Mr Chairperson, hon members, ladies and gentlemen, since the middle of last year our economy has grown strongly, driven by buoyant consumer spending, continuing high commodity prices and a recovery in the motor industry, among others. The latest gross domestic product, GDP, data for the first quarter of this year indicates growth of 4,8% on an annualised basis, with the manufacturing sector leading the recovery, despite difficulties associated with the relative strength of the rand. This is good news. We have moved out of recession and the South African economy has responded well to the global economic recovery over the past year.
However, employment growth is far too slow. We face a very serious unemployment challenge, as you all know, particularly among our young people. This is the most important reason that we have adopted a New Growth Path - a set of policy measures and practical reforms that accelerate the creation of job opportunities and achieve an inclusive and durable transformation of our development trajectory.
Over the past few months I have had the privilege, as I am sure many of you have had during the local government elections, of meeting and speaking with many South Africans from all walks of life about the progress we have made since 1994 and the problems that remain to be addressed. It has been an invigorating and humbling reminder of what we are here for.
I have spoken to hostel dwellers about their toilets and cooking facilities not being maintained. I have spoken to street traders and young township entrepreneurs about the opportunities and uncertainties they face in making a living outside of the security of paid employment. I have talked to businessmen and -women about adapting to the volatility and strength of the rand, and about their frustrations in dealing with bureaucratic procedures, which are often too slow. We have all been reminded during this election process that service delivery is not a political slogan; that even a budget and a long-term plan are not enough. Service delivery is the daily practical experience of 50 million South Africans, who either have running water or they don't, who either have electricity for cooking and warmth or they don't, who either have a bus or train service that works or they don't, who live in a house or do not, who may have food for their children or may not, who may have a job or may not.
The local elections have provided a reminder of what we are here for: not just to talk and hear reports, but to serve our people and deliver in a practical way; to ensure that there is action and that what we do is disciplined, practical and implemented with urgency and determination. No doubt others in this House have had similar experiences.
At the same time, we are mindful of a global economic context that brings both opportunities and considerable risks. Last year saw a broad-based global recovery from the 2009 recession, fuelled in part by an enormous infusion of financial support by the central banks and governments of the world's major economies. But the recovery is now stalling in the United States, where home prices are still 30% below 2008 levels. In Europe, governments are being swept from office in countries that still face immense debt problems, rising unemployment and highly unpopular austerity measures. In China and other emerging economies, higher food prices and rising inflation are creating difficulties.
There are new forces driving democratic change in the Middle East and North Africa, and economic and financial trends are contributing to a rebalancing of power, influence and alliances. These are complex times, in which South Africa plays a special role - not by virtue of our power or wealth, but because there are principles of partnership, fair play, democratic participation, regional development and global solidarity that underpin our commitment to a better Africa and a better world.
The National Treasury's strategic plan for the period ahead, based on government's 12 outcomes and under the leadership of a brand-new Director- General, Mr Lungisa Fuzile, who is sitting behind me, takes forward our particular responsibilities related to macroeconomic and fiscal management, supporting investment in infrastructure, encouraging job creation and improving financial management and accountability across all three spheres of government.
Social security and health financing reforms are key priorities this year. The strategic plans and budgets of the National Treasury and the "finance family" more broadly cover a wide range of activities. The detailed strategic plans have been tabled and we have benefited from constructive and very helpful discussion during hearings conducted by the Select Committee and the Standing Committee on Finance.
I particularly welcome the support that has been expressed by so many members of the House on the stance we have taken on the governance of multilateral financial institutions, like the International Monitory Fund, IMF, and World Bank, drawing on the Pittsburgh Communiqu of the G20 leaders. We want to see open, merit-based appointments to the senior management positions of the IMF, the World Bank and other multilateral institutions.
I should emphasise, though, that reform of the governance of global financial institutions needs to go much further than this. It is also about the ways in which consultation and joint decision-making are structured and about rules of access to collective financial resources and how the interests of debtors and creditors are appropriately balanced, among many other challenges that the globe is facing today.
