Hon Chairperson, hon members, and colleagues that have joined us as well, it gives me great pleasure to present the National Treasury's 2013 Budget Vote for the consideration of the House. In doing so, allow me to reflect briefly on where we stand in meeting our long-term social and economic development objectives. The global economic outlook is still depressed, and so our own efforts to strengthen economic performance remain critically important. I will say a few things about this challenge shortly.
Even in the currently depressed environment, in which growth is lower than we would like and the revenue outlook leaves little room for fiscal expansion - including increases for Members of Parliament, as somebody approached us - we are continuing to make progress in the service delivery programmes that are central to development and transformation. Social and economic progress is best measured over the long term.
In the past 19 years, we have seen substantial advances on several fronts. Let's reflect on some of them: Our economy has grown by over 80% since 1993; national income per capita has increased by 40% in real terms; total employment has increased by more than 3,5 million since 1994; gross fixed capital formation increased from 15% of the Gross Domestic Product, GDP, in 1993 to an average of 20% over the past five years; our social grants system now reaches over 15 million beneficiaries; over 3 million housing units have been built; access to electricity has increased from 50% to over 80% of the population; access to water and sanitation has similarly improved; over 1,6 million work opportunities were created in Phase I of the Expanded Public Works Programme, EPWP, and for the period ahead, it aims to achieve over 500 000 full-time employment opportunities; the new tax administration has been established in 1994 in the SA Revenue Service and an overhaul and modernisation of the tax structure and the administration itself has taken place; over R600 billion in Black Economic Empowerment transactions has been recorded since 1995; we have demonstrated our capacity to host major global sporting events; and South Africa remains a favoured destination for conferences and events.
We continue to see strong growth in tourism, and after something of a lull since 2010, we are now seeing renewed investment in tourist accommodation. Major public infrastructure projects include our partnership with Lesotho to build the Highlands Water Project, the completion of the Gautrain rapid rail link, the expansion and rehabilitation of our main airports, major national road improvements, and the expansion of power generation capacity and the rail transport that is now in progress.
The total value of infrastructure projects currently under way and in planning amounts to over R3,6 trillion. As we have done these things, we are also restructuring the fragmented public administration system inherited from the apartheid era, which we tend to forget while restoring order to the overall public finances. Public debt was reduced from nearly 50% of the GDP in 1994 to 23% in 2008 just before the recession. The main budget revenue increased from R112 billion in 1994 to over R800 billion last year, while expenditure increased from R135 billion to around R1 trillion.
You will recall that in order to table the 2013 Budget in February, I drew attention to the National Development Plan, NDP, which was published last year, and the contribution that it has made in focusing our policies and programmes on long-term growth and development challenges, and in a sense, building on the foundation that I have very briefly outlined.
We need the National Plan Development to be a catalyst of ideas, and a spur to further action in addressing the challenges of growth, employment, environmental sustainability and social cohesion, amongst many aspects. On infrastructure investment, we also have the work of the Presidential Infrastructure Co-ordinating Commission, PICC; on industrial development, we have the Industrial Policy Action Plan, Ipap; On environmental protection, we also have the biodiversity and sustainable development strategies. All these plans complement one another.
Much of the work of the National Treasury is directed at understanding and reviewing the fiscal and financial implications of these strategies and plans. This is a job that is getting more demanding every year. We have many policies, strategies and action plans.
However, what we are not doing well enough is to convert these plans into actions and implementation. The House will welcome the new emphasis on performance and measuring results, in our budget documentation and also in the Treasury planning documents and the strategic plans of the SA Revenue Service, the Development Bank of Southern Africa, DBSA, the Land Bank and other institutions that report to this Ministry, some of which will be covered by the Deputy Minister in his address to you.
Last week, the Portfolio Committee on Finance scrutinised the tabled plans and the plans for 2013-14 of both the Treasury and the SA Revenue Service. The Portfolio Committee on Finance rightly emphasised in its report to the House that not enough is being done to strengthen municipal governance and financial management. We agree.
Treasury has placed 1 800 interns in municipalities this year, and aims to expand further on this programme in the year ahead. There is one aspect that needs to be raised frankly with the House. The Pretoria Treasury can't run 250 ward municipalities. Municipalities, in terms of the Constitution, are the responsibility of municipal councils. It is primarily the municipal councils and political and administrative leadership in the municipalities that must take responsibility for what is happening with respect to financial management in municipalities.
The finance committee has requested a progress report on the establishment of the chief procurement office and steps taken to improve supply chain management processes to combat corruption. This is indeed a top priority, and a new organisational structure for this office has been agreed upon. New procurement rules will be implemented this year and steps are being taken to improve the capacity of procurement officials. There will indeed be plans to modernise systems and increase accountability and transparency.
The finance committee has also requested a progress report on provincial financial management interventions. The outcomes for 2012-13 reveal marked improvements in the financial performance of provinces in which the National Treasury has been active. The committee asked for reports on the new automated tax clearance certificate system and there is indeed progress in this regard, and on the single business registration project, which involves several other agencies as well. We will briefly cover some of the progress that has been made on each of these matters. Let me turn to the outlook for the economy.
We have to face the reality of slow growth internationally and difficult challenges in our own economy. But it is time to construct a positive narrative and to work together to implement it. There are many countries in the world that have all sorts of instability, even terrorist incursions, but when you look at the economic narrative around those countries they are extremely positive. If you look a little deeper, you will find all sorts of challenges in those countries. It appears that South Africans want to specialise in focusing on the negative. It is absolutely urgent that we start focusing on our own positive stories as I have outlined earlier in the speech. [Applause.] In this regard, let me quote John Maynard Keynes, who said:
The future never resembles the past - as we well know. But, generally speaking, our imagination and our knowledge are too weak to tell us what particular changes to expect. We do not know what the future holds. Nevertheless, as living and moving beings, we are forced to act.
In other words, despite the uncertainty that we have around the globe, we have to ask ourselves: What is it that we can do for ourselves by ourselves for the 50 million people we are primarily responsible for? The burning question for South Africans is not only how we navigate through global uncertainty and risks but can we become more resilient and globally competitive? What will it take, and can we up our game? We have much strength to build on: good infrastructure, many institutions at work, a robust democracy, a dynamic private sector, strong public finances and healthy financial institutions, amongst others.
South Africa's GDP growth, as you know, was 2,5% in 2012, is likely to be 2,7% in 2013 and, accelerating to 3,5% next year, all things being equal. Overall investment spending remained robust last year, growing by 5,7%. Consumer confidence still remains weak, and business surveys also suggest fragile levels of confidence in the economic outlook. This is likely to constrain private household consumption and business investment during 2013. The formal sector non-agricultural employment has slowed in tandem with the slowdown in growth, with just 83 000 jobs created in 2012, up 1% on an annual basis, but is nonetheless positive growth in jobs.
Labour unrest and stoppages in the mining sector contributed to much of the weaker economic performance in 2012, as we reported to the House before. In part, slower growth in South Africa reflects a weak global environment.
The International Monetary Fund, IMF, has downgraded the global GDP growth outlook for 2013 to 3,3% from 3,5% previously, although it kept its 2014 estimate unchanged at 4%. The IMF now has new terminology for global growth. It sees, what they call, a three-speed global economy with emerging markets continuing to lead the recovery, and a growing divergence between resilient growth in the United States and contraction or sluggish growth in the euro area.
