National Treasury & South African Revenue Service on their Strategic and Annual Performance Plans, with Minister and Deputy Minister in attendance

Meeting report

National Treasury: Strategic and Annual Performance Plans 2015/19
Mr Nhlanhla Nene, Minister of Finance, explained that his department was mandated by law to:

–promote national government’s fiscal policy and the coordination of its macroeconomic policy
–ensure the stability and soundness of the financial system and financial services
–coordinate intergovernmental financial and fiscal relations
–manage the budget preparation process
–enforce transparency and effective management in respect of revenue and expenditure, assets and liabilities, public entities, and constitutional institutions.

The overarching political and policy framework guiding the Department included, amongst others, the National Development Plan (NDP) and the Medium Term Strategic Framework (MTSF).

National Treasury (NT) directly contributed towards achievement of the following Outcomes of Government:

(as set out in the 2014-2019 MTSF)

•Decent employment through inclusive economic growth (Outcome 4)
•An efficient, competitive and responsive economic infrastructure network (Outcome 6)
•A responsive, accountable, effective and efficient local government system (Outcome 9)
•Create a better South Africa and contribute to a better and safer Africa and World (Outcome 11)
•An efficient, effective and development oriented public service and an empowered, fair and inclusive citizenship (Outcome 12)

Mr Lungisa Fuzile, Director-General, NT, reported on Treasury’s aims and objectives. These included:

•Fiscal consolidation in the next 3 – 5 years
•Modernise SCM policies and procedures and optimise use of technology
•Develop and implement strategic sourcing
•Equitable division of resources:

–Review and introduce reforms to enhance provincial and local government fiscal framework (ie LGES, PES, conditional grants and municipal borrowing)

•Expenditure reviews on specific areas, ranging from personnel spending to government agencies and public entities

–Efficiency of expenditure

–More resources to support socio economic objectives

•Maintain debt and debt service cost at sustainable levels – debt set to stabilise at 43.7% of GDP by 2017/18

•Implement and roll out new COTS-based IFMS

•Operationalise the BRICS-led New Development Bank and the African Regional Centre

•Regulate the financial sector so that is safer and serves customers better, and is more inclusive and accessible

Mr Fuzile listed and outlined the plans on each of the all the programmes

Programme 1 - Administration provided strategic leadership, management and support services to the Department, and capacity building.

Programme 2: Economic Policy, Tax, Financial Regulation and Research provided specialist policy research and analysis in the areas of macroeconomics, microeconomics, taxation, the financial sector, and regulatory reform.

Programme 3: Public Finance And Budget Management provided analysis and advice on fiscal policy and public finances, intergovernmental financial relations, expenditure planning and priorities. Manage government’s annual budget process and provide public finance management support.

Programme 4: Asset and Liability Management managed government’s annual funding programme in a manner that ensures prudent cash management, an optimal portfolio of debt and other fiscal obligations. Promote and enforce the prudent financial management of state owned entities through financial analysis and oversight.

Programme 5: Financial Systems and Supply Chain Management Systems OAG

facilitated accountability, governance and oversight by promoting transparent, economic, efficient and effective management in respect of revenue, expenditure, assets and liabilities in the public sector.

Programme 6: International Financial Relations managed South Africa’s multilateral financial relations with various stakeholders through various forums such as BRICS, G20, IMF, WB, AU, AfDB, SADC, SACU and OECD.

Programme 7: Civil and Military Pensions, Contributions to Funds and Other Benefits provided for non–contributory civil pensions, post retirement medical contribution subsidies and other benefits for pensioners and their beneficiaries, administered on behalf of National Treasury through a Service Level Agreement with the Government Pensions Administration Agency ( GPAA).

Programme 8: Technical and Management Support & Development Finance provided advisory services, programme management and development finance support to improve public finance management, support high-impact government initiatives, facilitate employment creation and strengthen infrastructure planning and delivery

NT reported directly to Parliament on Programmes 9 and 10 These included:

Programme 9: Revenue Administration •Programme 10: Financial Intelligence and State.

