MUST LISTEN: Journalists grill finmin Gigaba in fiery #Budget2018 pre-briefing

JOHANNESBURG — In the end (and possibly against many odds) Finance Minister Malusi Gigaba managed to deliver a Budget that has pleased markets, with the rand strengthening and SA bond yields rallying. However, President Cyril Ramaphosa’s fingerprints were all over the Budget and many will be questioning now when Gigaba will be booted from his post. But Gigaba probably already started to feel the heat in a pre-Budget press briefing where journalists fired lots of tough questions at him. It’s certainly a must listen. – Gareth van Zyl

Ladies and gentlemen thank you very much for the opportunity to answer your questions… It is important however, to make a few highlights of what is the narrative coming out of the Budget 2018. The first point is that the Budget represents a concerted and wide-ranging response to a rapidly changing economic and fiscal environment. As you will have noticed it presents an improved economic outlook. It presents a much-improved fiscal framework. It presents difficult choices that have been made that have helped to improve the outlook, the fiscal framework, and most particularly to improve our budget deficit and our debt to GDP projections over the medium-term.

This improved growth outlook is underpinned by a renewed sense of confidence and optimism. Following a difficult year for the economy and the fiscus, the growth focus has improved by an average of 0.4% points since the 2017 MTBPS, underpinned by an expected increase in private investment, as a result of improved business and consumer confidence. The full year revenue outlook is likely to be better than presented in the 2017 MTBPS, where we expected an under-collection of R50.8bn, due to shortfalls on customs duties, personal income tax, value added tax, and corporate income tax. We now project that the tax under-collection will be R48.2bn, an improvement of nearly R3bn.

Malusi Gigaba speaks during a news conference before he presents his mid-term budget to parliament on October 25, 2017. Photographer: Dean Hutton/Bloomberg

As I’ve said, several actions have been taken simultaneously to accommodate new spending priorities and still retain the public finances to sustainability. They include new tax measures raising up to approximately R36bn in 2018/19. Mainly through a higher VAT rate, and below inflation adjustments to personal income tax brackets. Many of you have been projecting, guessing, and predicting that we are going to have to increase VAT. We would like to confirm that yes, indeed, we have taken that decision to increase VAT by one percentage point, from 14% to 15%, which as you would be well-aware is the first time we take that decision since 1993, and it still leaves our VAT rate below our peer countries, such as Argentina, even Zimbabwe near us, and a number of other countries including Russia, and so on. So, our VAT rate is still well below our other peers.

The expenditure ceiling has also been revised down, much for over the next 3-years. We have taken a decision to cut expenditure by about R85bn over the medium-term, and at the same time, we’ve allocated R57bn to the free higher education policy announcement, which was made by the former president on the 16th December 2017, and reaffirmed during the State of the Nation Address (SONA) by President Ramaphosa. The spending and revenue actions are sufficient to restore sustainability and these plans are sensitive to complex economic and fiscal environment. We believe that they assist us to achieve the objective of stabilisation public finances and making them sustainable. But at the same time, we believe that the decisions we’ve taken, as difficult as they are, have the least effect on growth, and have been factored into the growth projections that we make for the year right into the medium-term. So, we are confident that we will continue to maintain discipline on the part of Government and we call for resilience on the part of the people of SA as a whole, as we undergo these difficult changes and begin to take them in.

But we are very optimistic about the growth prospects of our economy. As we indicate in the speech, several key decisions have been taken that have assisted to boost confidence. You already have heard the SA Chamber of Commerce and Industries indicating that business confidence has grown significantly, since 2009. The PMI is also up. That indicates a positive direction that the economy is taking. We need to sustain the momentum of change to continue supporting the measures announced by the President, especially in the form of the Structural Reform Program – so, that we continue boosting confidence, which will assist the economy to grow significantly, going forward.

Finance Minister Malusi Gigaba. (GCIS)
Finance Minister Malusi Gigaba. (GCIS)

I think it’s important for us to take those steps and we would like to say that we are very optimistic about the Budget that we are going to be presenting today. We are happy that we have taken the tough decisions. We are happy that the growth story itself is beginning to gel. It’s no longer that SA is not growing because globally there is growth and our other emerging market peers and our traditional trading markets are also growing. But we are beginning to do the things that will make our economy to grow and support the growth story everywhere in the world. Thank you very much.

Thank you, sir. Mr Gigaba, can you tell us about state-owned enterprises (SOEs). You have made no allocations or capitalisation awards to them, when we all know they’re in dire need of financial support? What is the reason for that and what is the way forward for all these SOEs – Eskom, SAA, Denel, who are not able to support themselves and pay for operations, without assistance? I also understand that the government is in the process of strengthening the boards in the other companies. What is the timeframe for that? I have just also heard that the High Court has found you lied under oath. What is your comment on that and if that’s the case, do you believe you are the best possible person to lead this audition of the public sector? Thank you.

Thank you very much, good morning, sir. So many of the problems or deficiencies in the budget are a result of the tax buoyancy being low, tax morality in decline, and tax collection in decline as well. I’m wondering if you will ask for the resignation of your Tax Commissioner? The second in command of SARS is also facing Hawks charges. I wonder if you think he should step-down? Thank you.

So, we’re off to a jolly start.

I’m from Bloomberg News. Minister, nothing of major significance has happened between October and now. Why then is it that we have such supposed buoyancy with regards to your budget? What has changed between October and now? Secondly, very quickly. Your Telkom share sale: we don’t have much info on that. Is there a chance that you can give us an update on that and any other assets that you plan to sell? Have you spoken to the unions before you decided to increase the VAT rate? Thank you.

