2020 MTBPS: National Treasury response to public submissions

Meeting report

Chairperson Opening remarks

The Chairperson began by reporting the apology tendered by the Chairperson of the Standing Committee on Finance. The reason for his absence was because he was caught up in a community matter at court so he would be managing the first half of the meeting and then Ms P Abraham (ANC) of the Standing Committee would manage the second half.

After welcoming all attending he recounted the stages of the process which had taken place thus far, noting that public hearings on the fiscal framework were held on Wednesday, 6 November where the National Treasury looked at all the submissions. Today the Treasury would respond before hearing from any stakeholders and receiving further written questions. This will be followed by discussion from the Committee and anyone else who wanted to speak. He asked who would lead the National Treasury Team and asked them to start.

The Treasury Director-General (DG), Mr Dondo Mogajane, said that the Acting Head of Treasury’s Budget Office, Mr Edgar Sishi, would give the presentation.

Briefing from the National Treasury on the public submissions on the 2020 MTBPS

Mr Sishi began by displaying a list of all the people who made submissions at the public hearings:

- Amandla Mobi

- Budget Justice Coalition

- Congress of South African Trade Unions (COSATU)

- Dear South Africa Campaign

- Financial and Fiscal Commission (FFC)

- Fiscal Cliff Study Group

- Healthy Living Alliance (HEALA

- Katsia Capital Partner

- Old Mutual Investment (Johann Els)

- Organisation Undoing Tax Abuse (OUTA)

- Parliamentary Budget Office (PBO)

- Pay the grant campaign

- Peter Meakin

- The South African Institute of Chartered Accountants (SAICA)

The Chairperson said that other submissions were an issue between the Treasury and Cabinet; however, he would only address the public hearings made before Parliament.

Mr Sishi said he would only address the submissions made; however, he was merely informing the Committee that the Treasury does receive other submissions.

Main comments from public hearings

There were five categories of comments made on the following areas:

1. Economic growth and reforms

2. Revenue and tax proposals

3. Expenditure,

4. Fiscal policy

5. Other matters raised

1. Economic growth forecast compared with other institutions

Members were shown a table depicting a growth forecast as determined by both private and public institutions. The Treasury does. For the next year, however, the Treasury considers its forecast to be very much within the band of the overall consensus and on average it is slightly on the lower end of optimism for this economy. What this means for the fiscal matrices is that because they are based on these types of forecasts, they are fairly solid.

2. Revenue and tax proposals

Mr Sishi said that this is a little bit awkward as the Treasury does not make tax proposals in the MTBPS. Tax proposals are only made in February; however, it listed the suggestions from the public in the public hearings. It did not want to comment on this for the sake of time however, it was considering suggestions made. He did however confirm that there would be marginal tax increases, however, the Treasury did not want to announce where until next year.

South Africa in the global context

Unlike the 2008 recession, where South Africa entered into it with savings, this time, South Africa was one of two developing countries who entered into the recession when COVID-19 arrived.

On austerity versus stimulus, South Africa’s overall fiscal stance has not been one of austerity over the past ten years, having constantly spent more than inflation. The graph depicted shows the difference between non-interest expenditure versus government revenue over a period of ten years. The fiscal stance has been expansionary as opposed to contractionary.

The main question he asked to entities like COSATU, who consider the need for spending to continue, was why it is that there should be a view in favour of more spending in the future would change the country’s ability to clear its debts in the future.

Why fiscal consolidation—fiscus metrics are deteriorating

The Treasury put to the Committee and the public that debt service costs are now 4.8% of GDP and said this is not a sustainable way to run the fiscal policy as it transfers the debt to bondholders locally and abroad. It is trying to manage this because if left unchecked debt service costs will reach seven to 10% as seen in other countries. The issue of state-owned enterprises (SOEs) and infrastructure investment is addressed in the proposal made by the Treasury as it seeks to shift the composition of spending from consumption which is dominated by compensation of government employees, towards infrastructure spending and investments. A broader approach is needed than on focussing on the fiscus. The fiscus alone is not enough to address what is going on in the balance sheet. Failure to generate revenue needs to be considered, particularly in SOEs and municipalities. Weaknesses in financial management also need to be addressed. Overall, it considers that options to stabilise the fiscus have become increasingly limited. It needs to take action in order to avoid a distress situation and a crisis.

Why fiscal consolidation—fiscal multipliers

He did not want to spend a lot of time on this except to say that fiscal multipliers—which is the contribution to growth which government spending makes - have been significantly weakened primarily because South Africa has built up so much debt and such a heavy interest load that the benefit of additional government spending is counteracted by debt and the cost of that debt. Additionally, South Africa has had the issue of the composition of expenditure. These are the two problems which it is trying to solve.

The implications of proposed spending cuts

It has made a number of proposals to government, and urges that further serious conversations take place about the structure, effectiveness and affordability of certain government programmes. The overall structure of government, including decisions made a long time ago, needs to be re-calibrated. The Treasury has raised these issues with NEDLAC and Cabinet and is now doing so before Parliament.

Expenditure priorities and fastest-growing functions

South Africa spends two-thirds of its non-interest expenditure on the social wage, which is defined as spending on learning and culture, health, social development, and community development. When considering how to move forward, this needs to be born in mind as it is unlikely to change going forward.