Mr Fuzile listed the priority initiatives of the Government Technical Advisory Centre (GTAC). These included:

•Telecommunications: support for DTPS broadband strategy and implementation
•Capital projects appraisal: support for Eskom War Room and electricity sector development and financing
•Border Management Agency: feasibility study completed, institutional support and draft legislation in preparation for DHA
•Department of Health: support for establishment of Office of Health Standards Compliance and health institutes
•School improvement: cooperation with the National Education Collaboration Trust
•Regional economic development: support for Wild Coast Spatial Development Initiative
•Review of provincial development finance institutions
•PPPs and transaction support: PRASA contract management, hospital feasibility studies, water and sanitation project development
•Expenditure and performance reviews: 17 completed, 9 in progress
–Cost saving measures and policy adjustments in discussion with departments
•Comprehensive personnel expenditure study to be done in 2015/16

Discussion
Dr D George (DA) referred to financial sector reform since the global financial crisis. He asked about the implementation of regulations. He saw the African Bank crisis as a regulatory failure on the part of NT. In his view, problematic new legislation was being introduced. He asked where the NT was with reform, and when the process would end. Appropriate legislation was needed to deal with future problems.

The Minister responded that he had expected the opposite to be said about African Bank. It was not a regulatory failure. It could not be said that actions had not been taken to arrest systemic failure. He would not dispute that there were regulatory gaps. Legislation was formulated to close those gaps. The Ministry was responding with a regulatory framework. There would be a progress report. Legislation was being proceeded with. He advised that the Committee take African Bank lessons into account. The Committee had to be vigilant.

Dr George asked about the impact of financial staff composition at the executive level, on revenue collection. SARS could not work if executives were gone.

The Minister replied that the question could be dealt with when SARS presented.

Dr George said that Eskom was a never ending crisis. Executives had been suspended. He asked if the sale of assets was under the jurisdiction of the Ministry. There had been secrecy about the sale of non-strategic assets. He asked about the process followed and progress made.

The Minister replied that there was concern about the suspension of executives. The manner of reporting about the suspensions was political. Shortcomings were being addressed. The Ministry’s hands were tied in the situation. The financial sustainability of Eskom had been impacted on because of the downgrades received.

Mr Mcebisi Jonas, Deputy Minister of Finance, added that the seriousness of the Eskom situation impacted on the economy. It could be a threat to the economy if not properly managed. There were war room interventions and serious engagement programmes to stabilise Eskom. Managerial and technical capability had to be strengthened. In addition, there was a need to address maintenance problems. The financial sustainability of Eskom was affected by coal generation issues. There were programmes to attract private sector initiatives. There was an advisory panel of experts, in addition to the war room.

The Minister added that asset sales could not be made public, as that would affect the price of the assets. The matter would be dealt with responsibly. Assets were designated as non-core when they did not imact on the ability of an entity to execute its mandate. The State was not assisted by such assets. It could even have the opposite effect.

The Chairperson referred to the Minister’s statement that reporting about Eskom was not accurate. Government could be more effective in communication. People fed the press their own agendas. He wondered what prevented the Department of Energy from presenting a case on the Committee website. The Committee report had to consider the matter. He had sympathy with its complexity. In 2004 the perception was created that Eskom was among the world’s best. Government had to handle publicity better.

Ms T Tobias (ANC) remarked that Eskom was a commodity in itself. People had stakes in it. There was great interest in both the success and failure of Eskom. It was the role of government to generate revenue. Mr Shivambu was concerned about the division of revenue, but the role of government was minimal in that regard. The core business of Eskom was power generation. Industry was using too much electricity. It had to be asked why industry could not produce its own electricity. Companies could be taxed as a temporary measure. Some industries accounted to local government. Eskom money was used by municipalities for other purposes.

The Chairperson remarked that there would be a collective view in the Committee report. Different views could be accommodated within the ANC as a liberation movement.

