be rigorously processed by the Committee in line with the constitutional and legislative prescripts.
   3. The Committeeswelcome the monetary policy and financial regulation interventions by the South African Reserve Bank, which have ranged from the reduction of the repo rate to its activities in the bond markets.
   4. The Committees welcome the R200 billion loan guarantee scheme launched by the SARB and National Treasury in collaboration with commercial banks in order to provide government guaranteed loans to eligible businesses with an annual turnover of less than R300 million to meet some operational expenses including rent and salaries. The Committees believe that the credit scoring criteria should not be a hindrance to some eligible businesses accessing this scheme, saving jobs and staying in business. It believes that the repayment interest rate for the loans should not be prohibitive. 
   5. The Committees note the announcements of the R500 billion stimulus package. Although there are no clear details yet, it notes that the bulk of this stimulus package will be money reprioritised from other budget items and only about R100 billion will be in the form of loans from the multilateral financial institutions (the New Development Bank and the International Monetary Fund). While the Committees have severe reservations about government securing loans from the IMF and World Bank, it is not opposed to this in principle and understands that the exceptional circumstances of the COVID-19 pandemic have pushed government into this.  However, the Committees caution for prudence in the government’s engagements with the IMF and believes that government should be open and transparent about the conditions on which the loans are granted, including the terms of repayment. The government also has to be transparent about the implications of taking dollar-denominated loans, especially with the slide in the value of the rand since the onset of COVID-19 and the likely further decline in the exchange rate of the rand. NT should also consider renegotiating the repayment of interest on its current debt.
   6. The Committees note South Africa’s sovereign credit rating downgrade from its last investment grade by Moody’s in March and another further downgrade by Fitch in April. Given the COVID-19 situation, this considerably exacerbates the country’s economic and financial problems. The Committees will request a briefing from NT on the implications of these downgrades on the country’s fiscus and its ability to issue sustainable debt to fund this year’s budget deficit going forward. They will also request an action-plan that will take the country’s sovereign rating out of the woods. 
   7.  The Committees welcome the new strategic plan (2019 to 2024) and the Annual Performance Plan of the National Treasury and those of the SARS. The Committee did meet with some the entities including the Land and Agricultural Development Bank of South Africa and the Independent Regulatory Board for Auditors (IRBA)in the 6th Parliament.  The Committees will meet more entities over the medium term.
   8. The Committees note the outcomes in the strategic plan derived from the five identified priorities in the new MTSF (Priority 1: economic transformation and job creation; Priority 2: capable, ethical and developmental state; Priority 3: education, skills and health; Priority 5: spatial integration, human settlements and local government and; Priority 7: a better Africa and the world) that the National Treasury will report to and seek to achieve in the sixth administration. These three outcomes are: Outcome 1: sustainable public finances, Outcome 2: coherent economic policy and, Outcome 3: sound financial controls and management of public finances.
   9. The Committees further welcome the new outcome indicators introduced into NT’s plans related to: the establishment and operationalisation of the Infrastructure Fund, the establishment and implementation of the township economy investment and support, the reduction of illicit financial flows, the review of the financial sector code, the development of policy directives of preferential procurement for institutions to spend by sex/gender, age and disability, and the strengthening of municipal financial systems.
   10. The Committees have in the previous fiscal framework reports expressed itself on some of these issues, particularly on illicit financial flows, preferential procurement, and the strengthening of municipal finances. The Committee will monitor and hold National Treasury to account on these new outcome indicators and targets.
   11. The Committees will call the National Treasury to clarify some of these new outcome indicators. For instance, it is not clear how the new Infrastructure Fund differs from the Budget Facility for Infrastructure set up a couple of years back.
   12. The Committees welcome the inclusion of the outcome indicator on the reduction of illicit financial flows (IFFs) in the National Treasury and SARS’s plans as this could enable performance to be measured on this issue. However, the Committees believe that there must be some coordination across government in dealing with IFFs as some outcomes such as investigations, prosecutions and asset forfeiture depend on the activities of other government agencies outside the finance portfolio. The Committees reiterate the recommendation that the President considers establishing an inter-ministerial committee to tackle IFFs. The work of this inter-ministerial committee shouldpay particular attention to aggressive tax avoidance including base erosion and profit-shifting by multi-national companies and its work should be jointly overseen by the relevant committees of Parliament.   