I’ll just take this one. I am coming to other colleagues but I’ll take this one and then allow the panel to answer, shoot.

Thank you very much. My question is very short. Despite the measures taken to raise taxes and cut spending, which are quite drastic, over the next 3-years the free higher education has really seemed to have knocked that out of the water. And although, the budget deficits projections have been reduced, they are still well over 3% from the coming 3-years, while gross debt is still well above 55% of GDP for the next 3 years. Do you really think this will be enough to stave off further credit rating downgrades?

Thank you, Minister, I’ll hand over to you.

Thank you very much for the questions. No, we do make an indication in the Budget Speech that there will be SOEs that will still need support from Government. There are ongoing discussions, with regard to which ones, what’s the quantum, and all of that but we’ve made a preparation for that. You will remember that SAA, we had committed to recapitalise it to the tune of about R13bn – R5bn last year, R5bn this year, R3bn in 2019/20. We have given them R10bn already but they still face challenges. So, a number of them, SAA, SA Express as you correctly say, and Denel. We do make provisions so that we don’t have to undergo the route of Section 16 of the PFMA, as we had to do in the previous year when we needed to provide the recap that we had to SAA. We have made allocations. We’ve made preparations for those allocations. We are discussing how to deal with SANRAL but we have promised that any spending on SOEs will be done in a budget, neutral way and we still make that commitment. We will have to find resources probably through the sale of assets in order to recapitalise SOEs that needs to be capitalised.

This is part of the entire SOC Reform Process because what we also said last year is that we are going to review the guarantee framework so that the recapitalisation of state-owned companies must, as soon as we are able to come to an end, as well as the provision of guarantees for operational expenditure must also come to an end. We provide guarantees not for operational expenditure but for capital expenditure in the case where this is required. So, the policy framework is in the final stages of preparation to be approved by Cabinet and obviously, we can’t implement it right away. We have to phase the process in. Taking due regard of the process that the President announced yesterday in his response to his SONA address so that all of these – the recapitalisations, the provision of the Government guarantees, and all the other SOC reforms. We’ll have to be part of that broader framework, moving forward. Quite clearly, I have regularly raised concerns about the financial sustainability of our SOCs, the fact that SOCs, in a large measure, are financially unsustainable. Their funding and operational models are inadequate so, we need to take drastic decisions that are going to improve that situation. So, we are dealing with that issue.

The timeframe for boards is going to be announced once the President takes full charge of the SOCs Coordinating Council. What’s clear though is that the Denel board is next in line for review, and so we should have a new board for Denel announced in a short space of time. South African Express is going to need a review, given the fact that we are moving ahead to consolidate our aviation assets and so, the governance mechanism has to be looked at, which other boards needs to be reviewed will be announced in due course. The timeframe will be announced through the SOCCC.

The issue of the High Court – I can’t comment about it until I have studied fully and consulted with my legal representatives what the issues are and on what basis they arrived at their own conclusion. I stand by what I have said.

The resignation of the Commissioner, both your questions jump the gun, and I think we need to first allow ourselves to go through the processes that we have set ourselves. There has been no issue with regard to the resignation of the Commissioner that I have raised or that has been raised with me. So, the Commissioner remains in office; he remains the Commissioner of the SA Revenue Service (SARS).

The issue of the second in command – I am discussing it with the Commissioner and I think at the right moment both of us are going to make an announcement with regard to how we handle that issue. We certainly have to discuss it because the manner in which we handle it must be sensitive to not only public perception, but to the integrity of the institution of SARS.

The question about what has changed between October and now – actually, quite a lot has changed, I think. One of the things is that we’ve been able to improve by almost R3bn in terms of tax collection. That’s quite a significant improvement and I think we need to commend SARS for that because that has reduced the revenue shortfall – R3bn is a lot of money. We would wish for more but, still, R3bn is a lot of money and we appreciate that. There has also been the ANC national conference. You have seen what has happened since that conference. The strengthening of the foreign exchange rate – you have seen a greater appetite amongst investors for SA stocks. You have seen the improvement in business confidence. You have seen the improvement in terms of decisive interventions in certain policy areas, which have assisted to also uplift the mood.

President Cyril Ramaphosa and Finance minister Malusi Gigaba

So, all of those come together to create an improved economic outlook as well as an improved fiscal framework. You’ve also, since the Medium Term Budget Policy Statement, you saw decisions being taken to stabilise our debt. The former president announced last year that we needed to take decisions to reduce expenditure, to improve revenues. To enhance revenues, to implement free higher education in a fiscally sustainable manner, and we had said that to implement any additional spending items. We would also need to look at revenue sources that would assist us to implement those spending items. You have seen those decisions being taken that have helped a great deal, as we say, to improve the fiscal framework and the improvements in the broader macroeconomic framework – our inflation rate is quite significantly low, within range.

All of those are contributing towards a positive sentiment, and a positive mood in the economy – that helps us to be quite optimistic about the budget that we are presenting today. The Telkom share sale – I think that DG will comment about that. The consultations with unions on VAT – it’s difficult to consult about taxes prior to the Budget because you do not want not to take the decision because when you consult about many of these decisions people are likely to protest at times, and then yes, people will say, we want the following – many programmes and policies to be implemented but don’t raise our taxes. So, it becomes difficult for you to be able to move forward. That’s why it’s necessary to take the decisions and embark on consultation afterwards. So, we will have discussions but we do need to take the decisions. You do need that level of decisiveness that’s going to assist us to move forward.