Mr F Shivambu (EFF) said that Parliament had authority. The Minister had to know what was being done about the sale of assets. It was not obvious which were non-core assets. The Committee had to be briefed about asset disposal, and had to be informed about decisions made.

The Chairperson noted that the Minister had not said that the sale of assets had to be a secret. He had said that it was not legal for Parliament to know. Market sensitivities could affect costs. All the Minister could do was to come to Parliament with an Appropriation bill. Ultimate power resided with Parliament. The Committee could make decisions and engage with the relevant SOC Portfolio Committee (Public Enterprises). The Committee had asked at the time of the Budgetary Review and Recommendations Report (BRRR) process what the criteria were for core and non-core assets, and what the implications were. There was a reluctance before 1994 to sell non-core assets. The poor and working class gained nothing from chalets and nature resorts. Logistically it had to go. It was not correct to say that nothing state-run could be sold.

Ms Tobias proposed that Mr Shivambu wait until the Minister brought a report. There could be fair engagement then. It was not advisable for Parliament to take over the responsibilities of the Executive, as that would change the role of Parliament. There would be proper engagement on the matter.

Mr Shivambu replied that he understood what the Minister had said. The Minister had said that disposal could not be disclosed, yet sensitive transactions were going on. He had not heard the Minister say that there would be a presentation on what had been disposed of. Valid reasons had to be given why non-core assets were disposed of. Political and ideological implications were not to be underestimated. There had to be information on what had been disposed of, and what the implications were.

The Chairperson said that it was in the Committee BRRR report.

The Minister remarked that he had referred to market security. The SC had instructed the Ministry to report and there would be a report. Information would be given.

Dr George asked how much capital had been invested in BRICS.

The Minister replied that it amounted to a capital injection of two billion US Dollars over seven years. It had to be remembered that the benefits would far outweigh the costs.

Ms P Kekana (ANC) asked about the role that the NT played in oversight of SOCs and development Finance Institutions (DFIs). Regulations had to be tightened. There had to be guidelines. Eskom had left egg on the face of government. There was a magnitude of liabilities. SAA and Eskom needed support.

The Minister replied that the SOCs and DFIs had been assigned by the Cabinet to Public Enterprises. Recommendations by the Presidential Review Commission had to be implemented. The developmental mandates had to be clearly defined to aid financial sustainability. The NT Programme 4 would deal with liabilities.

Ms Kekana asked how prudent strategies were monitored on a daily, monthly, yearly and bi-annual basis. Domestic and foreign debt had to be monitored to stay within parameters, but there was no extensive programme for that. The question was what would happen if the crisis escalated beyond stated levels. There had to be stringent oversight. The question was how to put systems in place that could gradually mitigate the debt situation.

Mr Fuzile replied that there were guidelines for risk assessment. The question was asked what the optimal composition of debt should be. Debt composition had to be in line with market guidelines. Debt sometimes rose during the year. There were market conditions that caused deviation from guidelines. Guidelines had to be implemented flexibly. Vulnerability had to be minimised. Administrative processes took a long time to build. It would be accelerated, going forward. Debt would stabilise in 2017/18. There was interplay in the sense that when growth projections were realised, the need for borrowing became less. With a larger GDP it was easier to reach targets. As growth slowed there had to be more borrowing, with a smaller GDP. Much would hinge on growth. There had to be realistic growth projections.

Ms Tobias asked, with reference to projections, what would happen if the NT was taken by surprise by expenditure patterns.

Mr Fuzile replied that expenditure had not ever drifted over projections. Projections were never exceeded. In-year accommodation spending could be unforeseen. Departments declared savings each year. There was risk only when there was a huge impact on revenue. Deviation had to be material to derail.

Mr Shivambu asked about the implications of increased salaries for the public service, of 10%.

Mr Fuzile replied that the wage bill was approximately half a trillion Rand and the budget was three times that. Parliament would approve the increases; because a framework had been approved in October 2014. When one thing in the wage bill expanded, another had to shrink to accommodate that. Infrastructure could suffer. If the settlement were bigger, something else would have to give.

