Appropriations Bill 2012: briefing by National Treasury

Standing Committee on Appropriations

09 May 2012
Chairperson: Mr E Sogoni (ANC)
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Meeting Summary

The National Treasury provided information on the 2012 Appropriations Bill to assist with decisions about approval or amendment of it. Parliament was asked to assent for promulgation by the end of July, so that spending before the passing of the Budget did not constrain departmental activities. The 2012 Budget supported government objectives of accelerated economic expansion, job creation, equitable sharing of growth benefits, and improved service delivery. The 2012 Budget aimed at shifting the composition of spending from social welfare spending to infrastructure, employment and economic growth.

Questions were asked about whether the economy had the infrastructure capacity to spend productively; what measures there were to evaluate if spending had been productive; transfers to municipalities and provinces and monitoring of their spending; the Money Bills Amendment Procedure and Related Matters Act; the creation of the Parliamentary Budget Office to empower Parliament to amend funding; budget cuts and debt service; funding for Administration programmes in departments and whether there were attempts to establish uniformity among them; the role of National Treasury in planning infrastructure projects; shifting of funds within departments; the feasibility of rollovers; the role of non-fiscal resources in departments; funding for the National Health Insurance and Section 100 interventions by Treasury.

The most challenge question came when an ANC member put it to them that government was dealing with a compromised framework. Money was raised nationally, but provinces decided how it was to be spent. That could not be reconciled with ruling party objectives to establish a developmental state with a strong centre and interventionist policies. The Treasury was asked what prevented it from driving the programmes of government. The member felt that there had to be changes to the Constitution. The Treasury responded that it could not determine budgets, but could only influence them. As the Director General put it, the Treasury could not walk into municipalities and tell them that they were cheating. Treasury’s functions were circumscribed.

Meeting report

Appropriations Bill 2012: briefing by National Treasury
Mr Lungisa Fuzile, National Treasury Director General, told the Committee that the briefing information was provided to assist the Committee in approving or amending the Bill. He presented the briefing together with Mr Matthew Simmonds, Deputy Director General in the National Treasury Budget Office.

The Bill provided for appropriation of money from the National Revenue Fund. Spending was subject to the PFMA and the provisions of the Bill itself. Parliament was asked to assent to the Bill for early promulgation before the end of July. Prior to that departments would have to incur expenditure in terms of Section 29 of the PFMA, which made provision for spending before an annual budget was passed. Departmental activities might thus be constrained if there were delays.

The 2012 Budget supported government objectives of accelerated economic expansion and job creation, equitable sharing of benefits, and improved service delivery. Redirecting spending to priority areas was a central focus of the budget process. The 2012 Budget aimed to shift the composition of spending. Spending would move from social welfare spending to infrastructure, employment and economic growth.

The Treasury took the Committee through the areas of baseline additions to fund Budget priorities; composition of gross budget baseline additions; consolidated expenditure by economic classification; infrastructure investment, and key national government baseline additions for 2012/13 (see document).

Discussion
Dr Van Dyk (DA) referred to the slide on infrastructure investment (page 10). He asked if there was the capacity and logistical means in the economy to spend productively. He asked what measures there were to evaluate if spending had been productive.

Mr Simmonds replied that where private sector economic investment was low, there had to be a state contribution.

Mr N Singh (IFP) asked about transfers to municipalities and provinces, and the monitoring of spending. Monitoring methodology could be improved. There had been complaints about the spending of Municipal Infrastructure Grants (MIGs). Residents at Umdoni municipality had complained that there had been no value for money. R40 million had been granted for a road.

Mr Fuzile responded that the Division of Revenue Act provided for dealing with the moving of funds between provinces. For example, if KZN had been allocated 20% of the hospital grant, and was in danger of underspending, funds could be moved to Eastern Cape, which was overspending by 16%.

Mr Singh asked about the impact of the Money Bills Amendment Procedure and Related Matters Act. There had been no Act for many years. The Office of the Speaker had obtained the services of Professor Mohammed Jahed of the Development Bank of South Africa to assist with the establishment of the Parliamentary Budget Office. That was commendable. The National Treasury had for some time not been very supportive of that kind of oversight. Parliament could say yes or no to a budget. Now it also had the muscle to amend. Parliament could not as yet interrogate budgets. The Parliamentary Budget Office could assist with that. The question was how Parliament could be empowered to make amendments to funding. The budget vote for Justice had been cut and Parliament had no say. The Treasury had information not at the disposal of Parliament.

