Speech by Honourable Charel De Beer, Chairperson select committee on Finance during the consideration of report on the Fiscal

02 November 2010

Honourable Chairperson
This is a historic occasion for this House today. The House will be dealing with a Report of the Select Committee on Finance on the Revised Fiscal Framework as tabled by the Minister of Finance, last week on 28 October 2010. It is a first for the NCOP.

What is very important is that we must look and evaluate where are coming from, since 22 April 2009 when the people of South Africa made a decision and gave a mandate to a specific political party - to which I belong, and I am proud of that, the ANC, - to govern South Africa [Applause.] What does the manifesto on which the people of South Africa took a decision on 22 April 2009 say? The main thrust of our fiscal policy, which is counter-cyclical and expansionary, is designed to best address main policy goals.

The policy goals include the creation of decent work, sustainable livelihoods, education, health, rural development, food security, land reform and enhancing safety and security, enhancing the human settlement philosophy and programmes of local government that address the needs of the people. This is a policy as defined in that manifesto on page 21. It is in that light that the Minister of Finance tabled the Revised Fiscal Framework to take South Africa forward.

Coming back to the report of the Committee, the Select Committee on Finance conducted its work in terms of Section 12(5) of the Money Bills Amendment Procedure and the Related Matters Act 2009, reading:

If the Minister has tabled a Revised Fiscal Framework, it must be referred to a Joint Sitting of the Committees on Finance, in the NCOP and the National Assembly for consideration.

The committees received a briefing from the Minister of Finance and the Department of Treasury on 28 October 2010 and deliberated on the Revised Fiscal Framework on 29 October.

The two time frames, Parliament`s Programme and the Time Frames in the Act do not gel very well. Parliament will have to review the parliamentary programme from January to December in such a way that committees do the work that has to be done as the Money Bills Act requires. South Africa did not escape the effect of a global economic downturn. Our fiscal policy stance of the previous years assisted us to get through the economic crisis better than countries in Europe like Spain, Greece and Italy. Even America is still battling.

A counter-cyclical fiscal policy stance is crucial to both long-term growth and sustainability in public finances. The real Gross Domestic Product, GDP, growth accelerated to a rate of 3,9% in the first financial half of this year. Expansion in fiscal and monetary policies and lower inflation supported this growth.

The unemployment rate is high. It is 25,3%. The point is: how do we utilise the present growth rate and project a growth rate of 3,5% in 2011 and 4,4% in 2013 to create jobs for our people? That is the challenge. We can learn from a country like Brazil that created two million jobs since 2006. China, India and Brazil are the developing economies that are leading the economic growth at this stage in the world.

It will require a change of mindset of each of us in this country, together with government`s target of 7% growth rate over ten years to create 5,5 million jobs. We will have to work harder and smarter. Stringent control over government`s spending will be required. An economic climate has to be created for ordinary citizens to save more money.

In the observations made by the Committee, it was noted that the consolidated government deficit is projected to decrease from 6,3% of growth domestic product in the 2010-11 financial year to 3,2% of the GDP in the 2013-14 financial year. The projected reduction in government deficit was driven, amongst other things, by the strong uptake in the revenue and the stabilisation in non-interest spending.

National Treasury indicated that growth in expenditure will need to moderate as debt service costs increase over the Medium-Term Expenditure Framework, MTEF. National Treasury undertook to continue to pursue a counter-cyclical fiscal policy that will aim to grow revenues while gradually reducing non-interest stimulus spending. However, it is important to keep the fiscal trajectory on a sustainable path while meeting growth expectations.

The Committee noted that revenue, as a percentage of the GDP, is increasing at a rate of 0,2 % per year over the next three years. On the same period, expenditure is declining at the rate of 0,4 and 0,5% respectively. As revenue increases and expenditure decreases, the budget deficit is projected to decrease gradually to 0% in 2018-19 financial years.

Over the MTEF period, the government departments are requested to reprioritise programmes in order to be efficient and effective. In view of the 2010 audit outcomes by the Auditor-General on various government departments, this calls for more stringent control measures on expenditure and prudent financial management.

The committee recognises that the South African Customs Union revenue sharing formula is currently under review and that the Southern African Customs Union, Sacu`s council will meet in December 2010 to resolve this matter. The committee accepted that the revision should be done carefully without jeopardising the economic stability in member countries. The committee noted that over the long term, high economic growth will support debt reduction, enabling government to rebuild the fiscal space.

The committee noted that the 2010 Medium-Term Budget Policy Statement, MTBPS, estimated that the debt amount will be approximately 40% of GDP in 2015-16 financial years. If the economy experiences another recession and the level of debt is projected in the 2015-16 financial years, the committee foresees major challenges. While the MTBPS indicated that the exact level of debt will largely depend on the pace of economic growth, the committee is of the view that there is still an element of economic uncertainty. However, the committee fully endorses the fact that the economy is currently in a solid position.

In conclusion and recommendations, the committee would like to commend National Treasury that South Africa scored first in the world in the survey of Budget Transparency of the International Budget Partnership. We are number one in the world. This achievement resulted from years of commitment to the reform of the budget system towards greater transparency and potential for accountability and participation.

Based on its deliberation, the committee recommended that:
National treasury should take appropriate steps aimed at reducing the level of debt at a faster rate in order to further create an economic cushion in the event of another economic recession in the near term; National Treasury should provide a detailed report to the committee on how government intends to guarantee fiscal stability including a contingency plan in the case of a `double dip` recession - the report should be submitted to Parliament within 45 days after its adoption by the House; the National Treasury should provide a detailed report to the committee on the impact of a zero rating value added tax on books on the fiscal framework - the report should be submitted to Parliament within 45 days after its adoption by the House; and that the National Treasury should resolve issues pertaining to Sacu`s revenue sharing formula as a matter of urgency.

We put this report to the House for adoption.

I thank you