Appropriation Bill [B5 – 2009]: briefing & adoption

NCOP Finance

07 July 2009
Chairperson: Mr C J De Beer (ANC)
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Meeting Summary

The Committee was briefed by the National Treasury on the Appropriation Bill, which they were urged to adopt. The presentation dealt with the necessity of adopting the Bill by the end of July. It described where various budget allocations would be made, the process of reorganising and renaming of national departments, and technical corrections made to the Bill.

The Committee asked questions on the amounts of various budget allocations, and the structure of a loan granted to Eskom. Of major concern for the Committee, was the renaming of departments and the shifting of various functions between the new departments and how the budget would be organised in this regard. This was thought to be unclear and unnecessary.

Other concerns raised, dealt with ensuring that money allocated was actually spent, and reasons for the National Treasury to continue such expenditure, and how it would do this given the global recession.

These concerns were addressed by the delegation, who themselves were in the midst of reorganising the new departmental budget, and so clarity on all the issues was not possible.

The Chairperson reminded the Committee that the delegation could be asked to return at a later date with more information. The Bill was adopted with the Chairperson assuring the Committee that the concerns raised would be noted.

The Chairperson asked the Committee members to identify priority municipalities within their constituencies while Parliament was in recess, in order to decide how assistance could be given to these.

Meeting report

National Treasury presentation
Mr Lesetja Kganyago, Director General: National Treasury, presented to the Committee a proposal for the adoption of the Appropriation Bill.

Mr Kganyago gave a brief background of the Bill, and then stated the necessity of its adoption because after July, monthly expenditure could only amount to ten percent of the 2008/9 vote budget, which would severely constrain Departmental functions.

The structure of the Bill was briefly reviewed. This was followed by a summary of budget priorities which included, enhancing the quality of education, improving the provision of health care, decreasing poverty and improving the capacity of the state.

Key spending allocations were discussed, these included a R30 billion loan to Eskom, R583 million for school nutrition, R711 million for housing and R364 million for industrial development. Additional allocations were also discussed for Home Affairs, National Treasury, Education, Health, Correctional Services, Agriculture and Land Affairs amongst others.

Mr Kganyago then briefed the Committee on the necessary processes which had begun for the reorganisation of national departments, which included the renaming of departments and the establishment of new departments. The process was expected to take at least six months. He stated that national departments that existed before 10 May 2009 would continue to function until reorganisation was completed.

Technical corrections to the Bill were explained: these dealt with the creation of new budget votes, even though no funding would be allocated to them until the new departments were fully established. Overall funding allocated to previously existing votes remained unchanged. An explanatory memorandum had been tabled showing how the new budget vote structure would link with the old budget vote structure.


Mr M Makhubela (COPE) asked for clarification of the term ‘personnel cost pressure’.

Mr B Mashile (ANC) was concerned that the renaming of departments would cause confusion because the old department configuration had specific mandates and budget allocations which would not necessarily correlate with the new department configuration. He also asked how activities which were transferred from one department to another would be handled in terms of providing a similar administrative infrastructure.

Mr T Harris (DA) asked if the additions on Slide 7, were additions to the budget announced in February

Mr Kuben Naidoo, Deputy Director General: Budget Office, National Treasury, said that those were additions made in February relative to the 2008 forward estimate.

Mr Harris asked for a fuller explanation on the structure of the R30 billion loan for Eskom, and the possibility of this being repaid.

Mr G Mokgoro (ANC) asked if the figures which were presented were temporary, pending the passing of the Bill. He raised concerns that some of the figures were very small, giving the example of Rural Development’s funding.

Mr R Lees (DA) referring to the Bill, noted on page 22, Vote 27, that two amounts under ‘transfers and subsidies’ were identical. He asked if this would be sufficient for the Restitution process. He asked if the Integrated Housing and Human Settlement Development Grant, amounting to R12.44 billion was a once-off amount, and asked how this expenditure would take place and through what organisations or spheres of government this would be channelled.

Mr B Mnguni (ANC) noted that some of the functions of the reconstituted departments would overlap, and asked how the funding of these would be divided between departments.