Mr Fuzile replied that Treasury had to ask if the budgetary changes made by it could move fast enough if Parliament was consulted. But it would try to do so wherever possible.

Mr Simmonds added that a Parliamentary Budget Office was an exiting idea. Other countries had implemented them and there had been many successes, but also failures.

Mr Singh remarked that the National Youth Development Agency (NYDA) had complained the previous week about budget cuts. He asked what had informed the cut. Parliament had to be taken on board.

Ms Raquel Ferreira, Director of National Budgets, answered that the NYDA cut had been part of a general cut. The cut for 2011/12 had been R29 million and was mainly on performance bonuses and vacant positions.

The Chairperson remarked that NYDA had received R376 million which it could stretch to R404 or R414 million.

Mr G Snell (ANC) added that the NYDA Annual Performance Plan was based on the R404 or R414 million budget. Money raised outside the fiscus had not been broken down.

Mr Simmonds replied that Treasury was aware of non-fiscal resources. It was an issue of concern. Entities had a chance to raise revenue, but it could create fiscal risks if they failed to realise their dreams.

Mr Singh asked about fiscal dumping of monies in state departments. The major infrastructure programmes were linked; they could be monitored and evaluated.

The Chairperson asked if Treasury could assist Parliament to implement the Money Bills Amendment Procedure and Related Matters Act.

Mr Singh remarked that the Treasury and the Budget Office could band together to provide information.

Mr J Gelderblom (ANC) asked about compensation of employees (page 9). He asked what constituted growth in debt service. He asked about the value of that for projects.

Mr Simmonds replied that salaries presented difficulties. Getting the right compact between employer and employee was tough. No organisation could pay workers at a rate that grew faster than income. There could be no back pocket when that occurred. There had to be a contingency reserve for when the compensation budget was overrun. When people were paid more, there had to be more value, else the result would be inflationary pressure. State owned enterprises had to be decentralised and given the right corporate form. Debt service costs grew fast. The Treasury wanted to see moderation of deficits, as it was bad for government.

Mr Snell asked about concurrent functions with provinces. The national department set the policy. There was appropriation through the Division of Revenue Act. He asked if Treasury had a plan to ensure the Annual Performance Plans of provinces speak to those of the national departments. He asked if legislators had the freedom to see to it that their plans spoke to national plans.

Mr Fuzile responded that Treasury could not be everywhere and do everything. Different parts of the system played different roles. The role of Treasury was related to finance and how money was used. Parts of the system had to play its own role with its own money or money from the provinces. It had to be observed where spending was not taking place, as had happened at Umdoni, where roads had not been built. The Treasury could not walk into a municipality and tell them that they were cheating. He stressed that he was not saying that there was no role for the Treasury. It could exert influence at the provincial level through the budget. Once provinces had prepared a budget, Treasury could look at how much of the money, added to the baseline of the previous year, had been spent. The Treasury could not determine their budgets, it could only influence them.

Mr Snell put it to Treasury that they were dealing in a framework that was compromised. The ruling party was looking at the possibility of a developmental state with money raised nationally, and yet provinces were deciding how money was going to be spent. He asked if that could work. A developmental state needed a strong centre and interventionist policies. He asked what stopped Treasury from driving the programmes of government. The Treasury could not compete. The Constitution had to change.

Mr Fuzile replied that his principals could answer that question.

The Chairperson remarked that there had to be uniformity of percentages budgeted for Administration programmes in each department. With regard to questions by Dr Van Dyk and Mr Gelderblom about infrastructure challenges, he noted that some resources were direct from the fiscus, and some not. The problem for Parliament was that it could not oversee funds not proceeding from the fiscus. He remarked about transfers to provinces, saying that departments who wanted to implement infrastructure had to show time frames. The Treasury had a role to monitor the clause in the Division of Revenue Act that guided spending plans for the year. The Treasury also had a role in the planning of infrastructure.

The Chairperson referred to large infrastructure projects (page 11). He observed that departments were in the habit of not spending money for its intended purpose, but shifting it elsewhere. Parliament was not consulted about the shifting of resources. The Community Works Programme, for instance, was there to create job opportunities. If funds were shifted, people could not benefit from it. Section 14 of the Division of Revenue Act required that Parliament be consulted when funds were shifted.

Ms R Mashigo (ANC) asked if rollovers in departments went along with what the Bill prescribed. She asked what the Treasury did about departments that received conditional grants for libraries and then spent it on compensation of employees. She asked if departments could be called in for not spending money for its intended purpose. National Treasury had to draw Parliament into consultation about rollovers.

