THURSDAY, 29 MAY 2008
PROCEEDINGS OF EXTENDED PUBLIC COMMITTEE – COMMITTEE ROOM E249
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Members of the Extended Public Committee met in the Committee Room E249 at 15:02.
The HOUSE CHAIRPERSON Mr M B Skosana, as Chairperson, took the Chair and requested members to observe a moment of silence for prayer or meditation.
The MINISTER OF FINANCE: Chairperson, hon members and dear friends, today is “Taking a Girl-child to Work” day and I would like to introduce a girl-child who has joined me. She flew down from Johannesburg on the first flight this morning. Her name is Treasure Dibotelo. She applied two months ago to join us and she has really been wonderful today. [Applause.]
Deputy Minister Van der Merwe has also been joined by someone, but perhaps more importantly, as you can see, the Deputy President has been joined by a whole bevy of girl-children today and I think we really want to welcome all of them to the House. [Applause.] We hope that they will be aspire to become members like us!
Today we bring no fireworks and no surprises. We see this as an exercise in accountability. We have asked Parliament through the Portfolio Committee on Finance, through three presentations last week to evaluate our strategic plans. We have indicated in both Votes 7 and 11 that we pledge to meet our commitments that are set out in the Estimates of National Revenue. And today is essentially a debate around that; around accountability and the view that we take on this matter that all else will be bells and whistles.
As we indicated earlier in response to the hon Singh in the NA downstairs, the context is very important because we haven’t lived through a more complex period since democracy in respect of the economy - certainly not in respect of the weight of global factors bearing down on us. I think it is very important to recognise that, and as one newspaper recorded this morning, ``the good news is that South Africa is not alone’’.
New terms have been generated, and just a few weeks ago the focus was largely on global inflation. It has moved in some countries to stagflation, and more recently taking account of food prices,
agflation. So, by the end of this period I am sure that we will all have a dictionary of new terms that apply to the circumstances that we are living through. I am sure there will be one for Opec-generated inflation as well!
But all of us as members of this House are policy makers, so we need and we must offer a very honest assessment of the environment that we are operating in. I think it is important to start by recognising that price instability causes hardship. It is a hardship that is felt by ordinary people everywhere when they reach a check-out counter in the supermarket or get to the petrol pump. That is a very real hardship.
There is a hardship that is felt also when families are trying to make ends meet, trying to budget over the month or a week, trying to stretch the wages and finding that it doesn’t even cover the basics. Price instability introduces hardships into the lives of working people.
Price instability risks become even harder if the wage demands drive us into a new inflationary spiral that results in distorted prices and consequent job losses. It is very important that in dealing with the situation we are mindful of all of these risks. Our responsibility, yours and mine, as members of this House is to analyse the situation and communicate.
It is important also to recognise that the complexity and the pressures of the present shouldn’t surprise us. Colleagues will remember that during the Budget Speech in February this year we focused on the weather report and drew attention to the storm clouds gathering. That is why, difficult as this period is, I think it is important that we understand that it doesn’t come as surprise elements that we have to deal with and engage with. In broad terms a trend doesn’t come as a surprise.
There are two interrelated and very important questions that we need to draw attention to because this is what ought to shape our response. As we deal with the storm of the present, the first question is how much shelter can we provide? The second and interlinked question is: Where are we as a country when the storm clouds have lifted? Because there are many things and many calls - you only have to listen to radio talk shows to hear just how easy the solutions to all of these problems are - but all of them tend to be quite short term. We, as policy makers, have to understand the pain and hardship of the here and the now but also understand the interconnectedness also with tomorrow.
Rising food prices have increased the hardships faced by many people, impacting most severely on the poor who spend a disproportionately large share of their income on food.
The rising cost of food is a global phenomenon with global causes. But in saying this, we cannot be blind to the pain and hardship that poor people are experiencing. The price of maize has increased by 69% in the past two years, rice by 131%, wheat by 71% and soybeans by 100%. Most of these increases have occurred in the past six months. Rising oil prices are also a significant contributor to high food prices as diesel and fertilizer costs and so on increase.
In setting out a response, government has prioritised short-term relief through our social grants system, the school feeding scheme and transfers to welfare organisations. The Department of Social Development has begun using the social relief of distress grants to provide those in need with short-term financial relief. The financial implications of these measures will be accommodated in the Adjustments Budget and we are working with the national and provincial governments to ensure that the spending takes place as soon as possible so as to make a meaningful impact on those most severely affected. The same is true for the relief efforts for people recently displaced by xenophobic violence.