While global financial conditions have improved, the outlook remains weak, with downside risks emanating from the Eurozone debt crisis, the US fiscal policy challenges and the slower growth in major emerging markets, including China, India and Brazil. These are clearly circumstances in which we need to take bold steps to strengthen economic performance.
The present uncertainty in the labour relations environment in mining and other sectors requires concerted action by organised labour, business, civic leaders and government. There is no room for complacency here; we are all in this together. If we do not resolve our labour relations challenges, we will be losers. We will see deteriorating confidence, job losses and business failures. But if we find balanced, fair and socially responsible solutions, we all stand to gain and we will see higher investment, higher employment and improvements in living conditions. This is the choice that lies before us.
Infrastructure investment is also an arena in which we need to see concerted action. This is not just about building and maintaining the energy, water and transport networks we need for faster growth, but it is also about raising our savings performance so that we can finance more rapid investment and growth. In urban development, we need faster investment in housing. Regarding rural development and agriculture, we are addressing constraints to land reform and improving support for emerging farmers. With regard to further education and skills development, there is greater alignment between the skills that businesses need and the curricula that our colleges offer. And concerning regional development and trade, we are beginning to address the issues of infrastructure and institutions across national borders. I need to stress that economic growth in our times requires new ideas and, if you like, the new heterodoxy and a diversity of approaches. In the words of the renowned economist Michael Spence:
No one has a complete formula for restoring growth. We will have to be persistent, determined, pragmatic and experimental - a mindset familiar to policy-makers in emerging economies where these complex issues are being dealt with on a regular basis.
As part of strengthening our economic performance, a sustainable fiscal policy stance remains critical. Owing to sound management of the fiscus when economic growth was strong, government was able to enter the 2008-09 recessions with healthy public finances and a comparatively low level of debt, as we know. The countercyclical response to the downturn in economic conditions has been substantial and, by various measures, was amongst the largest in the world.
From the peak of the economic cycle in 2007-08 when we were doing very well as a country, the budget balance swung from a surplus of nearly 2% of the GDP to a deficit of 6,5% in 2009-10. In aggregate, the final outcome of tax revenue for the 2012-13 fiscal year amounted to R813,8 billion, a 9,6% increase or R71,2 billion higher than actual collections in the year 2011- 12. We thank all of you for your contribution to this R813 billion. It's your taxes as well. [Applause.]
Revenue collected this year was R3,7 billion higher than the 2013 budget target. The persistence of economic weakness since 2009 has meant that government's share of the economy has remained substantial and the deficit has remained high. Countercyclicality is not just about supporting the economy and sustaining government spending when revenue declines due to economic conditions. It is also about reversing the accumulation of debt built up during difficult times when economic conditions improve, and that is the challenge that we have in the years that lie ahead. At the same time, we need to enhance our capacity to finance long-term infrastructure investments and municipal capacity.
I am pleased to report that the DBSA outlines a concerted effort to support basic and economic infrastructure development in South Africa and the region. If I get a chance during the answering part of this session, I will give you some details in this regard.
A wide range of measures have been taken to improve the environment for retirement savings and reduce costs and risks associated with financial services. A central proposal is that pension funds should transfer members' balances into a preservation fund when they change employers, as the default option, and should also identify suitable retirement annuity products for the years beyond retirement.
A harmonised tax treatment of pension and provident fund contributions and benefits is also proposed, together with higher caps on contributions. We have also proposed steps to enhance the governance of pension funds. I will shortly meet with business leaders in the life insurance industry to discuss the lowering of costs in this sector. A first draft of legislation dealing with these proposals will be published towards the end of the year.
We have taken a number of steps to improve our already world-class financial system. This includes a complete overhaul of our securities legislation. Parliament passed the Financial Markets Act last year, and the President has agreed to it coming into operation on 3 June 2013, this year. In addition, over the past year, I have initiated a comprehensive process to deal with abuses in unsecured lending. In October last year, banks agreed to put in place measures to curb excessive lending to vulnerable households and the selling of inappropriate products. The ongoing monitoring of both these measures by market conduct regulators is playing a critical role, and they need to continue the excellent work they are doing.
The National Treasury is involved in a number of areas apart from the ones that I have mentioned: infrastructure investment that supports regional integration, reducing red tape, corruption and delays at border posts, using our financial institutions to partner with businesses wanting to expand into the continent, and developing regional markets for food, energy and water together with other government departments.
Our participation in Africa-wide and regional bodies also contributes to regional co-operation: The Southern African Development Community Protocol on Finance and Investment assists in bringing about macroeconomic, monetary and financial sector convergence in this region. Reforming the Southern African Customs Union Agreement remains a priority for South Africa, to improve its contribution to trade promotion and development finance as well as fiscal sustainability for our neighbours. And trade facilitation is making progress through the creation of one-stop border posts and improved customs legislation to increase border efficiency.
The strategic plan for the Treasury covers, amongst others, changes in respect of the Chief Procurement Office, CPO. The CPO was created in response to the need to improve public sector supply chain management. The objectives of the office include the following - and the work has already began in this regard: Modernising state procurement by taking advantage of information technology; improving compliance with relevant legislative frameworks; enhancing governance, and increasing accountability and transparency in state procurement; and improving capability and the performance of supply chain management practitioners. This office has already intervened in a number of procurement areas in order to ensure that we stop the unnecessary expenditure of state money either because of overpayment or other mishaps in the procurement process.
In conclusion, I submit the Budget Vote of the National Treasury for your consideration and trust that all the parties will support the good work that Treasury does. Thank you. [Applause.]
Hon Chairperson, hon members, Minister, Deputy Minister, Director-General of the National Treasury, Commissioner of the SA Revenue Service, Sars, comrades and distinguished guests, I wish to invite you to join millions of South African citizens in paying tribute to an outstanding son and patriot of our nation, Bra Vuyo Mbuli, as he was affectionately known, whose mortal remains will be laid to rest this week.
His life story will forever remain a lesson about what it means to be a true South African, a true African, and the apogee of what it means to be human. With all the pains visited upon his family, colleagues and many followers of the Morning Live programme, let us all say, may his soul rest in peace!
Ndaa! Mudzulatshidulo, mira?o ya Phalamennde, na vhueni ho ri kandaho ?amusi fhano Phalamenndeni, ri ri mukosi wo pfala kha ?a Afurika Tshipembe ?o?he na kha ma?we mashango. Naho zwi tshi kon?a, kha ri tende, ri dovhe ri ?anganedze zwe Mudzimu a ri ?ea zwone. Kha ri takalele vhutshilo na ma?uvha e Mudzimu a mu ?ea one na mishumo mivhuya ye a ri itela yone. (Translation of Tshiven?a paragraph follows.) [Good day, Chairperson, Members of Parliament and guests present here in Parliament, today we say news has spread to the whole of South Africa and to other countries. Even though it is hard, let us again accept what God has given us. Let us celebrate the life and the days that God had given him and the good work he has done for us.]
