Report of the Standing Committee on Finance on the 2010 Medium Term Budget Policy Statement, dated 16 November 2010

The Standing Committee on Finance, having considered the 2010 Medium Term Budget Policy Statement, reports as follows:

1. Introduction and Background

The Minister of Finance (the Minister) tabled the 2010 Medium Term Budget Policy Statement (MTBPS) before Parliament on 27 October 2010. In tabling the MTBPS, the Minister met his obligation under section 28 of the Public Finance Management Act 1 of 1999 (PFMA) that requires the Minister to table multi-year budget projections for revenue, expenditure and key macro-economic projections on an annual basis. In addition to that, the Minister also met his obligation under section 6(1) of the Money Bills Amendment Procedure and Related Matters Act 9 of 2009 (henceforth referred to as the Money Bills Act) that requires the Minister to submit to Parliament the MTBPS.

According to section 6(5) of the Money Bills Act, the Standing Committee on Finance and Select Committee on Finance (the Committees) must 30 days after the tabling of MTBPS report to the National Assembly (NA) and the National Council of Provinces (NCOP), respectively, on the proposed fiscal framework for the next three financial years. In line with section 6(2), the Committees report on a revised fiscal framework for the 2010/2011 financial year and the proposed fiscal framework for the following three years; and an explanation of the macro-economic and fiscal policy position, the macroeconomic projections and the assumptions underpinning the fiscal framework.

Following the tabling of the 2010 MTBPS and the engagement with the Minister, the Committees held hearings on 10 and 11 November 2010, receiving submissions from a panel of economists, organised labour and organised business. This report reflects the main themes emerging from the engagement with the Minister, economists, organised labour and organised business. This report includes two main sections, namely: Economic Outlook and Policy, and Fiscal Trends and Policy. The former section gives an overview of economic outlook and policy with specific reference to key macro-economic indicators within the context of the current global economic environment. The latter section provides details of fiscal policy over the Medium Term Expenditure Framework (MTEF) with specific reference to the fiscal stance adopted by government.

2. The 2010 Medium Term Budget Policy Statement

Basically, the 2010 MTBPS provides an account of current trends in the economy, the medium-term outlook, overview of macroeconomic and fiscal considerations, and a summary of government’s spending plans for the period ahead. The MTBPS therefore sets out Government’s spending plans for the next three fiscal years, based on certain macroeconomic assumptions. In doing so, there is usually a wide range of aspects to be taken into account. The 2010 MTBPS covered six broad themes, namely: economic assumptions, fiscal framework, spending priorities, division of revenue, changes to conditional grants and the mid-term report on spending.

3. Job Creation and Economic Growth

In order to meet the developmental needs of South Africa a new economic growth path needs to be developed in consultation with all social partners across several frontiers; which includes education, skills development, national health insurance, land and agrarian reform, residential settlements and urban renewal, environment management, infrastructure investment and maintenance, enterprise development, and public sector service delivery. However, before the implementation, there will be a need for some ground work to be done in the public sector and private sector in terms of coordinating public policy and market regulations. The 2010 MTBPS indicated the need to raise the economy onto a more labour intensive method to create jobs across the board. The economic growth does not assist the economy when there are less job opportunities being created. This means that the policy debate goes beyond the macroeconomic and financial challenges to include the social component.

The 2010 MTBPS outlines the macroeconomic, fiscal and public expenditure dimensions of the proposed development path. It emphasised the need for the increase on infrastructure investment spending for faster growth and to reduce the budget deficit over the next period. The discipline in financial management in the public sector and improved education, health, and other infrastructure programmes is crucial. There is a need for the following factors to be agreed upon by government and its social partners:

· Strengthening labour market institutions should include improved and expanded further education and training opportunities, placement services and to increase the demand for labour;

· An integrated approach in financing some of the economic infrastructure investment such as development enterprise, housing and farming support;

· The enhanced industrial policy action plan which incorporates industrial development and promotion, support for small businesses and other local opportunities;

· More competition is required for certain industries such as transport, communication and electricity;

· The economic development of South Africa needs to be linked to the African continent for improved economic performance; and

· Improved service delivery is of great importance and this can only be possible through good financial management, control systems, good governance, proper budgeting and well managed contractors to deliver the agreed output or targets.