Proposed spending reductions to improve the composition of spending

It proposes to make a shift from consumption to investment in this MTBPS and shows this graphically on Slide 10. It aims to improve the effectiveness of government spending toward economic development

Government should intensify efforts to carry out expenditure reviews

It is alive to the issue of waste and improving the efficiency of the operation of the state. Although this is an important issue, it is not an easy issue. He asked that stakeholders be clear about what kinds of monies are being spoken of here. Speaking to the R100 billion of waste often referenced by COSATU from the Auditor-General’s (AG’s) report, he said that the AGs report is more nuanced than it appears. What the AG says is that over the last few years, the number has come down to about R840 million on fruitless and wasteful expenditure in national government. The rest is composed of mainly irregular expenditure. Irregular expenditure can well-be corruption, but it is most likely due to a lack of internal controls in arriving at a spending item. This adds up to the big number often spoken of. Expectations on what can be gained from waste in government needs to be managed carefully because a significant amount of it is not necessarily because money has been spent on the wrong things or because money has been stolen. Rather, some of it is due to administrative irregularities which are ticked off as irregular expenditure, these, when resolved, will not cause the money to re-appear, but will merely improve internal controls. The Treasury is not trying to say that the issue of corruption is not a problem as it is important. In its proposals, it is looking at addressing these leakages.

Efforts to improve the quality of expenditure

Since June it has been running a set of spending reviews which will culminate in the implementation of zero-based budgeting. Importantly, zero-based budgeting will require that every programme justify why it should receive the same amount of money it has received in the past or that it is asking for. Zero-based budgeting will address the overemphasis on incremental change to annual budgets. For instance, people often fall into the trap of talking about growth rates, as if growth rates are an indication that something is working. The Treasury is accordingly trying to move the conversation in a different direction.

Wage bill trends

On the public sector wage bill, the Treasury called for context for the public sector wage in the past. As indicated on Slide 13, the maroon bar represents the percentage change in public service compensation and the light grey bar represents the growth of the economy. There has been a change in the past fifteen years. At least that effectively means that public servants receive an increase in their salaries which outstrips economic growth. Therefore, when the Treasury makes its proposals and when speaking about its proposals for the current MTBPS, some of which include what is effectively a wage freeze, it makes them in the context of the historical background. This includes the fact that more than 95% of public servants earn more than 50% more than 50% of registered tax payers.

The likelihood of people leaving the public sector upon a wage freeze does not seem to yield an economic incentive for skilled public sector workers to get the salary and benefits which they receive in the public sector.

Achieving wage bill reductions

What Treasury is proposing is not easy given the weaknesses in both investment and reduction. Government needs to take a hard look at itself, and although it is not always helpful to make these comparisons, were the nation a company with these numbers different decisions would be being made. The wage freeze has not been limited to government departments; however it has been extended to the broader public service.

The Chairperson thanked Mr Sishi, saying that obviously Members may disagree on some points; however there would be time for them to address matters. He asked the DG if he had anything to add.

Mr Dondo did not have anything to add.

The Chairperson asked the stakeholders to respond in the same order in which they presented, beginning with COSATU.

Public participator’s responses

COSATU

Mr Matthew Parks, Deputy Parliamentary Coordinator, COSATU, thanked the presenters from the Treasury. On the Public Procurement Bill, he expressed concern that the Treasury plans to take another two years to finalise the Bill and get it enacted. COSATU did not think it could wait until 2023 given the current crisis of looting and dysfunctionality. COSATU hoped for a simple open online platform which is accessible to everybody which encapsulates the entire state; meaning not just state departments but SOEs as well. He sees four critical figures which he did not feel the Treasury had tackled. These were based on the AGs figures, which said that every year about 10% of the budget is lost, not just to wasteful expenditure but specifically to corruption. The Zondo Commission estimate is that about R500 billion has been lost every year. There are no new provisions in the MTBPS on how to deal with corruption, although COSATU and NEDLAC had done so and it felt that government was loath to deal with it. It is yet to see any official or politician held liable under the Auditing Amendment Act. If the holes in the state are not addressed, then work being done is just ‘moving chairs’. COSATU had hoped to hear a clear roadmap regarding the SOEs which are a burden to the fiscus however it did not see that. COSATU also hoped to see a proposal on the SARS which bled severely during state capture. Specifically, COSATU hoped to see proposals to deal with tax evasion and the fact that only five percent of customs takes place for goods entering through the ports. He expressed that COSATU appreciated the new Commissioner of the SARS who they felt was trying his level best.

