Chairperson, hon members, we thank you for being here on this cold morning in Cape Town. It has been exactly one year since the appointment of the new government and nearly three months since this year's budget was presented to the House.
Last year's financial accounts are now closed. Allow me to begin with a word of appreciation for the many thousands of public servants who have quietly and diligently kept orderly account books over the past year, contributing to sound audit reports and measurable value for money in government expenditure. The heroes of good governance are these honest, hard-working officials, and we should never forget them. The revenue at our disposal and effective stewardship of our public resources would not be possible without their ordinary and disciplined patience with double-entry record-keeping in the public accounts.
Yes, I know there is much to be done to improve public accounting, but the fact that we can meet today, six weeks after the close of the financial year, and comment on the fiscal outcome with confidence, that we have the numbers at our disposal, is testament to the sound foundations that are in place, and we must compliment the work of the Accountant-General, the Auditor-General and our Accounting Standards Board.
Chairperson, the books have been closed - yes, please, applaud them, as small a number as we are. [Applause.] The books have been closed, indeed. Revenue was about R8 billion more than we expected, and expenditure a bit less. The budget deficit was 6,7% of gross domestic product, GDP, rather than the 7,3% that was anticipated, though considerably wider, as we have explained many times, than the 1% of GDP recorded in 2008-09. The Ministers' Committee on the Budget and the Treasury has begun work on next year's Budget. Preliminary data suggest that we will see moderate economic growth this year, perhaps somewhat higher than we projected in February, but last week's employment statistics from South Africa were a sobering reminder that more must be done, more urgently, to restructure our economy and create jobs, particularly for young people. Nationally and internationally, economic and financial developments continue to present formidable challenges both to our understanding of the growth and development process and to the practical implementation of policy and government programmes.
We have been witness to some extraordinary events unfolding in Europe over the past weeks. In fact, we should be very proud about South Africa's agility, compared to the very slow responses that we have seen in Europe over the past weeks.
After months of uncertainty and inaction, the European Union, EU, has taken action to ward off a further crisis in the financial markets. Despite immense public anger and protest action, the government of Greece has been obliged to enact a 30 billion euro fiscal curtailment programme, while negotiating a 110 billion euro debt restructuring arrangement with member countries of the EU and multilateral financial institutions.
Several other European economies face the possibility of similar difficulties, and questions are being asked about the sustainability of the European Union itself. Late on Sunday, the EU and the International Monetary Fund, IMF, agreed to a historically unprecedented almost one trillion euro financial support programme.
So, on the one hand, the global recession of 2008-09 appears to be over. Many economies, including our own, have experienced encouraging growth, since then, in trade and activity over the past six months. Yet, on the other hand, there is widespread concern that the fiscal debt problems of the Organisation for Economic Co-operation and Development, OECD, countries will spill over into another financial crisis and a second wave of trade and employment cutbacks might follow.
The problems are most severe for countries that entered the recession with high levels of public debt, in several cases in excess of 100% of GDP. Between 2004 and 2007, at the height of the global boom, Greece was running a budget deficit of 6,5% of GDP, with debt averaging 106% of GDP. Today, Greece's debt is 140% of GDP, and the budget deficit was 13% of GDP last year. Compare our numbers, ladies and gentlemen, and you can proudly beat your chests.
Though we are not in this position, we need to take a closer look at the current turbulence in global finances, because the underlying trends may hold lessons for our own development path. How did the other countries get into such difficulties? The immediate crisis is typically straightforward: It is a story that has taken many forms, in many countries, over many centuries. Unsustainable borrowing is the mirror image of imprudent lending, both fuelled by an unrealistic expectation that good times will last forever. When the bubble bursts, borrowers pull back their plans and lenders withdraw credit, trade declines, unemployment rises and businesses come under stress.
But this cycle of market euphoria and disillusion is just the surface manifestation of underlying structural imbalances. In the United States, for too long, consumption spending ran ahead of production, and American consumers relied on foreign savers. The party came to an end, most dramatically in the collapse of the sub-prime housing credits.
In many European countries, the underlying problems are rather different, embedded in difficult to change social institutions: pension systems that are unsustainable because life expectancy is now much higher than it was when these benefit schemes were designed; public sector wage and employment trends that are unaffordable; tax systems that have failed to keep pace with business modernisation; and industries that have been left behind by global trends in trade and technology.
By contrast, the South African overall fiscal position is in good health, and we must emphasise that. Consistent with our countercyclical stance, we were running a fiscal surplus before the crisis broke, as we've told you many times, and debt was 27% of GDP. We can, therefore, respond to the crisis - and have responded to the crisis - with a wider deficit for several years, without threatening the integrity of the public finances. We will maintain our fiscal strategy and, at the same time, address some key development challenges that lie ahead.
We have not yet made enough progress in our social security and retirement reform agenda, for instance. We also need to give attention to public sector employment, where we have made substantial improvements to remuneration and career progression in recent years. Over the period ahead, we need to ensure that we keep the right balance between paying better wages and salaries, investing in productivity improvements and employing more public servants in front-line services.
Thirdly, in growing the wider economy, broadening participation in deepening trade and strengthening our revenue base, we have recognised that a new growth path is needed, that industrial policy has to be founded on a well-considered action plan, which we now have, and that we need to do more to promote a dynamic economy, capable of responding both to domestic demand and international opportunities.
