The House met at 14:00.
The MINISTER OF FINANCE: Hon Deputy Speaker, Mr President, Mr Deputy President, fellow Cabinet colleagues and Deputy Ministers, the Governor of the Reserve Bank, MECs for Finance, members of the diplomatic core, directors-general, heads of institutions in the finance family, hon members, guests, ladies and gentlemen, former President Mandela once said that "after climbing a great hill, one only finds that there are many more hills to climb". This is particularly true in Nkandla. As a youthful nation, we have had our fair share of hills to climb. Our successful hosting of the World Cup earlier this year is surely proof that no hill is too steep.
As we move out of the depth of the greatest recession since the 1930s, we find yet another hill facing us - the highest, and perhaps the highest we have yet to climb. This is the creation of jobs and the reduction of poverty. Today is the birthday anniversary of a great South African, Oliver Tambo, who dedicated his life to these goals of a better life for all South Africans. Can we applaud this! [Applause.
In taking the struggle forward, Cabinet has this week released details of a new growth path that sets out a vision and outlines key areas where jobs can be created. This is an agenda for collective action by the state, business, organised labour and civil society. In fact, all South Africans have an interest in energising and activating the growth path.
Members of the House will know that details of the new growth path have been under intensive discussion since this time last year. A more inclusive approach to development and creating jobs has been at the forefront of the work of Parliament and many of its committees this year, and it was recently the central theme of Nedlac's annual summit. Our central goal is unequivocal. We have to accelerate growth in the South African economy, and we have to do so in ways that will rapidly reduce poverty, unemployment and inequality.
In February this year, we spoke of our shared humanity, our generosity, our resilience and our capacity to heal and deal honestly with each other as South Africans. We said these attributes were our most precious asset, an asset that gives us formidable capacity to fight adversity, to find common ground amongst us and to move forward to our goals. Now is the time to demonstrate this; the challenges before us demand it.
We have done well, but this is not good enough. We know our challenges. It is time to be impatient with ourselves. I believe the time for talking about our challenges is over. The challenges that we know so well - poverty, unemployment, deteriorating infrastructure, delays in service delivery - demand our urgent responses.
Our communities have been very patient. They want this economy to create jobs, and they want faster and better delivery of public services. All South Africans - those who are poor and those who are privileged - want economic growth. But they don't want just any growth; they want economic growth that creates opportunities for meaningful participation. This is not only for us, but it is also for our neighbours and, more importantly, for our sons and daughters and future generations.
It is my privilege to introduce the Medium-Term Budget Policy Statement on behalf of the President and the Cabinet and to encourage the House and its committees to engage fully with its proposals as part of the more wide-ranging discussion of the central economic, social, financial and developmental challenges of our time.
I need to stress that the design of a growth strategy is our first step and an important one. Our next challenge, to which we are fully committed, is its implementation - aligning our policies and programmes, managing infrastructure project contracts, supporting accelerated business investment and actually delivering on the outputs and activities that are now documented in the outcome statements, delivery agreements and strategic plans for every government department, every public entity, every state-owned enterprise and every municipality. All of us - every Minister - is committed to this.
As you know, we can deliver on a plan, as you have seen in the World Cup. We can deliver this on time and more or less on budget. We know that we can mobilise all South Africans behind a major project. In the midst of a global recession, we brought a special brand of South African magic to the television screens of the whole world. Billions of people around the world watched South Africa perform at its best, and we hosted 350 000 enthusiastic visitors in our own land. We know what it feels like to work together as a nation, to share a collective pride in saying, "Ke nako! It's time! We can do it!" Of course, we also know that economic development is not an event but a process, which requires sustained effort and continuous engagement unfolding over many years.
The 2010 Medium-Term Budget Policy Statement begins with a reminder that development is not about numbers, but about people and improving the quality of their lives.
Our third progress report on the Millennium Development Goals, MDGs, has recently been published as a collaborative effort between Statistics SA and a range of civil society organisations. It is a timely reminder that while we can report steady progress on several fronts, we are lagging well behind targets in others.
We are likely to achieve the 2015 MDG targets for reducing extreme poverty, access to water and sanitation and providing school opportunities and achieving gender equity in education. But on critical health indicators such as maternal and child mortality, which Minister Motswaledi continuously reminds us of, and HIV and TB prevalence, we are not on track to achieve the targets. The quality of many of our schools falls short of acceptable standards. On broader economic indicators, we still have a very unequal distribution of income, and too few South Africans have jobs.
So, we have to place health care and the creation of the national health insurance, education, employment and the requirements of the growth path at the centre of our policy framework for the period ahead.
This is in part about expenditure allocations, and it is also about how we manage public service delivery. It is about taking forward the work of Minister Chabane's Performance Monitoring and Evaluation and Administration department and various interdepartmental teams which have developed specific outputs and targets that are now embedded in 12 sets of delivery agreements covering national, provincial and local government responsibilities.
These commitments and priorities have already influenced departmental planning and budgeting. Examples of existing spending programmes that relate to each outcome area are provided in the Medium-Term Budget Policy Statement, and they will be elaborated in more detail in February next year.
We are making our policy priorities and service delivery goals more measurable and more exact. We are strengthening our capacity to root out corruption and waste. We are making it possible for members of this House and ordinary citizens to see links between activities and projects of government departments and service delivery in our communities.
Our budget policy framework is also informed by the 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 other services; manufacturing sectors identified in the Industrial Policy Action Plan; and tourism and selected services sectors.
Government's new growth path provides the basis for co-ordinated policies and programmes across the state and a reinvigorated dialogue and co-operation among social partners. This is what accountability means.
South Africa was recently ranked first amongst 94 countries in the International Budget Partnership's Open Budget Survey. [Applause.] Mr Manuel should be the first one to say "yeah" because he, together with officials had a lot to do with this.
I'm going to repeat this, hon Deputy Speaker. South Africa was recently ranked first amongst 94 countries in the International Budget Partnership's Open Budget Survey, which assesses the degree to which governments provide sufficient budget documentation to allow for public participation, understanding and oversight in national budget decision-making. This is something that all of us should be very proud of. [Applause.] This is indeed what accountability means.
The challenge before this House and indeed before all South Africans is to strengthen our capacity to use this information to improve oversight, accountability, service delivery and thus improve the pace and quality of our social and economic progress. In other words, we have all the information; there is no shortage of information. There is also no shortage of transparency with regard to that information. But democracy works when we use the information in a constructive and rigorous way so that we can hold people accountable for what they are supposed to deliver.
Before returning to these development challenges, allow me to comment briefly on developments in the global economy. International trade and output have started to grow again, after the severe recession brought on by the financial sector crisis in developed countries. Fiscal and monetary policies remain broadly expansionary, but growth remains fragile, especially in major developed economies where employment has yet to recover - like in South Africa - and debt levels continue to rise - unlike in South Africa.
After declining by 0,6% in 2009, the world economy is expected to grow by 4,8% this year, which is considerably stronger than was expected at the beginning of the year. China and other major developing countries remain the primary engine of world growth as their economies continue to be driven by rapid industrial expansion, urbanisation, and modernisation. India, Germany and Brazil are also contributing significantly to global growth.
Let me reinforce this message. This message is saying to us that the way in which the globe is growing at the moment is very different from 10 years ago. Developing or emerging countries are playing a far more powerful role, and they are in fact the locomotives which are driving global growth at this point in time.
However, there are signs that this recovery has slowed since the middle of this year. In the United States the Federal Reserve Bank has indicated that additional stimulus measures may be needed to prevent deflation. We must be cautious about these additional stimulatory measures which will have benefits for the United States and could have benefits for us.
But this phenomenon called "quantitative easing", which puts more money out into the economy and possibly more money that will come to economies that are our own for the short term only and inflate or strengthen our currencies, is a challenge that, at a global level, the President will have to tackle when he goes to the G20 summit later in November in Korea.
China has taken steps to tighten its policy to prevent its economy from overheating. Last weekend's meeting of G20 finance Ministers and central bankers in South Korea drew attention to the risk of increased protectionism and disjointed actions by countries seeking to gain trading advantages by weakening their currencies.
