Division of Revenue Bill; Second Adjustments Appropriation (2023/24 FY) Bill & Gold and Foreign Exchange A/B: FFC briefing

Meeting report

The Chairperson welcomed everyone present and acknowledged apologies. He welcomed the research interns from the Financial and Fiscal Commission (FFC) and commended them for bringing more young people into the fold. He found that many misunderstand the work of Parliament.

Introductory Remarks by the Chairperson of the Commission

Dr Patience Mbava, Chairperson of the Commission, remarked that this year marks 30 years of South Africa’s democracy, and the FFC has been advising Parliament and provincial legislatures. The Committee has been a key custodian of the inter-governmental fiscal relation system. Thirty years later, it is evident that this system has been resilient and remained transparent, as seen by the Committee's work.

The Commission is a key player in the budget process, as Chapter 13 of the Constitution prescribes. It advises the government on equitable share, revenue allocations, government guarantees, provincial taxes, municipal fiscal powers and functions, envisaged fiscal laws, and other laws. All these pieces of legislation can only be considered after the Commission's recommendations have been considered.

Briefing by the Financial and Fiscal Commission

Mr Chen-Wei Tseng, Head of Research, FFC, presented the first part of the presentation. The brief touched on the analysis of budget 2024, the State of the Nation Address, the Gold and Foreign Exchange Contingency Reserve Account (GFECRA) Amendment Bill as presented by the Minister of Finance, the amendments to the 2024 Appropriation Bill, as well as the 2024 Division of Revenue Amendment Bill at the provincial and local government level.

Overview of 2024 fiscal framework

• The budget deficit for 2023/24 has been revised upward to 4.9% of GDP compared to the previous estimate of 4% in the 2023 budget. A consolidated budget deficit of 4.5% is projected for 2024/25, narrowing to 3.3% of GDP by 2026/27.
• Revenue projections for 2023/24 are R46.5 billion lower than 2023 budget estimates. The 2024 Budget projects a main revenue of R1815 billion for 2024/25, which is R53.1 billion less than projected in the 2023 Budget. Significant shortfalls in revenue projected over the MTEF reflect weak economic conditions and lower consumer demand, resulting in corporate tax and value-added tax declines.
• Non-interested expenditure has been revised downward by R6 billion for 2023/24 compared to the 2023 Budget. Over the MTEF, consolidated non-interest expenditure is projected to contract at an average annual rate of 0.5% in real terms.
• The gross borrowing requirement will accelerate from R332 billion in 2024/25 to R424.7 billion in 2025/26, before declining to R279 billion in 2026/27. To offset a portion of the borrowing requirement, the government has introduced the GFECRA settlement, which is projected to reduce the borrowing requirement by R150 billion over the medium.
• The Commission understands that prudently using resources from the GFECRA can reduce the pressure on public finances and bond markets, giving the investors and financial markets a confident signal. While this improves the debt outlook in the short run, it appears to be applying a short-term solution to a structural problem. For the Commission, the focal point is the question of “whether the cost and the risk of defraying foreign exchange reserves justify the myopic relief to the current fiscal problem to address structural fiscal deficits.”
• To resolve South Africa’s debt crisis, the focus should be on tackling the underlying fiscal challenges and implementing structural reforms to achieve greater efficiency and productivity. The Commission asserts that, while drawing on reserves can provide immediate fiscal relief, assessing the short-term returns against the prospective longer-term risks is critical: to forgo the assessment is to jeopardise investor confidence, inviting substantial run-ups in borrowing costs, thus ushering in debt distress.