In the preface of our Reconstruction and Development Programme, RDP, the first democratically elected President of the Republic, Tata Nelson Mandela, reminded us of the following, and I quote:
We are building on the tradition of the Freedom Charter. In 1959, we actively involved people and their organisations in articulating their needs and aspirations. In 1994, we are about to assume the responsibilities of government and must go beyond the Charter to an actual programme of government. This RDP document is a vital step in that process.
Furthermore, the RDP reminds us that democracy will have little content, and indeed, will be short-lived if we cannot address our socioeconomic problems within an expanding and growing economy. The ANC committed itself to carrying out these programmes with the support of its allies and our people.
As we debate Budget Vote 10 - National Treasury and its medium-term strategic objectives - it is important to highlight and report on how much and what progress have we made towards addressing the socioeconomic challenges to date, 19 years into democracy. It is the story of our journey, a reflection of the progress and the daunting challenges that constitute the immediate and remaining task of our government and its people. Certainly, the people of South Africa and all of us in this House have a proud story to tell.
Budget Vote 10 and its debate is about the sustainability of our fiscal framework, macro-economic policy co-ordination, sound and sustainable national budget, equitable division of revenue resources, raising fiscal revenue, competitiveness of our economy, promoting transparency and financial accountability, amongst others, and most importantly, decent job and employment creation that is underpinned by inclusive economic growth.
However, it is not what is in the plan that matters, but the will to implement the plan in order to achieve the objectives of a developmental state. The plan should be about placing at the centre of government's programmes what I call people's entitlements: decent jobs, access to heath, education, sustainable and rural development, the creation of better and integrated communities and sustainable programmes to fight the scourge of corruption. Today, I can proudly pronounce that significant progress has been made in all of the above-mentioned and other areas of focus of National Treasury. I think the Minister has covered quite a number of those areas.
Firstly, through our countercyclical policy, a healthy balance between social and economic expansion in budgets has been sustained, even under the most difficult and trying volatile circumstances in the economic and global environment. Secondly, through our macroeconomic policies, we have realised expanded sustained average economic expansion, not growth, of 83% over the 19 years of the ANC-led government. [Applause.]
Of course, the key challenges remain, and we need to answer the following question: How inclusive and redistributive has this expansion been for our people, given the high levels of inequality and poverty in our society? This remains a challenge that not only National Treasury will have to address and find solutions for, but all South Africans, irrespective of political persuasion.
We have again managed successively to establish robust, resilient and sound economic financial systems that play an important role in shaping and reconfiguring the world economic system as part of the family of emerging economies in the world, particularly Brazil, Russia, India, China and South Africa, Brics. South Africa earned its position; it was not given. We earned this position through our robust economic policies, tried and tested, and our ability to grow even under the most difficult circumstances. We have also seen the reduction of poverty levels in our households through the social grant systems that we have sustained under very difficult circumstances. The scourge of high unemployment levels in our country remains a matter of serious concern. It is important to note that the situation could have been much worse than it is today if it were not for a sustained increase in employment of more than 3,5 million since 1994. It is important to note this point.
With regard to youth unemployment, we support and appreciate all efforts that support youth employment, particularly the initiative by the National Treasury that triggered a national debate to tackle youth unemployment at all levels and in all sectors of our economy and society.
The Youth Employment Accord agreement entered into is not by any means a contradiction of what National Treasury proposed, but it is a decisive and final step in addressing what the Minister of Finance tabled in his Budget Speech two years ago as a youth wage subsidy initiative. It is important to make this point, because there are some amongst us who would want to insinuate that what the Minister tabled before was undermined by ourselves, particularly the ruling party. It is the continuation and finalisation of a very important debate that was initiated by the National Treasury. We are very proud that today we have a solution to a problem that many of us would not have had the opportunity to put forward, but only to seek to score cheap political votes around. [Applause.]
Once again, the RDP reminds us that the legacy of apartheid cannot be overcome with piecemeal and unco-ordinated policies. The RDP brings together strategies to harness all our resources in a coherent and purposeful effort that can be sustained into the future. It is in this spirit that the 53rd National Conference of the ANC in Mangaung adopted the National Development Plan, precisely because it is in line with the injunction of the Reconstruction and Development Programme. It provides a common vision for all South Africans, irrespective of their political, religious or faith persuasions, to build a common South Africa and the capacity of a developmental state.
Through the RDP, we also recognise that the ANC has committed itself, as follows: The ANC and its alliance partners have principles and policies to which we are deeply committed. The ANC is committed to carrying out these programmes with the support of its alliance and our people.
Therefore, with the above understanding, the debate around the National Development Plan is not a counterproductive effort, but part of a process to enrich the plan as we continue to implement it. It is very important that we understand that the debate is not about stalling implementation of the National Development Plan.
The global economic environment is showing some positive signs of recovery due to the concerted effort by all global players, including the US. It is showing positive, though sluggish, signs of recovery and we can safely say that the economy has transited from the 2008 crisis that characterised most of the developed economies. Most importantly, domestically, we continue to see warning signs in the mining sector, which must be taken very seriously and which has the potential to undermine investor confidence, internal revenue generation, providing an opportunity for our credit rating to be downgraded, and difficulty in terms of accessing capital through very expensive borrowing interest rates.
With regard to credit ratings, the most worrying aspect is the negative talk about us, as the Minister has said. We continue to talk badly about ourselves, creating high levels of great uncertainty and undermining all our positive efforts since 1994. I have never seen people who think about themselves like South Africans do. We need to desist and find a way to tell a story; the success story that indeed we are not creating or imagining, but one that is there, and that the South African people have created under the leadership of the ANC. [Applause.]
To cement our place as a destiny of choice, not only for investors but for tourists, the nation as a whole must be champions of a new, ruthless struggle against chaos and disorganisation in our society. Therefore, we must pay attention to the following issues: greed, conspicuous consumption and opulence in the lives of the elite. We need to enforce a culture of discipline among working people and in the private sector, and a high level of discipline, particularly in the civil service. We need to have an all- round programme to engage civil society so as to desist from aimless despair and bitterness that leads to the destruction of public property in the name of service delivery and protests for better working conditions. You can't destroy what you have in order to have something new.
As we note the positive signs of economic recovery, there are equally worrying signs that the policy on inflation targeting of the 3% to 6% band may not be sustainable as a result of high oil prices, transportation costs and food prices and, most importantly, administered prices. Despite these concerns, it is important to note that we now have the lowest interest rate in the history of our economic performance in this country over the past 30 years. It is important to note that.
Hon Minister, perhaps it is important to remind this House of what you said on the issue of the role of the Reserve Bank. I am repeating this for the second time, and I quote:
It is clear I have expanded the mandate of the Reserve Bank. It says here is the target but it is flexible. In implementing the policy, the bank must be mindful of global circumstances and of South Africa's own growth and employment needs, as well as the need to preserve financial stability and avoid creating asset bubbles The current budget indicates that it will be a deficit financed. and the concern we should continue to raise as Parliament is how and where the resourses should be deployed. We should continue to support the fact that, firstly, borrowing should be directed to real investment in the productive sector of our economy, where there is a high propensity of jobs; to poverty reduction, such as in the agricultural sector, tourism and land reform; and to stimulate growth. Secondly, we need to avoid deficit spending on current costs. Thus both in times of recession and upswings, South Africa needs to give more consideration to deficit finance expansionary fiscal policy in order to accelerate spending on development and infrastructure.