Crucial issues to be addressed during this MTEF period include how to increase job-creating growth. Other issues are promoting appropriate budget balance and to deal with capital flows and the resultant appreciation of the rand.

The 2010 MTBPS re-affirms the important role of the private sector in growth and employment creation. While social grants provide an important safety net for about a quarter of the population, South Africa’s long-term prosperity depends on more people being drawn into work. The private sector accounts for 75 per cent of all economic activity and a slightly higher share of employment, and will remain the primary driver for job creation. The public sector plays a complementary role in this process. Alongside a range of initiatives to increase training and skills development, specific government interventions to raise employment include an expanded public works program and a youth job imitative.

4. Macroeconomic Forecast

National Treasury reports that gross domestic product (GDP) growth is expected to moderate in the second half of the 2010/11 financial year. The 2010 MTBPS indicates that, although the economy has gained strength since the budget was tabled at the beginning of the 2010/11 financial year, the growth outlook has so far improved. This is evident from the new projected economic growth, which is expected to be between 3 to 3.5 per cent in the 2011 calendar year. The recovery in revenue and moderate growth in public spending is expected to decrease the fiscal deficit. For example, the estimated deficit of 5.3 per cent of GDP projected for the 2010/11 financial year is projected to decline to 3 per cent in the 2013/14 financial year. The 2010 MTBPS also projects that government debt will stabilise to 40 per cent of GDP by the 2015 calendar year. It was also noted that expenditure has increased by R67 billion relative to the baseline over the Medium Term Expenditure Framework (MTEF). This increase in expenditure has been informed by the 12 outcome policy priorities which include education, health, infrastructure, and job creation.

Inflation is expected to remain below 6 per cent over the Medium Term Expenditure Framework (MTEF) while private investment and employment recover gradually. Business Unity South Africa (BUSA) agrees that inflation forecasts with headline Consumer Price Index (CPI) inflation is expected to remain below 6 per cent over the next three years are realistic, but indicated that it remains essential to successfully anchor inflationary expectations. According to BUSA, lower inflation presents an opportunity for the use of monetary policy to further support economic activity. According to BUSA, growth prospects are expected to be driven by household consumption and gross fixed capital formation and will undoubtedly be assisted by lower inflation.

The 2010 MTBPS indicates that sustained exchange rate appreciation will lead to unbalanced growth, widening the current account deficit and increasing the economy’s vulnerability to shocks. Table 1 (below) summarises the key macroeconomic projections inclusive of 2007 and 2013 calendar years.

Table 1: Macroeconomic Projections 2007 - 2013

Calendar Year	2007 2008 2009 Actual			2010 Estimate	2011 2012 2013 Forecast
Percentage change unless otherwise indicated
Final household consumption	5.5	2.4	-3.1	2.6	3.4	4.1	4.5
Final government consumption	4.7	4.9	4.7	4.9	4.3	4.2	3.7
Gross fixed capital formation	14.2	11.7	2.3	0.8	5.6	5.0	5.9
Gross domestic expenditure	6.4	3.3	-1.8	4.1	4.2	4.5	4.9
Exports	5.9	2.4	-19.5	4.1	5.7	6.6	7.6
Imports	9.0	1.4	-17.4	8.4	7.8	7.9	8.7
Real GDP growth	5.5	3.7	-1.8	3.0	3.5	4.1	4.4
GDP inflation	8.2	9.2	7.3	6.1	5.3	5.5	5.6
GDP at current prices (R billion)	2,017.1	2,283.8	2,407.7	2,631.4	2,867.1	3,148.0	3,471.9
Headline CPI inflation	6.1	9.9	7.1	4.4	4.7	5.0	5.2
Current account balance (% of GDP)	-7.2	-7.1	-4.0	-4.2	-4.9	-5.3	-5.8

Source: National Treasury (2010)

4.1 Economic Policy and Outlook

South Africa experienced a decline in gross domestic product of 1.8 per cent in 2009, and a loss of employment estimated close to a million jobs. This was a severe deterioration, despite a continued expansion in government infrastructure spending and the countercyclical monetary and fiscal policy response.