In the medium to longer term, it is agricultural production that has to be the central focus of our food security efforts. Government must increase the support it provides to the agricultural sector, particularly to resettled communities and emerging farmers. The National Treasury is working under the leadership of the Department of Agriculture to ensure that these short- and medium-term interventions are funded adequately and that these measures benefit the poor in the shortest possible period.
When I was appointed Minister of Finance, the oil price was about US$20 a barrel and then fell to about US$10 a few years thereafter. When we tabled the 2007 Budget, the oil price was US$58 a barrel. When we tabled the 2008 Budget, the price was US$99. Yesterday the price was US$130 and today when I last checked it was US$131 a barrel. The world has not seen an increase of this magnitude since the 1970s. It is very important that we understand this and that governments everywhere appear to be powerless in the face of these rising prices. Economists are baffled because there is no immediate correlation between the supply and demand factors that are driving these prices in the way that they are.
Oil is a major component of our modern economy and affects the price of almost every other product in some way. Rising oil prices have pushed our petrol price up to just below R10 a litre and there is no sign that petrol prices are likely to fall anytime soon. These price changes stress every sinew in our policy framework.
As I have already indicated, the key is the interlinkage between decisions now and in the future and to understand that we are dealing with the lives of people and not merely with econometric equations. Our introduction of inflation targeting in February 2000 was neither an accident nor a fashion statement. It was introduced against the backdrop of interest rate increases of 700 basis points in 1998; some of which were caused by global factors and some by domestic circumstances arising from the absence of an anchor for monetary policy.
I want to share with you a quote from Governor of the Reserve Bank, Mr Mboweni. He said:
Inflation targeting is a framework, it is not an instrument, it is not a policy and it is not a dogma. Take away inflation targeting and we will still have monetary policy, we will still have the same instruments of monetary policy, and the Bank will still have a constitutional mandate to maintain low inflation.
I concur fully with those views. Against that backdrop, I know that if our monetary policy was not anchored, interest rate increases would probably be considerably higher and also less understood because opacity doesn’t help in these circumstances. The context is to focus on competitiveness to inform decision-making and to train our crosshairs on job creation and job retention. It is not a target in and of itself, but it’s a target towards something else.
But turning then to economic policy and outlook, as reported this week, growth in the first quarter slowed to 2,1%, largely as a result of that 22% drop in mining output – the consequence of the electricity crisis. How ever we believe firmly that the slowdown is of short-term duration and we remain of the view that our growth is both dynamic and robust. I have to remind this House that the economy has grown by 5% a year since 2003. And while we’ve seen very strong consumption, the driver remains investment, both public and private. Our export performance is strong. Unlike other some countries, growth in India and China actually supports growth in South Africa. We must recognise that that is a very strong linkage.
The context of our policy discussion is important. I would like to turn to two pieces of policy work that is current. Firstly we discussed this in the Portfolio Committee on Finance last week, and it will still be discussed, led by this committee – I think on 18 June, Mr Nene. There are 20 papers developed by a group of economists called the “International Growth Advisory Panel”, sometimes it is spelled H-a-r-v-a-r-d. I am not quite show how this works, but we sometimes misspell and misstate it. [Laughter.] But it is called the “International Growth Advisory Panel”.
I think it is important to lift from that panel that the two focal areas are employment and sustainable growth. If we want to deal with this, it is necessary that we understand that there would have to be some controversial proposals. We have to put them on the table and talk about them. If you try and shove them off the table before you’ve discussed them, you wouldn’t have made any progress; and in a moment I will turn to why this is so fundamentally important.
The second one, which was released last week, was a growth report. Let me quote from that report:
Policy makers have to choose a growth strategy, communicate their goals to the public, and convince people that the future rewards are worth the effort, thrift and economic upheaval. They will succeed only if their promises are credible and inclusive, reassuring people that they or their children will enjoy the full share of the fruits of growth.
There is another very important thread that runs through that growth report and that says that growth is not an end but a means to doing a whole series of other things. Those other things include, fundamentally, lifting people out of poverty, creating jobs, giving opportunities and creating the sense that people can be creative. To that list I would like to add “hope”.