These issues are complex, partly because they involve difficult trade-offs between national sovereignty and international co-operation. We are well aware, for example, of the difficulties we face because of the persistent strength and volatility of the rand - but improving the transparency and stability of global currency and capital markets has to be a multilateral project, involving clear guidelines for both "sending countries" and "receiving countries". We have several specific international financial co-ordination issues to address in our own regional environment, which may lead to legislative and regulatory reforms in the near future. Reform of the Southern African Customs Union has been under discussion for several years. The issue has become more pressing because the sharp deterioration in global trade impacted so severely on the revenue shares of Southern African Customs Union, Sacu, partners. This is an opportunity to take a longer-term view on regional co-operation in both trade and financial arrangements, and joint investment in infrastructure across regional borders.
There is potential here for changes that will benefit the regional economy as a whole and contribute to the competitiveness of Southern African business and industry in the wider global economy. Our development finance institutions, including the Development Bank of Southern Africa, have a special role to play in constructing the partnerships across national boundaries that are required if we are to make expanded trade and investment a reality.
The issue of fiscal sustainability and the budget framework is equally crucial. Accelerated growth and development of our business sector is not only important for the jobs and income it delivers, but is also a pre- condition for revenue growth and the expansion and improvement in public services that rely on government revenue.
Preliminary revenue and spending estimates suggest that the consolidated budget deficit for last year was 5% of GDP. This is a pleasing outcome by comparison with the original budget estimate of 6,2% tabled in February last year, which mainly reflects the recovery in revenue associated with an improved economic growth performance.
But while government personnel expenditure exceeded the original budget estimate by nearly R20 billion last year, spending on the maintenance of infrastructure and capital works fell short of the budget projection by about the same amount. This is not a satisfactory result. As several Cabinet colleagues have emphasised in recent weeks, we face immense backlogs in public infrastructure maintenance. Investment in infrastructure is central to improving household service delivery and overcoming the spatial imbalances of both our urban and rural landscapes. It is vital that we should make better progress in infrastructure maintenance and investment, and we need to take care that this is not crowded out by an unsustainable rise in personnel spending.
The 2011 Budget provides for consolidated personnel expenditure to rise from R314 billion last year to R339 billion this year, which is an increase of just under 8%, including a moderate expansion in public service employment and improvements in conditions of service. Under Minister Baloyi's guidance, negotiations are in progress aimed at a fair and balanced wage settlement this year, taking into account also the salary progression provided for in occupational service dispensations and notch adjustments.
It is important to understand this, hon members: When we talk about salary increases we are talking about an increase in a basic salary; a pay progression of 1,5%, which most public servants get; notch adjustments depending on their performance; and the OSD dispensation that flows through from the decisions that we have made over the last two or three years.
As requested by Parliament last year, the national Treasury has proposed broad fiscal guidelines aimed at long-term sustainability in our public finances. The proposed principles, as you are aware, are countercyclicality, long-term debt sustainability and intergenerational equity.
As economic growth improves this year and over the period ahead, we aim to lower the budget deficit to between 3% and 4% of GDP, thereby rebuilding our fiscal space and allowing for the substantial borrowing requirements of Eskom, Transnet and some municipalities. The Treasury will develop the fiscal guidelines further this year. Reporting on this framework will strengthen the ability of Parliament and the public to assess the long-term soundness of our fiscal stance.
Ensuring that expenditure is well managed and targeted at our social and development priorities is clearly also a fundamental fiscal policy objective. Once again, in this year's budget process, we will seek to improve the efficiency of public service delivery through savings and targeted cost-effectiveness measures. Now that performance targets and measures associated with the government's outcome priorities have been finalised, these will play an enhanced role in the assessment of spending plans and reprioritisation of resources.
Alongside these performance-related measures, several steps are being taken to tighten up financial management and improve government procurement processes. Following an extensive consultation process, revised regulations will be promulgated this week to align the preferential procurement system with the Broad-based Black Economic Empowerment Act and its associated Codes of Good Practice. This reform will further encourage the development of small enterprises and takes into account local content objectives associated with government's Industrial Policy Action Plan, Ipap. In order to provide time for suppliers to be BEE rated, a grace period of six months will be allowed and the current regulations will remain applicable until 7 December 2011.