The debt issue is not an issue for COSATU and they understood the Treasury’s point, however, they sought to discover the right sequence and a balanced approach in dealing with debt. They felt that the Treasury and government were focussing on merely cutting expenditure and fixating on the Wage Bill. A balanced approach was desirable as it could focus on saving jobs and companies by stimulating the economy in a way that was not reckless. All COSATU was really hearing was that the cause of everything was the public sector wages and they must be cut. There are some inaccuracies in the report which say that in the private sector there are no farm workers or domestic workers but rather there are doctors and nurses and teachers—skilled labourers. He asked that apples and apples be compared to apples. They disagreed that public sector workers will not leave and demonstrated this by asking that the Treasury check any Sunday newspaper to see constant adverts from Canada, New Zealand, Saudi Arabia and Dubai, who are poaching South Africa’s nurses, doctors and teachers. This has consequently had a huge impact on service delivery, including higher learner-teacher ratios, one nurse performing the job of six nurses, and doctors working for 48 hours. COSATU had hoped that the Treasury would understand that a police constable earning R186 000 per year cannot afford to go for four years with no wage increase. Politicians, management and SOEs can afford this, but the nurses and lower middle-income workers cannot. The wage Bill effectively outsources the bill for corruption to lower-income workers because they are low-hanging fruit. The bottom line is that government has to engage the unions and the Public Service Co-ordinating Bargaining Council (PSCBC). If government is serious about change it should immediately cut what Ministers, MECs and Mayors are paid and cap what management in SOEs can earn. It is difficult to understand how serious government is when just this week, government and Parliament approved an increase for the Gender Commissioners. There has not been a formal tabling of a proposal of the PSCBC.  One thing seems to be said to nurses whilst another is said to management. The Presidential Economic Advisory Council also says a balanced approach is needed, rather than austerity. He hoped to hear more from government on how to stimulate the economy. The Treasury seems to be walking away from the loan guarantee scheme as after eight months, only eight percent has been disbursed with no new proposals to fix this from either government or the banks. The US has injected R51 billion into the economy but COSATU is fighting government to extend that to workers who are not coming to the party. COSATU hoped to hear of additional packages to companies who are battling. Further COSATU hoped for tax relief for companies which remain closed or are under restrictions. Lastly, corruption is the main issue and he did not know why government seems reluctant to engage with corruption and the proposals COSATU has presented. There seems to be reluctance from government to engage in the freezing of stolen assets. Since there is a contradictory public message, it is difficult for COSATU to convince public servants to accept compromises. Public servants do not see the ruling party and government practice what they preach. He stopped because he thought that his five minutes had elapsed.

The Chairperson said that it was closer to six minutes but it was a ball-park figure as it was an engagement. He asked that speakers try not to repeat what was said on Wednesday but rather challenge what was said today. Although Mr Parks did challenge some things, he also repeated himself.

The South African Institute of Chartered Accountants (SAICA)

Dr Sharon Smulders, Tax Researcher and Consultant, SAICA, had a list of questions, and she asked if this was engaging.

The Chairperson confirmed that it was.

Ms Smulders said that although the Treasury addressed the growth rate, she suggested that forecasts be based on conservative estimates. 40% of public cuts will be coming from learning, culture, health, and peace and security functions. She asked why it is in critical areas that cuts are being made. She said that expenses are increasing year-on year, although the rate of this increase is declining. Surpluses will not be addressed if cuts are not made to expenditure. A comprehensive public sector remuneration strategy was mentioned which was going to be developed for the medium to long-term and she asked how this would ensure that reduced wages would not impact reliable service delivery. She felt that the Treasury is relying on the three-year wage freeze as well as a favourable court ruling, and asked if an alternative plan has been considered in the budget. ‘For instance, the R37/38 million that is sitting in court, if this case is lost, where would additional cost be cut’? On the remaining three year wage freeze, she asked what Treasury would do if it did not work. It had already been reported that certain municipalities had granted wage increase this year. ‘Will this be prevented from happening in order to ensure that the wages are kept in line’? She asked when Treasury and the trade unions are going to work together to ensure accountability on all levels. As Mr Parks said that there are people doing really important work on the ground who are not surviving. The SAICAs suggestions of where wages can be cut have been made and it definitely starts at the top. She asked how Treasury is planning for contingent liabilities from the SOEs. There is the beginning of the recovery of money stolen from the SOEs. On municipalities she noted that the budget is transferring more and more money to the municipalities. She agreed that they are on the ground and that is where money is most needed; only 8% of municipalities have a clean audit. It is mind-boggling that more money would be given to them, only to have the money disappear. Finally, she asked what COGTA and the National Treasury’s plan to fix municipalities was because this is something which has been happening consistently over the long term, and not the short-term. Mention was also made of a rigorous monitoring regime to strengthen local government finances and she asked for clarity as to when this will be implemented.

Chairperson Carrim thanked her and asked Organisation Undoing Tax Abuse (OUTA) to proceed, pausing to note that a lot of the issues raised by the first two speakers dealt with appropriations however the two Committees are interlinked.

Organisation Undoing Tax Abuse (OUTA)