At the same time, countries with high fiscal deficits are obliged to reduce their deficits and stabilise their debt levels through, hopefully, growth-friendly fiscal consolidation plans phased in over timeframes that are specific to the conditions of each country.
The G20 proposes a stronger multilateral co-operation focused on structural reforms to sustain global demand, foster job creation and increase growth potential while completing financial repair and regulatory reforms without delay. It is uncertain how these international co-operation efforts will work out.
So many countries share the same policy challenge - finding the right balance between measures taken jointly with other nations and steps aimed at protecting national interests.
This is developing as a major challenge to us globally. One sits in global fora and thinks they are attending to concerns of the globe as a whole. But often countries end up advancing their own national interests and find it difficult to connect in respect of gobal interests.
It is clear that the rebalancing of global trade - consumption and investment patterns, increases in spending in surplus countries and decreases in deficit economies - in ways that are consistent with current account and fiscal sustainability norms will take many years, and, indeed, rapid rebalancing would be highly disruptive.
To understand the complexity of this restructuring, we need to appreciate that the decreases or increases in consumption or investment that may be required in specific countries have implications for production in other countries, which will in turn impact on investment elsewhere in the world, leading to further shifts in trade patterns and dynamics.
These interconnected changes in economic activity bring real opportunities for growth and a redistribution of global income and welfare. But they are not correlated in predictable ways with exchange rate movements. The current global co-ordination efforts are therefore focused also on new sources of growth, longer-term trade development and a more stable financial system.
The world is beginning to realise that the West is no longer the only source of growth and demand, and that if continents like Africa are not adequately developed they in fact will suffer in the longer term as well.
In early November, President Zuma will join other G20 heads of state in seeking a common framework for reshaping the global economy and addressing the challenge of aligning divergent national interests within a multilateral co-operative vision and a plan of action. South Africa's view is that shared long-term goals and well-sequenced reforms are more likely to succeed than unilateral or protectionist steps.
In the context of Africa's improving prospects, it is important to note that sub-Saharan Africa is well positioned to benefit from improvement in global demand. Africa has largely escaped the negative overhang of high household debt and weakened banking systems that have been felt in many other regions.
However, slow growth in developed countries has reduced the flow of remittances to low-income countries in Africa, and rising debt in core markets could impact negatively on development assistance to African countries. Nevertheless, low global interest rates, high commodity prices and a particularly strong Chinese demand for Africa's exports provide positive economic boosts, particularly in countries that have undertaken structural and budgetary reforms.
Growth in sub-Saharan Africa is expected to accelerate from 2,6% in 2009 to 5% in 2010 and 5,5% in 2011 as commodity prices remain high, exports recover and domestic demand accelerates. The growth rate in Africa will be second only to Asia in the world during this year and next year. This is a remarkable performance for the so-called "forgotten continent".
This strong expansion of regional economic activity is supported by institutional reforms that provide a positive environment for the expansion of private investment. These include the following: a greater commitment to democracy, political stability and the strengthening of institutions of governance; the opening up of African markets to local and foreign competition through reduced trade and investment barriers; and increased investment in the national infrastructure to reduce costs and facilitate trade. These have all played an important part.
The prioritisation of spending on health and education in national budgets will also support rising productivity. It is notable that in 2009, real spending on education and health increased in 20 out of 29 low-income regional economies in Africa. However, greater economic integration is necessary to harness the full potential of intraregional trade, and the expansion of regional infrastructure networks is required to facilitate faster movement of goods and services between countries at a lower cost. This is a challenge for countries around us and for our region as well.
South Africa experienced a decline in gross domestic product, GDP, of 1,8% in 2009 and a loss of employment estimated at close to a million jobs. Yesterday, we had further grim news that another 90 000 jobs have been lost. This was a severe deterioration, despite a continued expansion in government infrastructure spending and the countercyclical monetary and fiscal policy response that we generated.
Higher commodity prices have contributed to a somewhat more buoyant recovery this year than was anticipated at the time of the February Budget. Households have started to spend again as interest rates decline together with lower inflation. But we don't want them to overspend and get into debt again.
Trends in the productive sectors of the economy confirm that output has responded promptly to recovery in trade and consumer confidence. In the first six months of 2010, manufacturing value added grew by 5,8% as compared to the previous year, driven by increased production of motor vehicles, petrochemicals and basic iron and steel. However, the momentum of growth in manufacturing appears to have slowed down in the second half of the year.
Output in mining increased by 2,2% during the first half of 2010, and it appears to have expanded further in the third quarter. Measures to address regulatory uncertainty in the mining sector are under way under Minister Shabangu's guidance, which will in due course contribute to improved investment, taking into account the favourable outlook for commodity prices.
Agricultural output declined by 3,2% in 2009, and quarterly growth accelerated in the first half of 2010 due to a bumper maize crop. Anybody who wants to buy maize must please contact Minister Joemat-Pettersson.
The construction sector continued to grow during the first six months of 2010, though at a slower pace than in 2009. Public infrastructure projects in progress will in due course lead to further private investment and a more efficient business environment. The Gautrain project provides a clear example of this, with new business investment seeking to take advantage of opportunities that come with being located alongside a new public transport system. Similar benefits will flow from road improvements and public transport projects in all our cities and metropolitan areas.
As Minister Ndebele and Deputy Minister Cronin will confirm, investments that make it easier for people to get to work are good for both the economy and people's living conditions.
Retail sales have recovered well since their substantial decline last year, though the pace has slowed since the end of the World Cup. We project a moderate recovery in household consumption expenditure, from 2,6% growth this year to about 4% a year over the period ahead, which will lead to some growth and job creation in the retail sector.
At this stage, we expect an overall growth of 3% in South Africa in 2010, rising to 3,5% in 2011 and 4,4% by 2013. So, we have raised our forecast from 2,3% to 3%. Employment and private investment are expected to rise gradually as growth accelerates. Growth in real gross fixed capital formation is expected to rise from an estimated 0,8% in 2010 - quite a severe decline - to 5,6% in 2011 and 5,9% in 2013. This is crucial for economic growth in South Africa.
The slowdown in our economy since 2008 has contributed to the narrowing of the deficit on the current account of the balance of payments from over 7% of GDP to an estimated 4,2% this year, which has been comfortably financed by capital inflows - although this was too much capital inflow.
Infrastructure spending, combined with a recovery in domestic demand, will result in faster growth in imports than exports over the next three years. Capital inflows and a recovery in corporate profits will also lead to higher income payments to global bond and equity investors. The current account deficit is forecast to widen to 5,8% by 2013, unless we begin to export a lot more than we anticipate at this point in time.
Headline CPI, consumer price index, inflation has declined to 3,5% for the year to August this year - the latest figure that came out today is 3,2% - and it is expected to remain below 6% over the next three years, supported by a moderation in food price trends and a relatively buoyant exchange rate.
This year has seen two further declines in the Reserve Bank's repurchase rate, to 6% in August - its lowest level since the rate was introduced in 1998. Supply and demand for credit has begun to improve in recent months as consumer confidence has improved, and lending to businesses for investment and inventory restocking is likely to accelerate over the period ahead. The latter is absolutely crucial, particularly for our small businesses if they are going to thrive in these difficult circumstances.
The monetary policy stance will continue to target low and stable inflation to support a more competitive exchange rate and reduced investment costs through lower real interest rates. This will be accompanied by measures to contain inflationary pressures and build competitiveness in our economy.
Public sector investment remains the cornerstone of government's strategy to support higher sustainable economic growth in South Africa. This is because it reduces bottlenecks in the economy and draws in private sector investment. Higher levels of public and private investment are necessary over the medium term to raise the economy's growth potential and create employment, and also contribute significantly to the countercyclical macroeconomic stance.
Private business investment makes up about 60% of gross fixed capital formation, and it has contributed over half of the overall investment growth in 2006 and 2007. Since then, investment has been dominated by public corporations while private investment and capital spending by government departments have declined. Investment by state-owned enterprises has risen from 1,9% of GDP in 2005 to 5,6% of GDP this year. Private sector companies cut back sharply on expansion plans during recession, reducing their capital spending by 7% in 2009 and an estimated 2,5% in 2010.