To promote uniformity throughout the public sector procurement system, the revised regulations will also be applicable to schedule 2, 3B and 3D public entities, which are exempt from the current rules.
The revised preferential procurement regulations will assist in curtailing fronting, as it is known. Further preventive measures to counter supply chain fraud and corruption are detailed in a Treasury Instruction issued on 31 May 2011, which requires, among other measures, for tender programmes to be submitted to treasuries at the beginning of a financial year; and the publication of the names, preferences claimed and bid prices within 10 working days of the closure of a tender.
Improved tax administration also contributes to sound financial management and good governance. Under Commissioner Magashula's leadership, we can again report on excellent progress in revenue systems development and several initiatives to take this further over the period ahead.
Revenue performance is an instructive barometer of the broader economic trend and the uncertainty we confront. As a result of the recession, tax collections declined from a peak of 27,6% of GDP in 2007-08 to the trough of 24,5% over the past two fiscal years. Despite the year-on-year improvement of 12% in revenue collections, the tax-GDP ratio has yet to recover to the levels before the recession. In fact, it will take a few more years before we get there. The tax-GDP ratio is expected to remain below 25% for this year, though we expect to see growth of about 10%, including a strong recovery in company tax receipts.
Sars will continue its focus to improve the levels of tax compliance in the country. Last year, a record of more than 4 million individuals submitted their tax returns on time. We must thank the growing number of compliant taxpayers in the country, and I am happy to share with you advance notice that the 2011 tax season for individuals will start on 1 July this year. I thought you will applaud that, ladies and gentlemen. [Laughter.]
The 2011 tax season for employers closed this past week, with another record number of employers filing their annual payroll reconciliation timeously. So far 229 000 employers in the country have filed their reconciliations, compared with 195 000 last year. These declarations have been accompanied by over 13 million IRP5 certificates issued to employees. This is a phenomenal achievement, hon members, because the foundation of our tax and compliance system depends on this level of co-operation from both the employers and the individual taxpayers.
Again, we would like to thank those employers that have made every effort to submit their payroll data on time. This will now enable Sars to prepare a unique income tax return for most working individuals in the country who will be required to submit a tax return after 1 July 2011. Employers who have not yet submitted their payroll information to Sars are encouraged to do so as soon as possible in order to avoid penalties.
Good progress has also been made in pursuing non-compliant taxpayers who have outstanding income tax obligations. Following the despatch of over 230 000 penalty notices in January last year, 81 866 individual taxpayers have submitted returns and over 50 000 have paid penalties amounting to R189 billion. The new penalty regime, in which penalties range between R250 and R16 000 in proportion to the severity of the transgression, has proved to be effective in encouraging better compliance.
Parliament will have a change from the usual consideration of amendment Bills in the tax arena this year. The Tax Administration Bill will be introduced later this month. The Bill will consolidate generic administrative provisions in different tax Acts, update them in line with modern thinking and Sars's modernisation agenda and serve as a preliminary step to the rewriting of the Income Tax Act, 1962.
In the arena of revenue administration, we are already able to take advantage of South Africa's inclusion in the so-called Brics grouping of emerging economies. Building on work of the India, Brazil and South Africa, Ibsa, grouping, progress has been made in sharing tax and customs information and bringing greater pressure to bear on nearby offshore financial centres such as Mauritius. The visit last month of the Chinese Vice-Minister responsible for customs provided an opportunity to engage on the possibility of closer co-operation between Sars and China Customs on issues such as the undervaluation of goods and measures to combat counterfeit and illicit trade.
Financial regulation will be another important focus area for the Treasury in the coming year. I am pleased to report that the preliminary comment on the government's proposals set out in the policy document published at the time of the Budget, entitled A Safer Financial Sector to Serve South Africa Better, has been positive and encouraging. One of our key announcements was the gradual shift to a "twin peaks" model of financial regulation. This approach envisages the separation of prudential regulation of financial institutions and locates it within the South African Reserve Bank, while locating responsibility for market conduct regulation at the Financial Services Board. National Treasury has met with the Reserve Bank and a joint task team has been established with the Financial Services Board to guide the implementation of these reforms.