Higher commodity prices have contributed to a somewhat more buoyant recovery in the 2010 calendar year than was anticipated at the beginning of the 2010 calendar year during the National Budget in February 2010. Households have started to spend again as interest rates declined together with lower inflation.

According to the Federation of Trade Unions of South Africa (FEDUSA), the 2010 MTBPS had to address a wide range of factors, ranging from the need to re-balance the economy after the deep recession, global developments and the need to make some inroads to mass unemployment and poverty. FEDUSA points out that, to this list, the urgent need to improve service delivery and to eradicate corruption and fraud must be added.

4.2 The New Growth Path

The budget policy framework is informed by requirements of a new growth path, in which six key sectors and activities have been identified for unlocking employment potential:

· Infrastructure, through the expansion of transport, energy, water,

communications and housing;

· Agriculture and the agro-processing sector;

· Mining and mineral beneficiation;

· The green economy and associated manufacturing and services;

· Manufacturing sectors identified in the industrial policy action plan; and

· Tourism and selected services sectors.

The Minister of Finance highlighted that the new growth path provides the basis for coordinated policies and programmes across the state, and reinvigorated dialogue and cooperation among social partners.

According to the Minister of Finance, South Africa needs to promote more rapid job creation through a broad range of policy initiatives to achieve the country’s developmental aims. These include the following:

· Labour-market institutions must be strengthened, including expanded further education and training and specific interventions are needed to increase both public and private sector demand for labour, especially for young work seekers;

· A greater participation of development finance institutions in co-financing infrastructure projects, enterprise development, housing and farming support;

· Industrial policy action plans have to be implemented, together with increased support for small enterprises and local economic development;

· Greater investment and competition are needed in the electricity, transport and communications sectors;

· Improved economic cooperation between countries in Southern Africa, including financial and trade institutions, transport, communications, energy and water networks; and

· The underlying all of the above, improvements in public service delivery will depend on better financial management, good governance and disciplined pursuit of agreed service delivery outputs and targets.

BUSA believes that the 2010 MTBPS provided important guidance on macroeconomic policy direction. BUSA welcomes the signals that the new growth path will be aligned to the existing framework and vice versa. Furthermore, BUSA believes that greater attention must be given to address underlying competitiveness issues and that reducing the cost of doing business is supportive of the new growth path, which is probably the least expensive approach to unlocking South Africa’s long term growth potential.

The Chief Economist at the Efficient Financial Holdings, Mr Dawie Roodt, points out that despite a rather healthy fiscal stance, significant changes in certain variables can be expected over the next few years. The new growth path will require huge amounts of money and, although the fiscal deficit is likely to remain within acceptable levels, huge expenditure requirements by the parastatals will add significantly to the state debt burden. Expenditure by parastatals is under the line, items which are not included in the deficit, but which are included in state debt. The 2010 MTBPS expects state debt relative to GDP to top 40 per cent by 2014, significantly higher than now but a lot lower than that of many other economies.

FEDUSA indicates that South Africa’s present economic growth trajectory cannot meet the country’s employment needs. Faster growth is required over an extended period of time to significantly increase labour absorption, reduce high unemployment and achieve a more equitable distribution of income. FEDUSA welcomes the attention given to the serious socio-economic problem of unemployment through the proposed new growth path. According to FEDUSA, previous programs such as the Reconstruction and Development Programme (RDP), Growth Employment and Redistribution (GEAR) and Accelerated and Shared Growth Initiative of South Africa (ASGISA) had this as their primary goal. The current strategies and programs contained in the budget already contain elements of the proposed new growth path.

The National Union of Mineworkers of South Africa (NUMSA) supports the call for a new growth path that will place employment at the centre of government’s economic policy. The People’s Budget Coalition (PBC) points out that the new growth path must be supported by policies that create and retain decent work, together with the eradication of poverty and inequality.

The Institute for Democracy in South Africa (IDASA) is of the view that the 2010 MTBPS does not contain much more detail on the so-called new growth path intended to create five million jobs over the next ten years, thus reducing the unemployment rate from approximately 25 per cent to approximately 15 per cent by 2014.