Mr Naidoo responded that what had been done in this Appropriation Bill, was that departments had simply been renamed, and a structure created for the votes of new departments which had not had funds allocated to them. He said that in the Adjustments Budget in October, the second phase of shifting money to reflect the new vote structure would occur, but added that if the departments were not prepared, this would only be done in February 2010. Referring to how budgets would be allocated, he said that there were three cases. In the first where the name of a department has changed, but its function had remained the same, no split or movement of money was expected. In the second case, where existing functions were shifting, the budgets for these functions would be carved up from the departments in which they were previously situated. The third case was where there were new departments and new functions, and here funding would need to be allocated. He said that the fourth phase would be the cancellation of certain votes, namely those that have been set up as interim votes, such as the Agriculture vote, which would then fall under the Agriculture, Forestry and Fisheries vote. He asked if there were any other concerns about this matter as he wished to deal with them before moving on to answer the other queries. 

Mr Lees asked if it would be simpler if the old departmental names were kept, as this would allow the budget to be more easily distributed among them. He was concerned that the budgets represented in the Bill did not correspond to what would actually be spent due to the shifting and cancellation of votes.

Mr Naidoo said the process was still underway. National Treasury was not the only party involved, stating that it was primarily the responsibility of the departments in question, with the Department of Public Services and Administration (DPSA) coordinating the process. He said the Treasury was involved with various task teams which were trying to ‘ring-fence’ certain budget allocations for transferral to the new votes. He added that staff would also be shifted in this process, which would be complex and might only be reflected in the 2010 February Budget.

Mr Naidoo said that the National Treasury faced a number of personnel cost pressures. He used the example of Correctional Services to illustrate this, saying that the department overspent last year by almost R500 million, most of which was on personnel, and that this department was consistently unable to reduce its over-time bill. The unit labour cost was extremely high compared with other departments, such as education, and so this was an instance where much was still needed to manage costs down to more sustainable levels.

The Eskom loan, Mr Naidoo said, amounted to R60 billion staggered over a number of years. R10 billion was paid in the financial year of 2008/9, R30 billion in 2009/10, and R20 billion budgeted in 2010/11. He said that this was called a ‘deeply subordinated loan’, because other investors saw it as an equity injection. The terms of the loan stipulated a nominal interest rate over the first ten years. He added that Eskom did not have to pay this back ‘if their financial metrics were not sound enough’. After this period, Mr Naidoo said that Eskom would have to repay this loan and that the interest rates would rise steeply, but it was anticipated that it would be repaid within the ten-year period. 

Mr Naidoo said that the budget for Rural Development was the old Land Affairs budget, and Treasury was still in the process of organising this. He said that elements from the Department of Provincial and Local Government and from Agriculture might be moved to supplement this vote.

As to the question of the Restitution process, Mr Naidoo said that the amount would not be sufficient. He said there were approximately 3 500 remaining claims, and these were complex and costly and would only be resolved within three to four years. The amount given was to provide for progress to be made. This amount was specifically appropriated to ensure the money was used on the Restitution process, and if it was not, it would be rolled-over.

In terms of the Integrated Housing budget, Mr Naidoo said that this was exclusively appropriated to ensure that the department would only use this money for housing. He added that this was not a once-off amount, and similar amounts would be provided on an annual basis. 

Mr Harris noted that this Bill reflected exactly the February budget, and any changes would have to be reflected in October. Tax revenues could be R60 billion down, but expenditure was staying up, as announced in February. He asked if October would be too late to make that adjustment, saying that this could have severe consequences for the budget deficit if less tax was being raised but expenditure continued.

Mr Mashile asked if it was not proper to retain the original departmental names that aligned with the budgets, as the Bill was misleading because the new names did not reflect the mandates which were financed. He asked how Treasury expected to implement the budgets in cases where the mandates had not yet been shifted from one department to another.

The Chairperson said that it would have assisted the Committee if the list of the new departments was given to them, indicating where the old departments fitted in.

Mr Lees noted that in terms of Housing, large amounts of money was sitting unspent in municipal bank accounts, which came from provincial housing grants. He was concerned that this would continue to be the case, and the R12.44 billion would simply add to this already unspent amount.

