Medium Term Budget Policy Statement: hearings

Meeting report

JOINT BUDGET COMMITTEE
1 November 2004
MEDIUM TERM BUDGET POLICY STATEMENT: HEARINGS

Chairpersons: Mr N Nene (ANC), Mr B Mkhaliphi (ANC, Mpumalanga)

Documents handed out
Department of Communications submission
Department of Public Service and Administration submission
Department of Minerals and Energy submission
Department of Minerals and Energy MTEF Requests 2005/06 - 2007/08
Department of Labour submission
Department of Environmental Affairs and Tourism submission
Department of Housing submission
Department of Public Works submission
Department of Transport submission
Chambers of Commerce And Industry South Africa (CHAMSA) submission
Federation of Unions of South Africa (FEDUSA) submission

SUMMARY
The Departments of Communications, Public Service and Administration, Minerals and Energy and Labour, and the Chambers of Commerce and Industry South Africa (CHAMSA), presented their submissions on the Medium-term Budget Policy Statement (MTBPS), with specific reference to the Medium-term Expenditure Framework (MTEF). The Department of Communications highlighted its funding challenges, stating that it experienced a massive gap in funding, given the significance of the role it played. The Department of Public Service and Administration said that it made a small contribution to the promotion of employment and an indirect contribution to economic growth and detailed some of the internship and leadership programmes it facilitated. The Department of Minerals and Energy highlighted its funding concerns and significant staff turnover problems.

CHAMSA applauded many of the initiatives in the MTBPS, but reiterated a call for renegotiation on the taxation of retirement funds, saying that they had been a disincentive to payment. There was also concern at perceived insufficient attention to the co-ordination of fiscal and monetary policy, and the possible crowding-out of the private sector by the increase in the public sector borrowing requirement. The Department of Labour focused on its strategic interventions in increasing the rate of investment, facilitating economic activity with the second economy, social services, income support and human development and improving the capacity of the state. The Committee expressed concern at the rollovers in each department, and possible under-spending of the current year's budget.

In the afternoon session, the Departments of Public Works, Environmental Affairs and Tourism and Housing, and the Federation of Unions of South Africa (FEDUSA) presented their submissions on the Medium-term Budget Policy Statement (MTBPS).

FEDUSA commended the government for the consistent way in which it had set its budgets over the last couple of years to further the general economic policy goals of economic growth, inflation, employment, the balance of payments and income distribution. The announcement by the Minister to abolish exchange control limits on new outward foreign direct investment by South African corporates, and to retain foreign dividends offshore was also very important. A relaxation of tax payable on the interest received from savings accounts would be an incentive to increase savings. The 2004 MTBPS reaffirmed Government's growth and development role and FEDUSA commended the Government for the bold steps to step up sustainable job-creating growth without forfeiting economic stability.

The Department of Environmental Affairs and Tourism's focus areas for the MTEF period included the creation of conditions for sustainable tourism growth and development, conservation and sustainable development of natural resources and the protection and improvement of the quality and safety of the environment.

The Department of Transport also supported the Medium Term Budget Policy Statement. It faced the challenge of overhauling the public transport system. It was planning to expand economic regulation across the transport sector and would eventually consider creating a transport economic regulator for all modes of transport. It had started with the restructuring of the Road Accident Fund. The process had two elements: a short term initiative to revise current legislation with a view to reduce claim costs and a long term solution to completely overhaul the Road Accident Fund with reference to recommendations made by the Road Accident Fund Commission.

The Department of Public Works had produced a plan to eradicate the maintenance backlog on all national government buildings. It was also finalising plans to improve accommodation at the Parliamentary complex in Cape Town and to improve the Headquarters of National Departments in Tshwane.

MINUTES
Mr Nene reminded the delegates that the role of the Committee was to ensure that money was properly spent; it was not a forum in which to ask for additional funds.

Department of Communications submission
Mr H Mathabathe (Chief Financial Officer) indicated the status quo of the telecommunications unit. There were 4.8 million fixed lines, over 19 million mobile subscribers and 3 million Internet connections. 2004 net profit for MTN, Vodacom and Telkom exceeded R11 billion. There was also a strong mobile presence through Africa. Twenty percent of the 3 000 postal outlets were electronic, and there were 700 public Internet terminals, with these being integral in the rollout of the e-Government portal. The Department's policy objectives included the attraction of local and foreign investment, a reduction in the cost of doing business, the modernising of broadcasting infrastructure and the advancement of universal service in the ICT sector. There was also a need to foster diversity of programming and language mix in the introduction of regional services, as the public broadcaster did not cover most languages. There was a need for human resource development and good progress had been made with the ICT Empowerment Charter and the implementation of other affirmative action campaigns. Regulatory reform was envisaged to ensure that Icasa and the postal regulators optimised sector performance, and to ensure adequate resources and institutional alignment.

The issue of a second network operator (SNO) was being finalised and would create growth. The Department was working with the Department of Trade and Industry to promote skills development, and two thousand postal learnerships had been established. There was participation in and co-operation with justice and crime prevention projects, such as the pilot project for national emergency telephone services, and the functioning of cyber inspectors in terms of the 2002 Electronic Communications Transactions Act. Social services were also addressed including the issuing of licenses for seven under serviced areas, the universal service fund, a discounted E-rate for calls implemented in all schools around the country and, in close partnership with the Department of Social Development, the delivery of social grants through the Post Office. The Department participated in a number of international forums to foster effective relations and influence the global ICT agenda through multilateral and bilateral agreements.

Funding was an issue, because there was a massive gap in funding, given the role the Department was expected to play. Challenges included the digitisation capital expenditure estimate of R25 billion, USF funding capped at R25 million, the rollout of regional service channels estimated at R500 million per annum and the Sentech licenses, estimated at R1 billion over three years.

Discussion
Mr Shelembe (GM: Communications Unit) explained that there had been a need to recapitalise the Post Office. It had been discovered two years ago that the Post Office had utilised a large part of the deposited funds to finance its operating expenditure. To create it as a corporate entity, there was a need to recapitalise it to the tune of R750 million. Because there was still a risk of funds being used pending corporitisation, a decision had been made to deposit these funds with the Reserve Bank pending corporitisation. It had been anticipated that this would be completed before the end of the financial year, hence the need for the rollover.