We must take this opportunity to congratulate the Commissioner of Sars and his team for keeping the home fires burning in the very difficult global and domestic economic environment. They continue to exceed, even if it is revised, revenue targets. Therefore, they continue to impact positively on our deficit spending. Whilst we appreciate their success and strategic plans, we also think it is important for their tax regime to address the peculiar circumstances of the small, medium and micro-sized enterprises sector to encourage job creation and entrepreneurship development. We need industrialists and job creators. We don't need job seekers all the time. [Applause.]
Just like Sars, the Financial Services Board has continued to grapple with difficult white collar crimes that constitute the highest level of corrupt activities that impact on the hard-earned savings of poor people and their pension funds. We have noted with sadness, in the past few years, the extent to which pension funds have been abused for self-enrichment. We urge the FSB to address this matter quickly and also to look seriously into the issue of pension fund surpluses which, in more ways than one, continues to disadvantage poor and needy families.
The recent Fidentia court case outcome and penalty meted against those allegedly involved leaves a bitter taste for those who have lost their lifelong savings. Our committee will be calling for a proper briefing with regard to this matter and we also want to know if there will be a legal follow-up on the matter.
Last, but not least, we need to pay serious attention to the fiduciary powers and responsibilities of pension fund trustees. In his reply to the debate on the 2011 state of the nation address, the President of the Republic of South Africa, Jacob Zuma, outlined the challenges ahead of us and directed that all South Africans must rally and unite behind our common objectives. He said, and I quote:
Our shared commitment is to put South Africans to work. They must find work in fields and factories, in repairing roads and building houses, in caring for children and protecting the environment. We must create jobs in every possible way that we can... 2011 must be a year of action.
Now, two years later, the hon Minister just said to us that over 1,6 million job opportunities were created in the first phase of the Expanded Public Works Programme, and now it aims to achieve another 500 000 full- time employment opportunities. What can we say, except to say, Halala Public Works Halala! Halala Public Works Halala! [Applause.]
Let me take this opportunity to thank the committee members for their hard work, and the Minister, Deputy Minister, National Treasury's senior management under the leadership of the director-general, Lungisa Fuzile, who is no longer new in this position, for their commitment and patriotic spirit in executing their work. The ANC supports Budget Vote No 10. Thank you. [Applause.]
Chairperson, hon Minister, ladies and gentlemen, during her address to the Standing Committee of Finance in April, the Reserve Bank Governor, Gill Marcus, painted a concerning picture with regard to the South African economy.
Today, we accept the challenge by the Minister that we should all write a positive narrative - although this will be problematic as the Governor warned that South Africa is confronted with a toxic mix of slow growth and high inflation and that the stagflation danger for South Africa needs urgent and thoughtful interventions. But no one in this House today can dispute the fact that South Africa's economy is facing serious challenges. The Minister has alluded to the fact that we are facing challenges in terms of implementation.
We have to successfully accelerate growth while at the same time containing inflation. Our economy is expected to grow at a very low rate, a revised rate of 2,7% in the next year, lagging far behind our peers in Sub-Saharan Africa, who are expected to grow at an average rate of 5,5%. Furthermore, the International Monetary Fund, IMF, has unfortunate news for us and has also slashed our growth forecast for 2014 from 4,1% to 3,3%.
Noting the importance of unemployment, and it being the result of low growth, hon Minister, we note the Treasury's commitment to the National Development Plan, NDP, and the achievement of decent employment through inclusive economic growth. But as the DA we are very concerned about the official unemployment rate, which has increased to 25,2% in the first quarter of 2013.
Even more alarming is the number of discouraged workers, which has increased to a staggering 2,3 million, while the expanded definition unemployment rate peaked at 36,7% nationally. Further statistics are even more alarming. They indicate that two out of every three South Africans under the age of 24 are unable to find or sustain a job. By the end of this year, our budget deficit will exceed 5% of the gross domestic product, GDP, for the first time since 2009. The effect of the larger budget deficit will be to drive government debt higher over the medium term, topping 50% of the GDP in 2016 - a very high expected debt rate.
Debt levels, including the contingent liabilities - I expect we had to have a debate regarding this figure - extended beyond 150%, indicating that debt levels could leave South Africa vulnerable if our economy declines. Treasury's projected reduction of the Budget deficit to 3,1% in 2015-16 may very well be a very ambitious target at best, given South Africa's slow growth prospects.
With regard to the important issue of inflation, it is noted that food and fuel prices have pushed headline inflation up to 5,9%, very close to 6%. Currency weakness compounded these effects and many of my colleagues today mentioned the rand trading at 5,9%. This will have compounded effects and is expected to place further upward pressure on inflation in 2013.
South Africans continue to face the burden of ever-increasing prices. Increases in electricity, fuel, food and public transport have all made the cost of living much more expensive, and unaffordable for some people. Potential e-tolling, increases in rates and taxes in municipalities and increases in the cost of water are all further concerns in relation to rising prices.
The Minister mentioned the expansion of our power generation, but Eskom has a second application to the National Energy Regulator of SA, Nersa, with regard to financing the six nuclear bills. Two Ministers spoke about this, that this is now a done deal. But what will the implications be for the economy where we had a fortunate reduction in electricity from 16% to 8%? If the second application comes into effect, it will, in effect, escalate prices to above 20%. What will the effect on inflation be? It will result in unaffordable electricity pricing, and electricity is vital for economic growth. Eskom's application should rather consider the DA's point of view, which is that we should move towards inflation-related tariffs. The reality is that the poorest of the poor are the ones hardest hit by these factors.
In order to address these challenges, South Africa needs a clear plan. We have a clear plan. It is to direct us towards economic growth and prosperity. This plan will result in the achievement of job-creating economic growth and the elimination of poverty. We have just the right plan, and it is called the NDP. The Minister has alluded to the contributions that the NDP has made in terms of aspiring to job growth. The DA supports this plan with our own growth and jobs plan released last year, making many of the same proposals as the NDP.
National Treasury has a vital responsibility to ensure that the NDP is implemented across all departments in a co-ordinated manner. We have spoken about the lack of co-ordination in terms of the electricity pricing models. We need resolve in our policies and leadership when it comes to implementation. It remains to be seen whether Treasury will have sufficient political capital to oversee the implementation of the NDP. Let me tell you why. Cosatu's stiff opposition to the proposed youth wage subsidy and Treasury's resultant hesitation in implementing the youth employment tax incentives are prime examples of successful policy blocking by the union federation.
What is really concerning about Cosatu is that it has a history of blocking policies. It blocks policies that are aimed at tackling our greatest challenges and helping the poorest and the most vulnerable. And now Cosatu is growing ever louder in its opposition to the NDP. Will the Minister and President Zuma be able to stand up, lead and implement the NDP or will it, as with the youth wage subsidy, also be held hostage by Cosatu?