What we must emphasise, ladies and gentlemen, is that there is no shortcut to job creation. We have to work harder, more intensively, and focus on the right issues in order to create jobs, particularly for our young people, and develop a new level of creativity if we are going to position South Africa in the new global context.
So, there is much to be learnt from the international experience, and I hope that this committee and members will keep a watchful eye on Europe and the developments over the next few months. We will no doubt feel some of the effects of the uncertainty in financial markets and possible downturn in trade again over the period ahead. However, the primary lesson is that we must remain focused on our own long-term structural growth and development challenges. These are different in very important respects from the European or Asian situation, and we have to construct a development path that is suited to our own circumstances, taking into account our commitment to and shared interest in Africa and the region around us.
As many commentators have noted, while we have become a more integrated community over the past sixteen years, we remain a profoundly unequal society. There are too many have-nots and too few haves. What must we do to become more equal? This is the question that all of us need to take on more assertively. How do we overcome the economic gulf between rich and poor? How do we give practical meaning to our commitment to a South Africa that, indeed, belongs to all?
We should not fall into the trap of thinking that there is an easy road to this goal. Economic history is littered with examples of interventions that were short-sighted and self-defeating, policy measures that ignored their unintended negative effects. Even successful and necessary interventions require careful balancing, but there are clear signposts we need to follow, I would submit.
One is that employment is a key success factor. Income support and welfare services can contribute to poverty reduction and education is an important enabling condition, but if work seekers cannot find jobs, then the unemployment fault line remains a formidable dividing line between opportunity and vulnerability, between progress and despair. Similarly, the review of our further education institutions and the Sector Education and Training Authorities, SETAs, that my colleague Minister Nzimande has undertaken is a necessary and critical reform programme, for long-term growth and development has to be accompanied by more effective and better targeted skills development, training and vocational education.
A range of fiscal interventions is also needed, some new and some reinforcements of existing programmes. These include a countercyclical policy stance, focused especially on infrastructure investment, strengthening of the Expanded Public Works Programme, EPWP, targeted relief and income support programmes, trade promotion, capacity-building and infrastructure investment in municipalities and, more importantly, as we have said on many occasions, measures focused on youth employment. Responsibility for these and other initiatives is now explicitly set out in the performance agreements of the economic cluster Ministers with the President whose mandate, President Zuma has rightly determined, is firmly focused on job creation challenges.
I have already pointed to another signpost - you see what the cold weather in Cape Town does - with important implications for both fiscal sustainability and the long-term trend in income distribution. I refer to the still outstanding work shared amongst several Ministers and departments for social security reform and the financing of health services, but income distribution is not only an outcome of public policy and programmes; it is also shaped by social norms, remuneration practices and the exercise of power and privilege.
Extreme earnings disparities cause offence not just when they are associated with profiteering or financial malfeasance, but also when the reward for honest work seems disproportionate or weakly aligned with incentives. There is a national discourse needed, aimed at moderating high- earning remuneration levels within our large corporations, including state- owned enterprises, for the social dimensions of earnings trends can surely not be ignored in the economic calculus of risk and rewards. We are creating a dangerous culture in South Africa, and the divide between the have-nots and the haves will only grow, much to our detriment. Alongside the economic policy responsibilities we share with several other Ministries, much of the Treasury's work is focused on integrity, accountability and value for money in the use of public funds. This is an especially difficult challenge in times of economic stringency. President Zuma has called for all of us to do things differently, to ensure that we bring better services to South Africans, efficiently and effectively. This is the central aim of our budget process. In the period ahead, there will be further reforms to the budgeting system, taking into account the new performance mandates of Ministers and with a special focus on monitoring and measuring performance and progress against identified targets.
We are also mindful of the need for further progress in financial management, supply chain management, human resource management and governance of public entities. I need to express my appreciation for the work of parliamentary committees in strengthening oversight of government spending and, in particular, for the diligence of the Standing Committee on Public Accounts.
We must also thank our trade unions and other organisations for their support in our call to fight corruption. We must intensify our efforts to root out this culture of easy money. Instead, we must surely aim to be able to say: I've worked hard, done creative things, saved and invested, and made this money myself, rather than taking it from the public purse. [Applause.] Under this spotlight is a very considerable share of national income. In the current financial year, national and provincial government will spend R907 billion, 33,6% of the GDP - up from 28% just five years ago. That is a lot of money, and if we can't look after it, then we are in trouble.
Of course, the institution that really looks after our money is the SA Revenue Service that provides government with funds to finance public services that require that sufficient resources be raised from the economy to pay for these services. In this respect, the SA Revenue Service, Sars, has provided a sure foundation to our fiscus by raising the financial resources for expanded and accelerated service delivery.
In this respect, we must all thank the millions of honest taxpayers who continue to contribute to the growth and development of our country, especially in these most difficult economic conditions. It remains a central focus of Sars's work that all taxpayers should pay their fair share. This, regrettably, is still not the case; otherwise I suppose Sars wouldn't have a job. Several further steps will be taken to improve compliance in the year ahead.
Third party data from employers and financial institutions has proved highly effective in identifying cases of tax evasion, including employers withholding pay as you earn, PAYE, deductions and taxpayers failing to disclose interest and other income. Other sources of data, including the stock exchange data and registration data from other government departments, such as Home Affairs and Companies and Intellectual Properties Registration Office, Cipro, provide further scope for closing the net on the noncompliant.