Over the period ahead, a more balanced expansion in investment is projected, though state-owned enterprises will continue to play a leading role. To remove bottlenecks and reduce the cost of doing business, the core investment plans of state-owned enterprises remain focused on capacity expansion in electricity, rail, ports and roads, with the bulk of spending carried out by Eskom, Transnet and Sanral.
In the energy sector, the integrated resource plan under the oversight of Minister Peters will provide clarity on committed generation projects and the future direction of power generation technology such as nuclear and renewable energy. The planned increase in generation capacity from the Medupi and Kusile coal-fired stations will be supplemented by independent power producers, initially through direct sales to Eskom, but ultimately through an independent buyer of power.
A total infrastructure spending of R811 billion is projected over the MTEF period ahead, of which 40% will be in energy, 26% in transport and 11% in water supply. State-owned enterprises will add over R320 billion to public sector debt over the next three years.
Reliable electricity supply, clean water and better transport services have to be paid for over time. So, we will see further rises in tariffs and user charges over the period ahead. However, despite these necessary adjustments, the fiscus will continue to ensure that basic services are accessible and affordable to all, in particular the poor.
South Africa's present economic growth trajectory cannot meet, as we have said repeatedly recently, the country's employment needs. Faster inclusive growth is required over an extended period of time to significantly increase labour absorption, reduce high levels of unemployment and achieve a more equitable distribution of income.
To achieve 5 million jobs over 10 years, which we talked about yesterday, we need to seek growth of over 6% a year at a fairly high level of labour absorption, together with measures aimed at broadening participation and inclusive development.
This is what government's new growth path proposes in order to bring about the marked reduction in poverty and inequality that we all seek.
To achieve our developmental aims, South Africa needs to promote more rapid job creation through a broad range of policy initiatives.
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 workseekers.
We want to see greater participation of our development finance institutions in cofinancing infrastructure projects, enterprise development, housing and farming support.
Our Industrial Policy Action Plan has 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 to ensure greater efficiency and better prices.
We need to see improved economic co-operation between countries in Southern Africa, including financial and trade institutions, transport, communications, energy and water networks.
Finally, and underlying all of the above, we know that improvements in public service delivery will depend on better financial management, good governance and disciplined pursuit of agreed service delivery outputs and targets.
Minister Davies and colleagues in the Economics cluster will also be looking at other measures to support exporters and manufacturers, through our trade facilitation agencies, investment in technology and industrial development zones and institutions such as the Industrial Development Corporation.
Furthermore, we recognise that the value of the rand is a critical challenge to and in our growth strategy. As in many emerging economies, South African producers are currently under pressure because the strength of the real exchange rate reduces the competitiveness of manufactured exports and lowers the cost of imports.
We appreciate that sustained exchange rate overvaluation creates difficulties for many businesses and threatens jobs in some sectors. It can lead to unbalanced growth, the widening of the current account deficit and increasing vulnerability to economic shocks.
Capital flows to emerging markets have increased steadily over the past decade, supported by favourable growth dynamics, improved credit ratings, greater openness and the development of domestic financial markets. Net private capital flows to emerging economies could reach US$825 billion in 2010. In 2009, this figure was US$581 billion.
You can see that there is a huge amount of money flowing towards emerging markets, including South Africa. Fixed income investments will reach a record of US$70 billion to US$75 billion in 2010. Net capital inflows to South Africa have risen strongly over the past two years, reaching 5,5% of GDP in the first half of 2010, compared with 4,7% in 2009.
These flows are both structural and cyclical. They derive in part from a need for developed economy pension funds and other investors to recoup losses by finding sound long-term and high-yielding investments in emerging markets.
At the same time, low interest rates in advanced economies are supporting what we call "carry trades", in which investors borrow money at low interest rates and invest in assets in countries that pay higher interest rates. Such short-term investments are inherently volatile - they come in, and they can go quicker that we can realise.
The policy challenge is how to continue to attract long-term inflows that we need - which we don't mind having because these are investments in our economy - while minimising the risks of volatile capital movements. I repeat, this is a concern not just for South Africa, but also for many smaller emerging markets around the world.
The rand has appreciated by 6,6% against the United States dollar since December 2009 and by 5,5% against currencies of our major trading partners. Taking into account that 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 about 12% above its average level for the past decade. This appreciation has occurred despite sustained accumulation of reserves by the Reserve Bank - the Governor is waiting to see whether we will give her more money.
Since the beginning of 2010, foreign exchange purchases and swap interventions by the National Treasury and the Reserve Bank have amounted to R43 billion. The value of gross foreign exchange reserves held by the Reserve Bank stood at US$44 billion in September 2010. Emerging market currencies of other commodity producers, such as the Chilean peso, have experienced similar appreciation pressures, while the Brazilian real is even more overvalued.
We believe that international co-operation is needed to achieve a more stable international financial environment, as proposed in the recent G20 communiqué. In keeping with this framework, several adjustments to our financial and foreign exchange regulatory arrangements are proposed, while recognising that in some instances measures may be strengthened or reversed as circumstances change.
Firstly, the National Treasury and the Reserve Bank will continue to purchase foreign exchange reserves. These will be funded by revenue overruns in 2010-11 - Minister Ndebele was hoping to get his hands on some of this money - and the issuance of government bonds and debentures.
Secondly, the Reserve Bank will sterilise inflows associated with foreign direct investment inflows using foreign exchange swaps. Recently, a South African company was taken over by an oversees company, and over a billion dollars is coming into South Africa. We have to use some of this money that we are talking about or alternatively use the swap mechanism that we have just described to mop up the money, so that it doesn't affect our exchange rate further.
Thirdly, exchange control and offshore investment limits on individuals will be amended to encourage the diversification of portfolios and remove unnecessary limitations. Restrictions on the "blocked" assets of emigrants will be lifted as well.
Fourthly, to make South Africa attractive as a corporate investment destination and to encourage investment in the rest of the African continent, qualifying international headquarter companies will be allowed to raise and deploy capital offshore without exchange control approval with effect from 1 January 2011.
Fifthly, exchange controls on domestic companies will be reformed to remove barriers to their international expansion from a domestic base, South Africa.
Lastly, the prudential framework for foreign investment by private and public pension funds, including the Government Employees Pension Fund, will be reviewed to support portfolio realignment and offshore diversification, especially within Africa and into other emerging markets. A second draft of regulation 28 of the Pension Funds Act - the regulation that governs this process - will be published shortly and will take effect next year.
The Reserve Bank will publish details of the proposed exchange control reforms. These measures form part of ongoing efforts to reform South Africa's prudential framework covering offshore investment by domestic individuals and companies. An increase in foreign assets will reduce South Africa's external vulnerability through income inflows and by supporting a two-way demand for the rand. Reserve accumulation serves as a protection of the economy against future shocks, though it cannot directly determine the exchange value of the rand.
In several countries, tax measures have been introduced to counter currency appreciation. The effectiveness of these measures is being carefully monitored by us. Further steps to moderate the impact of capital flows on the South African economy will be considered, drawing on both international experience and the assessment of the likely local impact and also developments when President Zuma joins the G20 summit later in November.
It is important to stress that the above reforms form part of a broader process to improve and strengthen the financial regulatory system, informed by international co-ordination efforts led by the G20 and the multilateral Financial Stability Board.
Several reforms are required by new international regulatory standards arising from the crisis itself. The Basel Committee on Banking Supervision recently proposed a new framework, known as Basel III, for banking supervision. The implementation of the new framework will be led by the Registrar of Banks.
Similarly, the Financial Services Board is in the process of strengthening the prudential regime for insurers. Other reforms are drawn from lessons of the financial crisis, but they are adapted to our circumstances.
In moving towards a "macroprudential" approach to the supervision of financial institutions, the focus falls on assessing and monitoring the strengths and vulnerabilities of the financial system as a whole, in addition to the supervision of individual institutions. In order to achieve this, several institutional changes are proposed.
Firstly, as announced at the time of the Budget, a Council of Financial Regulators is to be established, comprising all financial regulators in South Africa, to promote effective co-ordination and information-sharing and to give effect to macroprudential supervision and to ensure that things don't fall between cuts.
Secondly, the SA Reserve Bank now has a revised mandate that includes a particular responsibility for financial stability.