So, it’s not only the unions that have an opinion about this, there’s a whole range of people but I think it’s necessary to just stick with the VAT – just a little bit and say, VAT has the least effect on the poor than other tax measures that we could have announced. It has the least effect on growth than the other tax measures that we could have decided to raise even more because among others the poor remain – the VAT increase will affect 80% of your VAT increase will affect higher income earners, rather than the lower income earners. Even with regard to the lower income earners you retain your basic foodstuffs being zero rated, which is what they mostly consume.

In addition to that, your poor income earners do not have to worry about how their children will afford higher education, and the cost, if and should they get top marks that qualify them for admission to universities because government says, ‘we will take that responsibility now, from you.’ So, from the point of zero rated basic foodstuffs, to free basic education for the children of the poor – there are many subsidised schools in the country, right up to free higher education. The children of the poor and the poor themselves are pretty much taken care of. Yes, the concern will remain that these decisions, including the above inflation increase in social grants should not trap the masses of our people into welfarism, and create a welfare trap. But we are not only focusing on these measures alone.

Statistics SA has indicated that the rate of unemployment is the lowest among those with tertiary education, among the graduates. So, we think that the free higher education intervention is going to, (i) break the cycle of poverty, (ii) it’s going to break the cycle of unemployment, especially among the poor. Assist them to earn incomes, release them from reliance on social welfare – ensure that they become consumers and they contribute to economic growth. So, the pains that we have to endure are only temporary and transitional pains. As the economy grows, we will refocus on the on the economic growth story. That’s why Chapter 1 of the Budget Review provides an assessment and progress update on the implementation of the 14 confidence boosting measures. All of those are aimed at growing the economy, boosting confidence, and freeing the poor from unemployment.

We’re not just focusing on debt stabilisation and leaving it there. We are also focusing on the measures we need to undertake in order to grow the economy and get more people, mothers of children being employed, therefore not relying on the child support grant. The poor getting jobs and therefore generating their own Provident Funds, and their own pensions. We are amending our social insurance policies, including your albitisation policies in order to encourage more of our people who are employed to save so that they can begin saving for later years in life when they are older and rely on their own life savings rather than on social welfare.

So, hopefully, if we can achieve this sustainable level of higher growth over many years, we can eventually be able to reduce the numbers of people who rely on social income in the country. Do we think that these interventions will stave off another ratings downgrade? We believe they will. We believe we have done enough. We have taken the tough decisions. You see our debt rate stabilising at about 56% around 2022/2023. You see our budget deficit improving from 4.3% last year to 3.5% in 2020. We think that we’ve taken the tough decisions. The economy is growing slightly better than was initially projected by the time of the MTBPS. The ratings agencies have been raising these questions with us about growth and where growth is going to come from. As well as about whether we are prepared to take the tough decisions and about whether we are ready to implement structural reforms in the economy, and issues about governance in SOCs.

So, you are seeing those decisions being taken, and together we believe they create a positive narrative that is going to improve the ratings agencies’ outlook for SA and eventually, in the immediate term stave off another ratings downgrade but going forward, begin to improve SA’s credit rating. The DG on the issue of Telkom and any other things, colleagues, that you may wish to comment about. Thank you.

Thanks Minister. Thanks for your questions. I think maybe let’s remind ourselves what we said last year around September/October. We were very worried after the leak, as you can imagine. A 39% shareholding of Government in Telkom – it’s family silver so, there was that irresponsible act if you remember, I said that an act of leaking what essentially was a Government discussion document… So, we said, and what we said last year still, remains that we obviously have various, options and, even though, it’s quite unfortunate that the leak happened. So, what we’re doing is we are not saying it’s off the table. The key, important thing is what we did now, when you see it in the book is that we introduced another asset in the form of properties. Government has got 195 000 properties that are in prime locations.

We want to unlock value worth R40bn plus, or so. Some obviously, can be disposed of straightaway. Some will be converted into some things that can be beneficial for us. But the key here is that ask yourselves the reasons why we said we’ll dispose of Telkom shares at the time, in that discussion document that got leaked. The whole idea was that we wanted to ensure that we fund from a budget neutral point of view, any recapitalisation of SOCs. So, as I’m saying, our options are open. We’ve been in an intensive drive in the last few months within Government to identify further assets. The example that we give now of the work that we are doing, and the work that we’ll be focussing on, in the medium to long-term, is the 195 000 properties that we think can unlock R40bn worth of value. Now, I’m saying, compare R40bn worth of value that can be unlocked in the form of cash, in some cases, and compare that with what is, only 39%. So, that ongoing discussion is still happening in Government. I think, let’s watch this space and let’s not be conclusive again, as whether we are selling or not selling Telkom shares for now. Thank you.

I would like to respond to the tax buoyancy issue. For better reference, I would like us to look to those who have a copy of the Budget on page-40. It is important that we will be able to explain why our tax buoyancy is sitting at 0.96%. It is important to indicate that at the publication of this document the Financial Year ends in March. So, that’s the number taken as to the date of the publication. It is common cause to understand that SARS has always been able to meet and be able to operate above the 1% tax buoyancy. Therefore, it is important to indicate that let’s give this a chance and wait until the Financial Year ends and we’ll be able to give you the story. The 0.96% is an indicative factor and a point that we need to be indicated or the fact that we shall be able to work above the 1%.