Recommendations

• The Commission appreciates the considerations of its recommendations made in the past 30 years by Parliament, the legislature, and government’s implementation. The Commission uplifted the first Budget of the Government of the National Unity and public finance accountability report under the negotiated constitutional order. After a prolonged recession which began in 1989, in 1993, South Africa saw spurts of growth, with 5 to 7 per cent in seasonally adjusted and annualised growth rate in output measured from quarter to quarter.
• At that time, the State Revenue Account recorded total revenues of approximately R89.2 billion, with expenditures reaching R114.7 billion. Today, South Africa's main budget revenue exceeds R1.8 trillion and expenditures amounting to R2.1 trillion, resulting in a deficit of R320.9 billion (National Treasury, 1994 & 2024). The question is whether corresponding improvements have matched these expansions in public finance in the quantity, quality, and delivery of public goods and services.
• Concerning the 2024 fiscal framework, Public-sector institutions and investment:

• The Commission recommends a comprehensive economic growth strategy to surmount these obstacles and discover new prospects for growth. The strategy should reorient the industrial policy and align it with shifting global trends and requirements. It should ignite an economically sustainable path by placing more emphasis on sectors that are increasingly in global demand, such as the production of grid-scale storage batteries for electricity and other green economy-related eco-products and position the country as a prominent figure in the fast-growing green technology market.
• The Commission recommends strengthening SOEs' governance structures, rigorously assessing their business models, and rationalising operations by divesting non-core activities. In addition, the Commission recommends speeding up the establishment of a centralised holding company as recommended by the Commission in its 2024/25 annual submission. This centralised entity would constitute a well-organised platform to comprehensively tackle obstacles of SOEs, promote strategic decision-making, and ensure unified efforts for operational and financial success.
• The Commission appreciates the strides made in terms of access to basic services since 1994. However, there is room for further improvement across a range of sectors. For substantive change and transformation to occur, there is a need to complement the hitherto emphasis on quantity of access with a focus on the quality of such access
• The Commission reiterates its previous call for indirect grants to be used as a measure of last resort. Further, to ensure that the capacity of municipalities are being strengthened to conduct their own affairs, national sector departments implementing indirect grants must devise plans and timelines for building the capacity of the affected subnational department/municipality to take on the implementation responsibility associated with an indirect grant. Timelines for the phasing out of indirect grants are vital. Finally, a stronger monitoring framework should be devised for indirect grants to facilitate improved performance management
• The Commission welcomes the investigation and efforts to turn around the performance of the NSFAS. However, the Commission recommends that national sector departments strengthen proactive oversight over subnational governments and entities to ensure that early warning systems are developed to identify risks and implement appropriate mitigation strategies
• The Commission welcomes the approval of the Freight Logistics Roadmap by Cabinet in December 2023 and is of the view that the three areas of intervention outlined in the roadmap are key to alleviating the woes of the country’s freight rail and port logistics system. The FFC recommends that the National Logistics Crisis Committee (NLCC) ensure efficient and coordinated implementation of the roadmap with all stakeholders involved. In addition, the roadmap should be enacted in a coordinated manner with Transnet’s own recovery plan to ensure alignment in the objectives and timelines of both interventions
• The Commission notes the Second Adjustment Appropriations Bill and the accompanying reprioritisations
• The Commission welcomes the additional funding allocated to the National Schools Nutrition Program over the 2024 MTEF, however, the Commission recommends the strengthening and improvement of spending to ensure alignment with the grant objectives and consideration be given to linking the rate of increase in this grant to that of food inflation.
• The Commission notes and supports the piloting of a nutrition support programme within ECD to be undertaken by the National Department of Basic Education, however it recommends that once the piloting is completed, the programme should be implemented by provinces. This is in line with the Commission’s recommendation that indirect conditional grants be used as a last resort.
• The Commission notes the reductions to the Ilima/Letsema and the District Health Programme grants, the Commission recommends that the Department of Agriculture and Rural Development and the Department of Health elaborate on how these reductions are likely to affect service delivery and plans in place to mitigate the effects thereof.
• The Commission notes the proposed increase in the LGES allocation, mainly driven by the increases in the basic component. The Commission would like to emphasise the need for a comprehensive review of the local government fiscal framework to address the systemic challenges facing the sphere.
• The Commission welcomes the reprioritisation and additionality made to conditional grants over the 2024 MTEF; the Commission suggests that value for money should be actively pursued to ensure the efficient utilisation of these funds. For instance, through the District Development Model principle, this may be done by calculating the costs of municipal outputs, evaluating performance, and comparing results while being mindful of innovation to promote continuous development.
• The Commission recommends that non-financial information be included in the conditional grant reporting framework. The inclusion of non-financial information will facilitate the monitoring and evaluation of grant performance, thereby enhancing and strengthening oversight regarding the success of the interventions.