Thirdly, proposals will be tabled to strengthen the regulation of market conduct, including retail banking and insurance aimed at both client protection and broadening access to financial services.
Lastly, the scope of financial regulation will be extended to cover private pools of capital, over-the-counter markets and credit rating agencies.
Detailed proposals on financial sector regulatory reforms are contained in a discussion document entitled Strengthening the Financial Sector to Better Serve South Africa, which the National Treasury will release shortly, after appropriate consultation.
As the world economy recovers from the global crisis, there is considerable debate about how quickly governments should be closing or narrowing their budget deficits. Some argue that the recovery will be held back if governments cut expenditure too quickly, while others point to the potentially devastating effects of fiscal default. Many European countries are making very sharp budget cuts - you can see the protests in the streets - to maintain sustainability, sometimes resulting in severe social unrest.
In South Africa's circumstances, a careful balance needs to be found between continued real growth in expenditure, while reducing the future interest cost burden on the fiscus so that expenditure growth can be sustained. Where we have to borrow, we will do so mainly to invest in infrastructure that contributes to building productive capacity. Improved delivery of services also requires that we use resources more efficiently, reduce waste and combat corruption - all of which you have heard of before.
Our approach is explicitly countercyclical, which means that fiscal consolidation will be phased in without the curtailment of core public services and in support of sustainable growth. This is what the G20 refers to as "growth friendly" fiscal consolidation. Careful management of the fiscus over the past 16 years has meant that we had fiscal room for a budget deficit of 6,7% last year and 5,3% this year, which has brought forward the economic recovery.
The proposed budget framework anticipates a narrowing of the deficit to around 3% of GDP by 2013-14 and the stabilisation of government debt at about 40% of GDP in 2015-16. This is a great achievement compared to what is happening elsewhere in the world. Expenditure will continue to grow, though moderately, and revenue is expected to recover relative to GDP.
It is nonetheless important to note key lessons from the painful adjustments that the United States and many European countries are undergoing. Fiscal overcommitments can lie buried for decades in pension and social insurance accounts, housing finance arrangements or unsustainable economic subsidies.
When there is continuous growth, the difficulties are deferred to future generations and they are all too easily ignored or forgotten. But when things go wrong, as they have gone wrong over the past two years, they can do so with devastating speed as we have learned. A sound understanding of the long-run trends in revenue, expenditure and public sector financing is therefore critical, and careful planning of future reforms is required.
The Medium-Term Budget Policy Statement notes that real noninterest government expenditure per person has doubled over the past eight years. This was made possible by buoyant growth and revenue in the economy 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.
In other words, the fiscal space that was created prior to the recession enabled us to make sure that unlike other countries who had to cut salaries and jobs or reduce pensions or grants that we give to people, we were able to maintain all of them, and still have a sustainable and incredible fiscal envelope. [Applause.
Expenditure growth will be slower over the period ahead, averaging real growth of about 3% a year. However, the overall public sector borrowing requirement is considerably larger than the budget deficit. Mainly because Eskom and Transnet need to borrow to finance large infrastructure expansion plans, overall public sector borrowing will be about 10% of GDP this year, declining to 6% of GDP over the next three years.
Our fiscal policy framework is fundamentally about ensuring that our wellbeing is not unfairly purchased at the expense of future generations. Where we introduce programmes that raise the level of government spending, we need to be clear about how the required revenue will be raised and at what cost to the productive sectors of our economy.
To assist in our understanding of the underlying principles, I have asked the National Treasury to prepare a paper on fiscal guidelines for a wider discussion early next year. This will act as a future framework, if you like, for our fiscal decision-making.
What, then, are the adjustments to the 2009-10 appropriations These are additional amounts of money that our Treasury committee assigns to government entities and departments that are considered to be unforeseen and unavoidable. I am very mindful that the new legislative arrangements for Money Bills have brought additional responsibilities to Parliament's portfolio committees and Appropriations committees in particular. We welcome the first budget review and recommendation reports, which have been tabled over the past week?
Several concerns raised by portfolio committees will need to be explored further - underspending on climate change initiatives, noted by the Portfolio Committee on Water and Environmental Affairs, for example, and the need to improve oversight of the Expanded Public Works Programme, recommended by the Public Works committee. I have taken special note of this committee's observation that the department cannot be expected to budget for certain types of official funerals as these cannot be accurately predicted. I am sure that Minister Doidge and I can find a way of dealing with this.
I am pleased to be able to table a comprehensive Adjusted Estimates of National Expenditure to accompany the Adjustments Appropriation Bill and - for the first time - the Division of Revenue Amendment Bill for the consideration of the House. I cannot deal with all the adjustments in detail, but let me highlight the main points.
In total, the adjusted expenditure level is R2,5 billion lower than the February Budget estimate, which included an unallocated contingency reserve of R6 billion. Contributing to this decrease is a lower provision for state debt costs due to the current strength of the rand and the decrease in interest rates and savings declared by departments amounting to almost R2 billion.
The main additional allocations in the Adjustments Appropriation are as follows: R1,8 billion in roll-overs arising from commitments related to unspent balances in 2009-10; R6,2 billion to cover higher remuneration costs, including the occupation-specific dispensation, OSD; R396 million for various self-funding department-specific activities; R2,2 billion in unforeseeable and unavoidable expenditure adjustments recommended by the Treasury committee, including R769 million to cover property rates due to municipalities on behalf of provinces, funded through the devolution of property rate funds grant; R320 million for OSD salary adjustments in the Department of Justice and Constitutional Development, the National Prosecuting Authority and Legal Aid South Africa; R350 million for OSD salary adjustments in the health sector, conditional on an agreement being reached in the bargaining council; R363 million for expenditure associated with natural disasters and the outbreak of disease; R200 million for the SA National Defence Force for support activities during the 2010 Fifa World Cup; and R100 million to scale up HIV and Aids prevention services.
Now, what of the 2011 Budget, and what are some of the indicators for the Budget Chapter 4 of the Medium-Term Budget Policy Statement summarises the spending framework for the period ahead, informed by government's 12 agreed outcomes, with priority given to education, health, infrastructure development, job creation and other matters arising out of the growth path?
Several areas of reform are proposed to contribute to identifying savings and opportunities for more effective organisation of public services. These are issues of serious concern that need to be given much more energetic attention.
Firstly, there are too many departments where administrative capacity is excessive or inefficient, relative to frontline services. [Applause.] This will come under rigorous scrutiny in the budget process. Some provinces have gone to the extent of hiring over 5 000 admin staff instead of employing frontline teachers, nurses and doctors, and that is unacceptable. [Applause.
Secondly, effective training programmes need to be strengthened across the Public Service.
Thirdly, a new approach to budgeting and management of capital projects will be introduced together with technical assistance to departments and municipalities in which there is underspending on infrastructure maintenance. This is another area which will require energetic action.
Fourthly, nondepartmental agencies and entities are under review, with special focus on governance, remuneration and mandates.
Fifthly, strengthened capacity is in place to deal with wrongdoing in government procurement, and improved rules will enhance transparency in the supply chain process.
Sixthly, information technology systems and management of consulting services will come under specialised scrutiny within the supply chain regulatory framework.
Preparation of the 2011 Budget is now well under way. Cabinet has agreed to a preliminary framework for the MTEF period ahead that, over a 3-year period, makes available R67 billion more than the baseline tabled in February this year, of which R40 billion goes to provinces, R24 billion to national departments and R3 billion to municipalities. A further R22 billion remains unallocated to departments at this stage and is set aside for key education, health, infrastructure, job creation and growth path priorities.
Proposals for expanding youth employment opportunities will enjoy special priority. And in reflecting on opportunities for our youth let me congratulate a group of students of Belgravia High School who are sitting in the front row there and are with us in the gallery, who were winners in three consecutive regional quiz competitions. Congratulations to you. [Applause.
We should set up a competition between you and a parliamentary team. [Laughter.] Minister Nzimande will lead the parliamentary team. We should also take this opportunity - I'm sure all of you will join us in this, colleagues - to wish all matric students well in the examinations which have just started this week.[Applause.
