National Treasury on 2012 Adjustments Appropriations Bill and Division of Revenue Amendment Bill; Joint Hearings of the Medium Term Budget Policy Statement 2012 with the following stakeholders: FFC and PSC

Standing Committee on Appropriations

30 October 2012
Chairperson: Mr E Sogoni (ANC) & Mr T Chaane (ANC, North West)
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Meeting Summary

National Treasury officials briefed Members on amendments to the Division of Revenue Act. Provision would be made for increased spending at provincial level due mainly to higher than expected wage agreements. Provinces and host cities would also get some assistance towards the hosting of the African Cup of Nations. Some savings had been achieved. There would be some adjustments to the conditional grants payable to municipalities. The results of Census 2011 would be available shortly, and would be used to re-determine allocations.

The 2012 Adjustments Appropriation Bill would amend the original 2012/13 budget to make provision for unforeseeable and unavoidable events during the year. It would also make provision for transfers within votes and roll-over funding. Although there were additional adjustments of R11.5 billion, savings and a transfer from the Contingency Reserve would see spending reduced by R1.9 billion.

Members raised a number of questions. There was some debate on what constituted savings and under-spending, as well as what was meant by unforeseen events. Their interpretations differed to those of the National Treasury officials. Salary provisions for vacant positions were used for re-allocation, and there was a question over the credibility of the budget process. Savings were being reported because of the inability of government to provide desperately needed housing, infrastructure and job creation projects. Treasury was accused of setting a bad example in the management of its own funds. Roll-overs were another example of questionable budgeting. The reliance on service providers was also queried.

The Public Service Commission had looked at the performance of various national departments. Government intended to cut costs but was hampered by a lack of administrative capacity. The quality of performance was poor. Many departments were not compliant with regulations by their own admission. Performance agreements had not been signed in many cases. There was a lack of capacity to follow-up on allegations of corruption. Many officials had potential conflicts of interest and were not fully focused on government work due to their other interests. While reports of financial misconduct were decreasing, the amounts involved were increasing dramatically. Generally the public was more satisfied with government services, although in some areas the quality of housing was poor. Unemployment remained high, particularly in the former Bantustan areas. Land reform was at a slow pace. Staff members were advancing through the ranks of middle management quickly, and suffered from a lack of experience as a result. Disciplinary procedures were generally protracted due to a lack of capacity. This was leading to a culture of wrongdoing due to a lack of consequences, and poor performance was becoming acceptable.

Members were concerned with the disciplinary procedures within the South African Police Service. They asked what powers of intervention were held by the Public Service Commission and the Department of Performance Monitoring and Evaluation. They were told that there were none at present but there was legislation in the offing. At present, these bodies could only act as oversight bodies and any action would have to be taken by Parliament and Cabinet. Government was being made aware of the situation although it was sometimes difficult to obtain information.

The Fiscal and Financial Commission was pleased to see the initiatives in the Medium Term Budget Policy Statement aimed at fostering job creation. Education was a key factor in encouraging long term growth. Infrastructure was being allowed to depreciate because of a lack of maintenance. Indiscriminate cuts had been made in the past. Procurement policies in the health sector needed to be revisited. There had been a decline in social spending. There was a role for conditional grants. National and provincial government had a role to support local government. Information from the Census would be important in determining division of conditional grants.

Discussion with the Financial and Fiscal Commission included questions about e-tolling; Municipalities often outsourcing services such as solid waste removal; transferring officers being held responsible for the allocation of grants where there was no or limited capacity to utilise funds; the Extended Public Works Programme should be used as a tool for creating job opportunities.

Meeting report

Co-Chairperson Mr Sogoni welcomed the delegations. The meeting was a continuation of the meeting held on 26 October.

Presentation by National Treasury: 2012 Division of Revenue amendment Bill
Mr Kenneth Brown, Deputy Director-General (DDG): Inter-Governmental Relations, National Treasury, introduced the delegation. There had been changes to the planned division of revenue, and therefore the Division of Revenue Act (DORA) had to be amended. A new framework had been added to provide a grant to host cities for the 2013 African Cup of Nations (AFCON).

Ms Wendy Fanoe, Chief Director: Integral Policy and Planning, National Treasury, said that the Amendment Bill only contained two clauses. There had been adjustments in the provision of revenue to provincial and local government. The biggest changes had been caused by salary increases. The budget had been calculated on a 5% increase, but the increase granted was 7%. There had been increases in the grants for Further Education and Training Colleges (FET).