Mr Naidoo replied that the process of identifying amounts and shifting them to new votes was not complete. He said the process was being coordinated by the DPSA, but it was complex. It was hoped that it would be completed by October, and that departments had been informed that if they were ready by October they would be included in the adjustments budget and the function shift. He added that he thought that some departments would not meet this deadline, and in these cases, the budget would only be reflected in 2010. He said this was not ideal, but the process was complicated and in some areas there were disagreements on what should be moved. The need for creating new departments stemmed from a legal obligation as the new ministers had new names and mandates to fulfil, and the departmental names needed to reflect this. He said that the new minister of Agriculture, Forestry and Fisheries, for example, would immediately control the budgets for these mandates even though they were currently spread through three departments.

Mr Naidoo said that two problems would occur if the budget was not approved or an amended Appropriations Bill was not tabled. The first was that departments were only ‘allowed to spend 45 percent of the previous year’s appropriation in aggregate’ in the first six months, and after this only ten percent of the budget could be spent. This would cause problems of insufficient funding for the functions that the departments were supposed to undertake. The second problem dealt with accountability. If the names of the votes were not changed, the Public Service Act, which gave the minister power, especially over personnel functions, and the Public Finance Management Act, which gave the Accounting Officer power over financial issues, would not be aligned. This would lead to legal difficulties in terms of accountability of money spending if the names of the votes were not changed.

Mr Naidoo said that the previous week the Minister of Finance, Mr P Gordhan, had addressed Parliament and said that the country faced a choice of either cutting expenditure now in line with falling revenue, or borrowing money in order to continue expenditure at current rates. In the first case, if spending were cut now, it could be grown when the economy recovered. In the second case, if the difference was borrowed to maintain spending, then a period of slower growth in public spending would be needed when the economy recovered. It was the National Treasury’s opinion that it would be better if spending was not decreased at this time. If budgets were cut by R60 billion at this time it would have too damaging an effect on the economy, as areas where budget could be easily cut, were areas where it would make the least sense to do so. Mr Naidoo said that public spending curves would however have to remain relatively low for a few years.

Ms Jeannine Bednar-Giyose, Director: Fiscal and Intergovernmental Legislation, National Treasury, added to what Mr Naidoo said about the renaming of departments and the creation of additional budget votes, saying that in light of the processes initiated by the DPSA, the National Treasury was advised that there were two proclamations published. One was to amend schedule 1 to the Public Service Act and establish the new departments, and the other to transfer various functions and responsibilities to the ministers in respect of particular pieces of legislation. Because of this, the National Treasury had to consider the Bill as it had already been tabled, and determine what the best approach to take in this interim transition period to minimise disruption of service delivery and ensure that new departments could carry out their functions. Because there was a lack of clarity on all the implications of his, and where some functions were going to be transferred, it was not possible to give accurate estimates on the new budget votes. She said that the approach described was the best method for the interim period to allow the various functions of the departments to continue, in such a difficult time.

Mr Makhubela asked for clarification on why the process was rushed, where new departments were appointed before funds for these were made available.

Mr Mashile asked if there was any debate within the National Treasury about the possibility of delaying spending, and if so, would there be heavy roll-overs next year. He asked what measures had been taken to ensure that intended expenditure was carried out, and not negatively impact on service delivery.  

The Chairperson said that the departments would be called upon to deal with their quarterly reports, which would be another way of monitoring their spending, and also noted that the National Treasury could be asked to return and explain their actions within the next six months.

Mr J Gunda (ID) asked if National Treasury could explain who was responsible for the current actions of the new departments, and what these departments were doing if money had not been allocated to them.

Mr Harris noted that in terms of the budget process, there was talk of cutting expenditure, and asked if it was possible to amend this now, or if it would have to wait till October. He raised concerns that if departments were to operate on their old budgets, two new ministries would have very small budgets and asked if these would be constrained by this.

Mr Naidoo replied that to the knowledge of the National Treasury there was not a slow down in spending, and so service delivery was not negatively effected. At a provincial level spending was occurring at a faster rate than anticipated, but this would not negatively impact on service delivery. He added that if problems were seen, National Treasury would act quickly as the intent was to act positively on service delivery.