The Medium-Term Budget Policy Statement sets out broad policy considerations underlying the expenditure proposals, including government's economic and industrial policy framework, the need to strengthen infrastructure maintenance, land and agrarian reform goals, pressing needs in education and health service delivery and the challenges of improving police services and the administration of justice.
Several critical long-term public expenditure pressures need to be addressed systematically over the period ahead. Firstly, we have to complete the reform of social security arrangements that has been under discussion since the 2002 Taylor Committee Report. The key aim is improved preservation of savings for retirement among working South Africans. Consolidation of the fragmented existing administrative arrangements for social security is also a priority.
Secondly, we have to implement a national health insurance system. The first phase will involve improved primary health services in rural areas and underserved communities and an expanded programme of hospital construction and revitalisation. An interministerial committee has met to consider the fiscal and financial implications of further health financing reforms, and it will develop practical transition proposals.
Thirdly, we have to improve the maintenance of our transport infrastructure and networks and invest in modern public transport systems.
Fourthly, we have to provide for fiscal contribution to new growth initiatives, industrial development and job creation.
These are all major social and economic reform projects which will require substantial fiscal and financial reforms, phased in over many years. If we are to make rapid progress in these transformation programmes, it is imperative that equally rapid progress is made in r educing wastage and inefficiency elsewhere in the government system and in improving financial management and governance. I thought you would clap for this one. [Applause.
Our 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 current year by comparison with the February Budget estimate. [Applause.] Total tax revenue is expected to amount to R679 billion in 2010-11, or 25,3% of GDP. A strong increase in VAT proceeds has been recorded partly because of higher consumer demand and partly also because of lower capital investment and 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% of GDP - still somewhat below levels recorded before the recession. This looks like a lot of money. So, let's just remind ourselves that even if this looks like a lot of money, it will still take us another three years before we catch up to where we were prior to the recession. This is a reminder that we need to be a little less exuberant about the extra revenue.
Consolidated government revenue, including social security funds and public entity revenue, will recover to about 29% of GDP. I need to remind members of the House that today marks the start of the final month of tax season 2010 for nonprovisional taxpayers, whose returns are due by 26 November.
I'm doing this on behalf of the commissioner and not the former commissioner. [Laughter.] I urge all taxpayers who have not yet filed their tax returns to do so within the next 30 days and to join the 2,6 million taxpayers who have already submitted their returns. This is an 18% increase in compliance and early filing compared with last year. Let's say "thank you, South Africa". [Applause.
This growth in compliance comes despite the difficult economic conditions in which all South Africans find themselves, and reflects the strong foundation of tax morality and compliance which have been laid and continues to take root and grow within our country. Let me therefore applaud the many millions of our country's taxpayers who respect their side of the social contract, which has allowed us to continue our vital role in providing social and infrastructural investment without overburdening ourselves and future generations with unmanageable levels of debt. [Applause.
Our capacity to pursue those who seek to evade tax obligations continues to be reinforced. Tax authorities the world over are co-operating more than ever before to throw open the veil of tax manipulation. South Africa now has double taxation agreements with 70 jurisdictions, which provide for extensive exchange of information between tax authorities. In addition, tax information exchange agreements have been agreed to at officials' level with six financial centres, and a further 16 agreements are being explored.
This is important because we can join several countries and conduct an audit on a single multinational company through six countries' revenue services. These information exchange provisions allow us to exchange information and therefore get a holistic view of a particular company, whereas in the past you would only see your own country's view of a particular company.
A joint audit is being made possible through these agreements, and it has already yielded R3 billion in additional revenue this year. [Applause.] Combined with the growing availability and accuracy of third party data from financial institutions, employers and other sources, there are very few places for the noncompliant to hide. But, of course, they are very creative; they will find a place to hide.
We are, however, offering another opportunity for taxpayers to come clean and join the ranks of full participation in our democracy. The Voluntary Disclosure Programme, which allows for the waiving of penalties of up to 200% for those who make a full, honest and voluntary disclosure of prior evasion, will begin next month.
Let me tell you about a deal that has just been reached between Germany, the United Kingdom and Switzerland. Switzerland, as you know, holds bank accounts and doesn't give details of those bank accounts to anybody. After about two or three years, particularly after the recession, countries in Europe have been saying to Switzerland that they want to know whose money it is that they have so that they can collect tax on it.
In the past three days a final agreement has been reached that Switzerland will collect tax on behalf of the United Kingdom and Germany on capital gains, interest earned and other income that comes into those accounts. They will not give the names of the people whom these accounts belong to. But billions of dollars and euros of additional revenue will be going to the United Kingdom and Germany as a result of this deal.
I now move to an area that we are a little bit sceptical about. We want to enhance supply chain management. Clean administration is also the central principle in our approach to supply chain management and ensuring value for money in government procurement of goods and services.
The National Treasury has been working closely with other departments and agencies to combat fraud and corruption under the leadership of the Interministerial Committee on Anticorruption, chaired by Minister Chabane. This is sometimes called a committee on corruption; so, we have to be careful. This has already yielded several positive outcomes, but more has to be done. Procurement and tender fraud to the value of nearly R25 billion is currently under investigation. Our approach comprises the following five initiatives, which will include legislative and regulatory reforms.
We will be increasing the monitoring capability of government aimed at early detection of fraud. Departments and government agencies will be required to provide specific information to their treasuries on their procurement practices, which will allow for this monitoring to happen. Where necessary, the cash disbursements process of government agencies will be temporarily assumed by treasuries, thereby ensuring that only valid contracts are honoured and that government is charged a fair price. [Applause.
In line with international best practice, transparent public disclosure will be required at each stage of the supply process in all spheres of government, including reasons for making certain decisions. In other words, once a tender process is complete, all tender documents must be on the internet for everybody to see. [Applause.
Government will look holistically at identifying procurement requirements that could be better managed centrally, such as the use of transversal contracts for the acquisition of high value and complex goods and services. This is already happening in the health sector.
In addition, stiff penalties of up to double the contract value are proposed for service providers who obtain government contracts fraudulently. [Applause.] Public officials who assist in tender fraud will also be liable for resultant losses incurred by government. We will recover the money from the officials as well. [Applause.
Measures are required to ensure that officials who have breached the buying rules should not remain under suspension, drawing full benefits while investigations drag on for years. [Applause.] Minister Baloyi is attending to this matter.
Tax compliance measures associated with government procurement will be strengthened. The introduction of a withholding tax on payments made to businesses in respect of government tenders is under consideration. It is also proposed that procedures for the issuing of tax clearance certificates should be revised to provide for direct checking by Sars of tax compliance of winning bidders rather than preclearance of bidders. So, we are going to turn this process around.
Members of the House would have heard through the media about the arrest of prominent business people and senior government officials, including former heads of departments recently. Members will also be pleased to know that the government was awarded preservation orders worth about R200 million, which included a Learjet, a golf course, a holiday home and a hotel. If we finally do get hold of the Learjet we will give it to Minister Sisulu. [Laughter.
This is the result of co-operation and co-ordination of efforts between several investigative agencies. Can we congratulate all of them, ladies and gentlemen. [Applause.] As a result of these efforts, we are beginning to see a change of attitude on the part of service providers. In a recent case, a firm was paid R10 million by a department for work that they had not done, and they voluntarily returned the money to the fiscus. Congratulations to them too. [Applause.
We will now turn the tide on corruption and fraud. We will ensure that tax funds and government monies are spent wisely and managed with integrity. We owe this to our honest citizens and responsible taxpayers.
Allow me to conclude by saying again that the time for action is now! Now is the time to improve the quality of basic education; to improve health and life expectancy; to ensure that all South Africans are protected and feel safe; to expand employment through inclusive economic growth; to invest in a skilled and capable workforce; to accelerate the construction of economic infrastructure; to promote sustainable rural communities and food security for all; to invest in human settlements and improved quality of household life; to build a responsive, accountable, effective and efficient local government system; to protect our environmental assets and natural resources; to build a better and safer Africa and a better world; and to promote a development-oriented Public Service and inclusive citizenship. These are the 12 outcomes we have committed to.