Using data from the Department of Social Development, the National Prosecuting Authority, the Special Investigation Unit, and Sars, we have been able to identify 200 000 individuals who appear to be collecting social service grants unlawfully. Through verification activities countrywide, the authorities will now be in a position not only to collect taxes due from such individuals and apply the relevant punitive measures, but also to ensure that continued payments to such persons are discontinued with immediate effect, with the co-operation of the Department of Social Development.
From September this year, Sars will require all those receiving any form of employment income, including those below the tax threshold, to be registered with Sars to help reduce the scope for noncompliance. The net is also closing in on those who have sought refuge in tax havens. In the aftermath of the global financial crisis, there has been a welcome acceptance of the need for greater transparency of financial dealings. In the tax arena, a number of jurisdictions that have previously been unwilling to share information with Sars have now instead signalled their willingness to do so.
The success of collaboration between tax, financial and enforcement agencies in the broader financial and justice systems is also evident from the significant progress made in the early identification and more efficient dismantling of complex fraudulent schemes aimed at abusing the trust of citizens. I can today report that further evidence of such collaboration was demonstrated in the early hours of this morning in Durban and Pretoria where Sars investigators, assisted by the SA Police, clamped down on a company listed on the Johannesburg Alternative Stock Exchange, suspected to be involved in another multimillion rand suspected fraudulent investment scheme, involving the abuse of the trust of vulnerable citizens. This time the product is a so-called immune booster pack for HIV/Aids sufferers.
Those who seek to abuse the value added tax, VAT, system to defraud the fiscus will also be pursued intensely, as recent arrests have shown. Increased export controls, as part of the customs modernisation programme, will assist Sars in identifying fraudulent VAT refunds linked to exports.
Sars and the Department of Home Affairs have developed a real-time risk- based movement control system which significantly enhances our capability to streamline the movement of goods and persons through our ports, while, at the same time, stopping unwanted goods and people. Both Home Affairs and Sars are to be complimented on this development. It is a perfect example of co-operative governance in action. The system is currently being implemented in all key ports of entry ahead of the 2010 Fifa Soccer World Cup.
At the same time, continued enforcement actions by customs and enforcement units in Sars, in conjunction with the SA Police Service, the Directorate of Priority Crimes and a number of external stakeholders, have already made a major impact in the smuggling, manufacturing and distribution of counterfeit goods.
The Financial Intelligence Centre, FIC, continues to play an important role in helping to identify the proceeds of crime, money laundering and the financing of terrorism. In the past year, the centre identified R66 billion that passed through bank accounts in South Africa as suspicious transactions, requiring further investigation by South African law enforcement agencies.
Equally important is the work of the Public Investment Corporation, PIC, and the Government Employees Pension Fund, GEPF. The GEPF is governed by a board on which members and the state as employer are equally represented. The funds of the GEPF are invested by the PIC and during the year up to March 2009, the PIC's assets under management declined from R786 billion to R739 billion, largely as a result of what we see in the markets. In the written speech, you will see a number of examples of the excellent work that the PIC has done.
Chairperson, thank you very much for this opportunity to present some elements of what we will be doing in the year ahead, and I look forward to the debate. Thank you very much. [Applause.]
Thank you very much, hon Minister. Let me just say briefly that to chase away your cold, there was a time in the House of Commons when the Chancellor of the Exchequer was allowed to take his brand of medicine - some took whisky, some took gin and tonic, some brandy, but unfortunately we don't have that custom here.
Here's my brand. [Laughter.]
Cheers!
Chairperson, hon Minister, hon members, and distinguished guests in absentia ... [Laughter.] ... let me say that it is always important to restate what we normally consider to be obvious when we debate matters of this nature. That is to say, a budget is both a political and a financial instrument used to ensure that the policies and programmes of government are brought into effect through the allocation of financial resources in all three spheres of government. Therefore, the prosperity of the 2010 Budget lies in addressing the key priorities as outlined in the ANC election manifesto and the state of the nation address.
It is important to note that several changes have occurred in the world economy since the tabling of the Budget early in the year. The volatility of the markets is but an indication of unstable and unsustainable economic policies, particularly from the developed countries.
These rampant changes have brought about a great deal of unpredictability in the whole world economic system. However, for us the key issue is not just to understand and characterise the phenomena behind the ongoing economic challenges, whose end none of us seem to be in a position to predict, but of primary concern to us is to measure their impact on the pace and sequence of our delivery programmes so that we can take bold decisions to ameliorate or mitigate the negative consequences this will have on ordinary citizens.
It is now a known fact and universally accepted that the unfettered so- called free market economic system has failed dismally to address and respond to social and economic inequalities that continue to ravage poor nations. It is from this experience that we must forge a new economic growth path that is inclusive and state-led, because the invisible hand has forever remained illusive and a dangerous path to follow, the consequences of which only the poor and the working people can better explain to some of us who live in comfort.
Clearly, the need for active state participation in the economy is beyond debate. No government in the world today can afford the luxury of relegating itself and limiting its role to that of a regulator and only become active when it is time for bailouts of failing policies. It is not just important but critical that the prosperity of Budget Vote No 9 pertaining to the National Treasury should enhance the following: It must engender the social ownership of the country's wealth, not as a face-saving formula but as a well-reasoned economic strategy to address the imbalances of the past that continue to bedevil our people.
There is a need to foster a thriving and integrated economy, which draws on the creativity and skills that South Africans can offer and builds on the South African economy endowments to create decent work for all as well as eliminate poverty. It must increase social equality and a growing economy, which reinforce each other and constitute a positive cycle of development that improves the quality of life of all people.