A shopper walks past a Telkom shop at a mall in Johannesburg. REUTERS/Siphiwe Sibeko

Second to this is tax to GDP, which according to the document, it says, 25%. The trajectory has always been, for SARS, 26% so, I should think it is important to measure SARS at the end of the Financial Year and be able to see as to whether we’ve been able to meet the mandate for which we’ve been established for. Certainly, sitting here, representing the 14 500 men and women, as the Minister has indicated that so far, we have brought R3bn, which is quite necessary and important at this point in time. We’ll be able to give you the results that are conducent to the organisation that we lead. So, 0.96% is what is on the document. Take into account the time lag and of course, take into account that we have always operated above the threshold. Thank you very much, Minister.

Thank you and thank you to our panel. Let’s go to Pretoria and take all their questions and then I’ll come back to CT. So, Pretoria.

Yes, we’ve got four questions so, Minister, in the Budget Review you mentioned that citrus exports to China increased almost 60%. What are you expecting from the BRICS Summit later this year?

My name is Monty Williams. I’m from ANN7, and good morning to you Minister and my colleagues. I’m just wondering, Minister, first of all congratulations on taking the drastic steps such as you’ve taken on the VAT. Of course, you have said that it was not quite possible to talk to everyone and I understand you answered the claim. But do you understand that COSATU is a major block in society, who have said they will bring this country to a standstill if that happened. We know that just the other day taxi operators and associations were saying that they will be very upset if we had a fuel levy. At the same time, for people who are trying to climb out of eating zero-rated foods and getting somebody to middle class status and they end up having medical aid. I read somewhere that there is a reconsideration of the medical tax rebates to the tune of R490m to fund NHI. I’m beginning to wonder where’s the hope here. When I explain this to my viewers at ANN7 – . Thank you.

Please let him finish – are you finished, sir?

Yes, I am.

Bill Fraser here – let’s hope that ANN7 has lots of viewers by the end of the year. Minister, I didn’t see any reference to the nuclear reactors that you’re buying from Russia. Is there timescale on this and how much is it going to cost please? I’m asking about the new nuclear build program – when is it going to happen and how much is it going to cost?

Yes, he said, he doesn’t see reactors in the numbers. There’s a fourth question, yes.

I’m Justin Brown from the City Case. I just want to ask you, Minister, that VAT hike is it the first of many or the only one we’ll see while you’re around? What’s the process of and when are you going to start selling properties? I just want to find out about the R2.6bn in tax revenue that is expected above what is forecast in October – where is that R2.6bn coming from? Thank you.

Thank you, Pretoria. Let me just give you a moment.

Thank you. Now, you guys in Pretoria were not very audible, especially in introducing your names. We obviously, have very high expectations of BRICS. I think SA’s chair-ship of BRICS is going to provide us an opportunity to do several things. (i) To advance SA’s national interests, particularly in relation to some of the areas where we have comparative advantages to continue driving the message of opening up these markets and ensuring that BRICS… We are to deepen trade amongst BRICS partners, in corporation, and economic corporation. (ii) To advance the agenda for the African Continent, among our BRICS partners. I think the point has been made that SA is much stronger acting as part of the African Continent rather than acting outside the African Continent.

We, ourselves, are undertaking an enormous project, together with our other African partners to establish the tripartite free trade area. It’s going to provide a population of about 600-million people, and that will be an enormous opportunity for BRICS countries. It will elevate our stature as a country amongst the BRICS countries, bearing in mind that countries such as China, India, Russia, and Brazil itself have huge populations compared to our own. So, we are going to be advancing these agendas and trying to also sustain the financial reform, the Global Financial Reform Agenda, enhancing our voice s BRICS countries within the G20 community so that the global financial institutions and the world multilateral institutions are reformed and there is a greater voice of emerging countries in these bodies. So, we are going to take these campaigns and projects forward. Also, seek to engage them on some of the reforms that we, ourselves, are taking as a country so that they can bring onboard their expertise, their ideas, and we can emulate the best that they are doing, and we also bring to the table a number of very advantageous items that we have as a country.

I think it’s going to be important to bear in mind that when the BRICS Summit meets this year there is going to be significant changes. For example, India’s economy is growing quite significantly. I think it’s projected to grow at 6.7% this year, which is up from last year. The Chinese economy – though there are still significant risks, but it’s also expected to grow at 6.5%. Russia is also projected to grow. Brazil is also beginning to grow. It’s projected to grow at above 3% because they’ve implemented significant reforms that have assisted the economy to get out of the recession, into which it has been over the last few years. SA is also, though we are growing very slowly, but the positive story is that we are growing so, we will be meeting at BRICS’ countries – mindful of the positive growth stories in all of our countries. There will be that momentum for growth that we need to be sustained, not only by our leaders, (our principles) going forward, but by ourselves as various stakeholders. So, we want to deepen trade. We want to improve economic relations and ensure that we all benefit from one another’s growth stories.

Is there hope? You know, the Budget must not be looked as little items. The Budget must be viewed in totality because if all of us sat down to say, ‘oh, because fuel level is rising then le me go into a depression.’ You will miss the point that there is free higher education being announced. If you look at the point that VAT is being increased and you drive yourself into depression, you will miss the point that the overall growth rate of the economy is improving. That debt is stabilising. We are therefore not… That debt service cost and the interest on debt is not going to outgrow and outpace other items of the Budget, (of expenditure), and we are not transferring debt to future generations. So, when you talk to your viewers at home, don’t focus on one or two items, or three items. What the Budget does is to present a balanced picture, which has a positive narrative to it.