Dr S Cwele (ANC) referred to the seven licenses for under serviced areas, and asked when these had been issued and whether an assessment had been done of their long-term viability. He understood that they were supposed to service the most rural areas, but he had not seen them in his area.

Mr D Naidoo (GM: Telecommunications Unit) replied that the licensees in under serviced areas had been carefully researched. All forecasts and estimates indicated that they would be viable. To facilitate this, there was provision for an amount of 0,2% of telecommunications revenue to be transferred into a universal service fund. This would enable the rollout of obligations. Certain teething problems had been encountered but there was no reason why it should not be a success.

Dr Cwele referred to the regulator and said that it was very important to reduce costs. He asked if anything was being done to enhance the capacity of Icasa to play a major role in price regulation.

Mr Naidoo replied that the telecommunications regulator provided for annual tariff increases. In the case of Telkom, the increase was limited to no more than CPI minus 1%, and for mobiles to no more than CPI.

Mr S Asiya (ANC) said he was not convinced by the explanation of the rollover as no time limits had been given. When would these funds be used?

Mr Mathabathe replied that a memorandum of understanding with the Treasury was ready, pending signature by both Ministers. It was very important that governance structures be established to ensure that the money was used for its allocated purposes.

Mr Asiya said there was an amount of R640 000 spent but not budgeted for in the Department's international relations budget. He asked for an explanation of this.

Mr Mathabathe replied that the international relations budget was hidden. The Department had restructured, and international relations were coming out on its own in the new structure, within the administration budget.

Mr G Schneemann (ANC) referred to the establishment of a national emergency telephone service and said that R19 million had already been transferred to the project. He asked whether this was still a pilot project and what departments were involved.

Mr Naidoo replied that this had also been provided for in legislation. It was initially a pilot project and a call centre had been established and the human resources had been catered for. The Division was interacting with other government Departments to ensure that diverse views were taken into account. The project was still in an early phase.

Ms Z Kota (ANC) said that corporate services appeared to need revamping. She asked whether the Postbank was ready to be used as an agency by the National Housing Agency.

Mr Shelembe replied that the Postbank was ready to take the challenge and run with it. The Department had been part of the lobby to have the initiative run through the Postbank, which had three thousand branches, and this was the largest number of possible bank branches and offered a wide spread in both urban and rural areas. There were still some challenges, such as the fact that only 20% of the branches were fully electronic.

Ms D Robinson (DA, Western Cape) asked about the quality of each language to be used in the extended language mix. Would there be monitoring, as this was a very important medium for education?

Mr Mathabathe replied that the Department was working with the Department of Arts and Culture, which had a significant role to play in the content. The regulator would monitor to ensure standards were complied with.

Department of Public Service and Administration (DPSA) submission
Mr R Shaw (Office of the Director General) introduced the focus of the DPSA, as it made policy for the public service on transformation and reform, organisational matters, conditions of service and labour relations, human resource management and development, service delivery improvement and information technology and management. More recently, the DPSA had been involved in interventions in the public service to strengthen governance and service delivery, notably in the Eastern Cape. DPSA played a leading role in the inter-departmental projects aimed at improving governance and service delivery, including the establishment of the e-Government portal, the use of Community Development Workers (CDW), the harmonisation of conditions of service and facilitation of mobility between spheres to achieve a single public service, the review of public entities with National Treasury, Project Consolidate and the establishment of monitoring and evaluation systems for government.

The DPSA made a small contribution to employment but its focus was on improving the efficiency and effectiveness of the public service, thus making an indirect contribution to economic growth. The aims of restructuring included achieving a better match of personnel and posts in the public service and the redeployment of employees found to be in excess within the public service to avoid retrenchment. 13 000 employees had initially been identified as being in excess and this number had been reduced to 8 000. Shortages had been identified in Health and a scarce skills strategy had been implemented in the sector. Areas identified for growth in employment in the public service included the Police, Health and Education through the employment of educators and non-educators, Correctional Services and Home Affairs, to expand services particularly into rural areas.

A human resource development strategy was being implemented in the public service, with a focus on internship and learnership programmes that aimed to address skills shortages in the public service and unemployment in society. The Growth and Development Summit (GDS) had given the Public Service SETA the task of registering 10 000 section 18(2) learners in the public service by March 2005 and an application to the National Skills Fund (NSF) was currently being finalised for R106 million for 4 218 learners. Community Development Workers learnerships were being run through the Local Government and Water SETA, and currently had 500 learners enrolled. The aim was to recruit 2 840 learners (ten per municipality) in the medium term. There were currently 2 963 interns in the public service in national and provincial departments, with the SAPS, Home Affairs and Health having particularly strong programmes. There was a strategic concern to link recruitment of interns to vacancies or scarce skills in a department.

Discussion
Mr M Baloyi (ANC) said the Community Development Workers were one of the areas addressed through learnerships. He asked the state of affairs against the background of some CDWs having been employed and asked whether the programme was tightly co-ordinated.

Mr Shaw replied that there was a strong focus to ensure that CDW work complemented that of workers already in place. A survey was currently being undertaken to establish what community workers were employed by which departments.

Dr P Rabie (DA) referred to the staff shortages in Health and the scarce skills strategy and asked whether there were specific programmes to address the issue in rural areas.

Mr Shaw replied that there was a strong focus on scarce skills to promote the retention and recruitment of staff in rural areas.

Mr D Botha (ANC, Limpopo) referred to the expansion of Home Affairs services and asked what plans were involved. Would there be new offices or mobile offices? People in rural areas also found it very difficult to fit into the usual Home Affairs hours.

Mr Shaw replied that this was a Home Affairs project, and that he was only aware that it was an area where there were plans to expand employment in the public service.

Mr T Ralane (ANC, Free State) referred to the adjusted estimate of expenditure and noted savings in human resources due to delays in implementing projects. He asked whether these projects would still be implemented and, if so, why they were described as savings. Were there revised strategy plans?

Mr Shaw replied that the projects were being carried out and would be implemented. He was not familiar with the rules of accounting that had described them as savings.

Mr Ralane asked whether the DPSA would have the ability to spend its budget.

Mr Shaw replied that the Department fully intended to spend its budget.