   13. The Committees believe that other outcome indicators should form part of the plans so that they would have timeframes and are measurable. This includes the establishment and operationalisation of the state bank and the sovereign wealth fund. Although these are not part of the current outcome indicators, the Committees require National Treasury to report progress on them in its quarterly reports to the Committee. 
   14. The Committees believe that there should also be clear and measurable activities and targets in the plans on the implementation of the audit action plans which are developed to address adverse findings by the Auditor-General of South Africa (AGSA). The Committees recommend therefore that audit action plans should be explicitly incorporated into annual planning as this could help to prevent recurring adverse findings.
   15. The Committeesnote that almost half of the senior management at the National Treasury are acting appointments. The Committees requires NT to provide it with an update on the filling of senior management positions as management vacancies (including acting appointments), according to the AGSA, normally contribute to weakened internal controls and poor audit outcomes. 
   16. The Committees note that the budget of the International Financial Relations programme (Programme 6) will in 2022/23 decrease by R4,2 billion to R2,3 billion.
   17. The Committees note the finance portfolio Bills that NT aims to table in the current financial year. The Committees will clearly not be able to process all these Bills in this financial year and requests NT to prioritise the introduction of Bills appropriately and ensure that the Bills are of the required quality.
   18. The Committees note the challenges highlighted by the Commissioner of SARS in relation to the sluggish economy and the COVID-19 lockdown and the impact that these will have on revenue collection. The Committees also notes concerns about what the Commissioner called “clear evidence” of illicit and criminal economic activities that were “thriving” as a result of the banning of the sale of cigarettes and alcohol. The Committees call upon law enforcement and all other relevant state agencies to heighten their role in containing the illicit economy so that the current national disaster regulations play the role they were intended for.
   19. The Committeesreiterate the recommendation from the Fiscal Framework and Revenue Proposals report of March 2020 that NT and SARS should more effectively explore boosting revenue by taxing income and profits from the digital economy. This has become more urgent as the digital economy is thriving as a result of social distancing measures imposed by the COVID-19 regulations. The CommitteesrequireSARS and NT to brief it on the taxing of the digital economy in order get a bigger picture of the size of this economy and measures that have been put in place to ensure more revenue from it.
   20. In its Fiscal Framework and Revenue Proposals report of March 2020, the Committees noted the proposal to introduce an Inspector-General to oversee SARS. The Committees reiterate that it would like to be briefed on the overall changes being proposed to SARS, including those that emerge from the recommendations of the Nugent Commission, so that we have an overall sense of the restructuring of SARS rather than the current piecemeal approach of Treasury. The Committees believe that there is a need for a discussion and clarity on the recommendations of the Nugent Commission and the Davis Tax Committee on the administration of SARS, as the former recommended the appointment of an Inspector General and the latter, the establishment of a governance or advisory Board. The Committees expect to be briefed by the National Treasury and SARS on the Katz Commission, Davis Tax Committee and the Nugent Commission on the administration of SARS once a discussion document on these issues has been finalized.
   21. The Committees note with concern the financial situation at the Land Bank which, in April, defaulted on its debt obligation. The Committees further note that as a result, the Land Bank bills have been suspended as collateral by the SARB in its repo operations. The Committees are concerned that this default has happened in the first place as there are supposed to be early warning signs of such events at the Bank and the shareholder. Although the Committees were assured by the Minister that the default would not lead to cross-defaults, werequire a detailed briefing from the Land Bank and National Treasury on the challenges and plans of the Land Bank. The Committees agree with the Minister that the Land Bank is a strategic entity that should not be allowed to fail. Given the contribution that the Land Bank makes in the agricultural sector, including its developmental and transformation mandate, the Committee hopes for speedy resolution of the crisis at the Bank. 
   22. The Committees congratulate the National Treasury on securing South Africa the first place, together with New Zealand, out of the 117 countries surveyed in the 2019 Open Budget Index Survey conducted by the International Budget Partnership (IBP). This achievement is a recognition of the country’s commitment to a transparent budget process, although much more still needs to be done to enhance public participation.   

 

The DA Reserves its position on the report.

 

The Freedom Front Plus and the Economic Freedom Fighters objects to the report.

 

Report to be considered.