[See attached for full presentation]

Discussion

Mr Z Mlenzana (ANC) recounted that, during his activism days, he summoned the FFC to visit his community to comment on the provincial allocations and how these allocations were spent. He asked if the FFC’s brief was a desktop exercise on provincial equitable share and if the conditions on the ground level in local government were also considered.

Secondly, he commented on the management of non-expenditure and appreciated that funds were allocated for the District Development Model (DDM). He asked if it was possible to synergise the model with financial management on various issues. He felt it would greatly assist if financial management were synergised with the model.

Thirdly, he wanted to know the FFC’s views on why the government has failed to address inequality, poverty, and unemployment were linked to economic growth. Even if there was growth, it would not be recognised in the face of high unemployment in South Africa. If the fiscal budget has increased by more than 250% over the past 30 years, why has this not translated into enhanced economic activity and growth?

He further indicated that performance in infrastructure development programmes could decrease high unemployment levels. How is South Africa performing in this regard, and can the FFC critique the South African government on this? Can the FFC forecast a balance in revenue generation and expenditure? Servicing these high levels of debt needs to become a thing of the past soon.

Lastly, regarding the reprioritisation of the budget through the second adjustment Bill: how is the overall non-expenditure or over-expenditure of government departments? In the past five years, they have discussed the envisaged implementation of zero-based budgeting instead of the current baseline approach.

Mr O Mathafa (ANC) asked about the FFC’s view on wealth tax. Secondly, has the FFC conducted any research to determine whether the structural reforms proposed by the President and the Minister of Finance were realistic and responsive to the structural defects that the FFC has identified?

He agreed with Mr Mlenzana that economic growth without jobs would be meaningless. He asked if the FFC had done any analysis to ascertain whether the private sector and other stakeholders were contributing to turning around the sluggish economic growth. Many commentators or opposition parties speak about economic growth as a silver bullet to addressing unemployment. He disagreed with this opinion because, during President Mbeki’s term, the economy was averaging 4.2% growth, quarter on quarter, and inflation was at 5.7%. However, jobs did not follow that growth. He believed much more was needed to encompass economic growth with job creation.

The mandate of the Reserve Bank is to protect the currency and inflation and reduce/increase borrowing rates. Has the FFC noticed any other measure the Reserve Bank has taken to insulate the country from currency volatility? The government is often blamed for the instability of the country. He noted some efforts by the Minister of Finance in containing the sovereign debt, saying that these are instruments that can be used to contain the volatility of the currency. But what is the Reserve Bank doing about this? He did not believe that inflation targeting was the only instrument available at its disposal.

He assessed the reductions in the human settlement development grant and the reduction of the informal settlement upgrading grant on slide 12. Now, one of the objectives of this administration and the ruling party is to fight inequality – homelessness is one of the elements of inequality. If the government does not assist the vulnerable, who will assist them? Does the FFC believe that thorough assessments were done to effect the budget cuts where they are? Will the government still achieve the goals that it has laid out, including the National Development Plan goals?

He viewed the budget cuts as a spear-cutting through people with low incomes. Over and above these budget cuts, there are issues with underspending. In Tshwane, the fiscus is losing R2.6 million from informal settlement upgrades that the City cannot spend or commit to future programmes. How can underspending be addressed concerning conditional grants? Despite the programmes in the pipeline, what are the direct or indirect consequences of the R7.2 billion reduction in the informal settlement upgrading grant?

Mr Z Mmemezi (ANC) asked if the FFC would recommend an amendment to the laws to compel the public sector wage negotiations to be bound by the fiscal framework to ensure that the people on the ground have service delivery. Secondly, the government has been progressively decreasing the grants. He asked if the FFC assessed whether the grants had achieved their intended objectives. How can the grant be reconfigured to improve spending and outcomes? “We cannot underperform in expenditure while most South Africans are plagued by service delivery challenges”, he added.