Mr F Bhengu (ANC) referred to the intervention in the Eastern Cape and asked whether DPSA was still involved. He expressed concern at the belt-tightening and suspension of projects by the Eastern Cape government. The DPSA report on the Eastern Cape had not yet been tabled and he asked whether it was ready and when it would be publicised.

Mr Shaw replied that the intervention in the Eastern Cape was continuing but in a different form. Turnaround strategies had initially been developed and the DPSA was not involved at a high level of implementation, monitoring and evaluation.

Ms Kota asked why non-educators were being employed.

Mr Shaw replied that he was not aware of the details. DPSA was simply given a central indication of growth plans.

Ms Kota said that she would have expected the Housing plan to have expanded employment and asked for comment. Mr Shaw replied that he was not sure.

A Member asked whether councillors were public servants and what the relationship was between the DPLG and the DPSA. She was concerned about capacitation of councillors for the looming local government elections.

Mr Shaw replied that councillors were not public servants. The relationship between the DPLG and DPSA was one of strong co-operation at governance and administrative level. He was not sure of any plans for capacitation in the run up to the election.

Mr R Ntuli (ANC) referred to the issue of a single public service and the harmonisation of services. He appreciated it was very necessary but asked how it would be implemented, and if it would be phased in. He felt that local government was a weak link and asked how they would be capacitated.

Mr Shaw replied that it would definitely be phased in. The first step was legislation to get local government more harmonised within itself, then work would start on framework legislation for the public sector as a whole.

Ms C Ramotsamai (ANC) asked who set the curriculum for the CDW learnerships and whether it allowed the learners a career path. Was the intention that each municipality would have ten workers and how were they recruited?

Mr Shaw replied that the curriculum was set by the Local Government and Water SETA, using service providers. The ten workers per municipality had been an initial rough estimate. There might be more emphasis on nodes where the need was greater.

Ms Ramotsamai asked if the skills development was linked to the Expanded Public Works programme. The impression was being created that skills were only labour related.

Mr Shaw replied that there was definitely a skills component to the EPW. The skills would be related to the Departments implementing the EPW.

Mr S Simmons referred to the restructuring and asked for an indication of the status at present. There had been a reference to the Department requiring growth in employment and he asked whether the excess workers could be worked into those departments. Mr Shaw replied that there was not always a good skills match.

Department of Minerals and Energy (DME) submission
Minister P Mlambo-Ngcuka said that the decentralised DME had increased outreach to poor communities, responding to energy needs, SMME and new entrants into the mainstream, shorter turnaround time and enhanced specialisation. There was promotion of mine health and safety in reduction of fatalities, compliance with mine health and human resource development from ABET to higher levels. Jobs for the poor remained the highest priority. Issues of energy management included security and quality of supply, affordability, electrification, free basic electricity, diversity of energy sources, dividends to the state-owned PetroSA and Eskom and EDI restructuring. The DME was involved with associated bodies for regulation, research and development, human resource development, innovation, services to nodes and was an active participant in Nepad.

The implications of not receiving additional funding over the MTEF period included the fact that the expansion of the DME's organisational and staff structure would be implemented over a longer period and would affect the Department's ability to deliver on its expanded mandate. Universal access to electricity by 2012 would not be reached and the implementation of the new generation capacity project would be delayed. The Department would be unable to participate in the e-Government initiative, and there was insufficient financial provision for the long-term management of various forms of waste.

Challenges identified in the minerals and energy environment included additional electricity generation capacity from 2006 instead of 2008, improved quality of supply and the role of the EDI, efficient delivery of free basic electricity and universal access time frames. There were also the financial implications of the diversity of energy sources. The high turnover of mine inspectors was of great concern as were job losses in the mines. The mines had traditionally employed very low skilled workers and these workers found it very difficult to get other employment.

The alignment of institutions with government priorities had progressed. Existing programmes and legislation would enable the first economy to benefit the second economy, but not sufficiently. In the coming years, the focus would be on direct intervention in the second economy, for example through SMMEs, energy efficiency, the social plan and social impact of energy programmes, and ensuring broad based empowerment, particularly for women.

Discussion
Mr Ralane referred to the adjusted estimates and asked whether the DME was likely to under spend. He noted that the Department had saved R4.4 million from staff vacancies and asked what had happened to the vacancies.

Mr S Asiya (ANC) referred to the posts that had been funded, but where the money had been used for other purposes and asked whether those posts had been made redundant.

Ms N Pityana (Chief Financial Officer) replied that the Department was on course in terms of active programmes and projects. The challenge it faced was vacancies as it had a very high staff turnover. Because it tended to save from vacancies, it looked at other challenges. The posts were not being sacrificed, but in a particular financial year, the funds might be linked to another outstanding project.

Minister Mlambo-Ngcuka said that the Department was particularly worried about its staff turnover, as there was a big problem with poaching. The Department could not compete with industry and it might be necessary to restructure the Department to address this issue.

Mr Ralane asked what the key spending areas of the Department were.

Mr Asiya referred to the rollovers and delays on tender procedures. He asked for the programme on this delay and whether the Department had discussed the issue with the Treasury.

Ms Pityana replied that these included rehabilitation, which was a complicated process requiring specific skills. Co-ordinators were being appointed and the focus was to ensure that co-ordinators were in place so that the process of inviting tenders could be started.

Mr C Morkel (DA) referred to energy management and the dividends to the State by PetroSA and Eskom in particular, and said that the PetroSA dividends had dropped. What was being done to improve the situation and the efficiency of PetroSA? He also asked about its impact on the fuel price.

Dr R Crompton (Deputy Director-General: Hydrocarbons and Energy Planning) replied that dividends had dropped and said that fluctuations in oil prices had had an impact. A big capital expenditure programme was planned and dividends would probably not rise appreciably. The petrol price was based on the international oil price, irrespective of the refinery.

Mr Morkel asked to what extent the budget review would facilitate the forging of consensus within the AU for oil producing African countries to prioritise the supply of their fuel within Africa in an attempt to lower the oil price here.

Minister Mlambo-Ngcuka replied that the price would not automatically drop, as it was an international price.

Mr Morkel referred to the future shortage of electricity generation capacity and asked how the REDs would improve capacity for collecting electricity revenue.