I would like to digress for a moment to express my horror at the heinous behaviour that took place in townships in different parts of the country, primarily in Gauteng and the Western Cape, last week. Beyond our collective shame, we will extend report and support to the families displaced by these acts of cruelty. Even beyond that, we must pay attention to the need to intensify job creation amongst young South Africans. Young people who are marginalised and alienated to the point that they see no hope for themselves would always be at risk of visiting their frustration on others in different kinds of ways.
The discussions on employment must be brought back into the centre. It will be necessary to lower the noise levels; but to increase the content of the debate, my pleading is that no idea in this regard be too crazy to consider. I know that I will have the support of the Deputy President as we deal with these kinds of issues. How are positioned to deal with these matters? The first of the issues that springs to mind is that of stewardship. Over the past few weeks, a number of officials appeared before portfolio committees to argue that the Treasury is too tough on them and that they even had to submit business plans and, and, and ...
My response to this is fairly simply. Whatever people do with their own personal inheritance is their own Indaba. What they do with public finances must be accounted for in detail. [Applause.] Secondly, it is important that as people motivate for resources, they must willing to explain how they have spent previously – not just that they’ve spent the money but how they spent it. What the money has bought becomes fundamental in the developmental context. Thirdly, yes, as these two reports indicate, we must be prepared to experiment in order to drive change.
I think that in motivating for experimentation, those asking for the resources must be able to convince the rest that they truly have applied their minds. That shouldn’t be too difficult. The question then is whether the three departments, and there are three departments plus … We are dealing with two Votes: Treasury Vote 7 covers the National Treasury and SARS as a transfer and the Financial Intelligence Centre; Statistics SA is a standalone independent body. We have to take account also of the Public Investment Corporation. The Deputy Minister will say something on that, amongst other things, in a short while.
I would like to assume that hon members of the Portfolio Committee on Finance would have sat through three detailed presentations last week. They would have drilled the departments on the measurable objectives set out in the estimates of National Expenditure. I would prefer not to have to cover that ground again, unless of course there are questions then and we can come back to that.
Let me deal with the bare bones of what we need to do. The National Treasury has set as its objectives the promotion of economic development, good governance, social progress and raising living standards through the sound management of public finances. Every aspect of what I have said is covered by the work of the Treasury in some way.
The big programmes would include economic policy. That includes growth, macro primarily, but also increasingly, the micro-economic issues. It also includes the need to synthesise budgets and interrogate departments requesting resources, evaluating the public finance options, transferring resources to other spheres of government, managing assets and liabilities, and very importantly, understanding the debt portfolio and how we raise resources at any given point.
Then there is developing government systems for procurement and financial information, developing accounting systems for all of government, managing our huge African and international responsibilities, financial regulation and, of course, the tenth programme, which doesn’t actually have measurable objectives, but is taking the blame for all of what goes wrong in other departments. It is part of what the National Treasury has to do and we just assume that it will always be there. And hon members in dealing with all these budget debates, know that that is part of it.
There is just an additional responsibility that we have now, and that is that the Treasury has been accredited by the SA Institute of Chartered Accountants to take people into articles through the Training Outside Private Practice, TOPP. I think this will be a great attribute. I was with Saica abroad early in the week, and they are very excited about this new intake of people and what they will achieve. I’m saying that the Treasury is there. The record is well understood, and my invitation to this House, Chairperson, is that members be the judge of their performance.
In respect of Statistics South Africa, the second Vote, Vote 11, if we want to take the correct policies, then, we need reliable statistics. They must be reliable so that at any given point we can look at the evidence that informed the choices that we made. And I think that also assists the quality of debate that we need to have in Parliament and elsewhere. I think that one of the features of the statistics is that they allow government to better anticipate the prospects for economic growth, price stability, employment trends, life circumstances, and very importantly also demographic trends. That is the daily bread of Statistics SA.
The key priority that we have for Statistic SA - and I want to invite members not just to take a snap shot of the present but to look back - has been constant improvement. Yes, there have been glitches and one of the more recent glitches has been on the Producer Price Index but that has been explained; and I think the fact that Statistics SA had the courage to explain it, speaks volumes about that commitment to constant improvement. But I think the message is very strong, and it’s important, Chairperson, that all of Parliament, all decision-makers in this country, must have the fullest confidence in the quality of the outputs of Statistics SA.