Lastly, regarding the ECD for nutrition support (slide 12), does the change from direct to indirect sufficiently address the lack of economies of scale, supply chain management bottlenecks and improved monitoring and evaluation? The FFC would have heard many people are concerned about these bottlenecks.

What people expect on the ground is not happening. He added that he was also concerned about Departments' failure to spend their allocated budget—officials do not spend it on service delivery. Yet, they expect their salaries to be paid every month. Failure to spend the budget is an indictment on the government.

Mr X Qayiso (ANC) suggested that the departments failing to spend their budgets be summoned to Parliament to account. There are high levels of unemployment and poverty in South Africa. To what extent has the FFC analysed the Division of Revenue Amendment Bill regarding the State of the Nation Address? Does it address what the President has raised in SONA?

The FFC raised concerns about GFECRA, but he believed it was a principled move. Does the FFC believe that GFECRA could be utilised, or is there another framework that could be utilised in the future to address what the FFC termed a double-edged sword? It should not only serve to service debt. However, there will be returns if it is utilised for infrastructure development.

He also believed that the Reserve Bank was under-utilising its mandate, and felt it was still serving the interests of a few individuals and the previous government regime. “We need to assess how best the Reserve Bank can benefit South Africa”, he added.

The Chairperson said that the budget attempts to achieve a primary balance surplus in this financial year. Is that prudent, and are we not too aggressive in attaining this primary balance? He also wanted to know the cost.

Secondly, the FFC has indicated that depleting the GFECRA would lead to a disastrous state account balance. GFECRA is not the Reserve Bank’s money but government’s money. When the account was in deficit in 2002, the government paid R28 billion – what is good for the goose should be good for the gander. Although about R8 billion will be incurred for accessing it, they should tap into what is available when the country's financial resources are in trouble. Some believe that the money from GFECRA should be used to service the debt. He asked if the FFC was pleased with this school of thought or believed it could be used in other aspects to gain returns.

What is the FFC’s view about reprioritising money from non-performing programmes to where it is most needed? One of the biggest challenges of the fiscus is the sluggish economy, which has been growing at a very low rate—about one percent less than other countries in the continent.

He understood that only certain government departments were responsible for growth. He then asked what the local government should do to contribute to that growth.

South Africa is bestowed with all sorts of minerals and has one of the best climates for agriculture, yet it is the most unequal country in the world. “We are doing something terribly”, he lamented. He asked how the budget could assist in closing that gap.

The question of budget availability is one, but it is inadequate to address all the challenges the country faces. But what can be done to ensure that these meagre resources are spent effectively, efficiently, and used for their intended purpose, especially at the local government level?

Mr Qayiso noted that the FFC reported that the National Treasury has been beefing up municipalities' capabilities but it has not succeeded as there are still challenges of performance and underperformance in service delivery. So, what does the FFC recommend to address this?

FFC Responses

Dr Mbava appreciated the level of engagement that the Commission often encounters from the Committee. She thought the Members’ questions and comments illustrated the role of the policymaker in the sense that they are difficult policy choices, and there are opportunity costs associated with those choices. Budget 2024 is a balancing act, and tough choices must be made.

Regarding underspending by government departments, she told Members that, during the preparations for the following fiscal year, departments are part of the planning process, which requires that they prepare estimates of their expenditures. The Minister of Finance receives these. The challenge is that revenue and spending often do not correlate, and some of those department programmes would not be funded, which means that the government must borrow to close the budget deficit. When it borrows from the market, it does so at the market rate, which comes at a premium. Then, these departments receive these allocations and hoard these monies in the bank accounts. These monies earn interest, but when that interest is compared to the interest that must be paid to borrow, it is a huge loss. The big banks win in this process. They lend to the government at a premium rate and use idle funds in their bank accounts to re-lend. Essentially, the challenge is a misunderstanding from many departments, like the Department of Social Development, because some departments claim to have saved money. It had funds returned to the fiscus, which are claimed to be savings, but the Commission disagrees because the allocation of those funds came at a high cost. The interest earned is way below the premium rate paid to borrow those funds.