It should also contribute to and advance national prosperity through a mixed economy path where the state, private capital, co-operative and other forms of social ownership complement each other in an integrated way to eliminate poverty and foster shared economic growth. It must ensure national prosperity through rising productivity brought about by innovation and cutting edge technology, labour absorbing industries, growth, competitive markets and thriving small businesses and co-operative sectors.
In the regulatory environment, the current ongoing economic crisis is, to a very large extent, due to ineffective regulatory institutions that have been neglecting their responsibilities, either due to lack of capacity or because they do not share common objectives that constitute the national priorities of our government. It, therefore, requires serious attention from the National Treasury to pay specific attention to financial institutions and regulatory entities such as the Financial Services Board, FSB, the Public Investment Corporation, PIC, and the Government Employees Pension Fund, GEPF.
Equal priority should be given to all these institutions so that the necessary capacities are developed to execute their mandates just like the SA Revenue Service and a few others have managed to do. The strategic goal of economic transformation is the material response to the clarion call of the Freedom Charter that "the people shall share in the country's wealth".
In recognising our successes since 1994, in responding to this call, we are deeply mindful of three fundamental challenges, which remain as hurdles along the road to substantive economic transformation. These are unemployment, poverty and inequality. Economic transformation in our country must ensure that a national democratic society characterised by a thriving and integrated economy, an increasing social equality, national prosperity, socioeconomic rights and a mixed and sustainable economy is achieved.
For this to happen, the state must play a central role by directing investment in underdeveloped areas and directing private sector investment in the area of productive sectors. An undertaking is a mandate to halve the unemployment rate and poverty from the 2004 levels and to substantially reduce social and economic inequalities. Binding constraints to meaningful economic transformation, inter alia, skewed patterns of ownership, production, dualism and marginalisation, were identified as needing decisive action for their elimination.
We have to deal with monopoly domination of the economy as this is seen as an obstacle to the goals of economic transformation, growth and development, and as such needs to be addressed. The understanding of a developmental state is that it is located at the centre of a mixed economy as a state that leads and guides that economy, which intervenes in the interest of the people as a whole.
The key questions that need to be asked when considering the Budget Vote of the National Treasury are the following: Does the appropriated Vote before us respond to the respective programmes that seek to improve the quality of life and the socioeconomic conditions of the marginalised people? Does it support poverty alleviation and job creation? In answering these questions, we need to trace the development of the ANC Medium-Term Policy Priorities in 2008, which influenced the manifesto policy framework, and what relationship this had with the Medium-Term Budget Policy Statement of October 2009.
The Medium-Term Budget Policy Statement clearly indicates that a substantial adjustment would have to be made in order to meet the medium- term policy directives of the ANC for the five-year period, which started in 2009. The 2009 Medium-Term Budget Policy Statement indicates that the greatest dangers are to be found in the effects of a shrinking manufacturing base resulting in a negative impact on the domestic economy.
The 2010 Budget was delivered in the midst of an ongoing global economic crisis where millions of jobs had been lost domestically. In 2009 about 870 000 jobs were lost, and as we speak right now, we are saying almost one million jobs have been lost mainly in the manufacturing sector. Whilst there have been initial signs domestically that those might be bottoming out and indicators which reflect growth in the last quarter of 2009, for the first time since 2008, this recovery will be slow. The loss of jobs and growing levels of inequality and indebtedness do not suggest that because of the growth recorded in the last quarter this will automatically have an immediate knock-on effect on job creation.
This in turn has an impact on revenue income, and early thoughts that we may be officially out of recession were dealt a blow when the first quarter of 2010 unemployment figures from Statistics SA reflected a further 171 000 job losses. The current European crisis generated by Greece's economy, which has now impacted on one of the top five trading partners in the UK, must clearly and continuously remain under the radar of the National Treasury and ourselves as Parliament.
The lessons we have to learn are that South Africa has been at the forefront of this and that the global financial architecture has to be rapidly reformed. The ANC-led government has actively been at the forefront of this for many years, and will continue to strive for the necessary radical reform of the Bretton Woods institutions, because the International Monetary Fund, IMF, and the World Bank and their subsidiaries cannot continue to claim that the festival of reconstructing the economy is a festival of rich nations.
The actions and economic policies of developed nations, underpinned by their narrow and selfish interests, have proved to be more detrimental and negative to the poor nations, particularly Africa as a continent. Developing countries were affected by the collapse of the financial institutions and have been badly hurt, both economically and socially, in spite of their prudent economic policies. We have noted that the crisis is associated with inadequate regulation and supervision of banks and other financial institutions, as I have already mentioned.
In conclusion, we need to say that we, as the ANC, support this Budget. This is based on the fact that this Budget will be used to monitor the programmes of government in its entirety, and Parliament will support that so that all government departments have the necessary capacity to keep regular and honest account of the public purse. It would be in the interest of government as a whole to manage the resources of the state in a manner that it would tolerate no corruption and no laziness, as the President of the Republic has said. Thank you. [Applause.]
Chairperson, I would like to thank the Minister and his team for the good news on revenue collection and his successful pursuit of VAT criminals. The second of May was Tax Freedom Day. The average South African taxpayer worked for 121 days to settle their annual tax obligations. This is a long time and a lot of money for people who are getting less and less in return. The social contract between taxpayers and government is fairly simple. The people should pay their taxes and government should deliver efficient and effective value for money services. The National Treasury, as custodian of the people's money, must ensure that the social contract is maintained and strengthened.