Ms N Magubane (Deputy Director General: Electricity and Nuclear) replied that the idea was to improve service quality including billing issues and the experience of Eskom and the bigger metros would be utilised.

Professor I Mohamed (ANC) asked what was happening to the Pebble-bed Modular Reactor. Was the project still going ahead?

Ms Magubane replied that this had been an R&D project but that it had been elevated to a national project for funding. It was attracting international interest.

Professor Mohammed said that there were often power failures in big cities like Johannesburg and Cape Town and asked why this happened.

Ms Magubane replied that this was definitely an electricity problem and that it happened in high-density towns. It was now impacting on the economy.

Professor Mohammed referred to the development and training of mineworkers and said this was traditionally at a very low level. He asked whether the situation had changed.

Ms Magubane replied that a low level of training was a given. 65% of mineworkers required ABET level 4, but higher levels were also offered. Geology and exploration training was offered to new mine owners as well. There were bursary schemes for scarce skills, and there were also postgraduate students in the research programme.

Mr Asiya referred to the rollover of R1.4 million because of an invoicing problem. He noted that this problem would also be highlighted when the Department was audited.

Ms Pityana replied that most were planned projects that had been started later than planned because of the processes that had to be followed. The Department now had a budget committee where structures reported on the progress of their projects. There was also an improved procurement process.

Mr Schneemann referred to the rollout of electricity and its challenges and said the Minister of Housing had announced a new housing strategy. He asked whether the DME's plans took this into account and whether it could be accommodated in terms of electricity.

Ms Magubane replied that all Departments were involved in the new housing strategy, and the DME was also looking at the design of energy-efficient houses.

Ms Robinson referred to alternative energy sources and asked whether solar energy was being utilised.

Ms Magubane replied that most outlying schools and clinics used solar energy.

Mr H Schmidt (DA) referred to the REDs and the imperative on local government to provide electricity. He asked how the Department interpreted the constitutional responsibility of local government and asked who would bear the ultimate responsibility for the provision of electricity. How did the Department see the legal implications of the REDs?

Ms Magubane replied that there was not doubt that, in terms of the Constitution, it was a local government function. The Department believed that local governments needed to be provided with the right tools to fulfil this imperative.

Chambers of Commerce and Industry South Africa (CHAMSA) submission
Mr J Laubscher said that CHAMSA recognised the difficulties faced by Government in reconciling the needs of the first and second economies and in accommodating the challenges of promoting growth and securing a better distribution of opportunity, income and wealth. The initiatives outlined in the MTBPS for the enhancement of growth prospects fell into those of a cyclical nature and those of a long-term nature. In respect of the cyclical measures, the increases in budgeted public expenditure and the budget deficit were noted. There was concern that insufficient attention was being paid to the coordination of fiscal and monetary policy and that the possibility of conducting fiscal policy in an anti-cyclical manner was being jeopardised. The projected increase in the public sector borrowing requirement could result in some crowding-out of the private sector and upward pressure on bond yields that would be growth retarding. Not enough was being done to improve the savings performance of the economy.

Long-term initiatives were similar to many announced last year, but with some important nuances. These included investment in infrastructure, prioritising of service delivery, housing, health and education, social security programmes with an emphasis on need, regulatory reforms to assist small business, a multi-dimensional approach to black economic empowerment and public works programmes focusing on services and infrastructure. It was questioned whether sufficient funds had been allocated towards the upliftment of rural communities by way of land reform / restitution and agricultural support programmes.

The decision to keep the inflation targeting range unchanged was supported, but it was suggested that government consider moving to a so-called thick point definition of the target at 4.5%, with leeway of 1% above or below this, in order to address confusion regarding the target and better anchor inflation expectations. Full support was expressed for government's efforts to discipline increases in administered prices, but concern was noted at the fact that Eskom would increase electricity tariffs by more than the upper end of the inflation targeting band in 2005.

CHAMSA particularly welcomed the greater recognition of the expected course of the business cycle in the near future but noted that the higher forecasts for economic growth depended on an improvement in net exports, which could be jeopardised by the projected global downturn being more severe than expected. The progress with the foreign exchange amnesty process was welcomed.

Advocate A Meiring said that CHAMSA noted that tax revenue was again expected to exceed the February budget estimate and noted that the fact that corporate income tax was expected to be less than budgeted this year underscored the importance of stable corporate profitability to the tax base. CHAMSA had consistently expressed strong support for Government's stated intention to keep the overall ratio of tax to GDP below 25% and noted with concern than the 2007/8 estimate was 25.1% of GDP. The MTBPS offered very little prospect of tax relief in the 2005 budget and he urged that two matters of principle should not be neglected, namely the adjustment of individual taxation for fiscal drag and ensuring the competitiveness of the South African corporate tax regime.

CHAMSA reiterated its call for the extension of the graduated company tax rate of 15% to small service companies. It was further noted that, while CHAMSA would support tax measures to make health care benefits more accessible and affordable, there were still important health care policy matters to be negotiated in NEDLAC and these should precede tax reform. The proposal to introduce changes to business travel allowance claims was noted but it was pointed out that the motor vehicle industry was an important one. CHAMSA was concerned at the slow progress in pension fund reform and it was felt that the taxation of retirement savings remained inappropriate even at 18%. R4.8 billion had been raised from this tax in the last year.

Discussion
Mr Mkhaliphi noted that some of the issues fell within the responsibility of the Portfolio and Select Committees on Finance.

Mr Nene referred to the statement that insufficient attention had been paid to co-ordination and asked what CHAMSA would expect the government to do.

Dr Cwele said that CHAMSA had cautioned against expansionary policies and asked for suggestions on where the money should come from.

Mr Laubscher said that both were very expansionary. If monetary policy had to be tightened there was no room to compensate by being a bit looser on fiscal policy.

Mr Nene referred to the unintended consequence of crowding out the private sector and asked whether the infrastructure mentioned addressed that point.

Mr Laubscher agreed that this was sound and emphasised the need to ensure an adequate flow of funds into the capital market.

Mr Nene asked for a definition of the thick point of inflation targeting, as it appeared more or less the same as a range.

Dr Cwele said that CHAMSA had cautioned about the range of inflation band targeting and asked whether they felt that inflation targeting was mostly about credibility. He suggested it was too early to aim for a fixed percentage.