Mr Matt Jonston, Parliamentary Engagement Manager, OUTA, asked what the Treasury is willing to do to ensure that wasteful and corrupt expenditure is not going to be prioritised when zero-based budgeting commences. He strongly agreed with the mention of expenditure reviews and in general he strongly agreed with the presentation and the principles conveyed in it. He felt that many of the measures needed to be intensified in order to have the desired effect noting that the budget has not been one of austerity in the past at all. He asked who will conduct expenditure reviews and who will set the benchmarks. Having observed the oversight function of Parliament, he noted that it was always the same accounting authorities who come and accounted for the issues which they have caused. This system obviously does not work and he asked what the purpose of the Treasury was. He did not accept the suggestion that irregular expenditure was okay. Government cannot expect taxpayers to comply with increased rates of taxation of any kind until taxpayers know that there is compliance with the PFMA and the MFMA. Taxpayers do not want to comply if those spending monies do not comply. Since the structure of government fundamentally needs to change, he asked who is going to take responsibility for this. On the wage Bill, he asked whether the Treasury could take a differential approach. He asked what the Treasury’s opinion is on politicians doing business with the state, and whether there should be a reform in this area. In OUTA’s view, there should be a change in order to address the political domination of fiscal policy. Taxpayers have virtually no voice in those forums; he asked how this can be changed. He felt the Public Procurement Bill should be expedited, but that it should also address the issue of access to information, which it does not address adequately in its current form. Corrupt accounting and executive officers cannot be tasked with expenditure reviews. He asked how Parliament in its budget reviews and recommendation reports can work together with provinces and the Treasury to do the work that needs to be done in terms of expenditure reviews. He suggested that money allocated to South African Airways (SAA) and other engagements would be better allocated to the NPA or the SARS who have lost capacity in the last 10 years due to state capture. It is called re-capitalisation, but he asked whether it would not be better to re-capitalise something like the rail sector than an airline, as no-one really wants to fly SAA. Finally, he suggested to the Treasury that when it comes to the Asset Forfeiture Unit (AFU) and the proceeds of corruption, it would help to finance the solution for the NPA, the Zondo Commission and others that are in need.

The Chairperson said that he would certainly fly SAA and that he was sure others would too

Fiscal Cliff Study Group

Mr Stephanus Johannes Joubert, Senior Lecturer, Department of Economics, University of SA, spoke to GDP and asked whether a cautionary approach to measuring GDP for the next two or three years should not be taken. He was specifically concerned about the consistent over-estimation of GDP over the previous 10 years which led to revenue over-forecast among other things. He also agreed with SAICA’s request that the Treasury underestimate and over-deliver rather than do the opposite. On debt, he asked the Treasury if South Africa actually has a debt reduction plan in place. A lot had been said about how debt is going to be stabilised and dealing with debt servicing costs, however, he would like to see a debt reduction plan being made so that future children of the country do not end up paying the current debts. He asked that his colleague from the Fiscal Cliff Study Group, Professor Jannie Rossouw, be allowed to continue.

Prof Jannie Rossouw asked if any feedback has been received from the Presidency on the Fiscal Cliff Study Group’s proposals that the government on all levels should only procure vehicles which are manufactured in South Africa, hence stimulating this area of the economy. He continued to add that the Fiscal Cliff Study Group has been warning about the Civil Service Wage Bill growth since 2014. He did not understand the current surprise as he has seen this trouble coming since 2014 and has been very vocal about it. He sees people only beginning to respond now. He insisted that action must be taken now. Lastly, noting Slide four of the Treasury’s presentation on the indication of tax increases up until 2023/24, he asked if the figures were nominal or real numbers and whether they took inflation into account. Secondly, if these are the envisaged tax numbers, there must be huge freezes and huge cuts in expenditure in order to contain the debt growth projected in the MTBPS. He wanted to know where cuts will be made, which expenditure items will be frozen because the tax figures cannot work alone. He asked for more information about this.

Healthy Living Alliance (HEALA)

Mr Lawrence Mbalati, Head of HEALA, appreciated the response regarding the Health Promotion Levy (HPL). His view was that tax was well-targeted. He saw it as an opportunity for the HPL to be considered in the tax increases in the coming year. He asked whether the HPL increase was being considered in terms of its request for 20% in the budget for next year. The health promotion budget is needed more than ever as many people who succumbed to COVID-19 had underlying non-communicable diseases. Revenue is needed to address non-communicable diseases.

Peter Meakin

Mr Meakin said that he had been in about four and a half hours of meetings this week and he felt that government has a big problem with the tax issue. It is like an old car which needs to be traded in for a new electric car by TESLA.  If he buys groceries for R1300 at PnP, the real value would be R1000 since income tax would be 28%.  If this was done away with, then the workers at COSATU would have that percentage of more money to spend. He asked why it was that in 2018 Minister Mboweni said that he saw the inefficiencies in income taxes and was on record to say that he was looking to do away with the income tax institute land taxes. He has not done this and he asked why not as it would solve a lot of other problems. One such problem as depicted in the table attached to his submission shows a great deal of money being spent in the budget only because it is not collecting land taxes. He did not wish to go into discussion on the table, but asked for someone to let him know where he went wrong in his table. The table says that if income taxes were not being paid, certain items would not exist in the budget.

Mr Seeraj Mohamed asked if the PBO could respond.

The Chairperson asked if it could be quick since it was an internal entity and the time was mainly for public input.

Parliamentary Budget Office (PBO)

Mr Seeraj Mohamed, Deputy Director: Economics, PBO, addressed the argument that government spending increases in the last few years not having led to growth and therefore an increase in spending would be unlikely to help in the future. The Treasury keeps equating fiscal deficits with fiscal expansion. He added that definitions of austerity are not just linked to spending less but also to where government spending is inadequate, even if it is increasing spending but is making cuts this increases rates of unemployment. The argument made was a poor one as it was like a father of a household spending his income on alcohol and returning to explain to say that he is spending more money and therefore he should not spend more money on food and basic necessities. The discussion about the multiplier should lead to thinking about how government spends effectively where positive outcomes will be seen. Secondly, the argument that increasing debt was not possible is linked to fiscal consolidation was not considered. Structural reforms even if implemented well will not yield results soon.