The DA is concerned about the new Tax Administration Act that came into effect in October. We heed the call by Prof Dennis Davis, head of the Tax Review Commission, that we should, in fact, perhaps review this legislation. Judge Davis has raised alarm over the effects the Act may have on small businesses, and is quoted as saying: "When it comes to small businesses we have to think very carefully if this Act has struck the right balance between the rights of the taxpayer and the SA Revenue Service's powers." Judge Davis then made specific reference to transactional costs and complexities of the legislation. These are serious concerns when taking into account our objectives of making it easier, cheaper and faster for small businesses to start up, grow and create jobs. If necessary, we should amend the Act. Increasing the burden of doing business in South Africa is definitely not the way to reach the goals of the NDP.
Another potential deterrent to growth that will be closely monitored by our committee, I believe, is the proposed carbon tax with expected implementation in January 2015. In principle, the DA is opposed to any tax increases that could stand in the way of stimulating growth, but I believe we have consensus in this. We believe that the proposal could result in unintended consequences that will have a negative effect on the economy. We believe that positive rather than punitive measures should be pursued to affect the behavioural changes required to build a green economy.
With regard to the retirement reform legislation - and the Minister has touched very briefly on that - currently tabled in Parliament, we call on the Minister to note the valid arguments presented by the savings industry in opposition to the prescribed assets approach. These concerns include that prescribed assets could undermine the value of members' and policy- holders' savings. Investments, Minister, at market competitive rates do not require prescription. The primary purpose of retirement savings should be to assist savers to achieve comfortable retirements.
In conclusion, the DA's top priority remains growing the economy and creating jobs. We congratulate the hon Minister on managing South Africa's finances under difficult global circumstances. The path is riddled with new and old challenges. The map and compass to steer us towards prosperity is the NDP. Where Treasury's actions reveal a commitment to this plan, we will support it; where it doesn't, we will oppose it. I thank you. [Applause.]
Chairperson, the hon Minister posed a question to our committee last week, and today that economic growth and investment in some other countries is not even close to the financial management, media freedom or the human rights culture that we have, yet they attract far more investment, resulting in economic growth higher than that of South Africa. Why?
I think it's unfair, but there are reasons for it. Professor Seville of the Gordon Institute of Business Science - those who were there will remember - said that he is of the opinion that sentiment gets in the way big time when investors look towards South Africa.
Our first monitoring policies are world class, yet Wikipedia describes the country as the protest capital of the world. I said this this morning in the Water Affairs debate. That is the perception.
Statistics show that service delivery protests occur literally every second day, since 2008, which involves more than 2 million South Africans annually. Statistics from the commodities and currency markets tell the story, and they are concerning. The behaviour of civil society and the trade unions are tramping the sentiment that our fiscal and monetary policies are world class. Investors are worried for the wrong reasons.
The magazine Leadership reports that we have seen 3 000 protests in the past four years driven by poor service delivery. There is no value for our rand. Research shows that 80% of these protests have become violent. During the first eight months of 2012, we saw 226 incidents. Factors that were beyond the control of the Treasury are now shaping the perception of what the investors are thinking about South Africa.
Whether we like it or not, what credit rating agencies think about us unfortunately remains important. We are under review, as we are having this debate. We are two notches away from junk bond status. It's not the position we want to be in. I am making this point to make us realise that we are in this country and this boat together, all of us - the unions, the strikers, the government, the Guptas, the President, the media, the opposition and AfriForum. On the front page this morning, AfriForum attempted on a BBC Website to say that whites do not have a future in this country. What utter nonsense! What utter nonsense! [Applause.]
It is unpatriotic behaviour, but you see, we are all shaping this perception which investors have of us, and we start to think about ourselves in a similar fashion. If we do not realise that then we will be up for grabs for the wrong reasons. What should we do? I am again referring to Professor Seville. We have had our haircuts, Minister, and I think you gave us two. Now, we need a six-pack. [Laughter.] Last year, we needed a six-pack.
South Africa is growing faster than the rich countries, but slower than the poorer countries. We urgently need new partners. The Gordon Institute has conducted a study amongst 100 countries, researching 100 years of data, and they came up with the ingredients for what a country must do to develop a six-pack.
The six-packs includes the following: All your citizens must have access to education, not necessarily world class, but it must be functional and it must improve year-on-year. Health care must be universal and accessible and good basic primary health care is vital, but it must improve every year. You can judge whether it is improving or not, but I am not judging today. Population growth must be under control, not too fast, but definitely not negative - you can judge where we are. Further, savings and investment are vital for a good six-pack. On the savings side, we must remember that only households, companies and the government can save. Households are buried in debt. The state, unfortunately, had hiccups and has not set an example. This leaves only companies, and if you alienate your companies you alienate your savings.
Chile, with 17 million citizens, has 700 000 companies. South Africa, with 50 million people, has only 600 000 companies. Ninety percent of all new jobs between 1985 and 2005 came from small companies. We need more companies and less red tape in this country, then we will see investments coming.
The other ingredient for our six-pack is openness and mobility. South Africans and the residents of our trading partners must be able to move freely and have the freedom to do business wherever they want. If your mobility improves, your income improves. If your mobility increases by 5%, your income increases by 40%.
The last ingredients are policies and institutions. According to Professor Seville, it's not always the content of the policy that matters; but it is stability and the application thereof. Political stability and effective institutions are important. You break a promise if you speak with a forked tongue and you do not implement your policies - you default on these important ingredients of the six-pack. The study shows that those countries that work on the six-pack are getting better and bigger by the day. It is interesting to know that only 12 countries representing 3 billion people are in this first division of six- pack study. Nigeria is the only one in Africa. Where is South Africa? We are in division 2, the only one of the SADC countries in that division. No chance that we would have been there 15 years ago. So, we have made advances because of a golden opportunity. Unfortunately, as we stand, we do not have enough six-pack to grow beyond the 4,5%. Whether we like it or not, it is a fact in the present economic situation.
Finally, we can, but we are not going to. Unfortunately, we are seventh out of the ten fastest growing economies. Seven of those ten economies of the world are in Africa. What an opportunity! Let us join this African gym and start to concentrate on those issues which sway the sentiments and the negative perceptions about this country. We are all in this together and we must make sure that we don't drop this country for the wrong reasons. [Applause.]
Hon Chairperson, I trust we can enjoy that six-pack at about 5 o'clock this afternoon ... [Laughter.] Hon Minister, with you being the host - you and the Deputy Minister - I think we are all looking forward to the six-pack at about 5 o'clock. [Interjections.]
Let me start off by saying to the hon Mufamadi, yes, South Africa is doing well, but we can do better. And we can only do better if we recognise the challenges and deal with them decisively, and the emphasis is on decisive. It is for that reason that I appreciate the frankness of the hon Minister when he indicated that many of the municipalities are in trouble and we really need to get them out of trouble.
Let me put the horse before the cart - normally, people put the cart before the horse - and start with the SA Revenue Service, Sars. Without money, you can't distribute the money. So, Sars is the most important aspect of this Vote 10. It is also indicated when you look at the budget. Almost 37% - R9,8 billion - of the budget of vote 10 goes to Sars.