Although government talks about rooting out waste and promoting cost efficiency, it fails to act. The DA's wasteful expenditure monitor has already breached R1 billion in one year. This only includes wasteful expenditure that we have uncovered by digging through piles of paperwork, often intended to hide the most basic financial details.
In my recent interaction with a major international bank, I was informed by their economists of their view that actual wasteful expenditure by the ANC government in South Africa is at least 20 times higher than our monitor suggests. This does not inspire investor confidence, especially when our debt requirements are rapidly increasing. In assessing the effectiveness of government spending, we need to look at various macroeconomic indicators and activity in the micro economy.
Our gross domestic product, GDP, growth lags behind that forecast for the global economy. We also lag behind growth forecasts for the emerging markets and other African economies. Although the deficit on the current account of the balance of payments improved in 2009, we are still not exporting enough, given our capabilities.
Unemployment remains on the increase, and the income gap is continuing to widen. All this, despite one grand economic plan after another, compounded by the dismal failure of so-called black economic empowerment to reach the broad-base of people that it was intended to uplift into economic activity. We are still waiting for the poverty line index and for decisive action on dismantling the barriers that have left millions of our young people out of employment, education and hope. We are also waiting for details on the wage subsidy for new entrants to the labour market and action to promote literacy.
The so-called developmental state lurks ominously as it waits in vain for the state-owned enterprises to energise our economy. Eskom and the Land Bank's raid on the people's money has impacted heavily on the national budget. Just imagine how much service could have been delivered to the people with just a fraction of R43 billion. For how long are the people expected to wait for service delivery, while the ANC government pours the people's money into the trough so that its cadres can feast while the people become more and more restless and impatient? They will not wait forever. Fortunately they have a viable alternative in the DA, achievable through the ballot box.
The National Treasury also needs to explain to hard-working taxpayers why extremely beneficial electricity pricing arrangements are permitted for some, while the average South African household struggles with the double burden of spiralling tariff increases and tax payments to finance transfers to Eskom.
More than a year has elapsed since the 2009 national election and we still have no clarity on the direction of economic policy. The Minister of Economic Development has established an advisory panel to produce papers on micro and macroeconomic matters. The Minister of National Planning has established a National Planning Commission to develop a long-term economic plan.
The Minister of Economic Development claims that his advisory panel will make recommendations to the National Planning Commission. This seems to ignore the fact that the purpose of the National Treasury's programme 6 is to provide specialist policy analysis and advisory services in several areas, including micro and macroeconomics. This is not cost-effectiveness.
My parliamentary question on the cost of the so-called Harvard Papers, commissioned in 2008 and largely ignored, was never answered. Why is it so difficult to understand that economic stability is strongly influenced by sentiment and that positive sentiment needs certainty? The ANC government talks about the need for consensus on a long-term economic prosperity plan, but then it sends out mixed and confusing signals. Obviously, this is a reflection of the confusion in the ANC about what its various factions want to achieve.
A clear example is that of nationalisation. President Zuma told the world and Parliament that nationalisation is not ANC government policy. He was directly contradicted, without correction, by the ANC Youth League president, Julius Malema, who is calling for the nationalisation of everything, from mines to banks, without any understanding of what this does to investor confidence, let alone any understanding of the public financial implications.
These contradictions are like a virus infecting our economic growth prospects and are playing directly into the hands of those who do not have the interests of ordinary South Africans at heart. The noise around proposed improvements to governance structures at the SA Reserve Bank is far louder than it would have been had calls for its nationalisation not been made. Parties intent on raiding our 40 billion US dollar national reserves, the people's assets, have their case strengthened by the noise on nationalisation, generated by fools who have no understanding of even the most basic principles of economics and finance.
The Minister of Economic Development has proposed that pension funds should be forced into apartheid-era prescribed assets in the form of development bonds. The Minister of Finance said that those bonds were not necessary. Pension fund members need clarity on what is actually intended. They also need to know about progress being made on long-awaited social security and retirement reform, especially on plans for a National Retirement Fund and whether this will be another pot for government to underwrite its wasteful spending.
Billions of rands were stolen from pension fund members when the Financial Services Board, FSB, failed to properly govern surplus apportionments during pension fund transfers in the 1980s and 1990s. The FSB needs to be strengthened to ensure that it can properly protect pension fund members and other investors. The National Treasury must ensure transparency, accountability and sound financial controls in the management of the country's public finances.
Approximately 60% of the people's money is spent on procurement of goods and services through the tender process. The rise of the so-called tenderpreneur clearly demonstrates how badly the procurement process is broken. Tenders worth hundreds of millions are awarded to tenderpreneurs who then outsource the work at a fraction of the amount awarded and steal the difference.
The National Treasury does not have this problem under control. The database for tenders awarded is not maintained, nor is it audited. The register for tender defaults is empty. In our report to Parliament, the Standing Committee on Finance undertook to engage with the National Treasury on the procurement and tendering reform process.
In particular, the Prevention and Combating of Corrupt Activities Act, Act 12 of 2004, needs to be amended to state that parties found guilty of tender default must, not may, be named in the register, to prevent them from perpetuating their crimes as they are doing now. A fairly simple way to apprehend those who are stealing the people's money is to subject known tenderpreneurs to lifestyle audits. Our committee has recommended that Sars should put a programme in place to identify the mismatch between declared income and actual income of individuals in the economy who do not pay their taxes.