Mr Laubscher agreed that it was not yet time to reduce the target and said he had used 4.5% as it was the midpoint of the range. If there was a range, people might interpret it to mean that the Reserve Bank would be as happy with 5.9 as they were with 3.1, so expectations would settle there. It was more a way of communicating than a substantive change.

Mr S Mshudulu (ANC) asked for an opinion about development in rural areas, within the context of the GDS resolutions.

Mr Laubscher said that land reform was a matter of priorities and said that the government seemed to find it easy to find money for other things, so they seemed to have a higher priority.

Dr Rabie said that he shared CHAMSA's views in respect of the tax on retirement funds, but pointed out that there was a very limited tax base in South Africa. The government was earning substantial revenue from retirement funds. Professor Kantor had suggested increasing consumer taxes and he asked whether the delegates felt that this was a viable alternative.

Advocate Meiring replied that the international norm was not to tax inside the build-up. An increase in VAT would be difficult in practice but easy in theory. South Africa had one of the best VAT systems in the world, but in practice, the social security system was not as robust as business would like it to be before an increase in VAT.

Department of Labour submission
Dr V Mkosana (Deputy Director General: Service Delivery) said that the Department of Labour would play a significant role in reducing unemployment, poverty and inequality through a set of policies and programmes developed in consultation with social partners. The Department intended to contribute to employment creation, enhance skills development, promote equity in the labour market, protect vulnerable workers, strengthen multi-lateral and bilateral relations, strengthen social protection and evaluate the impact of labour market policies and programmes. The areas of focus for employment and economic growth included increasing the rate of investment, facilitating economic activity within the second economy, and social services, income support ant human development. Through the GDS agreement, the Department was tasked with coordinating government departments' work towards the achievement of more jobs and decent work for all, addressing the investment challenge, advancing equity and local action and implementation.

Through enhancing skills development, the Department would revise and implement the Human Resource Development Strategy, launch the 2005 - 2009 NSDS, complete the National Qualifications Framework (NQF) and conduct education and training through learnerships. Through the Unemployment Insurance and Compensation Funds (UIF and CF), the Department was involved in the development of an integrated Occupational Health and Safety and Compensation competency of government, and improving the UIF and CF capacities and ensuring that they adequately covered the vulnerable. Through the NSD and NQF, the Department would align SETAs to focus on sector specific skills in a coordinated manner, be vigorous in the performance monitoring of the SETAs and drive a campaign to increase recruitment of learners into learnerships and promote internships.

Further strategic interventions envisaged included improving the capacity of the state through service delivery and monitoring and evaluation, and the monitoring and evaluation of the impact of labour laws. Institutional capacity would be provided to increase physical presence in inaccessible communities, strengthen service delivery and communications with stakeholders and increase foot soldiers on the ground. The Department was a titular member of the ILO and had reporting obligations in relation to ratified and unratified instruments. In terms of black economic empowerment, the focus was on the alignment of BBBEE, PPPFA and EE to inform procurement policies and public entities had to conform and align to the Department's BEE and procurement policies.

Discussion
Mr Mshudulu asked for clarity on the adjusted estimates, as an amount had been rolled over for corporate imaging. He asked what this meant in terms of changes.

Ms Xaba (Deputy Director General) replied that the delay had been the result of communications by GCIS in respect of a uniform corporate branding exercise. The Department was doing well in terms of spending the rollover. The funding had been to make labour centres more habitable.

Ms P Mashangoane (ANC) referred to the strategic interventions and asked whether programmes were in place to ensure that domestic workers were aware of their rights. Was the information reaching the remote rural areas?

Dr Mkosana replied that there was a strategy in place for communicating. In the course of last year, for example, there had been a period of advocacy followed by inspections for domestic workers and then farm workers. There were also visiting points and information was distributed through the print and electronic media. Radio was mainly targeted in rural areas.

Ms N Ntwanambi (ANC) said that economic growth tended to happen at macro level and asked how the Department would ensure that it trickled down.

Dr Mkosana emphasised that an economy that did not generate jobs was weak. He felt that the key to poverty alleviation was job creation and this was a priority.

Ms Ntwanambi said that business was encouraged to engage with municipalities to see what role they could play in assisting with service delivery as outlined in the GDS. She asked how capacity could be enlarged to empower these businesses.

Dr Mkosana replied that the Department had a forum where it interacted with business and labour within NEDLAC. South Africa had become exemplary throughout the world.

A Member referred to the increased physical presence in inaccessible communities and asked which institutions were alluded to and what was meant by inaccessible communities. How would the accessibility be improved?

Ms Xaba replied that the inaccessible communities were in deep rural areas with no infrastructure. The Department was looking to fill the gaps and introduce mobile labour centres. This should be rolled out in this financial year. The Department had also made a commitment to build three more labour centres in strategic places (Limpopo, Gauteng and the Eastern Cape). An investigation was also underway into call centres, but there was a debate on whether there should be one central call centre for government. The Department had also launched its new look and easy-to-navigate website.

Mr Ralane asked what the priority spending areas were over the MTEF period.

Ms Xaba replied that the area of service delivery had been identified. The Department wanted to increase the number of foot soldiers for enforcement and compliance. There was no indication of policy changes yet and the Department was looking at an aggressive process in terms of institutional capacity. Skills development was the most critical spending area.

Mr Ralane said that, on the adjusted estimates, delays were experienced in filling vacancies. He asked how many vacancies existed and how critical they were to service delivery. What was being done to fill them? He also asked whether there was a likelihood of under-expenditure.

Ms Xaba replied that the estimated spending pattern was such that at the half year, the budget was in sync. There had been a sudden dip and the actual figures showed that the critical component skewing spending was vacancies. There were about 630 vacancies in both service delivery and corporate services. The Department was looking to aggressively fill posts and there was an action plan to address it because it created underspending.

A Member said that people in rural areas did not have access to all services. Departments often worked closely with multipurpose community centres, which was good as this brought government to the people. There was no policy or law forcing departments to set up offices, however. She asked whether there was any link between the government and these centres.

Dr Mkosana replied that the Department had a dedicated person handling this area, and there was ongoing monitoring.

Mr K Moloto (ANC) asked whether there was any interaction with business to determine whether the skills supplied through the SETAs were required or relevant.

