Chairperson and hon members, it is indeed my singular honour to address you on this Budget Vote and to present the overview of the work of the finance family, a number of institutions whose activities underpin our political economy. In closing the debate on the state of the nation address in February 1999, our icon, Tata Nelson Mandela, had this to say, and I quote:
We are a democracy - young and fledgling, but one which can boast of firm institutions and a culture that no force can take from the people of South Africa.
We are a 19-year-old teenager. It is the last year of our teenage years, but one which can boast of the calibre of institutions such as the SA Revenue Service, Sars; the Public Investment Corporation, PIC; Financial Intelligence Centre, the FIC; the Financial Services Board, FSB; and the Government Pensions Administration Agency, GPAA, to name but a few, because I will be focusing on them.
These institutions are among the pillars of our economic and political order. Nobel laureate Douglass North defines institutions as follows, and I quote:
Institutions are the humanly devised constraints that structure human interaction. They are made up of formal constraints - rules, laws, constitutions; informal constraints - norms of behaviour, conventions, and self-imposed codes of conduct; and their enforcement characteristics.
The finance family is therefore one of the constraints that structure human interaction within our borders. The Financial Intelligence Centre and the Financial Services Board ensure the integrity, security and strength of our financial system; Sars collects the revenue that makes it possible for government to pay for our collective ambitions as a nation; the GPAA looks after the retirement needs of our civil servants; and the Public Investment Corporation, on the other hand, ensures that the Government Employees Pension Fund, GEPF, and social security funds have sufficient funds to meet their obligations.
In their most recent paper, Taxation and Development, Professors Timothy Besley and Torsten Persson make the point that the power to tax lies at the heart of state development. Besley and Persson take their lead from Nicholas Kaldor, who said, and I quote:
It is shortage of resources, and not inadequate incentives, which limits the pace of economic development. Indeed the importance of public revenue from the point of view of accelerated economic development could hardly be exaggerated.
Sars has played a crucial role in ensuring that successive ANC administrations have had the revenue to fund our collective ambitions as a nation. For the 2013-14 fiscal year, Sars is required to collect R898 billion of revenue, which is nearly 10% or R84 billion more than the previous year. Over the same period, our economy is expected to grow at 2,7%. Thanks, Mr Singh, for commending Sars for the good work that they do, but you have indicated that they need more money. I would imagine you will volunteer to pay more tax. [Laughter.]
Meeting this budget will not be easy, not only because of the tough economic environment in which South Africa and the rest of the world find themselves, but also because of corporate and wealthy individuals who organise their affairs in such a way that they do not pay their fair share of tax. I trust that no one amongst you falls in that category. They achieve this through sophisticated tax avoidance and evasion schemes.
South Africa is not alone in this. The Group of 20 nations, G20, of which South Africa is a member, has taken up the cudgels in relation to this scourge. At the G20 summit last month, the erosion of sovereign tax bases and the shifting of profit by corporates from jurisdictions where it is generated to those where they can pay the least tax were key topics of discussion based on an Organisation for Economic Co-operation and Development, OECD, report which highlighted the potentially crippling effects this can have on the fiscal sustainability of nations.
This is not only unjustifiable, but immoral. South Africa has its fair share of multinational companies who rack up millions of rands in revenue, and yet pay almost no tax, because they use transfer pricing, profit shifting and other forms of tax evasion, and aggressive tax avoidance schemes which denude our fiscus. This is done at a time when governments are being forced by circumstances to support economic activity as the private sector has withdrawn to the sidelines.
The Financial Intelligence Centre, as I said, protects the integrity of our systems. Money laundering and the financing of terrorist activities pose a serious threat to the integrity and sustainability of financial markets and institutions. These activities can discourage foreign direct investment and distort capital flows. Money laundering, in particular, can also be a conduit through which unscrupulous taxpayers hide their income from the revenue collection agencies. It is for these reasons that the international community has made the fight against these activities a priority.
So, the Financial Intelligence Centre plays an important role in ensuring the integrity and sustainability of our financial system. Through ever closer working relationships with the law enforcement authorities and the SA Revenue Service, the FIC provides the financial intelligence which is increasingly being used in the investigation of priority crimes in South Africa, the so-called white collar crime.
In February this year, the Minister of Finance announced that he had requested the FIC to explore how we might bring South Africa in line with the international anticorruption and anti-money laundering standards in so far as the politically exposed persons are concerned and I believe you also belong to that category. The FIC has reissued guidelines to all accountable and reporting financial and other institutions on how they should treat clients who qualify as politically exposed persons. In addition, the FIC has begun a process of amending the Financial Intelligence Centre Act to include explicit provisions to deal with this category.
The extent of reporting to the FIC and the referrals of matters to the law enforcement authorities continues to grow. Over the past year, the FIC referred 883 matters to the law enforcement agencies for investigation. The FIC estimates that the value of these referrals for the past year amounted to R76 billion. Many of these matters involve lengthy and complex analysis and often run over a long period of time. Last year alone, the FIC froze R334 million's worth of goods which had been derived through fraud. At the request of law enforcement agencies, the FIC also helped in the investigation of an additional 1 445 cases.
Regarding the Financial Services Board, the recent financial crisis and subsequent events have been yet another reminder of the importance of sound financial institutions and the fair treatment by these institutions and their intermediaries of the people who buy financial services and products. The financial crisis and the scandals, such as the Libor price-fixing case, have also been a reminder of the importance of integrity and stability of financial markets and institutions. Without strong regulators, we can have neither sound financial institutions nor financial markets with integrity.
So, it is against this backdrop that the Financial Services Board is girding its loins to promote the soundness of insurers and reinsurers through the effective application of international regulatory and supervisory standards. The Financial Services Board is developing a new risk-based solvency regime for the South African long and short-term insurance industries, namely, the Solvency Assessment and Management, Sam, regime. The Solvency Assessment and Management regime will be based on the principles of the Solvency II Directive, as adopted by the European parliament, but adapted where necessary to suit South African circumstances.
This is based on three pillars; firstly, quantitative requirements, dealing with issues such as the valuation of assets and liabilities and the setting of capital requirements; secondly, qualitative requirements, including standards and guidance on governance, internal controls, risk management and supervisory processes; and thirdly, reporting and disclosure. The proposed implementation date for Sam is 1 January 2016. However, interim transition mechanisms will be put in place in respect of governance, internal controls and risk management. Before then, there will be a number of other changes to the regulation of insurance companies and these will come into effect from January next year.
Moving towards the twin peaks regulatory system, the FSB has been working together with the SA Reserve Bank and National Treasury on the preparations for the implementation of the twin peaks model of regulation and we have said that over time this work will continue and is expected to intensify as we come closer and closer to the implementation stage.
Turning to the Public Investment Corporation, for the period 2013 to 2016, the PIC has the following areas of strategic focus. Firstly, it is to contribute to education, health, housing, infrastructure and environmental projects. The Government Employees Pension Fund has set aside 5% of its total assets, equivalent to R62,5 billion, for investment in these types of projects. As at 31 March 2013, 46% of this has already been committed and or invested, this amounts to about R28,8 billion. In the year ahead, the PIC will continue to implement the developmental investment policy of the