Joint Report of the Standing Committee on Finance and the Portfolio Committee on Economic Development on Budget Vote 7, dated 26 June 2009

The Standing Committee on Finance and the Portfolio Committee on Economic Development, having considered Budget Vote 7 and the 2009/12 Strategic Plan (Update) on National Treasury and the 2009/10 – 2011/12 Strategic Plan of the South African Revenue Services, reports as follows:

1. Introduction

On 23 June 2009, the Standing Committee on Finance held a joint meeting with the Portfolio Committee on Economic Development to consider Budget Vote 7 and the strategic plans of National Treasury and the South African Revenue Services (SARS). Other Committees present at the meeting included the following: the Standing Committee on Appropriations and the Select Committee on Finance and Appropriations.

The Committees were briefed by the Minister of Finance, the Deputy Minister of Finance, the Director General of National Treasury, the Acting-Commissioner of the South African Revenue Services (SARS) and senior officials from National Treasury and SARS.

2. Briefing by National Treasury

The Minister of Finance provided a brief overview of National Treasury’s main functions and programmes. He introduced the respective heads responsible for the state entities under the auspices of the Minister of Finance, while highlighting the purpose of the respective entities. The Minister of Finance highlighted the most important challenges faced by government, which incorporate, amongst others, the global economic crisis. He further expounded on the manner in which South Africa should respond to the current unfavourable conditions.

The Minister reported that the South African economy was in a recession, the first time since 1992. The Minister informed the Committees that according to reports from the World Bank, the world economy contracted by -2.9 percent, while the South African economy contracted by -1.5 percent for the current year. Gross Domestic Product (GDP) contracted by -6.4, percent while employment was falling. Tax revenue collection was R10 billion behind its original target. Exports, in value terms, fell by 55 percent in the first quarter of 2009. Public investment is rising but private investment growth has slowed sharply. The current account deficit remains high, while inflation is proving to be more inflexible than anticipated.

The Director-General briefed the Committee on the 2009/12 Strategic Plan (Update). The Committees were informed about the various programmes that National Treasury would embark on in the near future.

3. Briefing by SARS

The Acting Commissioner of SARS, briefed the Committees on the objectives and strategic plan for the 2009/10- 2011/12 period. He informed the Committees that there would be a sharp decline in tax revenue collected for the current tax year, but also provided details on how SARS would respond to the shortfall.

4. Summary of discussions

After the presentations, the Committees deliberated on the following issues:

4.1. National Treasury

• Coordination of economic development in relation to the new Economic Development Department.
• Support to Development Finance Institutions.
• Duplication of functions between National Treasury and the newly established Department of Economic Development.
• National Treasury’s role in respect of Public Private Partnership.
• Contingency plan to counter the loss of revenue in the current tax year.

4.2 SARS

• The nature of receivables and which percentage of debt could be recovered from tax payers.
• Skills shortage that could compromise SARS modernization agenda.
• The tightening of controls on the movement of goods between South Africa and its neighbouring countries.

5. Recommendations

Based on the deliberations with National Treasury and the South African Revenue Services, the Committee recommends that:

1. National Treasury submits a report to the Committee regarding the detailed study conducted on the Development Finance Institutions.

2. The South African Revenue Services should closely monitor the impact of the recession on tax revenue collection and provide the Committees with a detailed report on how to counteract revenue losses.

3. National Treasury and the Department of Economic Development must submit a joint report to the Committees on their role clarifications.

4. National Treasury should provide the Committees with a detailed report on the status of overspending by provincial and local governments.

6. Conclusion

The Committees will have further intense discussions on the strategic plans and budget allocations of National Treasury, SARS, and other entities who report to the Minister of Finance.

Report to be considered.