Dr B Khoza (ANC) asked what justified the sudden jump from 2014/15, with regard to financial resource planning (Programme 8).

Dr Khoza asked how far retirement reform had progressed. Local government dealt with 80 pension funds, and there were less than 300 000 employees. There was much fragmentation. Beneficiaries would be knocked out if there were to be more functionaries. The matter had not received attention. Cogta was needed on board.

The Minister responded that the current legislation placed the responsibility on trustees. The SC could start a debate on the issue.

Dr Khoza remarked that there was a tendency in South Africa for people to use only the Auditor-General (AG) report as a measure of performance of municipalites and departments. There were clean audit opinions, but the question was what was being achieved. There were municipalities and departments with clean audits, who did not have a good service delivery track record. She asked if something was being done beyond audit information, and if other factors were being looked at.

The Minister replied that performance was hard to measure. Oversight of finance management had to be strengthened. It had to be asked if that was translated into service delivery. The Appropriations SC had to look into spending in terms of strategic objectives. Targets had to be aligned and made measurable.

Dr Khoza referred to the rollout of the standardised account. It could introduce yet another set of standards, even when the current standards had not been adhered to thus far.

Mr Shivambu remarked that there had to be a radical rethink of division of revenue principles, considering the inherent incapacity of local government. Municipalities were spending 80% on salaries. The question was how long it could be sustainable if less than 10% of national revenue went to local government. Local government provided the most basic services. There were local governments that were permanently incapable of dealing with sewage crises. He asked what guided allocation of resources to provincial and local spheres.

The Minister responded that although only 9% went to local government, there were other funds allocated to local government, like the conditional grant. Intergovernmental fiscal relations were involved. Expenditure between spheres had to be monitored. There had to be value for money with respect to bulk infrastructure spending. Local government had to be economically active and collect its own revenue. Good citizens had to be encouraged to pay rates for services. The DFI had to assist to build towns as engines of growth.

Mr Shivambu referred to the Davis and Katz Tax Commissions, conducted from 1995 to 1999. Recommendations were ignored. Tax could not be depoliticised. There were questions around where money for development was being generated, and how best to generate resources.

The Minister replied that not all the Katz Commission recommendations could be implemented. The Davis Commission recommendations had helped small business. Time was needed to review tax policy. There had to be engagement with the SC about value-added tax. In his view, tax was politicised when it was brought into Parliament.

Mr Shivambu referred to the sale of assets. He asked what would be privatised. He asked why the process was being kept secret, and which assets had been sold. He asked about the reasoning behind privatisation. There were huge political implications.

The Minister replied emphatically that he had no intention to privatise. If assets did not help the State, it belonged to the private sector. The disposal of non-core State assets was not privatisation.

Mr D Van Rooyen (ANC) remarked that the projected stabilisation of debt service costs was a tall order. There were not many options for revenue generation. The social security system and infrastructure investment had to be maintained within a shrinking revenue base.

The Minister agreed that maintaining and lowering debt was a tall order. The revenue sharing process was a slow process.
 
Mr Van Rooyen noted that Eskom and other SOCs did not report to the NT. He asked about the NT commitment to such entities.

Mr Van rooyen remarked that there was a lack of state capacity to coordinate service providers. It was not advisable to rely on consultants.

The Minister replied that expenditure on consultants did not indicate a lack of State capacity. Permanent capacity in the Treasury would not be cost effective. The GTAC would review provincial DFIs.

Dr Khoza asked what assumptions debt stabilisation was based on.

The Chairperson said that it was worrying to not know what had been going on at Eskom over the preceding two weeks.

The Chairperson referred to the standardised charge account. There was unevenness regarding small municipalities and metros.

The Chairperson said that there had to be clarity about radical structural transformation. SANRAL was supposed to be monitored. He asked what was happening in that regard.

Mr Fuzile replied that there were currently new key players and a new approach. The approach to the mechanics of tolling was currently different. National and provincial government was sharing the cost.