The IFP and I want to commend Sars, the commissioner and his staff on the excellent work that they are doing and continue to do. In particular, I want to say well done to them on their outreach programmes. I am very much in touch with the office in Durban and want to express appreciation for the work done by people like Ms Venessa Pather, who leads a team called Operation Taxpayer Engagement. They go out and meet teachers, policemen and ordinary citizens and talk to them about their responsibilities of paying tax and how, by paying tax, you are improving the lives of ordinary citizens in this country and improving your own life. So, that intervention goes a long way in boosting taxpayer confidence. However, it is a bit of a concern - and the hon Koornhof referred to service delivery - that in the Sars document that we received, their annual performance plan, they said the following: Perception about the quality of service delivery is equally a serious concern. Recent protests about service delivery bear testimony to this. The media has published articles questioning the need for citizens to fulfil their tax obligations, when parts of the state are allegedly corrupt or incompetent.
Sars says these factors affect its ability to achieve compliance. These factors affect Sars' ability to achieve compliance! So, we need to deal very, very seriously with this issue, and perhaps, Minister, you can tell us to what extent the whole question of corruption and mismanagement among some of our organisations leads to this noncompliance amongst taxpayers.
Another issue, I think, that Sars needs to grapple with is the porous borders. Now, it is not their problem. Borders are not controlled by Sars, but we received a briefing in one of our committee meetings that almost 50% of our borders are porous. The fences are down and people are just entering and exiting. We saw recently what happened at the Lesotho border, where people were caught with products that they were taking in through the border. Well done!
We saw here a Sars report about illicit tobacco. They said - and I was shocked to read these results, Mr Minister - there are over 10 million kilograms of raw tobacco entering Sars-controlled warehouses for export that have not been accounted for. So, we think that Sars should get more money. Sars should get more than the R9,8 billion that is allocated to them so that they can have more enforcement to ensure that people who bring in these illicit cigarettes, and all sorts of things, and evade tax, get caught and are put behind bars.
This morning I was at another meeting. One of the concerns that we have in this committee that I serve on is underspending. One wonders sometimes whether it is plan, and then money, or is it the President saying something, then money, and then plans. If you look at the rural housing infrastructure grant, you look at the Jobs Fund, and you look at many of these other areas, you find that there is gross underspending. It shows a lack of planning by these departments. I think National Treasury really needs to be on top of this so that these departments that underspend get money taken from them.
I know a colleague from the Department of Justice. I hear they constantly complained about a lack of funds within the Department of Justice. They talk about the courts; they talk about all sorts of inadequacies within the department. Let us give money to those departments and take it away from those departments that are not performing. That is something that we need to do. Regarding the support to municipalities, I was scratching my head earlier on there, hon Mufamadi. You know, you get teasers, which are questions that are difficult to answer. Many of the municipalities are in trouble. The Auditor-General has reported that only 22% received clean audits. I was scratching my head thinking and asking myself about the party that's in control of most of the municipalities. I know the answer and you know the answer. [Laughter.]
We must deal with these issues apolitically. We must ensure that the civil servants that are employed in these municipalities are capable of doing the job, because, in many instances, it is the civil servants that give the politicians a bad name. People think that the politicians are corrupt and mismanagement takes place at the level that we are on, but it is actually taking place at the lowest level, and we need to tighten up on that aspect.
We are also a bit concerned about the civil pensions and underspending. Hon Minister, I don't know whether ring-fencing is still policy within National Treasury, because for many of these things there should be this ring- fencing.
Lastly, I must say ...
While you are on a high note, hon Singh. Your time has expired. Thank you. [Laughter.]
The IFP wholeheartedly supports this vote. Thank you. [Applause.]
Chairperson, fellow members, Minister, the hon Mufamadi was correct in pointing out that the 1994 Reconstruction and Development Programme, RDP, was our inaugural democratic vision for economic growth. Later, fearing sovereignty-compromising dependence on international capital, a macroeconomic stabilisation effort the Growth, Employment and Redistribution, Gear, project came into being, which was aimed at keeping debt levels low and maintaining our national integrity.
More than a decade later, in the 2012 Medium-Term Budget Policy Statement, the National Treasury said that we need to rebuild the narrow fiscal space that we have today by stabilising our worryingly high debts levels, by ruthlessly combating corruption and by putting the economy on a growth trajectory with well-targeted reforms. Both Treasury and the National Development Plan, NDP, talk about creating growth at somewhere between 5% and 6% in the longer term. Leftist critics see the policy progression from the RDP to Gear to the National Development Plan as a narrative of betrayal - the story of how the pro-labour, expansionary, macroeconomic agenda of growth through redistribution was hijacked by pro-business, fiscally orthodox, neoliberal policies.
The NDP has also been rejected by some for its neoliberal proposals and abandonment of the RDP. This battle reflects conflict between the ANC and its alliance partner, Cosatu, over how precisely to engage with global capitalism and the labour market, in particular. [Interjections.] Cosatu styles itself as a "class-oriented trade union federation whose strategic objective is to achieve socialism". It favours economic policies that discipline capital, promote collective bargaining and minimum-wage setting and protect jobs from disruptive trade and capital flows.
For its part, the SA Communist Party prevaricates intellectually. Like Cosatu, the SACP is opposed, in principle ... [Interjections.] ... to ANC policies that have given more space to market forces, notably privatisation and trade- and capital-account liberalisation, and it has been successfully opposed to our wage-setting machinery. This has effectively blocked various attempts to boost employment through labour-market reforms or to facilitate social accords between labour and capital that seek to restrain wage growth. Now we are caught in a situation where the National Union of Mineworkers, NUM, has effectively declared war on the mining sector, making unreasonably high wage claims, while companies like Amplats are forced to restructure operations at the cost of thousands of jobs to our economy. [Interjections.]
We have an unco-ordinated policy environment lacking in presidential leadership and promoting rising labour costs in the face of tight fiscal and monetary policies and falling tariff protection. Other countries that liberalised their trade regimes under rigid labour market conditions and fiscal austerity face similar job-loss problems. Facing prospects of stagflation and persistently high unemployment, the NDP has revived the call first made by Gear for a social accord to restrain wage growth - and organised labour is, once again, mobilising against it.
Now, one consequence of this is chronic youth unemployment. Sitting at 51,6%, youth unemployment is approximately double that of the general adult population. Indicators suggest that unemployment is generally higher among young women than young men. Most troubling of course, is the number of young South Africans - 2,8 million in all - who are neither in work nor at places of learning.
However, while the left has a lot to answer for keeping people out of jobs, the right cannot expect the workers alone to swallow the bitter medicine of austerity. This government is fat with excess, and there are significant pockets of corruption. The private sector has an artificially small market of CEOs that have driven up executive pay. Universities and professional associations run cartels that restrict the number of medical doctors, engineers and professionals that are educated.
May I finish by saying that we must swallow the medicine of austerity together; consume less together; save more together; work harder together; and sell our country proudly to investors both locally and globally, together. Thank you very much. [Time expired.] [Interjections.]
Chairperson, Treasury stands at the heart of government. It is known all over that Treasury stands at the heart of all governance. Its policies directly affect the success or failure of all government programmes. Increasingly, Treasury and national government are devolving budgets and the responsibility for major national programmes to the provinces and local government.