Al Capone, the notorious American criminal, guilty of many offences, was finally brought to book on charges of tax evasion. This is a very powerful tool and Sars must not be inhibited from its ruthless pursuit of economic criminals, irrespective of their political affiliation. We will never know whether a report, circulated in the media and detailing a so-called ghost unit at Sars established to place various ANC politicians under surveillance for tax evasion, has any substance in reality. But we do know that ANC politicians have benefitted from the abuse of the tender process and have lifestyles that do not match their incomes. Those parasites must be identified and stopped.
Sars is often accused of bullying law-abiding taxpayers whose cash flow sometimes inhibits their ability to settle their tax obligations. This is misguided, because payment arrangements can usually be agreed upon. Sars has, of necessity much power, but must not forget that it is a servant to the people. Sars needs to listen more carefully to its customers when it consolidates its services. Our committee has recommended that Sars should provide it with its consolidation strategy so that we can ensure that effective communication takes place before its office consolidations are implemented.
Government has committed itself to a review of the business and funding models applicable to the state-owned enterprises. Hopefully, this will be completed honestly and realistically to ensure that the drain on public finances can be plugged. It is only a matter of time, hon Mufamadi, before the ANC realises that the so-called developmental state model cannot work and that government's role is to facilitate economic activity and not to control it. The economic model, as envisaged by the DA's open opportunity society for all, can create a virtuous cycle of prosperity for all and is the only viable alternative.
In conclusion, the DA would like to thank the National Treasury and Sars for their service to the people of South Africa. Your contribution to the well-being of our economy is noted and greatly appreciated. I thank you. [Applause.]
Chairperson, the recent financial crisis has demonstrated to us the interconnectedness of financial markets and instruments. This time everyone was correct in blaming this on greedy Wall Street operators exposing and exploiting the free market system.
It came as no surprise when the weaknesses of markets around the world, and now governments, were exposed and the models of John Keynes had to be hastily reintroduced to rescue and stabilise markets. From that moment on everything changed and the free market will never be the same again.
Let me remind this House how deep the recession was - we are still feeling aftershocks and economies are hesitant to react over positively. Strangely, this recession, like those in the previous 30 years, did not originate in emerging markets, but in the most powerful country in the world, the USA, and then it spread rapidly to Europe and Asia. The USA lost $250 billion worth of loans. In 16 months stock markets in the USA lost $26 400 billion. The capital loss was 95 times the gross domestic product, GDP, of this country.
In other words, it wiped out wealth equal to the annual GDP of 95 countries the size of South Africa. South Africa was slightly better off because of conservative financial regulations but was nevertheless hit hard, and it will take us another five to six years to regain heavy losses, according to Clem Sunter.
Prof Estian Calitz wrote a good perspective in the publication discourse on the recession, stating that "the fallibility of markets had required government intervention to restore confidence". This recession has exposed the shortcomings of human knowledge about human behaviour. According to Calitz, we have witnessed:
... the inadequacy of our economists' understanding of how economies function and their ability to credibly predict and prevent major crises!
He concludes by saying:
The fact is, we as humans still do not know how to protect ourselves against harmful collective behaviour in its unpredictability.
In the words of the Pogo principle: "We have met the enemy and it is us!"
This brings us to a sensitive topic, and I would like a response from the hon Minister. According to a report compiled by Dr Philip Theunissen of Computus, he has studied and surveyed 326 companies in this country, and he found that the salaries of CEOs in South Africa are out of control.
Despite the recession South African CEOs were still able to double their normal annual earnings. It takes the average CEO three months to earn more than R1 million. Chief executive officers still earn twice as much on average as the President of the country, and three times more than Cabinet Ministers - only salary wise. They earned ten times more than a director-general in 2009, while they earned 106 times more than a cleaner in the Public Service for the same year. Seventy eight percent of CEOs earned more in a month than the average worker earns in a year. All of this put pressure on the ever-increasing state wage bill, and it is setting a bad example in terms of expectations.
Banks in South Africa, like in the UK and the USA, are paying their CEOs higher than normal salary packages. Bloomberg has reported that Nedbank's CEO earned R43 million in 2009, Standard Bank's CEO earned R18,2 million and ABSA's CEO earned R13,5 million.
In all three examples their salaries were just below R5 million, but add the rest, the bonuses and the share options, and then it becomes ridiculous. Dr Theunissen has further found that neither the performance of the individual companies, nor the size of the company, influence the size of the salaries. No single business factor has emerged in his study as a main factor for the determination of salaries.
Why does someone who earns more than R5 million in salaries alone want more when he or she is already working in a stable low risk environment? When a company is listed on the JSE there should be some sort of a cap on remuneration packages. I do not have the time to argue the case for or against share options, but there are some ridiculous examples in our economy. Hon Minister, the remuneration committees of companies are not doing their jobs and they are not sensitive to the wide gap between CEOs' salaries and those of workers. They are also not sensitive towards the poverty gap in South Africa. And if boards of directors are not responding to this challenge, is it not fair to pose a question: Who do they want to do the job? Do they really want government to step in?