Dr Mkosana replied that some mismatches had been observed. This was receiving attention from the two Ministers responsible for Education and Labour. The Department was looking into the creation of an integrated labour system through the NQF and when this was complete, it would be able to monitor what skills had been created and why.

Mr Nene asked what the timeframe was for the NQF revision. Dr Mkosana replied that the Ministers had the document and it would be finalised very soon.

Federation of Unions of South Africa submission
After the lunchbreak, Ms G Humphries (FEDUSA: Parliamentary Officer) presented the Federation's submission on the Medium Term Budget Policy Statement. She commended the government for the consistent way in which it had set its budgets over the last couple of years to further the general economic policy goals of economic growth, inflation, employment, the balance of payments and income distribution. The announcement by the Minister to abolish exchange control limits on new outward foreign direct investment by South African corporates, and to retain foreign dividends offshore was also very important. This would have a favourite effect on foreign direct investment in South Africa and would also contribute to a more stable exchange rate for the Rand.

FEDUSA noted that there would not be much scope for tax relief in the 2005 Budget, but that the taxation of small businesses will be reduced. It is also noted that the Minister indicated that an amendment of the tax treatment of medical scheme membership was being considered. It, however, would like to call for a consultative process, which would allow relevant stakeholders to make inputs on the effect that such taxation changes might have to the respective membership.

The Federation noted the appeal to the public to save. A relaxation of tax payable on the interest received from savings accounts would be an incentive to increase savings. It noted with satisfaction that some progress had been made on the taxation of the retirement fund industry, and was awaiting the discussion paper on the regulatory aspects of pension funds that would be released later this year, and the subsequent tax policy discussion paper.

The 2004 MTBPS reaffirmed Government's growth and development role and FEDUSA commended the Government for the bold steps to step up sustainable job-creating growth without forfeiting economic stability. The relatively large increase in public sector infrastructure spending during the last couple of years was welcomed. FEDUSA was convinced that these steps would assist in contributing to a new area of higher growth and more employment.

Discussion
Mr T Ralane (ANC) asked for the Federation's view on taxation policy. He also asked about the role of labour movements and workers in terms of Growth and Development Summit Agreements.

Ms Humphries replied that it was difficult to say that the Federation had a definite view on Value Added Tax. It had not called for an increase in VAT because it believed that the status quo should remain. The Federation had called for the scrapping of VAT on certain items and an increase on certain luxury goods.

With regard to the role of the labour movements and workers, she said that the Federation was committed itself to provide labour. It had identified some Public-Private Partnership that it would try and implement. It was also very instrumental in infrastructure development programmes.

Dr S Cwele (ANC) asked if the Federation had a suggestion on addressing the problem of skills mismatch that was highlighted in previous submissions.

Ms P Mashangoane (ANC) observed that the Federation had noted the appeal to the public to save. She asked if it was enough for the Federation to merely note the appeal and not do anything about it. She asked how the Federation would encourage the public to save.

Ms Humphries replied that the Federation believed that the taxation of the rental income on pension and retirement funds should be scrapped in total. A pension fund was one way through which an individual could save. In terms of raising the necessary awareness the Federation worked with various institutions like the Life Offices' Association to get the message to the public. There were also programmes designed to teach people basic financial skills. It was sometimes difficult to encourage people to save given the amount of money they took home after all deductions had been made from their salaries.

Department of Environmental Affairs and Tourism submission
Ms P Yako (COO) and Mr T Bouwer (CFO) represented the Department. Ms Yako reported that the Department's focus areas for the MTEF period included the creation of conditions for sustainable tourism growth and development, conservation and sustainable development of natural resources and the protection and improvement of the quality and safety of the environment.

The Department was committed to the implementation of the Micro-economic Reform Strategy (MERS) and investment in key economic growth and labour-absorptive sectors and the implementation of the Growth and Development Summit (GDS) agreements. On the international front it remained committed to the implementation of the Johannesburg Plan of Implementation (WSSD follow-up) and NEPAD tourism and environmental programmes and marketing South Africa.

An institutional review had been done to align resource requirements with the constitutional and legal mandates of the Department. The Department was also exploring its revenue generating potential to minimize dependency of the fiscus. Together with its public entities, it had looked at scaling down transfer funding. In the last year, 58,6% of the budget was transferred to public entities. This had decreased to 48,9% in 2004/05.

Discussion
Mr Ralane asked what the cluster was doing to address government priorities. It seemed to him that the Department was operating on its own. In the context of the Spatial Development Initiatives, he asked to what extent the Department was co-operating with Departments like Trade and Industry in the context of the development of Industrial Development Zones. Due to delays in filling the jobs created by the expansion of existing fisheries and the reprioritisation of the manning and maintenance contract of the Antarctic supply vessel, the Department made savings of R15 300. He asked how many vacancies existed in the Department and how critical they were to service delivery. He also noted that R13.2 million would be used for renting additional office accommodation and implementing the South African Greening Campaign. This indicated that the Department was not working closing with the Department of Public Works. The Department of Public Works was supposed to address the office accommodation requirements. The preliminary expenditure outcomes were at 48,1%. He asked if there was a possibility of the Department under-spending.

Ms Yako replied that the presentation only focused on the Department's activities. There was close co-operation between the Department and other Departments in the cluster. The Department also involved other Departments on spatial development initiatives. In the case of the Lubombo and Wild Coast initiatives it was working with the Department of Trade and Industry (DTI) and provincial departments. It was also working together with the Department of Health on the malaria programme. However, it was not centrally involved in Industrial Development Zones except for environmental impact assessment purposes. At the same time it was aware of developments on that front as reports were tabled in cluster meetings.

Ms Yako said that the Department of Public Works was in charge of office accommodation. The Department would transfer money to the Department of Public Works that would then procure the services. She felt that the Department was fairly on track in respect of spending. Normally in the first months, there was slower spending especially in new programmes. There would be no major rollovers.

Dr P Rabie (DA) noted that the Department had received notification by Lloyds of London that once the South Africa Agulhas had reached the age of 30 years (by 2006) no clearance for her to operate in ice waters would be granted. He asked if it would not be cheaper for the Department to lease a vessel instead of buying one. He also asked the Department to comment on allegation that the number of flights to Johannesburg and Cape Town International Airports were deliberately kept low by South African Airways in order to retain its monopoly.