The Chairperson referred to the financial performance of municipalities. He asked if Internal Development Plans (IDPs) were getting more consistent with the NDP. It was actually a Cooperative Government and Traditional Affairs (CoGTA) issue.

Ms Kekana asked about a structure to evaluate IDPs. She asked if NT and CoGTA interacted on the matter.

Ms Tobias asked which departments were responsible for the Planning Commission.

The Chairperson answered that it was CoGTA and the Department of Public Service and Administartion (DPSA).

Dr Khoza advised that the SC meet with GoGTA. The land question had to be resolved. The Ngonyama Trust was responsible for rates.

The Minister replied that the NT played a supporting role with regard to CoGTA, which worked with the Department of Public Works (DPW). The DPW could give information about rentals.

Dr Khoza remarked that the position of the NT was strategic. There could be no fiscal consolidation without it.

Mr Fuzile responded that the NT looked at the long term fiscal framework.

Dr Khoza advised that issues of productivity in the public service be put on the agenda.

Mr Shivambu noted that the SC had to be briefed on price transfer, and that it had not happened.

The Chairperson told Mr Shivambu that a letter had been sent to him that spoke to the issues he had identified. Meetings with Mineral Resources and Energy had indeed taken place.

At this point an exchange took place between the Chairperson and Mr Shivambu. Mr Shivambu kept protesting that his concerns had not yet been addressed, and the Chairperson tried to convince him that it had indeed been done.

Ms Tobias said that the exchange had been unfortunate. Mr Shivambu had suggested that the matter be discussed in Committee. But there had indeed been two meetings, one a joint meeting with the Mineral Resources Portfolio Committee, which Mr Shivambu did not attend.

The Chairperson noted that the fiscal framework had been discussed before. What remained was to look at NT, with respect to how it performed as a department. Departmental operational efficiency had to be looked into.

South Afircan Revenue Services (SARS): Strategic Plan 2015/19 and Annual Performance Plan 2015/16
Mr Tom Moyane, Commissioner, presented on the entity’s Strategic and annual Performance Plan.

He mentioned that the entity would continue to do the following:

●Continue to improve the way it operated and works to meet the growing needs of taxpayers , and reduce administrative burden
 ●Continue to invest in its employees to serve taxpayers better and to address sophisticated tools and schemes used by those taxpayers that want to avoid/evade paying their taxes
●Continue to collaborate with all of our stakeholders to strengthen our compliance efforts
●Continue to apply risk management principles to focus our efforts on areas where we will have the biggest effect on compliance

To increase customs compliance, SARS would:

●Implement the Customs Control and Customs Duty Acts, 2014
●Improve management of bonded warehouses - During 2015/16 we will introduce: mobile security system; off-site tracking & management system; a new case management system
●Deploy additional cargo/container & baggage scanners at our key ports of entry
●Implement the Model Port Pilot project at selected ports of entry
●Continue to facilitate implementation of the One Stop Border Post between SA & Mozambique, and SA & Zimbabwe

To increase ease and fairness of doing business with SARS, SARS would:

●Deliver an integrated complaints management process for taxpayers
●Deliver an improved Dispute Resolution Management Process
●Deliver an improved Tax Clearance Certificate process and system
●Partner with the DHA through Thusong Centers for co-locations
●Establish SARS “kiosks” at selected shopping malls and centres

To increase cost effectiveness, internal efficiencies and institutional respectability of SARS, SARS would:

●Continue with the migration of SARS’ accounting practices to Generally Recognised Accounting Practice (GRAP)
●Deliver and implement a revised Code of Ethics and Conduct
●Implement a new HR framework including a new Talent Management Model
●Implement a revised operating model to eliminate duplication and improve efficiencies and effectiveness of our business practices
To Increase ease and fairness of doing business
●Establish a Customer Centric Approach (Service Charter)

Discussion
Dr George referred to risks related to State delivery and reputational risks. There was a succession risk related to the continuity of organisational leadership. It could not depend on individuals.

The Minister replied that there was capacity. The APP spoke to the succession risk. There was a depth of skills. There would not be a vacuum if executives left.