Yes, there are these difficult decisions that are being taken but the overall, broad positive story of optimism is that change is taking place in our country and our economy is benefiting from it. Now, I would like you to say, not only that VAT is rising, the fuel levy is rising – I would like you to say that Government is beginning to fund the NHI. That the poor in our country are not being sentenced to death when they fall ill, because we are going to assist them to have access to quality preventative primary healthcare. To say that the economy is growing. That business confidence is rising. Government is going to introduce the Youth Employment Service. Immediately young people are going to be taken onboard over the next three years into learnership programs in the private sector. That Government and the private sector are introducing the national minimum wage, and that Government and the private sector are introducing funding for small business.

As we say in the Budget, the DG, next week, will be issuing directives to Government Departments to pay small suppliers within 30-days. Failure to do so, will be regarded as financial misconduct and they will be charged. Government is begging to improve the SOCs. So, overall, don’t look at one or two items, or three difficult items – but look at the bigger story. The bigger story is, overall, positive and I’m sure that ANN7 will find all of those positive news very encouraging.

Now, nuclear – why Tom, why? Look, the statement issued by the President in Davos remains unchanged. Now, we can repeat the same story every year. Every time we speak. Perhaps it’s necessary for the doubting Thomas’ Tom. But the nuclear story remains unchanged. We can’t afford it. It remains in the energy mix. Cabinet in December, adopted a new IRP. We revised our targets downwards but even as we revised them downwards we did not say that that review of the IRP meant we now start immediately. As I have said, and let me repeat, we are undergoing three major bill programs. One of those three power stations, Medupi, is the largest power station in the country. It has picked up momentum. Some of the electricity generated is already into the grid. Some of the turbines are commissioned and we are happy, and we are moving on. But even as we have that Eskom has excess electricity because the economy is growing slowly, because there are no significant intensive users taking up the electricity generated.

We do not believe we are under any pressure to start a significant bill program of the nature in size of nuclear capacity, and Government has just issued a directive that the two bid windows, 3.5 and 4, of the Renewable Electricity Independent Power Producers Program – the power purchase agreements must be signed off so, we believe that we are actually having sufficient electricity to power us for the foreseeable future. Even if we were to take a decision that we believe, having completed Ingula Medupi and Kusile we now are going to face additional generation capacity challenges. We will have to look at all the least cost measures before we take the decision that we move towards the direction of base-load electricity supply that nuclear can provide. Right now, the reason why the Budget doesn’t say any allocation about this is because we’re not anticipating that during the course of this year we are going to have to start implementing this. I have said that over the foreseeable future, I don’t foresee that we are going to be needing nuclear generation. Government periodically reviews its IEPs and its Integrated Energy Plans and the Integrated Resource Plans. We will do that periodically – consult and engage stakeholder and know how we move forward.

With regards to Justin. Nice questions, Justin, thank you. No, this is not the first of many, VAT rate increase under this administration. I think Government has been conservative enough in terms of VAT. If you look at the record. The new and Democratic Government is raising VAT for the first time since it came about in 1994. So, it’s not something that you play around with. We’ve been sufficiently conservative up until a point when it really became absolutely necessary to do this. The DG has spoken about some of the decisions we are taking with regards to properties. We had said in the 14th Confidence Boosting Measures that we will, this year, announce which properties and assets of Government have been identified for selling, and we will make that announcement as from March this year.

We’ve already said that with regards to SAA there will be a strategic equity partner, and we’ve given the board of SAA the responsibility to look at assets that can be disposed of, in order to generate income for the airline. The same will apply to other entities. The President made reference to this yesterday, in the response to SONA so, the Commissioner will respond to the question of the R2.6bn collection.

SAA should be sold to the private sector so that more travellers can benefit. More magic available at jerm.co.za.

Thanks, Minister. The R2.6bn that we’ve collected comes mainly from the dutiable goods that we have gained. Also, the gains that we have been able to achieve from the CIT in December, in particular. That gave us a respite, in terms of the shortfalls that we were facing. But we do want to acknowledge the fact that the VAT and PAYE are lagging behind and we hope and trust that we’re going towards the end of the Financial Year that some improvements will emanate out of those two. So, those are the simple and straightforward questions, and my responses, thank you.

Good day, ladies, and gentlemen. I just thought let me deal with to add on what has changed between the Mid Term Budget Policy Statement (MTBPS) and now. I think one of the things that we were promised at that time was that decisions were going to be taken and tough decisions were going to be taken. What we are presenting to you, as you can see from the type of questions that are coming in, just shows that tough decisions, which are not going to be necessarily popular with everybody, but they needed to be taken for the good and for the benefit of the country. Economics and budgeting is about choices so, we needed to make certain choices.

For instance, when we talk about all these things that VAT is going up, etc., and what was the alternative? I think in the MTBPS that was presented by the Minister of Finance in October. He said, ‘if we didn’t take tough decisions we are moving very fast, at a very accelerated rate to a fiscal cliff.’ So, what does that mean? It meant that very soon we are going to find ourselves in a death trap. It meant that it was going to be very difficult for us to raise money, to even finance the deficit itself. It meant that a lot of investments were going to run away from our country. It meant that it was going to be even more expensive to finance the debt for those who will still be willing to finance the debt. So, we had to make a choice, to make sure that we protect the sovereignty of this country.