5. Fiscal Policy

Fiscal policy guides government’s decisions about revenue, spending and borrowing. South Africa’s fiscal policy enables government to deliver on its developmental mandate by providing resources in a manner that is sustainable and that reinforces the stability of the economy.

National Treasury reported that the consolidated government deficit is projected to recover from 6.3 per cent of GDP in the 2010/11 financial year to 3.2 per cent by the 2013/14 financial year. The recovery will be driven by the strong uptake in revenue and the stabilisation in non-interest spending. Growth in expenditure will need to moderate as debt service costs increase over the MTEF. The counter-cyclical fiscal policy will aim to grow revenues while gradually reducing non-interest stimulus spending. It is important to keep the fiscal trajectory on a sustainable path while meeting growth expectations.

Table 2 (below) summarises the consolidated government fiscal framework inclusive of 2007/08- 2013/14 financial years.

Table 2: Consolidated government fiscal framework 2007/08 – 2013/14

	2007/08	2008/09	2009/10	2010/11	2011/12	2012/13	2013/14
R Billion	Outcome Preliminary			Estimate	Medium-term estimates
Revenue Percentage of GDP	625.7 30.1%	684.8 29.5%	666.9 27.2%	761.0 28.4%	843.0 28.7%	931.7 28.9%	1,040.2 29.1%
Expenditure Percentage of GDP	591.3 28.4%	711.7 30.7%	832.5 33.9%	904.1 33.7%	977.2 33.3%	1,059.1 32.8%	1,154.2 32.3%
Budget balance Percentage of GDP	34.4 1.7%	-26.8 -1.2%	-165.6 -6.7%	-143.1 -5.3%	-134.2 -4.6%	-127.4 -3.9%	-114.0 -3.2%

Source: National Treasury (2010)

The Minister of Finance indicates that, as the world economy recovers from the global crisis, there is considerable debate about how quickly governments should be closing their budget deficits. It is argued that the recovery will be held back if governments cut expenditure too quickly, while others point to the potentially devastating effects of fiscal default.

FEDUSA commends government on its fiscal stance during and after the recession. South Africa’s counter-cyclical policy is designed to steady the economy and to protect core social and economic programs from undue volatility. Before the recession, government saved revenue and had a small balance surplus. During the recession, government ran a deficit so to maintain its spending. In this way, government moderated the impact of the business cycle and raised long-term growth.

FEDUSA further points out that as the economy’s growth rate increases, the rate of growth in government spending will have to be reduced. While the higher fiscal deficit was the appropriate counter-cyclical response during the downturn, government will have to reduce the level of borrowing in the years ahead. As the economy recovers, government will tighten its stance to avoid pushing up interest rates and crowding out private-sector investment. It also follows that during the 2010 MTBPS period, monetary policy will bear the brunt in efforts to maintain inflation within the target range of 3 to 6 per cent.

BUSA welcomes the announcement that the budget deficit is expected to be narrowed to approximately 3 per cent of GDP by the 2013/14 financial year, and stabilisation of government debt at about 40 per cent of GDP in the 2015/16 financial year. BUSA believes that the 2010 MTBPS has broadly struck the right balance between fiscal consolidation and being growth-friendly.

IDASA is of the view that the 2010 MTBPS as presented is fairly conservative and that the South African budget policy in response to the recession consists broadly of maintaining pre-recession public expenditure commitments in the face of likely declining tax revenue. According to IDASA, it is necessary that the budget deficit and consequent borrowing requirements are permitted to increase. In other words, budget policy is becoming fairly counter-cyclical through the use of automatic stabiliser of tax revenue fluctuation.

The PBC indicates that the budget deficit is projected to narrow, as National Treasury moderates government spending in order to stabilize public debt at approximately 40 per cent by the 2015/16 financial year. This will not assist in speeding the recovery and stemming the tide of job losses. The budget deficit is projected to be 3.2 per cent by the 2013/14 financial year. The structural budget deficit, which takes out cyclical effects, is projected to be 3 per cent.

6. Capital Flows and Exchange Rate Management

The 2010 MTBPS indicates that the net capital inflows to South Africa have risen strongly over the last two years, reaching 5.5 per cent of GDP in the first half of 2010 compared with 4.7 per cent in 2009 as a whole.