Since the Budget, the new Consumer Protection Act has also come into effect and care will need to be taken to ensure that there is alignment of objectives and that we minimise duplication. The financial sector must be held to the highest standards of market conduct and consumer protection and for this reason requires unique legislation and associated support initiatives. Although not codified in quite the same regulatory framework, these principles of financial trusteeship also apply to public service delivery and financial management across the national, provincial and local government spheres. There is still more to be done, and I wish to record my appreciation for the efforts of the provincial finance MECs and their treasury departments in supporting financial management improvements in provincial departments over the past year. Of the 122 provincial departments, only seven departments overspent their budgets for the 2010-11 financial year, compared with 31 departments in 2008-09.
Active steps have been taken to improve resource allocation efficiencies and there is better alignment between national identified priorities and funding at the provincial level. However, the slow pace of capital spending as a result of poor planning, weak supply chain management and poor contract management must be dealt with. Further work is in progress, drawing on the capacity of the Development Bank of Southern Africa, to dramatically change the pace of delivery of infrastructure in this country.
At the local government level, we have also seen progress in stabilising finances. However, the composition of spending needs further refinement. Capital spending and infrastructure maintenance have slowed significantly while operational spending, including personnel costs, is growing rapidly.
We have noted that Parliament has requested that the provincial and local equitable share allocations should be put under scrutiny over the year ahead. The local government equitable share is designed to assist municipalities in meeting the national government policy imperative of providing free basic services. On average, municipalities receive over R500 per month per poor household to provide for free basic services. Future years will see the share for poorer, more rural municipalities growing. This is accompanied by rapid increases in Municipal Infrastructure Grant allocations to poorly resourced municipalities. These arrangements will be re-examined this year, in consultation with all stakeholders, with a view to phasing in reforms from 2012 onwards.
Mr Chairperson, you will recall that President Zuma announced the establishment of a new Jobs Fund in the state of the nation address this year, and a total of R9 billion was set aside over the MTEF period for this initiative in the February Budget. Drawing in part on the experience of the Business Trust and other such programmes in supporting innovative enterprise development projects in recent years, the Jobs Fund will operate as a competitive "challenge fund", supported by a technical appraisal and project management team based at the Development Bank of Southern Africa.
Mr Frans Baleni, Deputy Chairperson of the DBSA Board, and Mr Brian Whittaker, CEO of the Business Trust, have agreed to serve as the chair and deputy chair of the fund's investment committee. An advisory committee will also be appointed, drawing on appropriate expertise in both the public and the private sectors. The Jobs Fund will initially seek project proposals in four broad areas: enterprise development, infrastructure investment, support for work seekers, and overcoming institutional barriers to job creation.
This is an exciting and bold initiative, in which we will in some respects be treading new ground. The Jobs Fund is founded on the recognition that we don't yet know enough about how to address our unemployment challenges. We therefore need to encourage innovation and learn from the experience of our business sector, nongovernmental and civil society organisations, in addition to public sector agencies and development finance institutions. But, as Minister Nkwinti advised me last week, we are not looking for men in suits with briefcases here, but for partners with practical ideas and mud on their shoes. I am sure you will join me in wishing the DBSA and the fund's investment committee well in taking this initiative forward, recognising that we want to know, in a year's time, not just how the funds have been allocated but, more importantly, what we have learnt about the process and dynamics of job creation.
The Land Bank has equally done excellent work over the past year and will continue to do so in the next year. I am sure that members of the House will already have noted the impressive turnaround that has been achieved in both the financial health of the institution and its effectiveness in supporting transformation in the farming sector. Capital adequacy is now well above the level set as a condition for the government guarantee, and liquidity levels have significantly improved.
The focus for the year in progress is on increasing the development impact of the Land Bank, working with government to find suitable financing solutions for emerging farmers, growing the loan book while reducing the cost of funding, and establishing a wholesale finance facility for strategic partners to onlend to qualifying participants.
Equally excellent work has been done in the Government Employees Pension Fund and the Public Investment Corporation, PIC, and similarly the restructuring of the Government Pensions Administration Agency is moving well ahead.