The Chairperson thanked the PBO for its contribution and said that the two chairpersons of the two Committees and the FFC and the PBO need to be treated differently to public stakeholders, however they may offer helpful perspectives. He asked that the Treasury respond to Mr Meakin in writing. Particularly, he asked whether the Minister did make that statement in 2018. He asked that the report be compiled with responses preferably by the next afternoon.

National Treasury’s responses

The DG said that the Treasury would respond and it has a slide in response to the 2018 statement that was questioned. Mr Ismail Momoniat was on call to respond. On the point of debt, COSATU agrees with the Treasury that the question is finding the right sequence of managing debt. Mr Parks was correct in saying that balance needs to be achieved and the Treasury’s response is in growing the economy through implementing the recovery plan that was agreed to. He was equally concerned about the SARS from a tax administration capacity and performance point of view. The roadmap will not be completely right in terms of the MTBPS. The MTBPS does not try to address all of the ills in the government system. The Treasury is trying to be pointed in confirming through broad indications what it will most likely say in February. He asked Mr Sishi and Mr Momoniat to respond.

Mr D Ryder (DA, Gauteng) said that he will respond to Mr Meakin directly which is inappropriate since the presentation was made to Parliament.

The Chairperson said that what he means is that Mr Meakin would be responded to directly as well as to Parliament, and he is correct.

Mr Sishi said that broadly, on the growth estimates, the principle of being conservative in its estimates is something that the Treasury accepts. He understood that as a fiscal authority, both the SAICA and the Fiscal Cliff Study Group will understand that as a fiscal authority there is a need to establish a balance between bare-bones conservativism and considering the possible impact of current government policy as it is a part of the government. This has to feed through to the baseline, and a balancing act is required. The principles around growth estimates are engaged in with different parties. He knew that the PBO did an assessment of the Treasury’s forecasting process which it found was very robust. Circumstances this year, however, have put all the forecasting models under review.

Due to the fact that the consideration of alternatives was being considered with both COSATU and other trade unions, he could not discuss them on this platform as the negotiations were on-going. He asked for patience in this regard and added that he could say that the Treasury has been working with the Department of Public Service and Administration (DPSA), however the process has not always moved fully to completion. It is now being strengthened and there are discussions currently with the DPSA in thinking about productivity.

Contingent liabilities

On contingent liabilities, Treasury has had instances where some contingent liabilities or risks have materialised and the Treasury has been able to deal with them within the fiscal framework whether talking about the land bank or other things which were in the budget review in February. Some of the big things which the SAICA was referring to, such as the Road Accident Fund (RAF), those numbers are huge and cannot be considered in the context of reprioritising spending as they require significant policy action in order to be addressed.

Municipalities and collaboration in addressing issues

He did not want to go into the details of the various pieces of work that Treasury was involved with, including its work with COGTA on municipal finance improvement, audit issues and some issues which the Treasury has raised publicly about leadership challenges in municipalities. There is a lot of work which the Department of COGTA was doing including on the District Development model and it would be happy to send documentation on these to the SAICA and the Committee as it relates to how it is contributing to how Treasury is contributing to resolving the challenges.

He would leave most of Mr Meakin’s questions to Mr Momoniat to respond to.

From his side, he added on the one hand, the Treasury needs to focus on expanding the tax base. Simply trying to squeeze more by increasing taxes is not sustainable, but rather the base needs to be expanded. This has been said before and it considers that the way to expand the base is by growing the economy.

Feedback from the Presidency bout purchasing locally manufactured vehicles

He was unable to comment on this and would have to get back to the Committee with more specific information.

Tax figures on slide four

He confirmed that the numbers are nominal.

Finally, the Treasury took note of the note on the credit guarantee scheme, but would leave those questions to Mr Momoniat.

Mr Ismail Momoniat, DDG: Tax & Financial Sector Policy, National Treasury, said that the point had been made by the DG and others, saying that the Treasury does not make tax policy proposals in this MTBPS. Even the announcements included are small numbers in terms of additional revenue but further announcements will be made in February. He felt the broader issue was the need to look at when the risks are all down, to be more cautious in how it budgets both revenue and expenditure. This is something which it clearly needs to take into account more because there is no room for error.

On the specific proposals made, he admired Mr Meakin for his persistence but he did not want to waste everyone’s time but Treasury differed fundamentally on his proposal. It would effectively be a tax revolution. It would have huge impacts on the budget and there would be huge transitional problems. To the extent that it can be considered technically, the Davis Committee has looked at the possibility of a land tax and chosen not to accept it. He was not sure why Mr Meakin felt that there was any acceptance of his proposal in 2018. He asked for it to be brought to the Treasury’s attention, which statement he believes said that the Treasury is considering moving in that direction as it certainly is not. It was clear that land tax has its place and may well be a part of a wealth tax proposal, but the revenue generated by it is nothing to what is gained from VAT, personal income tax, and so on.