Mr Fuzile responded that there was tension between Section 5 and Section 14 of the Division of Revenue Bill. Section 5 facilitated flexibility. It provided for a response to genuine complaints from departments. Departments would see that they were not spending fast enough, close to the end of the year. They would face the reality that until the Adjustments Appropriation was published, they would not know if there would be money for the programmes. Sometimes there was a legitimate agency that could continue with what the money had been appropriated for. If the department delayed transfer to an institution, it was not fiscal dumping.

Mr Fuzile replied about rollovers that it was resorted to when a department, for instance, had spent only 60% of an allocation, and decided that it still had money for a half built hospital, and would be able to spend that and more in the next year. Rollovers were approved in July for the next year. Departments had to use their judgement and had to persuade the Minister that they would spend the money and would need more.

Mr Singh asked about the Money Bills Amendment Procedure and Related Matters Act, and its time frames. He asked Treasury how they saw the timing coming together so that Parliament would be able to suggest amendments. The Act was an Act of Parliament, and belonged to Parliament. The Division of Revenue Act (DORA) had been passed by the National Council of Provinces in the middle of April. Formerly DORA used to be passed by 31 March. He asked if Treasury was comfortable with the late passing of such Bills. If time frames were not adhered to, it could take until May.

Mr Simmonds replied that the Money Bills Amendment Procedure and Related Matters Act changed the way budget processes were run. The Treasury was willing to engage with the Committee on that Bill.

Dr Van Dyk remarked that departments could get to work with money after the Budget Speech in Parliament was done. With regard to rollovers, he stressed that it had to be known what was available over the Medium Term Expenditure Framework (MTEF). Budgets could be adjusted in October through virements. Projects did not have to stop. They could proceed in March. Once the budget had been done at the beginning of the year, it was set. The Minister could examine the previous year’s budget in February.

Mr Fuzile replied that there was a relation between rollovers and new appropriations. There was a place for rollovers. If a department had not been able to exhaust resources, and thought there were good grounds to presume that even more could be spent in the next year, they could ask for a portion of the money to be rolled over. The Treasury would at times consider the request for a rollover against the history of a programme.

Mr Simmonds added that there had to be certainty that a rollover would not inflate the budget, but because it was a genuine fiscal liability, programmes were not left unfunded.

Mr Singh asked about money for National Health Insurance (NHI), and Section 100 interventions by Treasury.

Mr Fuzile replied that the budget provided for the piloting of NHI. Ten districts had been identified for a package of health insurance to assist modelling for the future. There was a Green Paper and phasing would begin in three to four years. It might take 10 to 15 years to implement. The Treasury was looking at finance models. The Minister had said in the Budget Review that additional revenue had to be raised. Instruments were mentioned in the Budget Review. Section 100 interventions in the provinces had gone off fairly well but with mixed success. Limpopo had posed a national government risk through not being able to pay salaries. There had been intervention for stability. Overdrafts had been reduced, but there were problems with paying suppliers. The province could not be said to be out of danger. It could not fill key positions with its own people. People had to be brought in from other provinces. The critical pillars of each department had to be identified. The province had to be helped to get the right people into jobs.

Mr Fuzile continued that things were hard in Gauteng. There had to be intervention on account of monies owed, but they had cash for Health. The same applied to KZN. There had been some progress with roads in the Free State.

The Chairperson noted that Cooperative Governance and Traditional Affairs were spending more on administration than for employing people on the ground. He asked if there were people in the cluster monitoring the shifting of funds.

Mr Fuzile replied that the shifting of too much funding to administration could be prevented. But it was not possible to check people actually employed through administration funding. The government had the Monitoring and Evaluation unit for that purpose.

The Chairperson asked if the Treasury intended to regulate budgets for administration.

Mr Simmonds replied that it was not possible to enforce uniformity or regulate the size of administration functions.

The Chairperson asked about items that went into administration.

Mr Fuzile replied that Treasury made sure that what was in administration across sectors was the same. Some departments had large corporate divisions. Administration was the first target of change. Composition of spending had to be looked at. SAPS had complained that cuts to administration had affected some of its core business.

Ms Ferreira added that Treasury tried to stabilise what was in programmes.

The Chairperson remarked that people put in things that were not supposed to be there. The Committee would like to see guidelines regarding what was included under administration.

The Chairperson concluded that some departments would be invited to discuss appropriation issues.

The Chairperson adjourned the meeting.

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