In terms of Housing and Human Settlements, Mr Naidoo said that the vote was over R12 billion. The debate that existed between this department and the Department of Cooperative Governance and Traditional Affairs was about whether to make the Municipal Infrastructure Grant shift to Human Settlements. This debate would be settled in a few months, but both ministries were cooperating, and he saw no problems occurring. At present, Housing was a provincial function and the law allowed for municipalities to be accredited to deliver housing, but few municipalities had accreditation. It was hoped that this would change so that municipalities could align the delivery of bulk services and infrastructure which they were responsible for, and that this would facilitate the development of Integrated Human Settlements. The National Treasury had in previous years, been concerned about ‘fiscal dumping’, where money meant for housing was not spent at a provincial level and allocated to municipalities late in the financial year. These concerns had been raised with the previous Department of Housing and the National Treasury hoped the practice would not continue, although he had not seen 2008/9 Auditor General’s report on this issue.

As to the cutting of spending, Mr Naidoo said that legally the amounts in the Bill could not be changed at present, only technical corrections could be done. An adjustments budget would have to be tabled, which he admitted could have been done if the National Treasury was prepared, and which would have reduced the uncertainty of the process. Theoretically such budget cuts were possible by October, but the National Treasury preferred not to do this.

He said that spending continued in this interim period, but added that the adoption of the Bill would provide a legal basis for this spending to continue, and provide oversight to how this was carried out.

The Chairperson asked if there were any other serious questions because time was running out as members had other meetings to attend, and a decision needed to be made as the Bill needed to be tabled before the House that afternoon.

Mr Mashile noted that the most difficult process in human resources was the transferral of personnel, and asked the National Treasury if they could comment later on what impact this had had in the departments.

The Chairperson stated that the concerns of members had been noted, and reminded them that it was his duty to raise them before the House irrespective of what decision was made. He made it clear that this was an ongoing process, and that National Treasury could be called back to account for their actions.

Ms Bednar-Giyose said that National Treasury was aware of the issue of personnel transfer, and discussions of what processes were needed were underway. She assured the Committee that this would be reported on. 

The Chairperson told the Committee that what was to be tabled that afternoon was the Report of the Select Committee, which he read: ‘The report of the Select Committee on Finance and Appropriations on the Appropriation Bill B5B 2009, National Assembly, a section 77 Bill, dated 8 July 2009. The Select Committee on Finance and Appropriations having considered the subject of the Appropriation Bill B5B 2009, classified by the Joint Tagging Mechanism as a section 77 Bill, records the Bill without amendments’. He reminded the Committee that their concerns would be raised, and it was these concerns that future meetings with National Treasury would be about.

Mr Harris said that the Committee would like to register objections to several of the votes, and asked if this would be added to the report, or if they would be addressed later.

The Chairperson said that there would be time in the sitting that afternoon for parties to make declarations, and that was where such concerns could be raised.

Mr Harris asked for clarification as to whether or not these objections could be put into the Report.

Mr Gunda said that it was not necessary to put his into the Report, and should only be done with amendments. He felt that it was satisfactory that any objections could be raised in declarations.

The Chairperson said that nothing could be done as the budget would remain the same regardless, and all the Committee could do was to say that they were concerned about certain issues, which he assured the Committee would be noted. He asked the Committee if the Bill could be adopted.

The Committee approved the Bill.

The Chairperson stated that the Bill was adopted and would go before the House.

The Chairperson then reminded the Committee that they were about to leave for their constituencies and asked them to identify municipalities in their provinces which they would like the Committee to visit, and report this back to the Secretary. The Management Committee would go through the information received, and from there the Select Committee could decide how they should go about visiting the municipalities. He said that this was necessary as assistance to the municipalities was needed.

Mr Mashile noted that some municipalities had unceremoniously lost R3.2 million, and asked if research could be undertaken on these particular municipalities while Parliament was in recess, in order to gain a fuller understanding of the problems that they faced.

The Chairperson said that the parliamentary researcher could help with this.

The meeting was adjourned.


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