I think it’s also very important I think it’s also very important to say, these choices, or the Budget that we are talking about is the Budget of Government. It’s not the Budget of the Minister of Finance. It’s a function of a lot of consultation with different layers of Government, National Government, with different Departments. Technical teams are involved. It’s a function of interaction with the Provincial Government through the Budget Council. It’s interaction with the Local Governments through the Budget Forum – etc. Again, we also shared with you that the former president set up the President Fiscal Committee, which is a Committee, which was looking at taking these tough decisions and recommending them to the Cabinet. That’s very important that it’s a question of the choices that we had to make, and we had to decide, as Government, that we are protecting the fiscus of this country and the sovereignty of SA. So, these are the choices that we were faced with.

I think it would be amiss of me if I don’t mention the fact that today the Democratic Government has done something again, with the free higher education. Most of us, all of us sitting in front of this table – we are a product of student structure, and many of you down there, you know that at one stage or the other you were involved in the student struggle. The black child in this country has been involved, at least since 1976, but even further than that, in trying to get better education. I’ve got no doubt that Chief Albert Luthuli, one of the former teachers who protested very strongly against Bantu education. Abram Onkgopotse Tiro – one of the people who were assassinated in Botswana because he dared to stand up against inferior education given to an African a child. He went to the university, who also went to the University of the North…

[Inaudible], who I spent time with in prison. He must also be smiling where he is that this Government finally, has come out and said, the black child has also got the right to a higher education. The fact that you are born in a township or born from an African family should not be a determinant of whether you can have access to free education. It’s not going to be easy to find that, just like it’s not going to be easy to find other things, but it is the duty of this Government to make sure that the struggles, which have recently – #feesmustfall struggle. That’s what we really need to talk about so, I think rather than poking holes, I’m just saying whoever, and I’m not blaming you for a second of doing that. That we should at some stages, pause and celebrate the successes of the South Africans. That’s your success. That’s the success of those who were killed in 1976, and in the 1980s. I think that’s how we should look at it. It’s not perfect. It’s a work in progress but it’s the duty of all of us to make sure that it does work and delivers.

Having said that, again, economically, that’s an investment. This is a human capital investment – we are investing in the future of this country. We are investing to the better productivity of this country when we invest in our young people. We’ll have a dividend that we’ll be able to reap some time in the future. So, I think we need to, and we are the first ones here to say, that there’s a lot of things that are not perfect, and so on, but it’s a good start. Thank you.

Thank you.

I’m going to take fresh hands because we’re aiming for 11:00 but to be fair to you guys, it’s not your fault so, I’m going to take a few fresh hands and then we’ll just cut.

Thanks, it’s Carol Paton From Business Day. Minister, you are counting on both a CPI increase of the public service out of increase. Do you think you’re going to make that that apply, particularly, that combination? Secondly, I hear what you’re saying about the value of higher education, and I completely agree, but the cuts that you’ve made are quite harmful to the poor. You’re talking about cutting school buildings, you’re talking about cutting trains – when the trains in CT are not running. You’re talking about housing cuts – these are all things that we believe drastically impact on the lives of the poor so, maybe if you could comment on that.

Good morning, Minister. Paul Vecchiatto from Bloomberg. First of all, on the Sovereign Wealth Fund case, as mentioned by the President in his reply yesterday. Has National Treasury started working or will they start working on the creation of such a Fund? Secondly, could the increased business sentiment be attributed to a reduction in the political risk premium that was seen over the events over the past couple of weeks? Thirdly, just go back to the Fireblade matter. The court judgment says, ‘the Minister has committed an in breach of the Constitution so serious that I could characterise it as a violation.’ Have you informed the President, about this court judgement and have you received any response, if you’ve done that? Thank you.

I have a question for DG Mogajane. I’m Angeline from Tiso Blackstar. Sir, how difficult was it to compile this Budget with the political uncertainty around the Finance Ministry when you didn’t actually, know who was going to be able to present it? Secondly, for Minister Gigaba, sir, your legitimacy has been called in question, including by the second biggest opposition party, who’s threatened to boycott it. In light of the fact that you have to introduce these controversial measures, including the VAT increase, how do you feel about doing it in the context of the controversy around you? Thank you.

Thanks, I want to ask a supplementary question to Carol’s about higher education. You know, the recent literacy tests that have come out and showed that 78% of our grade-4s can’t read. I think the tertiary education does indeed increase your employability but half of our kids don’t make it to Matric, those people who start. Of those who make it through Matric, very few get university passes. So, where in the Budget is the Policy to support the life chances for those young people who are left out of the tertiary education?

Thank you, sir. I’m from Bloomberg News. Minister, I’m sure you’ll agree that our new President, Mr Ramaphosa, gave a rock star performance when he delivered SONA, and also his replies in Parliament. I’m sure you’ll agree that has a lot to do with his credibility, and coming partly from not being involved and being accused of things related to the narrow definition of State Capture, in the Gupta narrative. I’d imagine you had a very tough job in convincing the public this afternoon and steering this Budget through Parliament and going all investor roadshow when convincing society that you are the right man and you have the right to plan to take SA through the troubles that we’ve gone through because of the Gupta and a bad rule by Jacob Zuma, and your ANC? If we had to look at it hypothetically, at a scale of 1 to 10, where would you place yourself in terms of capability and deliverability? Thank you.

That’s a lot of questions. Do you mind if we just take those ones and then we’ll probably have to wrap up? We’ll avail all the guys who are responsible for this, at the end of this, we’ll avail them to engage with you so, let’s just take those questions.