Mr Thando Ngozo, Specialist: Macroeconomics & Data Information, FFC, said that most of the questions he would respond to involved challenges of economic growth, unemployment, inequality, poverty and why government is struggling to address these. He explained that the economy’s comparative advantage in growth was initially based on the minerals and energy complex, which is about the linkages between electricity generation and the industries that are highly intensive electricity consumers in their production process when electricity was cheaper with no load shedding. Things have changed drastically. The country has electricity outages along with high electricity prices. Electricity supply in South Africa has become a comparative disadvantage, so the economy's key drive has been lost.

Regarding domestic factors, he attributed the lack of economic growth to supply-side constraints. In 2007, the state struggled with electricity generation, with Eskom and Transnet at the centre of challenges in energy production. These constraints affect businesses at the production level – how are they supposed to produce goods without electricity? Transportation has been plagued with challenges because of Transnet. However, big businesses have been resilient and have attempted to generate their electricity. This is also problematic because it may be passed to the consumers. Funds that would have been used to expand were now rechannelled towards electricity.

In addition to these challenges, private and public investment has collapsed, another economic driver for growth. Key economic drivers have faded, and the country now has an economy dependent on consumption, which is not sustainable. These persistent challenges have become structural and more difficult to resolve.

Regarding fiscal policy, the state has a huge debt, which is the difference between expenditure and revenue. However, revenue is linked to economic growth because the economy has to grow to generate more taxes to fund the expenditure. If this is not the case, it presents serious challenges. If this gap persists, it makes the fiscal deficit structural. However, National Treasury has been attempting to stabilise government debt through a primary balance. The primary balance has two variables: real interest rates and growth. For the equation to make sense, economic growth must be higher than the real interest rates, but for South Africa, it has been the other way around – making it difficult to stabilise public debt.

During the Medium Term Budget Policy Statement (MTBPS), the FFC had presented to Parliament that National Treasury's fiscal consultation exercise is not credible because the equation it tries to resolve does not speak to the objective. It can only do so if growth is higher than interest rates. If the economy is not growing, it creates challenges for job creation and has a meaningful impact on poverty. However, what is important to note is that the SMME (small-, medium, and micro-enterprises) sector is a key driver for job creation. SMMEs cannot cope with the current electricity outages, yet they are the key drivers for job creation.

“Regarding the GFECRA, we are not using it as a silver bullet to resolve the fiscal crisis because of the challenges he already alluded to above, he said. The country must concentrate on those challenges. “We need to start by resolving those challenges before we can start stimulating the economy for growth”, he added. The GFECRA resources would have been deployed differently if they had been intended for economic growth rather than to finance the sovereign debt. Financing debt in the context of low growth is unsustainable. It will only work when supply-side constraints have been tackled.

The empowerment of Eskom has commenced, and this is acknowledged. However, the progress has been slow. The figures for economic growth are at 0.1% growth in the fourth quarter and 0.6% for the year, which tells a story of an economy undermined by supply-side constraints, and SA is not winning the battle. Thus, how these constraints could be addressed needs to be assessed, along with how the economy can be stimulated. “We should also consider how we can redirect industrial policy to speak to the green economy and how South Africa can play a role in that space”, he added.

The Reserve Bank and National Treasury should sit and discuss the challenges the country is facing, and also utilise the GFECRA resources towards growth initiatives.

Ms Sasha Peters, Programme Manager: National Appropriations, FFC, replied that the Commission assessed the spending performance of Ilima/Letsema from its inception in 2008/9 until 2021/22. It found that the budget has been spent effectively, with 97% of the allocated amounts on average having been spent. However, spending on its own does not speak to the value that comes with it. FFC believed reforms could be considered because of the oversight over the performance of Ilima/Letsema. The grant evaluation report indicated that they only monitor 10% of the Ilima/Letsema projects being implemented because there are too many and the scope is broad. “The Department of Agriculture must strengthen that monitoring because there is no way of knowing if we are reaching the target of that grant and if the money was utilised according to the conditions of the grant”, she added.