As contained in the 2010 MTBPS, the rand has appreciated by 7.5 per cent against the United States (US) dollar since December 2009, and by 6.1 per cent against a trade-weighted basket of currencies. Because South Africa has higher inflation than its major trading partners, the real effective rand exchange rate, which reflects losses or gains in competitiveness, is now approximately 12 per cent above its average level for the past decade.

National Treasury reported that due to international factors, capital flows were driven to emerging markets causing the rand to strengthen. The real exchange rate is 12 per cent above its 10 year average. Chile has a similar degree of overvaluation, but Brazil on the other hand is much more stretched.

National Treasury and the South African Reserve Bank (SARB) will continue to purchase foreign exchange reserves. SARB will sterilise inflows associated with foreign direct investment inflows using foreign exchange swaps. These include:

• Exchange control and offshore investment limits on individuals amended;

• To make SA attractive as a corporate investment destination and encourage investment in the rest of the African continent;

• Exchange controls on domestic companies will be reformed to remove barriers to their international expansion from a domestic base; and

• Prudential framework for foreign investment by private and public pension funds, including the Government Employees Pension Fund (GEPF).

BUSA reported that they support the commitment to a flexible exchange rate management regime and believes that ‘leaning against the wind’ is the least costly option in dealing with the volatility of the rand. This approach, combined with reserve accumulation and exchange control reform can further alleviate the pressures on the rand.

6.1 Potential Favourable Implications of Exchange Rate Management

According to the Chief Economist at the Industrial Development Corporation, Mr Lumkile Mondi, potential favourables to exchange rate management includes the increase in price competitiveness of exports, at least temporarily (bearing in mind the progressive erosion of such competitiveness depending on inflationary impact). This could lead to increased export market penetration, assuming there is appropriate demand. If price competitiveness and stability are sustained, it could lead to progressive recapturing of foreign markets and securing new external customer bases.

Local market could be regained if price competitiveness and stability is sustained. Exchange rate management could provide positive implications for the bottom line of commodity exporters whose external sales are denominated in foreign currencies, while operational costs are rand-based. Foreign tourism earnings could be increased as a weaker rand raises South Africa’s attractiveness. Mr Lumkile Mondi pointed out that these factors could increase local production, employment gains, higher investment propensity and job gains.

Mr Lumkile Mondi further indicates that exchange rate management could contribute to higher dividend receipts (in rand terms) from South African investments abroad and potentially enhances the wealth effect for South African holders of offshore assets. Positive fiscal implications include potentially higher tax revenues due to increased economic activity, improved corporate returns and higher household incomes through employment gains. Implications of the Balance of Payments may be positive if export demand recovers substantially and significant import substitution is realised.

6.2 Potential Unfavourable Implications of Exchange Rate Management

As indicated by Mr Lumkile Mondi, exchange rate management creates uncertainty over potential impact of intervention in terms of desired outcomes and their sustainability. The cost of interventions is dependent on the choice of instruments, while an abrupt unwinding of substantial speculative positions could have a destabilising effect, at least in the short-term, but effects could be long-lasting if investors’ perceptions are unfavourable.

Considering South Africa’s low savings propensity and its dependency on foreign capital inflows to finance its current account deficit and funding requirements, negative perceptions may have serious adverse repercussions. The timing of interventions is critical in order to minimise unintended consequences, for example, a negative impact on the cost of investment-related imports, while exports may not recover sufficiently due to weak global demand.

Exchange rate management could lead to a potential higher inflation environment (via imported inflation, especially input costs such as fuel and food items), with negative implications for interest rates, investment activity, employment, general cost of living and domestic consumption demand. FEDUSA asserts that the increased capital inflows and resultant appreciation of the rand is partly a result of a positive interest rate differential, but also a result of South Africa’s relatively favourable fiscal position.