A whole raft of critical national programmes is delegated downwards to these lower spheres of government. We must question the wisdom of this policy because the requisite capacity is lacking in these spheres of government. Daily, we read about the significant underspending of local and the provincial government levels. A cursory look at the conditional grants to municipalities bears testimony to this. For instance, Greater Giyani Municipality in Limpopo province spent R1,1 million of its R36 million grant. Buffalo City Municipality in the Eastern Cape spent just 13% of its grant and the North West province spent only 23% of the total infrastructure budget. Now, the same can be said about most municipalities in the provinces around the country. This shows the danger of devolving policy implementation before proper implementation mechanisms and capacities have been established. It is simply a waste of taxpayers' money to increase critical budgets when annually more than half of the budget allocations are returned to Treasury unspent.
Treasury must re-evaluate this policy. In addition to devolving budgets, billions of rands are wasted annually on corruption and irregular and wasteful expenditure. This occurs against the backdrop of a state that expects South Africans to pay more and more taxes and these are increasing all the time, while the taxpayers are not getting value for money.
These challenges point to the need for Treasury to improve the oversight and monitoring capacity in order to root out corruption and wasteful and irregular expenditure because taxpayers deserve real value for money. Thank you very much for not chasing me away before I have concluded. [Laughter.]
Hon Chairperson, hon Minister of Finance, Mr Pravin Gordhan, hon Deputy Minister of Finance, Mr Nene, hon Ministers, Cabinet members that are present today, hon members ...
... kuyekwaba khona isikhathi lapho ngidideka khona ukuthi ... [... there was a time when I was a bit confused as to ...]
... which debate am I in, whether I am supposed to speak in the Fiscal Framework debate or in Budget Vote No 10.
Kukhona ukudideka, mhlonishwa uGordhan ... [There is a bit of confusion, hon Gordhan ...]
... you need to teach members. There is a difference between 10 programmes that you have and the debate that we are having today and the other debate that involves the Fiscal Framework. This is with the exception of the hon Singh - at least he tried. [Laughter.]
The Budget Vote of the Treasury is a living example of the manner in which the ANC-led government is applying the constitutional principles of co- operative governance and intergovernmental relations amongst the three spheres of government. This Budget Vote practically assists Treasury in providing support to all three spheres of government so as to ensure the building of effective and efficient public finance and budget management.
The constitutional principles of interrelated governance between the spheres mean that there is a duty on each sphere to co-operate with the others for the greater good of the country as a whole. Whilst respecting the distinctiveness of each sphere, the relationship is one of relative equity within the spirit and the duty of the corporate government.
Our intergovernmental fiscal system is based on a revenue-sharing model, with provinces largely dependent on transfers from the national government, while local government partially depends on such transfers. The national government's main role is policy making while the provinces and local government perform the major roles of provision of social and basic services. The question then remains: What is the National Treasury doing? It provides public finance and budget management. I am sure the DA now understands. That is the main the role of the Treasury in this budget.
Ngimzwile uBaba uGordhan ethi ... [I heard Mr Gordhan saying ...]
... he is requesting all the parties to support this Budget Vote No 10.
Baba uGordhan, ngekhe bayixhase. [Mr Gordhan, they are not going to support it.]
I have witnessed almost all the Budget Votes, and there is none that the DA supported. [Interjections.] Now the question remains, is it true? It is very true. If you are complaining about poor service, if you are complaining about fraud - corrupt practices that are happening within, it could be in any sphere of government - those things need to be corrected and you need resources to do that. You need capacity to tame the people.
We are sitting with the people who have been voted into this House by their electorates to make sure that the services are being delivered, but they do not support anything. So, Minister, even if we like or pray, they do not support the budget. They do not support anything. They cannot support anything because they do not have policies to support. [Interjections.]
The ANC-led government ... [Interjections.] I think we need to listen to what this government has done. This ANC-led government has established what we call in-year management ...
Hon Chairperson, on a point of order: Will the hon member take a question?
Hhayi anginaso isikhathi sakho mina! [No, I don't have time for you!] No, hon Chairperson. Hon Chairperson, the member is addressing you sitting down and that is not parliamentary.
The ANC-led government has established an in-year management, monitoring and reporting system for local government. This system enables provincial and national government to exercise oversight over municipalities and identify possible problems in implementing municipal budget and conditional grants.
By the way, if you remember, when the ANC took over we made sure that we drafted a Constitution that was feasible and achievable, and within that Constitution there is what we call transparency. With regard to transparency, we would not have been able to actually share with you what we have done if it was not because of what is said in our Constitution.
It is for this reason that the state of local government finances and financial management, which is released annually at the end of June, provides a regular overview of the state of the municipality finances. If there is a need, then you will find Treasury intervening because there is a problem. Nobody has actually said within the ANC that we are perfect and our municipalities are doing well. We are aware, but the bottom line is we are doing something about it. We are aware that local government is the core phase of delivery of public services. Therefore, if there are successes that have been achieved we praise where praise is due, but in the same breath we scold where there is failure. You have heard the hon Minister acknowledging a problem. He did not shy away from the fact that there is a problem. [Applause.] It becomes a serious concern of the ANC.
This is due to the fact that the ANC made a promise to the South African citizenry that we will make sure that all citizens, irrespective of their colour and creed, will have a better life. We will make sure that health services are there, and the education system is in place. We will provide decent jobs, and a safe environment for our citizens. However, we need resources, we need money and we need everybody to come on board and make sure that we correct those things. You can moan about it. I understand, as an ANC member, that if you do not have anything to talk about, you have to talk anyway.
Section 153 of the Constitution requires that a municipality must:
Structure and manage its administration and budgeting and planning processes to give priority to the basic needs of the community, and to promote the social and economic development of the community.
I want to quote what hon Minister Gordhan said: "National Treasury cannot manage municipalities sitting in Pretoria". In other words, the ANC-led government will never ever micromanage the municipalities because this is what is being said by the Constitution. We must respect our Constitution. It says, let them manage their administration; let them have their planning processes and deliver.
The political leadership of the municipality must take responsibility where acts of fraud, corruption and interference with tender processes have been proven. Councillors cannot hide behind ignorance of what is required of them. The Local Government: Municipal Systems Act, Act 32 of 2000, clearly articulates the code of conduct for councillors. National Treasury had undertaken councillor training sessions throughout the country with the intention to equip councillors with the necessary information to guide them in executing their responsibilities. It is for this reason that we really say, as the ANC we are leading because if you lead, you look at the challenge and come up with a solution.
The root cause of many public finance and budget management problems is found in poor planning, poor leadership, poor implementation, not hiring the right people and not having the determination to ensure that services are delivered as they are supposed to be.
As we are aware, the Treasury intervened and provided support to all spheres of government to improve the performance in infrastructure delivery and support programmes. The other thing they have done in dealing with the challenges of the management of public finances -and this Budget Vote plays a direct role in developing capacity across the spheres of government - is that Treasury established a Technical Assistance Unit.
It is common knowledge that many municipalities have backlogs running into billions of rands that we are aware of, and we acknowledge it. To address these challenges of inadequate investment in the building of new infrastructure and investing adequately in the maintenance and renewal of existing infrastructure, national Treasury again recommended that each municipality must set aside not less than 40% of its capital expenditure budget for the renewal of existing assets. In addition, not less than 8% of the written down value of a municipality plant, property and equipment must be set aside for repairs and maintenance. That must be done, because the ANC does not approve of poor social and economic structures.
The relevance of the role of this Budget Vote No 10 to the management of the public finances is echoed in the ...