Regarding the ECD, establishing a nutrition pilot is a big step forward concerning ECD, which has been relatively neglected compared to other aspects of Basic Education. This initiative is welcomed, but there is scepticism about whether the national Department can unblock the bottlenecks. The scepticism stems from the analysis of the performance of direct versus indirect grants, which showed that the national departments do not necessarily perform better than the provincial departments. The performance of indirect grants in the basic education sector, like the Schools Infrastructure Backlog Grant, is the funding instrument for the Accelerated School Infrastructure Delivery Initiative (ASIDI). Yet, schools still have pit latrines and have no libraries. The grant has not been able to be phased and has had to be extended numerous times because it has not met its target.

Redirecting funds from non-performing programmes provides relief in the short term, but it cannot be a sustainable long-term solution. South Africa does not have a targeted approach now; cuts are spread everywhere, including education, infrastructure, and programmes related to food security. In most cases, these interventions never recover from the cuts, and the government is not moving closer to its socio-economic development goals. Thus, there is a need to find ways to confront department capacity challenges

Mr Sabelo Mtantato, Senior Researcher: Division of Revenue – Provinces, FFC, replied that, at a broader level, the Bills formula used is component-based, and these components have weight. Funding for natural disasters or COVID-19 would be done differently and outside the provisions of the provincial equitable share.

The Commission has observed over the years that the reprioritisation of funds was previously done on underperforming programmes or grants. If the HSDG (Human Settlement Development Grant), for example, was not performing optimally in the Eastern Cape, it would have been easy to shift those funds to Gauteng if they had overspent before the end of the year. Recently, they observed that this has changed, and earmarking funds also played a role as provinces could not shift earmarked funds.

Regarding wage negotiations and the fiscal framework, he said that the FFC believes that some agreements are made over two to three years, and the Treasury provides funding through adjustments.

Mr Khutso Makua, Researcher: Division of Revenue - Local Government, FFC, replied to capacity building of municipalities that they were still facing challenges with dysfunctionality. He said that, as capacity-building grants evolved, the FFC found a lot of fragmentation of the grants. The purpose becomes generic and fails to speak to the municipality's needs in its entirety. There is also a lack of a common definition of functionality. The government has intervened numerous times to address these capacity challenges or poor performance, but it has not had much impact. However, where there is an understanding of that common definition of functionality, it is important to note capacity building through a coordinated and holistic approach that addresses weaknesses in the enabling environment. Furthermore, the organisational, individual capital levels, roles and governance arrangements should be streamlined to support local government capacity building while avoiding duplication and ensuring a coordinated approach within government.

In the 2020/21 submission on the revenue division, the FFC made some recommendations on capacity building at local government. The Commission recommended that roles and responsibilities should be defined, and governance arrangements underpinning the building of a quality local government through MoUs will improve and strengthen coordination among departments that are building the capacity of municipalities to avoid duplications and gaps between role players. It further recommended that the needs of a municipality must be considered and provide technical support for new systems. Further, the Minister of Finance must regularly assess the minimum competence regulations to determine their impact and tangible improvements.

A report from the Department of Cooperative Governance and Traditional Affairs (COGTA) last year indicated that many of the councillors and people in high positions in the municipalities in KwaZulu-Natal still lacked the minimum competencies to run them, which is problematic. To address these challenges, capacity-building grants should be implemented.

The District Development Model (DDM) is an important policy that can improve budgeting and government policy. It will involve aligning budgets with development priorities while ensuring transparency and optimising resource allocation for impactful projects. However, what is critical for the DDM is that, if government wants to realise the most positive impact from it, proper financial planning, monitoring, and accountability mechanisms will be essential.