Although Government has opted for an exchange control relief as the main focus area, FEDUSA is of the opinion that this leaves the option open for tax measures. In normal times, a tax on capital flows may lead to less capital flows to South Africa. FEDUSA is therefore of the opinion that the exchange control relief is the right option under the current circumstances. The PBC indicates that as emerging market exchange rates appreciate, they suck in imports from advanced economies and struggle to expand their export markets. The massive trade deficits that exchange rate appreciation will generate for countries in the South Africa will constitute the basis for advanced economies to exit of the crisis. The PBC is also of the view that financing long-term investment, using short-term capital inflows, will create a massive imbalance in the national balance sheet, thus maturity mismatches will result, and high interest rates will be required to keep these mismatches away from binding.

While BUSA supports the view that international cooperation is needed to achieve a more stable international financial environment, the PBC argues that short-term capital inflows must be taxed because they place the level of the exchange rate in a manner that is inconsistent with the requirements of industrial development.

Mr Lumkile Mondi advised Government not to interfere with the prevailing exchange rate management policy as the cost of the intervention could be high and the desired outcomes of a proposed intervention may not materialise as observed in Brazil and other emerging economies. Mr Mondi suggested that the Government's long-term strategy should be to develop the infrastructure of the entire Southern African region, both to improve access to regional resources and to develop a local market to pick up slack left by the lack of growth in the US and Europe. Mr Mondi further cautioned that instead of fighting the Rand's relative strength, South Africa should use the opportunity to import the capital components necessary to underpin growth in the region, such as railway engines and infrastructure components.

7. Tax Revenue and Policy

Budget revenue is the amount of revenue available to the fiscus to finance expenditure after taking into account tax revenue, other revenue and transfers to other members of the Southern African Customs Union (SACU). Tax revenue is the largest contributor to budget revenue. Tax revenue is highly cyclical because taxes are levied on economic activity. This means that, if the economy is performing well, more tax revenue will be collected and vice versa.

South Africa’s spending programmes have to be paid for. It is therefore reassuring to be able to note that the improved economic performance has contributed to a projected increase of R31 billion in tax revenue for the 2010/11 financial year, by comparison with an estimate during the 2010 National Budget in February 2010.

Total tax revenue is expected to amount to R679 billion in the 2010/11 financial year (25.3 per cent of GDP). A strong increase in value added tax (VAT) proceeds has been recorded, partly attributed to increased consumer demand, but also because of lower capital investment and the associated reduction in VAT refunds. Customs duty collections have improved, mainly as a result of higher vehicle and component imports. For the period ahead, tax revenue is expected to average about 26 per cent of GDP that is still somewhat below the levels recorded before the recession.

IDASA indicated that, although tax revenue performed slightly better in the 2010/11 financial year than anticipated and is set to continue doing so over the medium-term, the actual recovery of tax revenue levels to pre-recession levels will take considerable time. The overruns of this fiscal year largely reflect a highly cautious 2010 Budget, which did not make the mistake of assuming things would turn out much better than they did.

8. Government Debt

According to the 2010 MTBPS, the fiscal stance targets a combination of revenue and expenditure that will enable government to pay for existing programmes while reinforcing the sustainability of the public finances over the following three years.

BUSA welcomes the announcement that the budget deficit is expected to be narrowed to approximately 3 per cent of GDP by the 2013/14 financial year, and stabilisation of Government debt at approximately 40 per cent of GDP in the 2015/16 financial year. BUSA believes that the 2010 MTBPS has broadly struck the right balance between fiscal consolidation and being growth-friendly. However, the overall public-sector borrowing requirement needs to be managed carefully and that huge borrowing programmes by both Eskom and Transnet do not jeopardise long term borrowing costs for the country.

It is noted in the 2010 MTBPS that real non-interest government expenditure per person has doubled over the past eight years, which was made possible by buoyant growth and revenue, and the declining share of debt service costs in GDP. Government spending on infrastructure and social assistance continued to expand strongly during the economic downturn in 2008 and 2009 calendar years. Expenditure growth will be slower over the period ahead, averaging real growth of approximately 3 per cent per year.

The main features can be summarised as follows:

· Higher GDP growth and reduced inflation;

· A recovery in tax revenue from 24.4 per cent of GDP in the 2009/10 financial year to 26.4 per cent of GDP by the 2013/14 financial year;

· A moderation in the real growth of non-interest expenditure and a reduction in the proportion of expenditure to GDP over the MTEF; and

· A rise in government debt-service costs from 7.5 per cent of expenditure in the 2010/11 financial year to 9.6 per cent by the 2013/14 financial year.