In elaborating on the policies and programmes needed to give effect to these outcomes, we have a special opportunity to forge a broad-based social compact - a shared social and economic vision - aimed at effective partnerships between government, business, labour, communities and civil society in pursuit of common goals. Cabinet has agreed on a growth path that sets a target of creating five million jobs in the next 10 years through efforts that require commitment and co-operation between all spheres of government, business, organised labour and community partners.
put good ideas ahead of the old ideological battles; a sense of common purpose above the same narrow partisanship; and insist that the first question each of us asks isn't, 'What's good for me' but 'What's good for the country my children will inherit?
Allow me to express my appreciation to President Zuma for his sound leadership and advice, and to Deputy President Motlanthe for valued guidance. I am grateful for the support of the Ministers Committee on the Budget and for the hard work that they do, members of the Treasury committee, Cabinet colleagues who have all agreed with everything I said [Laughter.] premiers and provincial finance MECs during a year of considerable financial strain and a budget process that still has some way to go as we begin to work out how we really reprioritise our expenditure in this government.
I want to thank the Auditor-General, Terence Nombembe, and his staff, who bring a professional spotlight to bear on all of our work, and I know that the House will join me in expressing our admiration and thanks to them. [Applause.
I would also like to commend Mr Mufamadi in his absence, Mr Mshiyeni Sogoni [Interjections.] Is he here I was told he was out there somewhere. Furthermore, I would like to thank Mr Charel de Beer and Mr Chaane, who chair the Standing Committees on Finance and Appropriations and the Select Committee on Finance, who have more onerous duties now that new parliamentary budget procedures are being introduced?
The Governor of the South African Reserve Bank, Ms Marcus, has brought an astute leadership in difficult times. Thanks to you, Governor. [Applause.] Mr Magashula and the staff of the SA Revenue Service continue to bring innovation and energy to the collection of taxes on our behalf. Hopefully they will collect R40 billion instead of R30 billion. [Applause.
I would also like to thank Deputy Minister Nene for his tireless support and insight. The director-general, Mr Kganyago, who is wearing a very modest tie today, and the National Treasury team have once again delivered a set of budget statements on time, though not perhaps within an affordable and efficient word count.
I hereby submit the 2010 Medium-Term Budget Policy Statement and I table the Adjustments Appropriation Bill, the Division of Revenue Amendment Bill and the Adjusted Estimates of National Expenditure for consideration by Parliament. Thank you very much. [Applause.
Medium-Term Budget Policy Statement referred to the Standing Committee on Finance and the Standing Committee on Appropriations for consideration in accordance with their respective mandates.
Revised Fiscal Framework referred to the Standing Committee on Finance for consideration and report.
The House adjourned at 15:15.
Division of Revenue Amendment Bill, 2010, submitted by the Minister of Finance. Referred to the Standing Committee on Appropriations and the Select Committee on Appropriations.
Adjustments Appropriation Bill [B 34 - 2010] (National Assembly - proposed sec 77).
Division of Revenue Amendment Bill [B 35 - 2010] (National Assembly - proposed sec 76) [Explanatory summary of Bill and prior notice of its introduction published in Government Gazette No 33652 of 14 October 2010.
Basic Education Laws Amendment Bill [B 26 - 2010] (National Assembly - proposed sec 76) [Explanatory summary of Bill and prior notice of its introduction published in Government Gazette No 33666 of 22 October 2010.
Introduction and referral to the Portfolio Committee on Basic Education of the National Assembly, as well as referral to the Joint Tagging Mechanism (JTM) for classification in terms of Joint Rule 160.
JTM within three parliamentary working days.
Repeal of the Black Administration Act and Amendment of Certain Laws Amendment Bill [B 37 - 2010] (National Assembly - proposed sec 75) [Explanatory summary of Bill and prior notice of its introduction published in Government Gazette No 33580 of 23 September 2010.
Bill initiated by the Portfolio Committee on Justice and Constitutional Development of the National Assembly, and referred to the Joint Tagging Mechanism (JTM) for classification in terms of Joint Rule 160.
informing the National Assembly about the expiry of the term of office of the chairperson of the Public Service Commission (PSC), Dr Ralph Mgijima, on 31 January 2011; and requesting the National Assembly to fill the vacancy that will arise in terms of section 196(8)(a) of the Constitution of the Republic of South Africa, 1996.
Referred to the Portfolio Committee on Public Service and Administration for consideration and report.
Medium Term Budget Policy Statement 2010 [RP 233-2010].
Proclamation No R55 published in Government Gazette No 33596, dated 1 October 2010: Fixing 4 October 2010 as the date of commencement of section 28 and section 51 in terms of section 82 of the Financial Intelligence Centre Act, 2001 (Act No 38 of 2001).
Proclamation No 56 published in Government Gazette No 33598, dated 1 October 2010: The reappointment of members of the Tax Courts for a further period of five years in accordance with section 83(3) of the Income Tax Act, 1962 (Act No 58 of 1962).
Government Notice No R867 published in Government Gazette No 33596, dated 1 October 2010: Amendment of Money-Laundering and Terrorist-Financing Control Regulations in terms of section 77 of the Financial Intelligence Centre Act, 2001 (Act No 38 of 2001).
Government Notice No R869 published in Government Gazette No 33596, dated 1 October 2010: Exemptions granted in terms of section 74 of the Financial Intelligence Centre Act, 2001 (Act No 38 of 2001).
Government Notice No R846 published in Government Gazette No 33585, dated 1 October 2010: Amendment of Part 1 of Schedule No 1 (No 1/1/416) in terms section 48 of the Customs and Excise Act, 1964 (Act No 91 of 1964).
Government Notice No R847 published in Government Gazette No 33585, dated 1 October 2010: Amendment of Schedule No 3 (No 3/664) in terms section 75 of the Customs and Excise Act, 1964 (Act No 91 of 1964).
Government Notice No 866 published in Government Gazette No 33597, dated 1 October 2010: Determination of interest rate for purposes of paragraph (a) of the definition of "official rate of interest" in paragraph 1 of the Seventh Schedule to the Income Tax Act, 1962 (Act No 58 of 1962).
Government Notice No R871 published in Government Gazette No 33601, dated 8 October 2010: Amendment of Schedule No 3 (No 3/665) in terms of section 75 of the Customs and Excise Act, 1964 (Act No 91 of 1964).
Report and Financial Statements of the Breede-Overberg Catchment Management Agency for 2009-10, including the Report of the Independent Auditors on the Financial Statements and Performance Information for 2009-10 [RP221-2010].
Report and Financial Statements of the Inkomati Catchment Management Agency for 2009-10, including the Report of the Independent Auditors on the Financial Statements and Performance Information for 2009-10 [RP162-2010].
Discharged: Farisani, Rev.
Adjustments Appropriation Bill 2010 [B 34 - 2010].
Vote No 37 - "Water Affairs" - Adjustments Estimates, 2010-2011.
Report and Financial Statements of the Judicial Inspectorate for Correctional Services for 2009-2010 [RP 260-2010].
The Portfolio Committee on Justice and Constitutional Development resolved to initiate a Repeal of the Black Administration Act and Amendment of Certain Laws Amendment Bill.
The National Assembly noted that the Portfolio Committee on Justice and Constitutional Development was proposing to introduce a Bill that would extend the date of application of section 1(3) of the Repeal of the Black Administration Act and Amendment of Certain Laws Act, No 28 of 2005, to 30 December 2012. The extension was for the purposes of obtaining greater public input and consensus on contentious issues contained in the Traditional Courts Bill [B15-2008] and allowing traditional courts to continue functioning legally.
The National Assembly instructed the Portfolio Committee on Justice and Constitutional Development to publish the full particulars of its legislative proposal in the Announcements, Tablings and Committee Reports. The House furthermore granted the Committee permission to proceed with the proposed legislation.
Prior notice of introduction of the Bill was given in the Government Gazette, No 33580, dated 23 September 2010, and an explanatory summary of the draft Bill was published in the same Gazette. The Gazette also contained an invitation to interested persons and institutions to submit written representations before 26 October 2010. The Committee received one written submission from the Law, Race and Gender Unit: University of Cape Town. The submission welcomes the extension of the deadline in that it "will allow more time for Parliament to consult more broadly and effectively so as to appropriately address the matter of regulating traditional courts".