The ANC supports Budget Vote No 10. [Applause.] [Time Expired.]
Chairperson and hon members, it is indeed my singular honour to address you on this Budget Vote and to present the overview of the work of the finance family, a number of institutions whose activities underpin our political economy. In closing the debate on the state of the nation address in February 1999, our icon, Tata Nelson Mandela, had this to say, and I quote:
We are a democracy - young and fledgling, but one which can boast of firm institutions and a culture that no force can take from the people of South Africa.
We are a 19-year-old teenager. It is the last year of our teenage years, but one which can boast of the calibre of institutions such as the SA Revenue Service, Sars; the Public Investment Corporation, PIC; Financial Intelligence Centre, the FIC; the Financial Services Board, FSB; and the Government Pensions Administration Agency, GPAA, to name but a few, because I will be focusing on them.
These institutions are among the pillars of our economic and political order. Nobel laureate Douglass North defines institutions as follows, and I quote:
Institutions are the humanly devised constraints that structure human interaction. They are made up of formal constraints - rules, laws, constitutions; informal constraints - norms of behaviour, conventions, and self-imposed codes of conduct; and their enforcement characteristics.
The finance family is therefore one of the constraints that structure human interaction within our borders. The Financial Intelligence Centre and the Financial Services Board ensure the integrity, security and strength of our financial system; Sars collects the revenue that makes it possible for government to pay for our collective ambitions as a nation; the GPAA looks after the retirement needs of our civil servants; and the Public Investment Corporation, on the other hand, ensures that the Government Employees Pension Fund, GEPF, and social security funds have sufficient funds to meet their obligations.
In their most recent paper, Taxation and Development, Professors Timothy Besley and Torsten Persson make the point that the power to tax lies at the heart of state development. Besley and Persson take their lead from Nicholas Kaldor, who said, and I quote:
It is shortage of resources, and not inadequate incentives, which limits the pace of economic development. Indeed the importance of public revenue from the point of view of accelerated economic development could hardly be exaggerated.
Sars has played a crucial role in ensuring that successive ANC administrations have had the revenue to fund our collective ambitions as a nation. For the 2013-14 fiscal year, Sars is required to collect R898 billion of revenue, which is nearly 10% or R84 billion more than the previous year. Over the same period, our economy is expected to grow at 2,7%. Thanks, Mr Singh, for commending Sars for the good work that they do, but you have indicated that they need more money. I would imagine you will volunteer to pay more tax. [Laughter.]
Meeting this budget will not be easy, not only because of the tough economic environment in which South Africa and the rest of the world find themselves, but also because of corporate and wealthy individuals who organise their affairs in such a way that they do not pay their fair share of tax. I trust that no one amongst you falls in that category. They achieve this through sophisticated tax avoidance and evasion schemes.
South Africa is not alone in this. The Group of 20 nations, G20, of which South Africa is a member, has taken up the cudgels in relation to this scourge. At the G20 summit last month, the erosion of sovereign tax bases and the shifting of profit by corporates from jurisdictions where it is generated to those where they can pay the least tax were key topics of discussion based on an Organisation for Economic Co-operation and Development, OECD, report which highlighted the potentially crippling effects this can have on the fiscal sustainability of nations.
This is not only unjustifiable, but immoral. South Africa has its fair share of multinational companies who rack up millions of rands in revenue, and yet pay almost no tax, because they use transfer pricing, profit shifting and other forms of tax evasion, and aggressive tax avoidance schemes which denude our fiscus. This is done at a time when governments are being forced by circumstances to support economic activity as the private sector has withdrawn to the sidelines.
The Financial Intelligence Centre, as I said, protects the integrity of our systems. Money laundering and the financing of terrorist activities pose a serious threat to the integrity and sustainability of financial markets and institutions. These activities can discourage foreign direct investment and distort capital flows. Money laundering, in particular, can also be a conduit through which unscrupulous taxpayers hide their income from the revenue collection agencies. It is for these reasons that the international community has made the fight against these activities a priority.
So, the Financial Intelligence Centre plays an important role in ensuring the integrity and sustainability of our financial system. Through ever closer working relationships with the law enforcement authorities and the SA Revenue Service, the FIC provides the financial intelligence which is increasingly being used in the investigation of priority crimes in South Africa, the so-called white collar crime.
In February this year, the Minister of Finance announced that he had requested the FIC to explore how we might bring South Africa in line with the international anticorruption and anti-money laundering standards in so far as the politically exposed persons are concerned and I believe you also belong to that category. The FIC has reissued guidelines to all accountable and reporting financial and other institutions on how they should treat clients who qualify as politically exposed persons. In addition, the FIC has begun a process of amending the Financial Intelligence Centre Act to include explicit provisions to deal with this category.
The extent of reporting to the FIC and the referrals of matters to the law enforcement authorities continues to grow. Over the past year, the FIC referred 883 matters to the law enforcement agencies for investigation. The FIC estimates that the value of these referrals for the past year amounted to R76 billion. Many of these matters involve lengthy and complex analysis and often run over a long period of time. Last year alone, the FIC froze R334 million's worth of goods which had been derived through fraud. At the request of law enforcement agencies, the FIC also helped in the investigation of an additional 1 445 cases.
Regarding the Financial Services Board, the recent financial crisis and subsequent events have been yet another reminder of the importance of sound financial institutions and the fair treatment by these institutions and their intermediaries of the people who buy financial services and products. The financial crisis and the scandals, such as the Libor price-fixing case, have also been a reminder of the importance of integrity and stability of financial markets and institutions. Without strong regulators, we can have neither sound financial institutions nor financial markets with integrity.
So, it is against this backdrop that the Financial Services Board is girding its loins to promote the soundness of insurers and reinsurers through the effective application of international regulatory and supervisory standards. The Financial Services Board is developing a new risk-based solvency regime for the South African long and short-term insurance industries, namely, the Solvency Assessment and Management, Sam, regime. The Solvency Assessment and Management regime will be based on the principles of the Solvency II Directive, as adopted by the European parliament, but adapted where necessary to suit South African circumstances.
This is based on three pillars; firstly, quantitative requirements, dealing with issues such as the valuation of assets and liabilities and the setting of capital requirements; secondly, qualitative requirements, including standards and guidance on governance, internal controls, risk management and supervisory processes; and thirdly, reporting and disclosure. The proposed implementation date for Sam is 1 January 2016. However, interim transition mechanisms will be put in place in respect of governance, internal controls and risk management. Before then, there will be a number of other changes to the regulation of insurance companies and these will come into effect from January next year.
Moving towards the twin peaks regulatory system, the FSB has been working together with the SA Reserve Bank and National Treasury on the preparations for the implementation of the twin peaks model of regulation and we have said that over time this work will continue and is expected to intensify as we come closer and closer to the implementation stage.
Turning to the Public Investment Corporation, for the period 2013 to 2016, the PIC has the following areas of strategic focus. Firstly, it is to contribute to education, health, housing, infrastructure and environmental projects. The Government Employees Pension Fund has set aside 5% of its total assets, equivalent to R62,5 billion, for investment in these types of projects. As at 31 March 2013, 46% of this has already been committed and or invested, this amounts to about R28,8 billion. In the year ahead, the PIC will continue to implement the developmental investment policy of the