PUBLIC FINANCE AND MONETARYPOLICY CHAMBER

Terms of Reference

The Public Finance and Monetary Policy Chamber seeks to reach consensus and makeagreements for placing before the Executive Council on all matters pertaining to theframework within which financial, fiscal, monetary and exchange-rate policies areformulated; the coordination of fiscal and monetary policy, and related elements ofmacroeconomic policy; and the associated institutions of delivery.

Overview

The Public Finance and Monetary Policy Chamber has in its first year followed adifferent process for discussions when compared to Nedlac's other chambers. During 1995,the chamber's attention was largely focused on discussions with respect to the 1996-97national Budget. The consideration of the 1996-97 Budget followed a unique approach ascompared to the general agreement- making function of Nedlac. The parties to the chambercharacterised the discussion as an exchange of information and views in order to maximisea common understanding of the differing views, while at the same time acknowledging thatthe Ministry of Finance remains solely responsible for the Budget and how it is presented.The parties did not seek a formal agreement on the Budget, and the process of interactionin Nedlac provided government with an opportunity to hear the views and responses oflabour and business to Budget-related measures being considered by government.

In planning its 1996 work programme, the chamber wants to build on the lessons of itsfirst year. So, while it will still engage in discussions on the 1997- 98 Budget, it willalso be developing an approach which is more focused and orientated towards thedevelopment of consensus on medium-term policy issues.

Given the specialised and complex nature of the issues on its agenda, the chamber hasalso decided to build in a capacity-building programme, comprising a public-educationcampaign and capacity-building workshops and seminars which will help equip participantsto address the issues on the chambers' agenda and allow for more informed decision-making.

Besides the business, labour and government representatives who serve on the chamber,the South African Reserve Bank is also represented in a non-voting capacity.

The Work Programme

1. 1996-97 BUDGET

The Nedlac constituencies made their inputs into the 1996-97 Budget in twoways-firstly, through chamber discussions, some of the main features of which are outlinedbelow, and, secondly, through participation in government's function committees and theBudget committee of the Department of State Expenditure.

The function and Budget committees

Government's function committees have to date been responsible for addressing thespending priorities of the various line-functions of government in the context of broadbudgetary guidelines. Business and labour elected to be represented in the followingcommittees:

• Business: Education, health, intergovernmental transfers, scientific research, welfare and roads.
• Labour: Education, health, defence, roads, welfare, agriculture and housing.

The Budget committee is responsible for the evaluation of inputs received from nationaland provincial departments on the expenditure priorities for the 1996- 97 financial year.Business and labour were represented at this meeting in September 1995.

The chamber discussions on the Budget

The chamber's attention was mainly focused on developing agreement on a framework forthe 1996-97 Budget. The subsequent framework document which resulted outlines certainassumptions with respect to economic growth, inflation, the revenue-to-gross domesticproduct ratio, and the Budget deficit. In the course of the Budget discussions, thechamber also identified a list of core issues (for example, taxation of retirement funds,the financing of industrial- restructuring initiatives, and poverty alleviation) forconsideration when developing the 1997-98 Budget. It also identified certain issues thatneed to be considered by government which are of a more medium to long-term nature. Theseincluded the need to ensure that government urgently develops a medium-term framework forexpenditure planning which can serve as a basis for longer-term expenditure planning,departmental personnel policy, and performance auditing (a report detailing chamberdiscussions is available).

At various stages in the course of the Budget discussions, the Minister and deputyMinister of Finance briefed the chamber and engaged in discussions with business andlabour. During January and February 1996, special attention was focused on therevenue-side of the Budget and, particularly, those revenue matters that were capable ofbeing addressed in the 1996-97 Budget. Given the nature of these discussions, they wereattended by high-level delegations from the various constituencies. In addition to thesechamber meetings, and as agreed in the chamber, government also held bilaterals withbusiness and labour where specific issues that were of concern to the respectiveconstituencies were addressed.

The budgetary discussions in Nedlac have been a positive step forward in advancing thetransparency of the Budget process, as well as the participation of the Nedlacconstituencies in the process. This process has been seen as the starting point of aprogramme of substantial policy discussions which the chamber is now embarking on.

2. EXCHANGE CONTROLS

During 1995, a chamber task group has being working on the issue of exchange controls,specifically considering the following:

• The implications of abolishing exchange controls on, for example, wages, employment, investment and economic growth.
• The development of preconditions and signposts for the further relaxation of exchange controls.
• Additional measures to be considered for the further relaxation of exchange controls.

The work of the task group is continuing.

3. DRAFT BILL ON TAX AMNESTY

Flowing from the Katz Commission's recommendation that a tax amnesty be granted as ameans of attracting more people into the tax system, a tax amnesty bill was developed bygovernment. The bill was considered by Nedlac, with the constituencies agreeing to supportthe broad guidelines contained in the bill.

4. RELATIONSHIP WITH OTHER INSTITUTIONS

As the chamber's work relates so closely to that of several other keyinstitutions/initiatives, the chamber has established an ongoing process of interactionwith several of these bodies, most notably the Financial and Fiscal Commission, the KatzCommission, and the parliamentary joint standing committee on finance.

THE YEAR AHEAD

In addition to discussions on the 1997-98 Budget, the chamber has decided on thefollowing framework for its work programme in the year ahead:

• A macroeconomic policy framework (which will encompass consideration of macroeconomic policies required for reaching agreed targets for economic growth and employment creation).
• The Budget reform process (which will include issues such as the reprioritisation of expenditure, rollover policy, and a medium-term expenditure framework).
• management.
• Tax reform (including consideration of issues such as direct versus indirect taxation, corporate taxation, tax incentives for industrial development, retirement incomes and the taxation thereof).

A specific work programme for each of these areas is being developed and the chamber'scapacity-building programme will be structured accordingly.