There will be more engagement more on this point as it was in the proposals, but he did not want anyone to have any illusion that such a massive change is being considered. To the extent such a change is being considered, it should be referred to a tax commission so that it can look into the nitty gritties as it is not a small proposal.

Health promotion levies

Everyone is free to make proposals for the February budget, whether it is Mr Meakin or the health lobbyists. Now is the time to submit and the Treasury will look at all of those proposals?

Loan guarantee

Mr Parks has heard the Treasury say many times that there are limits within the loan guarantee. There are two or three points which should be taken into account. Looking at the total relief given by the banking sector it is around R50 to R60 billion. He was not sure of the figure and would be able to provide it to Parliament. The R200 billion figure was not provided by the banks. The banks are putting up their own money and take the first loss, although there is an underlying guarantee. The country cannot afford to have the whole R200 billion taken up as a guarantee. Only a small proportion is there and Treasury hopes that the call on that guarantee is minimal, to the extent that it desires to look at other mechanisms. Businesses themselves are reluctant to take on more debt. Therefore, even if conditions and criteria were relaxed, it is not clear that people want to take up debt. To the extent that it is not debt being spoken of but rather grants and so forth, this is a different conversation to have and this scheme is not the one to deal with it. He concluded by saying he felt he had answered all the questions and thanked the Chairperson.

The Chairperson said that he had not answered all the questions, but he had spoken to the broad themes, and that the very specific questions will be answered with the rest of the team and responded to Parliament in the next 48 hours. He asked if anybody else would like to say anything from the Treasury before handing over to Committee members.

The DG said that there was nothing left to add.

Discussion

The Chairperson said he had very specific issues to raise, however he would come in at the end. He explained that the Co-chairperson, Ms P Abraham (ANC) is meant to Chair the second part of the meeting, and she thought she would get that in about ten minutes. He was meant to step down to let her take over this part, but he would have to continue. He then asked the Committee Secretary if there were questions to be taken. He noted some of the issues raised in the chat by Mr Ryder, and said that some of the issues raised in this meeting are not solely the issues of this Committee to attend to. He explained to the members of civil society that there are good reasons for the complicated system it has. Fiscal framework issues are dealt with in the Fiscal Framework Report. Appropriations, expenditures and allocations are dealt with by the Appropriations Committee.

He continued to deal with what he wanted to say as the Chairperson, then hand over to Members and then he would come in with his own views.

On the car saga of the Fiscal Cliff Study Group he said regrettably there was nothing further he could do and that it was quite shameful that four years later the Presidency has not replied despite his prodding. The matter was handed over to the National Assembly Committee (NA) Chairperson, and he will follow up on this. He urged the researchers and Members to ensure follow-up as the Committee cannot allow anybody to simply not reply. Mr Carrim said he had written letters both to the President and the Minister of Finance at the time, but the report should emphasise the need for a response, particularly from the Minister. He was sure the Minister would be empathetic and for what it was worth, the majority of the ANC agreed with Prof Rossouw—this was not the issue. More so, given COVID-19, an answer must be given to the question.

The debate cannot continue between Mr Meakin and the Treasury. Mr Momoniat and the DG must write a letter to him and cc the Committee into it so that it does not keep having this discussion in a round-about fashion. The issues he wants to raise, he would do so at the end and Ms Abrahams would join the meeting in about five minutes. He asked who from the Committee would like to comment, apart from Mr Ryder. There was no-one, except for Mr Ryder, who wanted to raise an issue. Upon looking at the chat and looking for hands to no avail he said that it was unacceptable from the Members as the public was before it and there was a dialogue happening. Members have to listen to all sides and decide on the policy proposals in terms of the recommendations in this report.

He noted Mr Ryder.

Mr Ryder said that despite extreme challenges with connectivity, he has managed to listen quite well. He noted the concerns raised by COSATU who he felt, had once again raised some good arguments. The SAICA had also argued well. He thought the Treasury had responded as best they could, and there were obviously political issues in the background which needed to be addressed. If the Minister or Deputy Minister were present, it might have received slightly better responses on the political positions. Since the team from the Treasury are administrators, they are not in a position to share those views. He expressed the concern that the district model is constantly being raised as the saviour to all the local government problems. The districts are in a worse condition because they have been ignored for so long. There are no skills there and the model will not be the solution. However, as the Chairperson correctly stated, that is an appropriations discussion. It is also a political discussion, specifically for COGTA more than for the Minister and his team. He appreciated the fact that there were good submissions across the board and the Treasury did its best in responding, leaving the rest up to the political parties to take these inputs back, caucus on them and come back with a position.

Mr E Njadu (ANC, Western Cape) said he was closely following the interaction between the stakeholders and the National Treasury. It was an effective interaction in comparison to prior interactions and he felt he would like to look into the outstanding matters such as those in court. Going forward and looking to the February budget, it will be important that the Committee looks at its approach to deal with issues effectively, so that the same issues are not repeated next year.

The Chairperson asked if anyone else would like to comment. As there was none, he said he would comment whilst waiting for the Co-Chairperson. He said that the Committee supports HEALA and is sympathetic to its cause as the majority. It is a matter of trade-offs and a large extent of what it is raising is a tax issue which is inevitably related to expenditure. The trade-off is one of many considerations and the fact that it still needs to get a report back from NEDLAC. Perhaps in its report he asked that this be noted so that the Committee can vote on it when it receives the text. Something like this needs to be addressed in a particular sitting with few issues being selected. The one raised by HEALA being one of them as the issue cannot be discussed now and in time for its fiscal recommendations. It also needs a better response from the Treasury than what was received now.