This greed and sickness of high salaries has been contagious - state-owned enterprises are being paid, salary wise, even more on average than their counterparts in companies! Let us not even talk about deputy CEOs and other top management officials or municipal managers. Something is wrong and possibly the hon Minister Hogan will set the example with her investigation about these SOE salaries; this might just become a guiding principle for JSE-linked companies.
In conclusion, we have seen that unchecked building up of debt levels is not sustainable in either the private sector or the public sector. Most countries will have to reduce their debt at least to levels prior to the crisis. According to JAC Laubscher of Sanlam, South Africa will need a required adjustment in the structural primary budget balance, between now and 2030, of 3,8% of GDP to make sure that our debt level will be around 40% of GDP.
In the new book recently published about Barack Obama, Race of a Lifetime: How Barack Obama Won the White House, there is a lovely story about fellow Senators asking Hillary Clinton why she was attending so many fundraising events and other commitments in Chicago - that was in 2004 when Barack Obama was still a Junior Senator - and she replied: "Didn't you know there is a superstar in Chicago?"
Minister, we wish you many superstars in the Treasury with the big fiscal challenge ahead of you and to keep our debt levels under control. We also wish Bafana Bafana lots of super goals. [Time expired.] [Applause.]
House Chairperson, we wish to thank Minister Gordhan for having heard us in respect of the perverted nature of the Reserve Bank. His draft Bill is a small step in the wrong direction, but, at least, for the right reasons. The Reserve Bank remains a fiefdom, acting in the interest of a few. The strength of the rand, in spite of both the Minister of Finance and the Minister of Trade and Industry agreeing on the rand having been devalued, proves this.
We will engage the Minister more on this issue as the Bill gets discussed. I now wish to point out that the scope of these discussions must be broadened to consider a reform of the monetary system, failing which we will not even have begun to deal with the root causes of inequality and poverty.
I suspect that in Minister Gordhan's chest, a socialist heart beats hard, as it does in mine. But I am also a libertarian. We must grow out of the nineteenth century model and define a 21st century path towards the emancipation of the socially oppressed. This path is not about creating a proletariat state, but rather a state of bourgeois citizens with decent and dignifying sources of employment - a very large bell-curved middle class with small fringes of poverty and extreme wealth at its ends.
Yet the Minister told me in the committee that the priority is to take care of the poor and not the middle class. Where is the poor going to grow into, if not into the middle class? Looking at where we are currently and where we are moving towards, one almost suspects that, in adherence to a nineteenth century strategy, the conditions for a popular uprising are progressively being created.
We have an unemployment rate of more than 25%, which will grow dramatically after this opium-like soccer extravaganza is finished. It has dislocated so much of our scarce resources with little or no compounding long-term financial benefits. The nation's debt is being raised from R526 billion to R1,3 trillion by 2013 in the hope of stabilising it by 2015 on a deficit of revenue over expenses limited to 4% of gross domestic product, GDP. If it grows at the same rate, by 2015 the debt will rise to R1,7 trillion, with the possible annual debt servicing cost nearing the budget of education. These figures do not include the explosive and skyrocketing municipal debt. The only way of servicing this stabilised budget with a deficit of 4% of GDP or starting to repay the debt is through raising taxes, cutting expenditure, and hyperinflation, unless we believe in a miraculous vast broadening of the tax base flowing from a not foreseeable period of immediate economic prosperity.
We are heading for higher taxes and inflation, no matter how strongly one denies it. Eskom has told us that it still requires an additional R200 billion in funding, and has no plan to meet its costs beyond 2017. There was no reason for us to borrow from the World Bank for the present financing, but it was expedient for the fiscus to keep this as a merely contingent liability. The next financing will undoubtedly be done through taxes. Eskom will also require additional inflationary tariff increases over and above the absurdly high one it has just received.
Minister, there are about five million taxpayers - this includes all the members of this House - who support a population of 50 million, most of whom receive one or more items of social assistance.
Proportionally, we are one of the largest welfare states on the planet. According to a recent KPMG report, we are subjected to some of the highest personal income and corporate taxes in the developed and semideveloped world. Even Sweden has a corporate tax lower than ours to balance its high personal income tax. Being at the top of both such tax categories is unheard of.
Rightly or wrongly, the five million taxpayers have to use the after-tax money on private security, private schools, private retirement funds and private hospitals. Their tax money doesn't provide them with satisfactory policing, education, social security and health care. We parliamentarians have even passed a law to make sure that we do not go to public health facilities for which we will not need medical insurance.
The present fiscal policies will push vast segments of the middle class into poverty or conditions in which they will not have a significant disposable income. [Time expired.]
Sihlalo mandikhahlele kuwe, kwiinkokheli ezisuka kwiSebe lezeMali ezikhokelwe nguMphathiswa uGordhan neSekela lakhe uMnu Nene, kuMlawuli-jikelele weli sebe, nakuwo onke amagosa eli sebe kunye neendwendwe - ukuba sele zifikile kuba ingathi bezingekabonakali ngokuya bekuthetha usihlalo wekomiti.
Ezinye zezinto eziza kwenziwa nguNondyebo weSizwe, njengoko zicacisiwe kwisahluko sesi-2 soMthetho woLawulo lweMali yoLuntu, kukuqinisekisa ukuba imali kunye nezixhobo zaseburhulumenteni ziphathwa zize zisetyenziswe ngendlela efanelekileyo.