This commitment - to objectively measure the impact of what we do against goals we have agreed on - is the hallmark of our approach and we hope to execute our promises in the coming year. Thank you. [Applause.]
Hon Chairperson, hon members, comrades and distinguished guests, it is a great pleasure for me to, once more, participate in the deliberations of Budget Vote No 10, with specific reference to National Treasury and the SA Revenue Service, Sars.
Mudzulatshidulo, Mira?o ya Phalamennde na vhueni vhure hone fhano vhu bvaho kule na tsini, Ndaa! Kha vha ntendele ndi fhirise ?anga ?a vhusiwana na ndiliso kha vha mu?a wa ha Sisulu. Ri ri mukosi a wo ngo pfala fhano kha ?a Afurika Tshipembe fhedzi; wo swika na kha ma?we mashango a nn?a.
Zwine ra nga amba zwone ndi zwa uri, kha ri ?anganedze zwe Mudzimu na vhadzimu vha ri ?ea zwone. Tshino a si tshifhinga tsha mi?odzi na zwililo lini. Ndi tshifhinga tsha u takalela mishumo mivhuya ya n?hesa, ye mme ashu Vho Albertina Sisulu vha ri itela yone. Ro vhona u ?inetisa havho kha u ?isa mbofholowo ya vhathu vha Afurika Tshipembe ?o?he. Ro vha na mveledziso khulwane kha sia a zwa mutakalo, pfunzo, u fhungudza vhushai, na zwi?we zwinzhi, nga maan?a kha u fha?ela vhathu dzinn?u.
Zwo salaho ndi u vhudzisa uri naa mishumo ya havha mukegulu ya u nakelela ri ?o i bveledza phan?a hani? Vho bveledza tshipi?a tshavho, kha ri vha tendele vha awele. (Translation of Tshivenda paragraphs follows.)
[Chairperson, Members of Parliament and guests from far and near, hello! Allow me to air my views and express condolences to the Sisulu family. We say the call was not only heard in South Africa; it reached foreign countries as well.
What we can say is, let us accept what God and the gods have given us. This is not the time for tears and sorrows. It is the time to celebrate the good and important work, which our mother Mrs Albertina Sisulu has done for us. We have seen her dedication in bringing about freedom to the people of the entire South Africa. We have greater development in the spheres of health, education, alleviation of poverty and many others, especially in the building of houses for the people.
What is left is to ask how we are going to perpetrate these beautiful roles of this grandmother? She has done her part; let us allow her to rest.]
The context within which the debate is taking place is informed by our understanding of the powers and functions of National Treasury as contained in Chapter 2 of the Public Finance Management Act, which outlines the following as National Treasury's core mandate. It is important to repeat this, so that we understand the context within which we are engaging with Budget Vote No 10.
It has to develop a fiscal policy framework and co-ordinate macroeconomic policy; it must prepare a sound and sustainable national budget and equitable division of resources; equitably and efficiently raise fiscal revenue, while enhancing the efficiency and competitiveness of the South African economy; sustainably manage and make effective government's financial assets and liabilities; and promote transparency to improve financial accountability and enforce effective financial management.
Furthermore, National Treasury has a direct contribution to make in the 12 government Outcomes, particularly in the following areas: one, the area of decent employment through inclusive economic growth; two, a responsive, accountable, effective and efficient local government system; and three, an efficient and effective development-oriented public service and empowered society.
However, we should at all times be mindful of the fact that the Constitution of the Republic enjoins National Treasury to ensure both transparency and expenditure controls in each sphere of government and, most importantly, it must develop the fiscal and national macroeconomic policy framework. Therefore, with the above understanding, the task is clearly defined and set for the committees of Parliament to play an oversight role in the implementation of the department's strategic plans.
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 programmes decent job creation, access by all to health services, education, sustainable and rural development, and the creation of better and integrated communities to fight corruption.
Let me venture into what constituted the immediate task of the Soviet government, namely, the task of organisation, which was clearly set before all the working and oppressed people in a resolution adopted at the extraordinary Congress of Soviets in Moscow on 15 March 1918 and also paid specific attention to the self-discipline of the working people and the ruthless struggle against chaos and disorganisation - a point I wish to return to later in my presentation.