Thank you once more for the questions. Look, I think Carol, the difficult issue we had to do is to balance a whole range of things. One of them – a policy on higher education that was first adopted by the ruling party at the policy conference in June 2017, announced by the former president in December. Reaffirmed by the National Conference in December, and reaffirmed both in the 8th January statement, as well in SONA. Now, bearing all that in mind, we obviously had to find a way to pay for a policy and program of that scale and magnitude. So, we had to take decisions, this was on top of the expenditure cards and revenue enhancement measures we had to undertake as a result in a large measure of the revenue shortfalls. Even in areas where we had to cut the spending. We looked at areas where they would be the least affected. Where there was underspending or where Departments had not been able to spend all the money that had been earmarked for those programs.

The programs themselves are not necessarily cut. The Departments can still re-prioritise and be able to bring those projects in, either this year or in the next year. Our view is that something had to give, and we believe that even if we didn’t raise VAT the lives of the poor would not have been made that much easier by the challenges they face, the options they have to make on a daily basis. Government is trying its best within available resources to fulfil its obligations in terms of alleviating the pressures and difficulties that the poor face. We have not card programmes, which have to do with learning and teaching, but which means that all the children who are due to receive education they will still receive it. It still means that much of what we wanted to do in terms of basic services will still be delivered. We have even provided funding to alleviate the pressure that is brought about by drought in the Northern Cape, Eastern Cape, and the Western Cape.

But we also have to bear it in mind that you don’t assist a grade-4 learner by denying their elder sibling access to higher education but you actually enhance the grade-4 learners’ opportunities by providing assistance to their older sibling so that they elder sibling can go through higher education as you bring the grade-4 learner up. So that they too can have access to the same levels of education. In the cause of the elder sibling completing their studies the younger learner, as they progress through the education system are also obviously, going to benefit. So, we have looked at the Budget and the areas where we can cut, we looked at whether this will have the most significant impact on growth. Whether it will have the most significant impact on Government services, and decided on those areas. Though they seem large and harsh but we believe that they will have a bearable impact on our growth prospects as well as the service delivery by National Provincial and Local Government.

We certainly will be looking at the Wealth Fund. The directive was very clear from the President. We are going to be looking at how we are going to go about it and obviously, this is not the responsibility of Treasury alone. We will be working with our other colleagues.

I think the question of the reduction of the Political Risk Premium is fair, and it has had a significant improvement in confidence. But together with it the decisions that have been taken on State Capture, on the Asset Forfeiture Unit and various other policy/structural reforms that are being implemented. They have all boosted confidence because there were two factors that stood as major obstacles. We’ve been saying all along that the biggest challenge with confidence in the SA economy at the present moment, is that from 2015 up until now, the major factors inhibiting confidence have been domestic factors. You are seeing decisive interventions in relation to those domestic factors, be it political uncertainty or policy uncertainty that are increasing confidence and therefore, projecting better prospects for the economy.

With regards to the court judgement. It’s important to highlight that the decision of the court is being challenged. There is an appeal on the judgement. At no stage, there was an agreement with Fireblade and if there was an agreement with Fireblade then why did they come back to apply for permission? Why didn’t they implement their decision? To start with, we had indicated quite clearly that they needed to resolve their issues with Denel. That was the first thing we said to them because Denel said to them, you can’t use our facility. Now, you can’t say, if Public Works owns this building. You then come to Treasury and apply to Treasury for permission to come and set up a spaza shop here, and Treasury says to you, ‘but Public Works says you can’t use imbizo facility for your spaza shop. Go and resolve your issue with Public Works.’ That’s the landlord, Denel and Denel wins the case in court and then there is an attempt to bully the Minister of Home Affairs to provide permission for something that must be operated in a building that doesn’t belong to Home Affairs. The Minister of Home Affairs says, ‘even if we agree to give you our immigration officers – they would be trespassing in a facility that doesn’t belong to them.’ So, resolve the issue there and then we can come back and discuss.

But there is a legal problem that legally, you cannot operate a private terminal for a family. Not for the country. Not for public use but for a family. All the key stakeholders in the matter, including the Revenue Service, the State Security, the SAPS, and the Army says, ‘no, we don’t agree.’ Home Affairs alone is being billed to agree to provide immigration officers. It cannot be right. Then you go further and say, the pilot on an aircraft that was flying with two engines running. Overheard a conversation at the back of the plane of someone saying to another, ‘we are going to talk to the Minister of Home Affairs to deny this to happen.’ Nobody asks the question, ‘but how did you hear this? You were sitting in the cockpit. You are not saying that you were listening in on the conversation at the back. How did you come to hear about this conversation?’ Were they shouting? Did they come to the cockpit to talk in front of you? What actually happened in this whole conversation? Something is amiss here and again, I repeat, if permission had been granted why then continue to pursue the matter seeking a decision when a decision had been granted? Why not implement? That’s a matter that needs to be resolved and as I say, it’s a matter that the various institutions involved are appealing in the courts so, there is no finality on the issue.

The issue surrounding the Minister. I think we have all made the commitment. I’ve raised this several times, that we will all subject ourselves to the State Capture Commission. We will go there and present our cases. All those who will be invited to come and do so, will actually do so. There will be an opportunity for all of us to do that. In that case we will provide responses to issues that pertain to us and put clarity to any allegations. So, what matters is not the untested allegations. What matters, because the court of public opinion is not a court at all. It can lead you. It can perpetrate. It’s perceptions and speculations, and all of those. That’s okay but what matters in the end is that little thing called the facts and the truth, which I think we all must be prepared to subject ourselves to.