Ms Yako replied that the Department wanted to look at all available options like public private partnerships as opposed to buying a new vessel. Some of the fundamental issues were asset management and how early one should look at refinancing of an asset. The Department did not start looking at these issues early enough and hence it was under pressure. The Department was not in a position to buy a vessel.

In terms of the number of flights into the South African airports, she said one of the areas identified by a global competitiveness study was road signage and airline access. There were discussions with the Department of Transport on these issues. It was important to address the issues especially given the fact that the country would host the Soccer World Cup in 2010.

Mr K Durr (ACDP) asked for the details of the institutional review that was done by the Department to align resource requirements with constitutional and legal mandates. He also asked what the Department was doing to align central, provincial and local governments in respect of concurrent competencies.

Ms Yako replied that at the beginning the Department was very small. However, its mandate had grown in recent years without significant increase of its staff budget. The Department looked at the way it was staffed and how to improve its capacity. The Department was working well with provincial government but needed to improve co-operation with local government.

Ms E Thabethe (ANC) asked if the Department's initiatives of enterprise development in fishing did not form part of the long term fishing plans. She also asked how other Departments were involved in the implementation of the Johannesburg Plan of Implementation World Summit for Sustainable Development (WSSD) follow-up). There would be job creation and transformation if the WSSD agreements were followed up.

In terms of BEE fishing, Ms Yako replied that the Department was looking at a number of interventions. There were fishing rights allocation and finite fishing resources. There was a need to look at alternative measures of addressing the needs of communities around the coastlines. The Department also wanted to look at the development of small and medium enterprise.

With regard to work around the WSSD, she said that most of the activities took place under the International Relations, Peace and Security cluster.

A Member said that the government was one of the big spenders on advertising and communication. She asked to which extent the government was contributing to the broader transformation of the advertising, marketing and communication industries. The Proudly South African campaign and the International Marketing Council were responsible for marketing the country. She asked if there was unnecessary expenditure given the fact that the campaigns were running parallel to each other. She also asked if the Department had any kind of influence on the campaigns.

Ms Yako replied that the Department had set itself a 50% target for BEE usage. It had achieved 42% in the last financial year. In terms of international campaigns the issue was difficult due to the involvement of international companies. Most of the contracts were also international and this made it difficult to involve South African BEE companies. There was bigger usage of BEE companies in domestic campaigns. She felt that the Proudly South African and International Marketing Council campaigns needed to be improved. The Department participated in the activities of these structures through public entities under it. In this way it ensured that there was alignment of the two. The Department needed to investigate if there was any unnecessary spending.

Ms Mashangoane said there were areas where people were cutting down trees without any action taken against them. They were also not aware of the protection given to the environment. She asked if there were measures to raise the necessary awareness and how such were related to farming and agriculture.

Ms Yako replied that there were programmes designed to raise the necessary awareness. The Department was also designing a national environment awareness programme that would be along the lines of the Proudly South African Campaign. It would be launched by March 2005.

Ms Yako replied that the cases were not against the Department. There was one case of illegal dumping of hazardous waste in the Eastern Cape.

A Member asked how many environmental cases the Department was dealing with and what were the financial implications of the cases. She said that there had been allegations that some of the learners in THETA were not registered with the relevant institutions for the purposes of accreditation of their qualifications.

Ms Yako replied that THETA was one of the under-performing SETAs that were identified by the Minister of Labour. The Department had serious concerns about the THETA.

Ms R Kasienyane (ANC) asked how the Department was related to Transnet. Ms Yako could not answer this question.

Dr Cwele said that the government had taken a decision to develop tourism infrastructure in Durban, Port Shepstone and Port St. Johns. He asked for a report on the progress of the projects. The Minister of Finance would be releasing a document on environment tax. He asked if the Department was involved in drafting the document and if there was any concurrent process of developing a South African national environmental account.

Ms Yako replied that the Department was involved in the drafting of the document. There was significant progress on the establishment of a national environmental account. The Department was working with the DTI on infrastructure development. She could not give progress on the project.

Mr Durr said that the Department was looking at the development of small boat harbours. Such harbours had the potential to expand the economy and would also provide opportunities for people to move by sea. There was also enormous international interest in this. Such developments would also benefit tourism and local communities. He asked for comment on the progress on the plan.

Ms Yako said that she could not answer the question because the Marine and Coastal Management branch was dealing with the issue. There was a need to look at the involvement of public private partnership in this venture.

Mr Nene requested the Department to furnish the Committee with its cash flow projections. This would help the Committee to keep track of the Department's expenditure on a monthly basis.

Department of Transport submission
Mr D Pretorius (CFO) and Mr L Montana (Parliamentary Liaison Officer) represented the Department. (See document attached). Mr Pretorius made the submission. The Department supported the Medium Term Budget Policy Statement. The Department faced the challenge of overhauling the public transport system. Public entities resorting under the Department had taken up the task of improving and monitoring security aspects and were stepping up plans for regulating security. It was planning to expand the economic regulation across the transport sector and would eventually consider creating a transport economic regulator for all modes of transport. It had started with the restructuring of the Road Accident Fund. The process had two elements: a short term initiative to revise current legislation with a view to reduce claim costs and a long term solution to completely overhaul the Road Accident Fund with reference to recommendations made by the Road Accident Fund Commission.

Discussion
Mr G Schneemann (ANC) noted that provision was being made for a scrapping allowing as part of the taxi recapitalisation programme. The Adjusted Estimates of National Expenditure reflected two amounts that were rolled over relating to the taxi recapitalisation programme. He asked the Department to indicate plans to implement the programme. One did not want a situation wherein there would be rollovers relating to the programme every year.

Mr Montana replied that the Department had had the necessary consultation with the stakeholders. The Cabinet would finalise the matter soon. A key area was to ensure that the taxi industry was integrated into the entire public transport arena. The recapitalisation should take place within the restructuring of public transport as a whole.

Mr D Botha (ANC) noted that R1.8 billion had been rolled over for late claims for the Arrive Alive Campaign. He asked how this affected the campaign and why the money was not claimed.