Table 3 (below) provides a summary of total government debt inclusive of 2007/08 and 2013/14 financial years.

Table 3: Total government debt 2007/08 – 2013/14

As at 31 March R Billion	2007/08 2008/09 2009/10 Outcome			2010/11 Estimate	2011/12 2012/13 2013/14 Medium-term estimates
Domestic Debt Gross loan debt Less: Cash balance Net loan debt	480.8 93.8 387.0	529.7 101.3 428.4	705.5 106.6 598.9	880.9 107.2 773.8	1 045.2 107.2 938.0	1 211.6 107.2 1 104.4	1 356.0 107.2 1 248.8
Foreign Gross loan debt Less: Cash balance Net loan debt	96.2 - 96.2	97.3 - 97.3	99.5 25.2 74.3	96.7 45.3 51.4	104.4 56.5 47.9	107.7 51.5 56.2	104.4 37.8 66.6
Total gross loan debt Total net loan debt	577.0 483.2	627.0 525.6	804.9 673.2	977.6 825.2	1 149.6 985.9	1 319.3 1 160.6	1 460.4 1 315.4
As percentage of GDP: Total gross loan debt Total net loan debt As percentage of total gross loan debt: Foreign gross loan debt	27.7 23.2 16.7	27.0 22.6 15.5	32.8 27.4 12.4	36.4 30.7 9.9	39.2 33.6 9.1	40.9 36.0 8.2	40.9 36.9 7.2

Source: National Treasury (2010)

9. Key Issues

The following key issues have been identified from the 2010 MTBPS and submissions from organised labour and organised business:

· Until recently, the constitutionally-required legislation setting out the procedure for Parliament to amend the budget has been enacted as the Money Bills Amendment procedure and Related Matters Act, 2009. To support it in it’s application of the Act, Parliament must be capacitated through the establishment of the Parliamentary Budget Office as mandated in this Act;

· Most commentators welcomed the emphasis in both the unveiling of the new growth path and the 2010 MTBPS on the importance of partnerships. However, some indicated that the 2010 MTBPS did not contain much more detail on the new growth path which is intended to create five million jobs over the next ten years, thus reducing the unemployment rate from approximately 25 per cent to approximately 15 per cent by the 2014 calendar year. This is not surprising, given that the detail still needs to be worked out and other stakeholders be consulted.

· Fiscal and monetary measures are being taken in response to the present strength of the Rand. However, some commentators cautioned Government not to interfere with the prevailing exchange rate management policy as the cost of the intervention could be high and the desired outcomes of a proposed intervention may not materialise.

10. Conclusion

In the context of the current economic and social challenges and that of a small open economy integrated to the global marketplace, a commitment to a prudent macroeconomic framework is crucial. Prudent fiscal management over years assisted South Africa to ride the tide of the deep recession. It helped the country to continue with its expenditure plans and, in the process, to act in a counter-cyclical way. However, fiscal policy alone cannot be expected to successfully address South Africa’s challenges. Whilst macroeconomic policy can go a long way in creating a favourable macro-economic environment, it is important that successful implementation of the micro-level programmes and projects generate tangible outcomes.

The clarification of Government’s stance on certain key macroeconomic issues provides a degree of certainty and predictability, and will further support both consumer and business confidence. The details of the new growth path were not included in this year’s MTBPS, although many of the proposed aspects are already part and parcel of the MTEF. The debates and consultations which will generate greater detail on a new growth path will be an important opportunity to consider alternatives and to secure broad ownership of a truly developmental framework.

The Committees and most commentators commended the Minister of Finance on a balanced approach that was followed in the 2010 MTBPS.

11. Committee Recommendations

Having considered the 2010 MTBPS and conducted hearings on the 2010 MTBPS, the Standing Committee on Finance recommends that:

11.1 The Minister of Finance should provide details on how National Treasury will supplement the proposed New Growth Path to Parliament. These details to form part of the 2011 National Budget in February 2011.

11.2 The Minister of Finance considers providing details on how the State plans to design and fund the much-needed universal health care system. This information may be included in the 2011 National Budget in February 2011.