Mr Moyane added that the last time SARS had modernised had been six or seven years before. Systems were being reviewed. An internationally reputable entity was providing ICT skills. Skills would not be lost.

Dr George said that it had been known in 2009 that there was a rogue unit in SARS. He asked if the SARS was collecting from whom it should. The relation between SARS and the individual was personal, but a dented reputation could cause people to be less compliant.

The Minister replied that SARS was collecting all it should, also from the politically connected. All were taxpayers. 90% of taxpayers submitted electronically. There was more integrity in the systems. There would be a report at the end of the month on SARS performance. An advisory committee was set up to deal with media reports. Members of the committee included a judge and an advocate.

Mr Van Rooyen noted that in previous years it was said that there would be deployment of baggage scanners, but there was no money for that. He asked what had been procured. He asked about the internal capacity of SARS to deal with global terrorism. Service providers were appointed outside the country. He asked if ownership and beneficiation had been taken care of. Transfer of skills had to address policy priorities.

Mr Moyane replied that the enforcement aspect of global terrorism was shared across the justice and police cluster. SARS capacity was vested in customs. Border posts had been visited to look at scanners. A large volume of goods passed through the Lebombo and Beit Bridge posts. There was illicit trade at Durban and Maseru.

Ms Kekana asked about time lines for scanners. The Lebombo pilot project had been going for a long time. SARS was not the only participant. Other departments had to come in. The pilot now focused on the Lebombo side. When the SC did oversight it had to know what it was looking at? Timelines were needed to deal with the matter.

Ms Kekana replied that a conducive environment for SARS personnel at border posts had to be created. There was a need for recruitment and skills retention.

SARS Acting Chief Operations Officer, Mr Jonas Makwakwa, replied that there was a project that looked at what could be done to make people safe. There was beneficiation from international companies. There were plans to ensure that when service providers left, skills would remain intact.

Dr Khoza said that the global environment impacted on revenue collection. There had to be risk analysis of import and export aspects. The US trade agreement had an impact. She asked how the SC was involved from a tax perspective. There were internal customer forces that had to be lookied at.

Dr Khoza said that there had to be a comprehensive HR report in terms of age analysis of SARS personnel. People were retiring without incoming people being prepared to take their places.

Mr Shivambu referred to the deployment of scanners. SARS had to detail what was done so that there could be oversight of concrete things.

Mr Shivambu noted that there had been a high level report to the African Union in January 2015, of how a multinational company had avoided two billion dollars in taxes. Offices did not handle central commodities. South African authorities could claim back. There was a crisis of aggressive tax avoidance. There was a lack of necessary capacity for tax revenue. It had to be considered what Argentina, Brazil and Equador were doing. Resource dependent countries had the problem of multinationals exploiting them. Natural resources paid almost nothing in taxes. He asked what could be done to combat that.

Mr Makwakwa replied that a mobile business administration unit had been set up to deal with small cash businesses. It could be detected if a person had legal status. Foot soldiers from SARS went to see if businesses were registered. It was run in conjunction with the police and Home Affairs. Baggage scanners were quick and easy to install. There were scanners that could go through a large cargo. Scanners were needed at Cape Town, Durban and Beitbridge. The process would be completed in 2016/17. The cost was R210 million.
 
Mr Moyane added that SARS as a tool of the State dealt with colleagues in neighbouring countries. There was R30 billion imports of chicken and poultry. The loss of revenue could be huge. The DTI and the NT could assist. The bank industry was a cash economy. SARS could benefit from the local economy.

The Minister added that SARS could not advertise the amount of revenue collected. South Africa’s internal capacity was internationally recognised. There was an automatic exchange of information with multinationals.

Dr Khoza referred to the challenge of global tax. It was alleged that there were big players who did busineess with government, who were guilty of tax evasion. She asked what was being done about that internally.

The Chairperson asked members to say what had to be done on oversight visits to SARS and the Financial Stability Board (FSB).

Mr Shivambu advised that ports of entry be visited.

The Chairperson adjourned the meeting.