The Committee, in accordance with Rule 243, reports that it has introduced the Repeal of the Black Administration Act and Amendment of Certain Laws Amendment Bill [B37-2010] (National Assembly- sec 75) by submitting a copy thereof to the Speaker.
Report of the Portfolio Committee on Mining on the Geosciences Amendment Bill [B 12 - 2010], dated 08 September 2010.
The Geosciences Amendment Bill, 2010 ("the Bill"), tabled in Parliament on 14 June 2010 and referred to the Portfolio Committee on Mining for consideration and reporting, seeks to amend the Geosciences Act, 1993. The Bill was approved by Cabinet on 02 December 2009 for public consultation and for introduction in Parliament. The Bill effects certain amendments of a technical nature to the principal Act.
to undertake reconnaissance operations, prospecting research and other related activities in the mineral sector; and to add to the functions of the Council.
The Bill seeks to put mechanisms in place to address problems which are associated with infrastructure and development on dolomitic land in the Republic. It empowers the Council to be the custodian of all geotechnical data, for the purpose of compiling a complete geotechnical risk profile of the country. It further enables the Council to become the custodian of technical information relating to reconnaissance operations and mining.
Subsequent to the briefing by the Department of Mineral Resources, the Committee invited selected organizations to make written and/or oral submissions and testimonies.
The Construction Industry Development Board.
The public hearings process was followed by consideration of the submissions received and clause by clause deliberations on the Bill.
This report therefore outlines an overview of key issues arising from the oral submissions received by the Committee and further provides an account of the Committee's deliberations on the Bill.
The South African Institute of Engineering Geologists (SAIEG) is a voluntary organisation representing the profession of engineering and environmental geology. Members are required to be registered natural scientists as prescribed in The Natural Scientific Profession Act (Act 27 of 2003). The SAIEG represents a profession of approximately 200 engineering and environmental geologists. Engineering Geologists investigate and provide geologic and geotechnical recommendations, analysis, and design associated with human development since primarily called geological geoscientists.
According to the SAIEG, the Council for Geosciences has over the years performed and continues to perform a vital support role to this industry in the provision of primary information in the form of map information, data archives and data products that are indispensible for performing our role to the above mentioned economic sectors.
Geohazards definition - definition added was acknowledged.
Objects of Bill in the preamble: The Council for Geosciences is defined as being a "mandatory advisory authority". On the Objects of the Council in section 2(c), the Council is referred to as a "national advisory authority", apparently not "mandatory" in this instance. The definition of the Council as "mandatory" might clash with the role of others as advisors in certain instances, leading to conflict, particularly when the Council did not have high-level expertise in certain specialised fields.
Section 1(f)(c): The NHBRC noted that landslides and slope failure might be described as geohazards. Although geological investigations for input into the slope stability analyses were carried out by suitably trained and experienced geoscientists, the design of remedial measures and the analytical responsibilities pertaining to slope stability fell directly under the responsibility of professionally registered geotechnical engineers. A potential conflict between the investigation and design professions was highly likely if Geosciences professionals became regulators in this field of expertise.
Section 3: Given that the Council for Geosciences wished to be mandated a more direct role in the management and control of geohazards, it would seem pragmatic that the board also had representation from the geotechnical industry. For the board to exercise its responsibilities in the control over the performance of this core function of the Council as is required in section 4 of the Bill, a representative from the geotechnical fraternity would be surely required to guide the relevance of the geotechnical responsibilities of the Council and align them with the geotechnical industry in the country.
Section 4(c): While applauding the creation of a national databank of geotechnical information, the SAIEG remained concerned that breaches in confidentiality might occur. In most databanks the owners of information were allowed to define the extent to which information was made available. As an example, it might be made known that a geotechnical investigation had been carried out over an area but the owner of the data might not wish to release the results for which he had paid, often large sums, into the public domain. The confidentiality of information and possible conflict with the copyright act needed to be addressed.
Section 4(eA) - Review and evaluate all geotechnical reports in respect of geohazards that may affect infrastructure and development at prescribed tariffs: The scope of engineering geological and geotechnical investigations meant that volume of reports was produced annually dealing with engineering geological investigations, not to mention geotechnical engineering investigations for infrastructure and development. Geotechnical engineering reports were further subject to the control of Engineering Council of South Africa (ECSA) Codes of Practice and were engineering in nature and not geoscientific and could not be adequately evaluated by geoscientists alone. The SAIEG operated closely with the Council for Geosciences in many areas and thus had a fair understanding of the level of expertise and staffing levels within the Council. The organization was of the view that the Council in its current state would not be able to effectively carry out the mandate as envisaged in the Bill. The volume of work entailed in review and evaluating of all these reports could delay approval of development by months if not eventually years and could therefore cause development and growth to grind to a halt. The effective evaluation of related geotechnical engineering reports with complex engineering design inputs could, in the majority of cases, not be carried out by the majority of the Council staff or in most cases by any person with only a geological background.
Section 4(g) - Conduct investigation and render specialised services to public and private institutions: The SAIEG regarded this as unfair competition. It was apparent from the wording of this clause that the Council for Geosciences would be mandated to carry out geotechnical investigations that could place it in competition with an established industry. The result would be unfair competition by a state institution against the private sector using state subsidised resources. The SAIEG believed that the resources of the Council would be better used in research, rendering of specialised services not available from the geotechnical sector, and co-operating in the education of all who operated in or were dependant on the geotechnical professions and that this mandate would detract the Council from its vital responsibilities in this regard. Furthermore, under the current wording of the Bill, the Council would be entitled to use data taken from professionals operating in the private sector at no charge and use it to compete with the same professionals. A further concern was that, there was a conflict of interest in that the Council for Geosciences was able to operate as providers of services in areas which they themselves regulate, making them both 'player' and 'referee'. The SAIEG found this totally unacceptable in any context.
The Geological Society of South Africa (GSSA) is a "not-for-profit" voluntary association which is a learned and professional society existing for the benefit of its members and for the earth science professions.
to represent earth scientists in South Africa and elsewhere, to promote co-operation and synergy between related structures and societies including, but not limited to Africa; and to function for the benefit of its members and for the public good.
The GSSA agreed that for the object of the Bill to be achieved, there would have to be an expansion of skills and resources in the Council for Geosciences which would necessitate an increased budget. The GSSA noted that there was an increased budget in the proposed amendment, however, it felt that it must reiterate that this must be an ongoing commitment, especially in view of the current financial difficulties that the Council was facing. In addition, the GSSA noted that there was no detail in how the increased budget had been calculated nor what the increased expenses will be targeting.
The GSSA pointed out that the technical and ethical competence of individuals within the geoscientific profession was covered by the GSSA, South African Council of Natural and Scientific Professions and the South African Mining Codes (SAMCODES). The Department's response appeared to be concerned with the use of the Council as a watchdog regarding exploration hence their term "project expenditure".
The GSSA expressed its concern regarding the capacity of the Council to be responsible for the petroleum sector. The GSSA agreed with the Department's response to the effect that the Bill would be amended to remove reference to the petroleum sector.
The GSSA expressed its concern that the amendment to the Bill excluded the GSSA from specifically nominating a representative of professional and academic expertise. The Department's response was that, the Bill made provision for the Minister to appoint such an individual and the GSSA still had grave concerns with this amendment. The GSSA also pointed out that the organization represented the majority of geoscientists in South Africa, particularly those with significant professional and academic expertise and therefore felt that it was in a better and more informed position than the Minister or the Department. Further to this point, the GSSA noted that the present incumbent that the organization nominated had attended all the Council Management Board meetings in the past year while the Department representative had not attended a single one.
The GSSA expressed its concern regarding the use of what they called a rather ill-defined term "exploration and prospecting research" within the bill and was still unclear on what this meant. The Department's response showed a misunderstanding. The organization proposed that the words "geotechnical research" be used.
The GSSA agreed with the Department's response in that the amended bill does not allow the Council to undertake any mining development or activity.
According to the National Union of Mine Workers (NUM), the South African mining sector continued to experience unique challenges related to health and safety and these required appropriate legislative measures that would assist to deter the situation. The National Union of Mine Workers provided that it continued to engage other stakeholders on the best acceptable practice that would help to alleviate the problems associated with health and safety in the mining sector. In May 2009, in its National Congress, the union resolved the following: "Through the Mine Health and Safety Council force the mining industry to develop more advanced geophones technology capacity for earlier signs of possible seismic events".