Mr Pretorius replied that it was the first time there had been rollovers from the campaign. In the last financial year the Road Accident Fund indicated that it was no longer able to fund the campaign.

A Member asked if there were plans to improve the conditions of train stations and houses along railway lines. Some of the houses and stations were vandalised.

Mr Montana replied that the houses were under Transnet's control and the Department of Public Enterprises. Transnet was negotiating with trade unions about disposing of the houses. Together with some local authorities, it was also looking at how to use the houses to alleviate the problem of houses. He was worried by the number of people who had built houses in railway reserves. This had a major impact on the operations of the Department.

A Member said that security in airports had been in the spotlight in the recent past. He wondered why the submission by the Department singled out security in trains and excluded airports.

Mr Pretorius said that the Airports Company of South Africa was looking at the issue of security in airports. They had built an infrastructure that would help monitor all vehicles in the airport.

Mr Ralane said that the public transport operation had rolled over R14 million. He asked what impact this had had on commuters. He was surprised that the South African National Roads Agency Limited intended to take over deteriorating roads. He asked why this decision was made because the Agency did not have the funds to maintain the roads.

Mr Montana replied that the Department was moving towards a new system. In the past the determination of road ownership was very important. There would be a reclassification of roads taking into account the importance of the road. Provinces requested the national government to take over the roads. It was important to maintain those roads instead of allowing them to deteriorate. Some people had viewed this as a take-over. The policy had always been to wait for a province to formally say that it was not in a position to maintain the road at an acceptable level.

With regard to public transport operations he said that the Department was engaged in restructuring. The problem was that the Department spent large sums of money on subsidising buses and a lot of people were not benefiting from the subsidies. One would find a bus moving around town virtually empty. If one encouraged co-operation between buses and taxis this would be avoided. One would have a schedule that would allow buses to ferry passengers during the peak hours and taxis taking over in between the peak hours.

Mr Mkhaliphi said that large number of municipal IDPs did not have transport plans built into them. He asked whether this had been overcome and what the Department's view was on the implementation of the taxi recapitalisation programme.

Mr Montana replied that in terms of the National Land Transport Transitional Act, the Department was required to establish transport authorities. This was an area of co-operation between the Department, provinces and local government. There was a commitment by national government to ensure that capacity was built in municipalities to ensure that there was no duplication of functions.

Mr Nene requested the Department to furnish the Committee with its cash flow projections. This would help the Committee to keep track of the Department's expenditure on a monthly basis.

Department of Public Works submission
Mr Phillips and Mr Ntsaluba (CFO) represented the Department. The Department had received additional funding to enable it to cater for office and residential accommodation for newly appointed Members of the Executive and urgent essential repair work on some important buildings. It was implementing programmes in the Presidential Plan of Action. It was also planning to devolve the payment of rates and services for provincial properties to provinces from April 2005.

The Department had produced a plan to eradicate the maintenance backlog on all national government buildings. It was also finalising plans to improve accommodation at the Parliamentary complex in Cape Town and to improve the Headquarters of National Departments in Tshwane.

The adequacy of the Department's allocation for municipal services and rates would depend on the outcome of the new Property Rates Act and the annual increases in rates and services by municipalities. There was no allocation made to carry out the huge work required to properly vest every State property in the name of the correct sphere of government. The Department of Land Affairs had AN allocation for this purpose and the two Departments would work together with the provinces to address this issue.

The Department had set itself a goal of allocating at least 40% of its capital maintenance budget to black contractors over the MTEF period. In addition to its existing emerging contractor development programme, it had started to implement an incubator programme. It had already incubated 50 such contractors who would be involved in the construction of prisons project worth R1 billion over the next two years.

Discussion

Mr Ralane noted that the Department would not fill some of its vacancies in the financial year. This would result in savings of R34.5 million. He asked how many posts were involved and what impact this would have on service delivery. He also asked for the reasons for the slow uptake of transfers and subsidies to provinces and municipalities and what the Department was doing to address this.

Mr Phillips replied that the vacancy level stood at 20%. The Department did not fill some positions because it was looking at outsourcing services like gardening. There was vigorous recruitment for skilled personnel. It had been one of the major employers in the past and would continue to do so to address the problem of staff shortages.

There would be an increase in the uptake of the transfers and subsidies after November. Most municipalities did not send their invoices in the first few months of a financial year.

Dr Cwele asked if a national asset register existed and when the Department intended to finalise it.

Mr Phillips replied that the asset register existed but was still incomplete. A lot of work still needed to be done to register the assets in the correct sphere of government.

Ms Ramotsamai noted that the Department was planning to devolve the payment of rates to provinces. She wondered if this was the right thing to do given that some provinces did not have the capacity to spend their budgets. The Department of Social Development had decided to centralise the grant system because of this problem.

Mr Nene requested the Department to furnish the Committee with its cash flow projections. This would help the Committee to keep track of the Department's expenditure on a monthly basis.

Department of Housing submission
Mr P Chauke represented the Department (Chief Director: Housing Sector Performance). Since 1994, the Housing Programme had reformed the pre-1994 State housing programme and the institutional structure. It had delivered 1,6 million housing opportunities and affected the lives of some 6 million people. It had invested R29, 5 billion in the country and transferred R25 billion of housing assets. This culminated in a sophisticated delivery system that addressed a range of needs.

Some of the challenges in the current housing environment included the population growth rate (2.1%), the 30% higher increase in household numbers, the rapid urbanisation rate (2.7% pa) and the slow rate of delivery.

The Department was committed to unblocking delivery constraints by increasing access to housing finance and rooting out corruption and maladministration. An investigative unit would soon be established.

Discussion
Mr Nene apologised that not enough time was afforded to the Department to brief the Committee. He requested the Department to furnish the Committee with its cash flow projections. This would help the Committee to keep track of the Department's expenditure on a monthly basis.

Mr Ralane asked for the reason for the slow uptake of transfers and subsidies to provinces and municipalities.

Mr Chauke replied that there was a tendency to start taking up the transfers during the last quarter of a financial year.

A Member said that the bulk of the Department's budget was transferred to municipalities and provinces. He asked if there was capacity to monitor how the funds were spent.

Mr Chauke replied that there was capacity. There was a need to have a dedicated branch to monitor the spending of the funds.

The meeting was adjourned.