On the cars issue, it is clear that this will be in the report and the NA Committee should please follow up on that.

On economic growth forecasts, he heard Mr Sishi, but the fact of the matter is that for many years the Treasury has been getting it wrong. Obviously, it needs to be less certain now than ever as with himself and everybody else, considering the volatility and uncertainty of the situation. For what it is worth, he thought, though he could be wrong that the South African Reserve Bank (SARB) is more accurate than the National Treasury. For what it’s worth, as an individual and not a Chairperson he felt that the SARB forecasted more accurately. However, one hopes that it is right. He knows that he would say that it is a complex process, however, the Committee made this observation in its 2018 or 2019 report, if he recalled correctly.

Public Procurement Bill

He then asked the DG what is holding up the Public Procurement Bill.  He asked why it will not be processed any time soon. To COSATU, he asked if Parliament is doing enough. He noted that it is true that the Treasury does not speak to corruption much and he asked whether Parliament itself is doing enough.

Illicit Financial Flows (IFFS)

He was tired of raising the issue of IFFS as the Minister completely misunderstood what was being said and he was absolutely wrong. He felt that the Committee should just put it back in the Committee report. He spoke to the Chairperson this morning who agreed. He reasserted the Committee’s view that dealing with IFFs, as Treasury itself said to Parliament in 2017, is that Treasury does what it can, and then the Hawks and NPA do not come to the party. The view is that since it is a multi-disciplinary approach and an inter-departmental structure, and as such, an inter-departmental structure needs a co-ordinating structure that ensures that it meets at least four times a year. He asked that the point be repeated and insisted that the Minister should account.

Ports

The vulnerability of the ports is a separate issue. A separate difficult discussion is needed. Everyone needs to be brought together to address it. He agreed with COSATU that this needed addressing, he also agreed on the sequencing of recovery.

Wage bill

He was struck by Ms Smulder’s points that if government loses in the courts, it will engage with the unions. Presumably then the outcome of that will shape decision making. From what he could tell government is set on this and is not going to budge. Parliament can only stress that the matter is looked at by the Appropriations and it would urge compromise on all sides. He added that those who argue that the wage Bill has to be brought down as Members of the Committee, it also has to be fair and ask what they themselves are going to do about their Wage Bill.

SABC

It was worrying that it has no money, although this is an Appropriations matter though the Treasury should respond. The Committee alerted the DG that when the Treasury appears at the Appropriations Committee, if no-body else raises it, he would. On the loan guarantee scheme, the issue is quite complex and there is a lot of unhappiness across many political parties. Something needs to be said about this in its report.

Waterboard crisis

This is also an appropriations matter, however, as a Committee it can recommend that consideration be given to a full discussion on it because the financial implications are horrific, as the Minister has implied.

He asked if there was anyone else who wanted to speak.

The Committee Secretary said that Ms Abraham was on the line.

The Chairperson asked if any Members had anything to add.

Ms P Abraham (ANC) said that she was now in the meeting

The Chairperson noted her and said he would step back and allow her to Co-Chair.

Ms Abraham said she was not completely back. Her first concern is that the fiscal position has not been expansionary since the introduction of fiscal consolidation in 2013. The increase has been due to debt payments and not expansion. She asked the Treasury to comment on that. Secondly, moving away from consumption expenditure will impact on the human development index—she asked that the Treasury comment on as well. Lastly, there is no question of shifting more money into the economy and making the cost of capital less expensive by perhaps changing monetary policy. She said that the ANC did indicate that fiscal and monetary policy must be worked together and not apart—she asked for comment.

The Chairperson asked if Ms Abrahams could not Co-Chair because of her poor signal.

Ms Abraham said she cannot take over as it would be a risk since she was rushing to a meeting.

The Chairperson asked if Mr Njadu wants to Chair as Ms Abrahams had to go to the meeting.

Mr Njadu accepted.

Chairperson Carrim noted that Mr Meakin wants to speak again. He thought he should be heard for a few minutes towards the end. He would remain in the meeting but he was done as Co-Chair unless he needed to come in at the end.

The Chairperson now Mr Njadu asked Mr Meakin to take the floor.

Mr Meakin said that he wanted to address the fact that he was accused of misleading the Committee. There is a suggestion that income taxes are against the Constitution, and the person misleading is DG Momoniat. He said exactly what Mr Mboweni said in his 2018 MTBPS. He asked the Committee to consider why it is that a person would work hard and invest hard only to have someone take their money away. It is practically theft.  These are fundamental issues which are not helping recovery. He asked how the matter with Mr Momoniat can be resolved.

The Chairperson noted what the questions were.

Mr Ryder – on the chat—asked the Secretariat to note Mr Sishi's agreement to inform the Committee about the local government plan and add it to our programme in consultation with Committee Management.

Mr Meakin – on the chat—wanted to correct DG Momoniat. This is what the 2018 MTBPS said: ‘the National Treasury recognises the potential improvements in efficiency from land taxes as highlighted in the OECD report’.