Indlela ekuphathwa ngayo izixhobo zikarhulumente ixhomekeke kwizinto ezininzi ezifana nezoqoqosho, imithetho yezoqoqosho nenkcitho-mali. NgokukaNondyebo weSizwe uqoqosho luza kukhula ngomyinge oyi-2,3% kulo nyaka, lusiya phaya kwi-3,2% ngowama-2011. Iziqhamo zokonyuka kwamaxabiso zikwizinga elifanelekileyo. Ezoqoqosho nezorhwebo zomhlaba ziyonyuka kwaye ezemisebenzi zikwizinga elingaxhalabisiyo noko. Inzala ngoku kwingxowa-mali yesizwe likwimo ezinzileyo, kwaye kulindeleke ukuba libe ku-4,9% ngowama- 2010 xa silithelekisa no-7,1% kunyaka wama-2008.
Iinzame zikaSars zineziqhamo ezihle. Iibhiliyoni ezisi-8 ezilityala kwingxowa-mali yesizwe yi-6,8% ye-GDP ngeli thuba. Kuza kuchitwha ngaphezulu kwemali engama-R845 eebhiliyoni ukugcina izinga lezinto eziphethwe ngurhulumente lisemgangathweni. Olo lutyalo-mali kwizixhobo eziluncedo zikarhulumente.
Ngokubhekisele kwizivumelwano zikarhulumente malunga nokudala amathuba emisebenzi kunye nemfuneko yokwakha ngokutsha ezoqoqosho, ezi zinto zilandelayo zibonisa ubungozi obunokuthi bubekhona kwezoqoqosho: ukonyuka kwemivuzo namaxabiso e-oli; ukugcina impahla karhulumente isemgangathweni; iimveliso ezingasetyenziswanga ziza kugcinwa zikwizinga elizinzileyo kulo nyaka uzayo; ukukhula kancinane koqoqosho lwezomhlaba kuthetha ukuba kufuneka sigcine ityala kwingxowa-mali yesizwe lingaphezulu kwe-MTEF. Ukongeza apho amatyala akhule ukusuka ku-2,4% ngowama-2009-10 ukuya ku-3,2% ngowama-2012-13 kwaye oku kuza kuba nesiphumo esibi kwingxowa-mali yesizwe.(Translation of isiXhosa paragraphs follows.)
[Dr Z LUYENGE: Chairperson, let me salute you, the leaders from the Department of Finance led by hon Minister Gordhan and his Deputy Mr Nene, the director-general of the department, all the officials of this department and distinguished guests - if they have arrived for they had not yet arrived when the committee chairperson was speaking.
One of the things that the National Treasury will do, as illustrated in Chapter 2 of the Public Finance Management Act, is to ensure that government finances are managed in a proper manner.
The manner in which government assets are managed depends on various issues such as the economy, laws governing the economy and expenditure. According to the National Treasury, the economy will grow by 2,3% this fiscal year and by 3,2% in 2011. The inflation rates are at an appropriate level. The economy and the industry are growing globally and unemployment has not reached alarming proportions. Interest rates are now stable and are expected to be at 4,9% in 2010 compared to 7,1% in 2008.
The efforts by Sars are yielding good results. Eight billion rand is the nation's debt costs and is equal to 6,8% of the gross domestic product at this point in time. More than R845 billion will be spent on maintaining the standard of government assets. This is an investment in assets that are more valuable to the government.
With regard to government agreements about job creation and economic renewal, the following indicate dangers that could affect our economy: salary and oil price increases; maintenance of government assets; products that have not been utilised will be kept in good condition for next year; the sluggish global economic growth means that we need to keep our national debt above the Medium-Term Expenditure Framework, MTEF, and to supplement where debts have increased from 2,4% in 2009 to 3,2% in 2012-13, as this will have negative effects on the national coffers.]
With regard to its strategy, the National Treasury will focus on the following areas: It will provide the appropriate support to the economy as the global economy recovers, while reducing government borrowing over the Medium-Term Expenditure Framework, MTEF, period; support aggregate demand through its monetary and fiscal policy stance, while foreign demand recovers; have a fiscal exit strategy to prudently reduce the impact of high borrowing on future growth prospects to derive value for money in all public expenditures and enhance control measures in awarding tenders; provide sustainable long-term public finance support to critical needs such as electricity supply, public transport, community development and regional development; ensure that the new budget process with Parliament works effectively; support labour-intensive industries through industrial policy, investment in and improved maintenance of network industries; raise productivity and competitiveness by reducing the regulatory hurdles and red tape; increase access for private investment and participation in critical input markets; and raise savings and investments through responsible fiscal management.
An assessment of these focus areas shows consistency with the overall government priorities as defined in the President's state of the nation address of 2010. They must, however, be looked at against the ANC's priorities as the ruling party for the next 5 years, in particular how these affect the management of the country's assets and liabilities.
The ANC's priorities within the management of assets and liabilities and Treasury's focus on an assessment of the management of these assets have to be done by looking at the extent to which they support the ANC's agenda within a developmental state.
The ANC's key priorities are the creation of decent work and sustainable livelihoods, education, health, rural development, food security and land reform as well as the fight against corruption. Achievement of these priorities will require massive resources which will result in an expansion of public spending by the state. The expansion of public spending does not contradict our new economic growth path approach embedded in the understanding of a developmental state. It is a state that will guide national economic development and mobilise domestic and foreign capital and other social partners to achieve the goal of ensuring that all South Africans, especially the poor, experience an improvement in their quality of life. This view is contained in Building a National Democratic Society, in Strategy and Tactics of the