We should be happy that we are deliberating this Budget Vote at a time when our economy is showing some positive signs of recovery. We can safely say that we have transited from the economic crisis that characterised most of the developed and developing world economies in the past two years. Therefore, it is my considered view that the developed economies, as they turn the page on an era of irresponsibility, should learn from emerging markets and continue to sustain the recovery process and adopt new sets of policies, regulations and reforms to meet the needs of the 21st century global economy. However, the sense of normalcy should not lead us to complacency because the European economy is still very fragile and, in that context, we should tell ourselves that the process of recovery remains incomplete.
Let me return to my earlier point about the task of organisation. What are the immediate challenges in transforming our economy as South Africans? Transforming our economy should mean that we shift the centre of gravity of our economic and political focus from narrow black economic empowerment to broad-based black economic empowerment - an inclusive growth and wealth redistribution. We need to deal decisively with the cancer of corruption creeping in at all levels of our society, not only in government. In this context I wish to welcome the pronouncement and resolution of Business Unity SA, Busa, that they are prepared and are going to name and shame those who seek to corrupt our government officials by pushing brown envelopes in order to influence procurement outcomes. We should congratulate and appreciate that stance. [Applause.]
As part of our immediate challenges and tasks as Parliament, we should at all times ensure that government departments focus on job creation. It must remain at the top of their agenda. We must, therefore, encourage the proper use and spending of the resources that they have been allocated to ensure access to health and education.
To achieve the above, the nation as a whole, including we as public representatives, needs to be part of a mobilising effort to champion a new form of ruthless struggle, the one against chaos and disorganisation. What do I mean by this? We have to pay particular attention to greed, conspicuous consumption and opulence, as well as the creation of a few rich individuals and in so doing decrease the levels of disparity between the poor and the rich.
Research has shown that South Africa is one of the countries with the highest Gini coefficient. We need to enforce a culture of discipline within the working and poor people. We must have an all-round programme to engage civil society and discourage our people from aimless despair and bitterness which lead to the destruction of public property in the name of service delivery protests and better working conditions. This must be discouraged. [Applause.]
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% and may not be sustainable as a result of high oil prices, transportation costs and food prices. Let me take this opportunity to remind hon members of what the Minister of Finance said on the mandate of the Reserve Bank:
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, for the first time in many years, is deficit-financed. The concern that we should have, as Parliament and people of this country, is how and where the resources should be deployed. We have been assured that borrowing will not be directed towards recurrent expenditure, but will be directed to real investment, particularly in the productive sector of our economy, where there is a high propensity for job creation, poverty reduction and growth stimulation.
Of course, critics of financed expansionary macroeconomic planning argue that borrowing always results in a heavy tax burden for future generations, while some argue that deficits have no long-run impact on output. It's a debate that we will continue to have.
A deficit-financed economy must, however, avoid deficit spending on recurrent costs. Thus, both in times of recession and upswings, South Africa needs to give more consideration to deficit-financed expansionary fiscal policy in order to accelerate spending on development and infrastructure.
We must congratulate the Commissioner of Sars for keeping the home fires burning. Under very difficult circumstances, they exceeded the revenue target and therefore impacted positively on our deficit spending. While we appreciate their success and their strategic plans, we also think that it is important for their tax regime to address the peculiar circumstances of the small, medium and micro enterprises, SMMEs, because this sector is an area where real jobs are created.
The Financial Services Board, FSB, has continued to grapple with difficult but important matters which, if not properly handled, may result in negative consequences for the pension funds of our people in this country - the working people. We have urged the FSB to quickly address the issue of pension fund surpluses - which, in more ways than one, have disadvantaged poor families - but also to pay particular attention to the fiduciary responsibilities and powers of pension fund trustees. We have noted with sadness in the past few years the extent to which pension funds are being invested or mismanaged.
Lastly, the allocation of job creation funds to various institutions will need clear inter-Ministerial co-ordination, particularly the R9 billion reserved for the job creation fund, the R10 billion for the ITC and the R40 billion for the Isibaya Fund within the Public Investment Corporation,