DG Momoniat said it was not his intention to accuse Mr Meakin. He simply meant to clarify that the Minister has never said that he would review the income tax and the entire tax system. What he was saying is that the Treasury has fundamental issues with Mr Meakin’s view as it is a big policy issue which would affect the entire government. It is Mr Meakin’s view which is unconstitutional and not the Treasury’s. It is for Mr Meakin then to take the steps he needs to take if he believes it is unconstitutional. Furthermore, he was trying to point out to the Committee that what he is asking for are very fundamental changes which, firstly, have not been accepted by the Davis Tax Committee, and secondly, it would require a big tax commission to go into the kind of changes that he wants. Although small changes to the land tax can be looked at, but to do so at the cost of income and other taxes is not on the table at all. He did not want to waste the time of the Committee by saying it is overhauling the entire tax system when it is not.

Mr Meakin said that he did not know why he had bothered to come to the meetings.

Chairperson Njadu asked if this can be resolved offline so that the meeting can conclude and the clarity of the matter is dealt with offline.

Mr Meakin was happy to do this but asked what he meant specifically in terms of how to progress the discussion as he did not agree that it is difficult to make the change from income to land tax as the change moves from what is done on the land to the land itself. This is not difficult and has been done before.

Ms Abraham said that by offline he meant that it will be dealt with outside the meeting. For now there is an opportunity for the Treasury to respond to other matters.

Mr Carrim said that with due respect the Committee cannot give too much attention to a single stakeholder. Parliament belongs to everybody.

Mr Meakin apologised and said he had to speak as somebody had corrected him.

Mr Carrim asked the Chairperson to ask Mr Meakin to observe decorum. He continued to say that he agreed with DG Momoniat. It is remarkable that Mr Meakin feels so strongly that he has been persisting with this view for many years. Those who served in the local government Committee at the time will remember that he participated fully in the Property rates Bill. He would sit until 10 or 11pm at night in order to finish the Bill in time for the elections. Mr Meakin was there 100% of the time, with an attendance that was even better than the average ANC member, or any party member. This was admirable and he had great respect for him as he had an ideological point of view which should be heard. At the same time, the same issue cannot be repeated again and again. By offline the Committee means the matter is coming to it directly as the meeting was running out of time. For instance, COSAU has something like 1.8 million workers and cannot be ignored.  Everyone gets the same amount of time more or less, and Parliament was being very fair as this is what a popular democracy is. He appreciated that he took Parliament so seriously, but it is an ideological difference. Mr Momoniat is right to say that the matter should go to the Davis Commission, which in fact it has done. He insisted that the full reply by the DG and Mr Momoniat needs to be given to Mr Meakin and the reply also has to be sent to Parliament in two weeks, as they cannot draft a full reply before the Tuesday fiscal deadline.  Once the matter is dealt with, the Committee Chairpersons will meet to decide whether or not to pursue the matter again. Since it was settled that Mr Momoniat was not accusing Mr Meakin of misleading the meeting, nothing more can be done. He asked the Chairperson that they move on and everyone respect and recognise parliamentary processes.

Mr Njadu said that Mr Carrim had clarified the process and asked the Committee Secretary to note it.

DG Dondo said that Mr Pieterse wanted to respond.

National Treasury’s responses

Mr Duncan Pieterse, Acting DDG: Economic Policy, National Treasury, wanted to correct the point made by Chairperson Carrim on the forecast. The PBO released a report in March 2020 that the National Treasury forecast across four horizons, is in fact better than the forecast of the SARB. He felt it might be beneficial for the Treasury to engage with Parliament on that work in greater detail. He agreed that in general forecasters need to be very humble about their forecasts especially now considering the amount of uncertainty being dealt with. The Treasury certainly views its projections in that light.

Chairperson Njadu asked if anyone else had any further comments.

Fiscal policy stance historically

Mr Sishi referred to the specific question of Ms Abraham on the fiscal policy stance historically. He re shared Slide number five, titled ‘South Africa in global context’ which reflects the primary balance averaged over the past ten years. The primary balance excludes debt service costs. Part of the way it determines whether South Africa’s path is truly expansionary is by excluding the debt service costs before proceeding to ask how the country is doing. It is very clear that South Africa’s fiscal position and stance has definitely been expansionary over the last decade. It has been in negative territory on its primary balance for a while. The key thing is also on the issue of co-ordination, The Treasury works closely and co-ordinates with the SARB including in the reserve banks price stability mandate. It is aimed at a fiscal policy stance which is fundamentally aimed at stability instead of the debt build-up that has transpired over the past few years. It is aiming to do this in a way that does not cause harm to poorer consumers.

In closing he felt that, looking at the graph on the right-hand side, the question remains why something which has not worked for the past 10 years is there has been an expansionary budget.

Mr F Shivambu (EFF) said that the last speaker’s statement that expansionary budgets do not contribute to GDP growth is absolute rubbish based on the speaker’s own ideological statement. It is rubbish to present it as an absolute scientific response.

Chairperson Njadu asked if there were any further responses from the Treasury. As there were none,

Chairperson Carrim asked about the report.

Chairperson Njadu asked the Committee Secretary to take note of Mr Carrim’s comments when drafting the report and adjourned the meeting.