So, it really is an important process and that’s why I have supported it very vociferously from the very outset and I’ve never minced my words about where I stand in relation to the Commission of Enquiry. I don’t think it matters who says they will boycott the Budget or not. I think what matters is that we have a budget, a very good budget. We will present this Budget – the Budget is above any individual or questions on that individual. It’s a very good story. It demonstrates very tough decisions that have been taken on the issues without any fear or favour. I think that we need to look forward to it. We will engage with all the stakeholders and we will tirelessly answer the questions about our personal integrities, about all allegations that are put forward. I think eventually, the truth is going to come out for everybody. I think all of us, who are happy to make the allegations must equally be prepared to listen to the facts and accept the facts when they are being put forward.

There is a process that we have advocated for, and we must allow that process to take place. Similarly, for those who are wondering about whether the Minister of Finance will be reshuffled or not – don’t worry about that. The President ultimately has the prerogative over the issue. He will take his decisions about it. I have said that I will support the President in whatever decision that he takes and that we serve at the pleasure of the President. He appoints us. He replaces us. He reshuffles us – it’s all within the powers and the prerogatives of the President – we will support him fully. I believe, very much, in the vision the President has presented and I think that he needs all of our wholehearted support in however the way he chooses to implement and execute his vision. Thank you.

Just two things, I think, which came up. The question of the credibility of the Budget. I deliberately sketched how we do our Budget in Government. It’s not an individual’s budget but a Government’s Budget and I tried to say who gets involved. Again, if you want talk about the credibility of the Budget – I think as we came here and told you the story that we knew you were going to lynch us, and you did that. We said, we are not going to go there. … You know you lynched us but we said this is the story but we said we are not going to go there.

The debt to GDP was going haywire, and now we have given you what we have now. We said to you that we are going to take very tough decisions as Government and those tough decisions have been taken. That’s what it takes to be in Government and make those decisions. But what is also very important – I think I would really like you to underline, is the involvement and the commitment of about 1.2 million civil servants into making sure that Government works. Further than that, the National Treasury staff, whom I call the foot soldiers of National Treasury, who at the end of the day are responsible for collecting all this information and make it user friendly so, that you can see exactly what we do, under the leadership of the Director General.

It has been since the MTBPS, who have been coming, time and again, sitting together and said, ‘we’ve promised SA something. We have got a duty to come back to them.’ Not with excuses of why things didn’t happen in a particular way, and that’s what we are giving you today. Having said all these things, the cutting and protestation of certain project is not sustainable. What needs to happen is that this economy should grow – that’s at the heart of things. Not just grow but it should grow in an inclusive manner. I think that’s the responsibility that we are all having. There is not going to be any magic, which is going to come from SARS. If this economy is not growing this Budget, as we go forward, will not be sustainable. So, what is imperative and what is important to all of us is that we put the shoulder to the wheel and ensure that this economy grows and then all other things come out. You’ll have your revenue increasing, you have got your employment opportunities also increasing.

By the way, I think we also need to recognise that as far as SA is concerned, we have got a 1% improvement in unemployment rate, and we should exceed that under the Cabinet. Again, that is a positive story that we should also be talking about but what one wants to underline here is the fact that, all said and done, Government, labour, business – we’ve got a responsibility to ensure that we put aside our differences and we make sure that for the sake of our children, for the sake of posterity – we grow the economy of this country.

Sorry, just a quick one colleagues. The embargo time ends as soon the Minister greets, then you guys can shoot. But please try and hold back before he says, ‘good afternoon,’ and starts to deliver the Budget, thank you.

I think I must answer this question, it’s important about how difficult was it to prepare the Budget? I think maybe before I even answer that question let me say it’s important that we understand the reductions in budgets. Can I ask you to look at Chapter 5 in detail because most programs are still growing way above inflation, even after the cuts? When we cut we obviously, look at those problems that are not performing so, just look again at those because it is important to note it, and we’re not just going to bury our heads in sand because we have cuts. What I think we need to do and we have actually decided, and we are doing it. With the Department of Monitoring and Evaluation, and the Provincial Treasuries is to then go deeper into the spending programs, at least for the next period as we prepare the 2019 Budget. There are still programs, where clearly, efficiency gains must be squeezed. So, that still within the cards we are able to stretch that Rand to the end.

Now, in terms of the question, look, we are professionals running the Treasury. There’s a 1 200, or so, of us. We are focussed, we work, and irrespective of who the Minister is, and we have proven that over and over. It’s been painful, as you can imagine, in the last couple of years. Getting a new Minister here and there, but we are focussed. The Budget process is an elaborate process, which is time bound and come the 21st we have to produce the Budget, irrespective of who comes. Even the engagements – some of the engagements are dictated to by us in law. In terms of engaging with Provinces, and we will prepare because all of those are time bound, and we are dictated to by law. I normally and usually say to people that our functioning is not determined by an individual. Our functioning is determined by the Constitution that we all subscribe to.

Our functions and our duties are legislated in there and further details of what we have to do is in the Public Finance Management Act. Both the role of the National Treasury and the role of the Provincial Treasury so, again, even if you ask an MEC in a Province – you’ll get the same answer, whatever MEC is going to be there because that Provincial Treasury in any of the 9 Provinces will find their work, duty expressed in law. Just let me say that because it was not difficult. We worked flat out. We are not worried. We actually allowed, and at various intervals I had to call the team and say, ‘colleagues, don’t worry about the noise around you – there’s a Budget that we have to fulfil and there’s a country to assist in actually ensuring that we reach all the objectives that we’ve set ourselves as Government.’ So, yes, that’s basically, in a nutshell, what informs what we do so, any Minister can come and go – we will continue doing what we have to do. Thanks.

Thank you.