Local government can help realise economic growth by creating an enabling environment where businesses can thrive by building infrastructure. Most municipalities lack significantly in that area. The municipal infrastructure grant is underspent by about 20%, which is extremely concerning.

An FFC Intern was also allowed to respond to some questions. She responded to how the budget could assist in addressing inequality. She said it could be done by increasing government expenditures to provide social services such as education, housing, health, infrastructure development, and maintenance. Progressive taxation (wealth tax) to redistribute wealth could also achieve this. Further, job training programmes to enhance employability opportunities, encourage entrepreneurship, and ensure transparency and accountability to prevent misuse of funds and corruption could be used to achieve equality.

Mr Tseng added that the FFC had conducted site visits in local municipalities. The most recent one was at Mangaung Municipality – to assess its agriculture and farming activities. Hence, the Commission was able to submit the farming methodology.

Jobs have been created over the past 30 years, but they were insufficient. Households and the population grew by significant margins over the past 30 years, introducing a significantly high number of new workers into the labour market. There is a need to be cautious about being stuck on this 250% (budget) growth over those 30 years as a nominal growth. Real growth is needed. What has it brought South Africa, and what have we bought with this money that has grown significantly? “We also need to assess the quality of this nominal growth”, he added.

He felt there was a great missed opportunity in infusing local development with infrastructure development and growth in service delivery for basic services. Local and regional planning integration is also lacking. Where is the IDP in considering the budget in terms of the fiscal framework? Despite the reductions in the HSDG, informal settlement upgrade grants, underperformance and underspending were issues at face value because the utilisation of the grants and improved performance will have to ensure that the utilisation of the HSDG comes with the building of roads, water and sanitation pipelines. These are not integrated because the MoUs between the department and the municipality often miss the picture in encompassing these other important factors that come with housing infrastructure.

He added that, as much as the wealth tax is about the progressive redistribution of wealth, it is also about what is being redistributed. Do we want to give out once-off money or transfer the skills and capability to sustain that transfer to translate the wealth from the Rands and cents to future income and welfare? “We have invested a lot in education and social development in South Africa, but we have never connected the two. For example, the EPWP is another missed opportunity where we are just creating jobs and fail to tie it in with other important social elements like schools, healthcare systems and access so that the person is not only fine for the EPWP 2023 and next year, they do not know where to go”, he said.

Reprioritisation is indeed about reallocation, but it needs to be targeted, well-justified and researched. As for the wage bill, there is a need to pay attention to the structure of the salaries and productivity. If the productivity deviates too far from what the government is paying, it presents a structural challenge.

Utilising GFECRA to pay the sovereign debt allows the government to use its budget for government spending instead of using a significant portion of the constrained budget. National Treasury has indicated that other mechanisms will be utilised to circumvent gaps if the exchange rate further depreciates. There is risk in using these reserves, but they are accounted for and supported.

In addition, the product value chain localisation is another missed opportunity. “We cannot grow an industry in isolation; we must consider all the inputs and, most importantly, where the product goes next. Our mineral resources and wealth are not optimally used because we export them, and they are refined in other countries, and South Africa buys them back as finished goods. If we could localise our wealth through our local systems to create jobs until they are final goods and then sell them at a mark-up price – this is how we ought to have grown and localised our economy”, he said.

Dr Mbava concluded by saying that the Committee has a huge role in informing the country's economic trajectory. Therefore, as informed by stakeholders, the decisions taken by the Committee impact the country’s economy and the sustainability of the fiscus.

The Chairperson welcomed the responses from the FFC. He further challenged the narrative that only eight million South Africans pay tax in South Africa. He said it is not true because all South Africans pay VAT when buying goods and services in the Republic. This includes taxi drivers because they pay VAT and fuel levies, among others – these feed back into the revenue fund. Everyone in that ecosystem makes money off taxis except tax owners.

One of the biggest constraints to economic growth is inequality. Inequality is not God-given; somebody created it, and that person can dismantle it.

He thanked the Commission for all its contributions, as they greatly assist in government budgeting processes.

The meeting was adjourned.