11.3 The Minister of Finance provides more and updated details on how South Africa is dealing with an appreciating Rand. This information to be included in the 2011 National Budget in February 2011.

11.4 The Minister of Finance should provide the Committee with details on proposals to address corruption in the public financial system.

11.5 The Minister of Finance should provide the Committee with a progress report on the proposed wage subsidy as promised in March 2010.

11.6 The Minister of Finance should provide the Committee with further details on promoting small businesses.

12. Oral Submissions

Table 4 (below) contains a list of people who made oral and/or written submissions before the Committees, some in their personal capacity.

Table 9: List of Submissions’ People

Name	Position	Organisation
Mr. Pravin J. Gordhan	Minister of Finance	National Treasury
Mr. Nhlanhla Nene	Deputy Minister of Finance	National Treasury
Mr. Lesetja. Kganyago	Director-General	National Treasury
Mr Oupa Magashula	Commissioner	SARS
Mr. Kenneth Brown	Deputy Director-General: Intergovernmental relations	National Treasury
Mr. Andrew Donaldson	Deputy Director-General: Public Finances	National Treasury
Mr Lumkile Mondi	Chief Economist	Industrial Development Corporation (IDC)
Mr. Dawie Roodt	Chief Economist	Efficient Financial Holdings
Prof. Raymond Parsons	Deputy Chief Executive	BUSA
Ms. Simi Siwisa	Director: Economic Policy	BUSA
Mr.Coenraad Bezuidenhout	Parliamentary Officer	Business Parliamentary Office
Ms.Prakashnee Govender	Parliamentary Officer	COSATU
Mr. Sidney Kgara	Parliamentary Officer	NEHAWU
Mr. Woody Aroun	Parliamentary Officer	NUMSA
Mr. Dennis George	General Secretary	FEDUSA
Mr. Len Verwey	Budget Manager	IDASA

The written submissions by the above-mentioned organisations are available on request from the Committee Secretariat.

13. References

BUSA, (2010), Medium Term Budget Policy Statement: Presentation to the portfolio Committee on Finance, Cape Town, 10 November 2010.

COSATU, (2010), COSATU Expectations on the Medium Term Budget policy Statement, Cape Town, dated 10 November, 2010.

George, D. (2010), Powerpoint presentation on FEDUSA 2010 Medium Term Budget Policy Statement Comments. The Joint Portfolio Committee on Finance, dated 11 November 2010.

George, D. (2010), FEDUSA Submission on the 2010 Medium Term Budget Policy Statement, Cape Town, 11 November 2010.

Gordhan, P. (2010), Medium Term Budget Policy Statement 2010’s Speech, Parliament of RSA, Cape Town, 27 October 2010.

IDASA, (2010), Perspectives on the 2010 MTBPS. A Presentation to the Finance Committees, Cape Town, 11 November 2010.

Mondi, L. (2010), Impact of reforming exchange rate system on economic policy & broader policies: Some thoughts. A presentation to the Standing Committee on Finance and Select Committee on Finance, dated 10 November 2010.

National Treasury, (2010) Medium Term Budget Policy Statement, Pretoria: Government Printers.

National Treasury, (2010), Medium Term Budget Policy Statement: Presentation to Parliament, Cape Town, 28 October 2010.

NUMSA, (2010), Submission to the Joint Meeting of the Standing Committee on Finance & Select Committee on Finance, (National Assembly and National Council of Provinces): The Treasury and SARB are failing to manage our economy to promote growth and development- we need much lower interest rates and tighter exchange controls!

PBC, (2010), Submission of the Peoples Budget Coalition to the Standing Committee on Finance and Select Committee on Finance on the Medium Term Budget Policy Statement, dated 10 November 2010.

Roodt, D. (2010), The new Keynesian world and the MTBPS. A Presentation to the Standing Committee on Finance and Select Committee on Finance, dated 10 November 2010.

Verwey, L.; T. Dlamini, S. Durham, J Sylvester, and M. Zamisa, (2010), The 2010 Medium-Term Budget Policy Statement: Determining the limits of the possible: A closer look at the 2010 MTBPS. PIMS Budget paper 8, Idasa.

Report to be considered.