The NUM appealed that the Bill should ensure that the Council for Geosciences was well equipped and in a position to contribute to safety in mines.
The Council for Geosciences should be in a position to work with related stakeholders such as Mintek to develop technologies that could detect and give early signals of seismic events as this would save many lives.
The Bill should ensure that the Council has a role in ensuring safety in the mines by mandating the mining industry to develop systems that would assist to detect seismic activity in the mines.
The Council should be constituted in a manner that would complement the State-Owned Mining Company as this would strengthen the role of the State in exploration for purposes of mining which would not necessarily be conducted by the Council.
The Council should improve its relations with the Mine Health and Safety Council and Mintek and establish a working relationship with the yet to be established State-owned mining company in order to develop technologies that would detect seismic events in the mining sector.
The NUM emphasized that adequate funding was central for the effective functioning of the Council for Geosciences and recommended that the Bill should make proper and adequate provision for the funding of the Council. The NUM further recommended that there was a need for an improved coordination between the Council for Geosciences, the Mine Health and Safety Council, Mintek and the State-owned mining company. This would ensure safety in mines, strengthen government's function to explore minerals and ensure information on technology development as safety in mines was an important aspect and should be central to the agenda of the Council for Geosciences.
The National Housing Builders Registration Council (NHBRC) was established in terms of the Housing Consumers Protection Measures Act (Act No. 95 of 1998 - as amended). The NHBRC was primarily established to protect the interests of housing consumers and to regulate the home building industry. The NHBRC has delivered valuable services to the South African home building industry since 01 December 1999, commencing with the statutory requirement for registration of all home builders, as well as compulsory enrolling all residential housing units to be constructed. This by implication ties registered home builders to a strict code of conduct firstly, and secondly compliance with prescribed technical structural requirements that have to be met to ensure structural integrity of the residential unit.
Right from the onset, and before the establishment of the legislation that entrenched NHBRC as a statutory body, the expertise residing in the Council for Geosciences was recognized. Also the independence of the Council for Geosciences, and its ability to serve the needs of the built environment, and specifically the homebuilding industry objectively, was considered paramount to the NHBRC in delivering on its mandate. The following actions were documented in the NHBRC Home Building Manuals, and which by Section 12 of the Housing Consumer Protection measures Act prescribed the technical requirements to be met by both engineers and home builders.
"The Home Builder shall appoint a Competent Person to investigate any proposed townships or existing township areas which are underlain by dolomites/limestones. The Competent Person shall prepare a clearly motivated report in which the township stability is zoned in terms of Part 1, Section 2, Table 8 in accordance with prevailing professional practice. The report must detail any precautionary measures which are required to reduce the risk of sinkhole formation / subsidence and any restrictions on land usage, layout, erf sizes, density, services, etc. The report shall be submitted to the Council for Geosciences for their confirmation that the investigations conducted on the stability of dolomites/limestones and referred to in the report are, in their opinion, consistent with sound professional practice and that the investigations meet all legal requirements pertaining to such stability investigations."
Section 2 of the Memorandum on the Objects of Bill: The NHBRC supported the reference to the Council for Geosciences as a mandatory national advisory authority. However, in the Amendment Bill, the wording is not repeated, and it might therefore not be seen as a mandatory requirement, to have development proposals in areas identified with geohazards submitted to the Council for Geosciences for review and comments. This would negate the provisions captured specifically within the NHBRC technical requirements to ensure safe and durable tenure solutions especially in the subsidy sector. Also, it was noted that the previous (Geosciences Act) notation referring to only "infrastructural development" was used in both the "Objects of Bill," section 2 and "Summary of Bill", section 3. This reference was changed and reflected correctly in the Amendment Bill to read "Infrastructure and development", but it should be ensured that this was correctly reflected throughout the Bill.
Section 2(c) - Objects of the Council: The Council is referred to as a "national advisory authority". NHBRC believe that the word "mandatory" should be included as per above. This would ensure that all developments in areas identified as complying with the geohazard definition will be submitted for review and comments.
Section 3(b) - Management Board: No provision was made for any representation from the Department of Human Settlements, or the NHBRC. The organization therefore believed that this might be an oversight, and that provision should be made for at least representation from NHBRC who by virtue of its mandate was operating as a regulating authority in residential development, and more specifically subsidy housing delivery nationally.
Section 4(5)(1)(eA) - Functions of Council: NHBRC applauded the intention of the Council to review all geotechnical reports in respect of geohazards nationally. The organization also needed to caution the fact that this provision would demand extensive capacity to be created by Council for Geosciences. In the absence of capacity, this provision might create an untenable bottleneck and delay for all infrastructure and development projects nationally.
Section 4(5)(1)(g) - Functions of the Council: NHBRC saw this provision as problematic, especially where the Council may be called upon to do investigations, and then to review and provide comments on same. This would create a "judge and jury" scenario, and would not be accepted in the built environment. Also, this would expose the Council for Geosciences to possible charges of negligence and therefore appropriate insurance would need to be put in place. Council for Geosciences would also effectively compete with other professionals. The NHRBC proposed that the Council for Geosciences concentrate on pre-feasibly investigations for strategic planning, and mapping of same, rather than involving themselves in detailed Phase 1 and 2 investigations, and which had the potential of causing an industry outcry.
Section 4 (5)(2)(f) - Functions of the Council: The word "mandatory" should be added to enforce the Council for Geosciences' function as a national mandatory advisory authority.
Section 5(b)(3) - Functions of the Council: All geotechnical reports, cannot be reviewed and be commented on by the Council for Geosciences (refer Section 4 (5)(1)(eA) - Functions of Council above). A similar description and only demanding review and comments on areas to be developed in identified geohazard conditions should be applicable.
The NHBRC supported the Bill with the proposed amendments.
The inputs by the Construction Industry Development Board (CIDB) were based on its mandate and function. Public and private sector clients, natural scientists and engineers in the built environment, developers other stakeholders in the building, civil, commercial and industrial property sector, researchers, students and academics in the soil and Geosciences field, were presumed to be directly involved with the work of the Council for Geosciences. Although the work of the Council for Geosciences was critical for the building and construction industries, it was not possible for the CIDB to have a direct involvement in the work of the Council.
The intention of the CIDB's submission was to support stakeholders that played a direct role in using geotechnical information/Geosciences in infrastructure development. The CIDB wished to first and foremost support the intention of the Bill. The organization also wished to endorse specifically the submission of the SAIEG and, to some extent, that of the NHBRC. Where the two organizations disagree, the CIDB would support the SAIEG.
Capacity issues: The Bill was ambitious in its mandate in that the Council for Geosciences was expected to do a lot of work, which might be impractical.
In the Objects of Bill, the Council for Geosciences is defined as being a "mandatory advisory authority", but later on in the Bill, the Council is described in section 3(c) as a "national advisory authority". It might serve the affected industries better if the definition was "national advisory authority" rather than "mandatory advisory authority".
The mandate to operate as service providers while also regulating these areas was seen to create a conflict of interest. It was always good to separate these areas to avoid this obvious conflict of interest. Other service providers would not take kindly to this and might actually see the Bill in its totality as being unfair.
The definition of geohazard might need further expansion and refinement, especially as it began to differentiate between specific areas like landslides and slope failures on the one hand and remedial measures on the other versus the professionals that dealt with these issues. Also, with reference to "Review and evaluate all geotechnical reports in respect of geohazards, that might affect infrastructure and development at prescribed tariffs", might create both the capacity challenges based on definition provided and a challenge with the professionals evaluating "all" geotechnical reports.
Having considered the Geoscience Amendment Bill [B 12 - 2010], the Portfolio Committee on Mining welcomed the amendment of the Geoscience Act, 1993. However, having looked at the submissions received, the Committee felt it necessary to propose some amendments after taking into account issues raised by the organizations.
The Portfolio Committee on Mining having considered the Geosciences Amendment Bill [B 12 - 2010] (National Assembly - Section 75) reports the Bill with amendments [B 12A - 2010].