Ms Fanoe said that R15 million had been allocated to assist with medical services at AFCON. There was an allocation of R180 million for the Health Infrastructure Grant (HIG) in KwaZulu-Natal (KZN) and R186 million for the Hospital Revitalisation Grant (HRG) in KZN and Free State. A new provincial conditional grant framework had been introduced for AFCON. It would enable the establishment of medical centres with primary health care and emergency treatment capacity at specific venues. Only five of the provinces were involved. Provinces had to maintain a separate budget for these services.

Ms Fanoe said that there had been no adjustments to the local government equitable share (LGES). There had been some roll-overs in terms of the regional bulk infrastructure grant for projects committed to in 2011/12 financial year (FY) but not yet completed. Adjustments had been made due to savings. Errors in the Municipal Infrastructure Grant (MIG) allocations for two municipalities in KZN had been corrected without affecting the total allocation. A 2013 AFCON Host City Operating Grant had been introduced for various operational expenses.

Ms Fanoe said that changes had been made to provincial equitable share (PES) and grants for 2013. R27.7 billion would be added to the provincial equitable share to cover increased wages, the growth in the number of health practitioners and improvements in education. Conditional grants would be increased for education infrastructure, antiretroviral medicines and condom distribution. Various adjustments would be made to other conditional grants.

Ms Fanoe said that the original PES baseline for 2013 was R309 billion. This had not changed. It would increase to R328 billion in the 2013/14 FY. The PES would be supplemented by R3.9 billion in the current FY for improvements in salaries. The original conditional grant baseline was R75 billion, which would be increased by R468 million. The revised total baseline for the provincial fiscal framework was thus R388.9 billion in the current FY, increasing to R417.9 billion in 2013/14, R447.5 billion in 2014/15 and R477.9 billion in 2015/16.

Ms Fanoe said that there had been no cuts in the LGES and grants. Substantial investments had been made to assist municipalities with infrastructure projects. Targeted reforms were needed to cater for the devolution of human settlement and public transport functions to urban municipalities. Greater technical support would be provided to rural municipalities, especially in terms of water and electrification. The original baseline for the 2012/13 FY was R37.8 billion. The share of the general fuel levy amounted to R9 billion. The original baseline for direct conditional grants was R30.4 billion, to which R186 million would be added. In indirect conditional grants, the original baseline was R5.1 billion. There were reductions amounting to R152 million and additions of R20 million. This took the total transfers to local government to R82.5 billion in the current FY, increasing to R90.4 billion in 2013/14, R98.9 billion in 2014/15 and R109.9 billion in 2015/16.

Ms Fanoe noted that the results of Census 2011 would affect the division of revenue. The PES for 2013 would be updated with the latest available data. The review of the LGES was under way, with improved targeting for poor communities. A comprehensive review was needed on conditional grants. These issues would be discussed in more detail with the Committee at a later date.

Presentation by National Treasury: 2012 Adjustments Appropriation Bill
Mr Matthew Simmonds, DDG: Budget Office, National Treasury, said that adjustments could be made under certain prescribed conditions in order to provided for significant and unforeseeable events including emergency situations. Money could be appropriated if the Minister had announced his intention to allocate such funds during the budget speech. Funds could be shifted between and within votes. Savings could be used to defray over-expenditure in another division of a vote. Roll-over funding could be reallocated. The Bill would make technical changes to the 2012/13 budget. The changes were explained in the Adjusted Estimates of National Expenditure (AENE). Money would be appropriated from the National Revenue Fund (NRF). Spending was subject to the Public Finances Management Act (PFMA).

Mr Simmonds explained the Bill was divided by vote and by main divisions with a vote. Allocations were current payments, transfers and subsidies, payments for capital assets and payments for financial assets.

Mr Simmonds said that the major need for adjustment was the higher than expected wage increases. This was felt more at provincial level, where the work was more personnel intensive. A total of R1.4 billion had been provided for this at national government level, with the major beneficiaries being the Departments of Defence and Military Veterans (R190 million), Justice and Constitutional Development (R103 million), the South African Police Services (SAPS) R837 million and other Departments would share R303 million. A further R4.0 billion would go to the provinces, with the majority being included in the PES (R3.9 billion) and the remainder in the form of an FET Grant (R87 million). This was a total of R5.5 billion. The three year wage settlement was welcome. This was linked to inflation, so could either increase or decrease depending on inflation figures.

Mr Simmonds said that the next reason for adjustment was unforeseeable and unavoidable expenditure. Many of these expenses were related to AFCON. The Department of Health would receive R416 million, Sport and Recreation R213 million, SAPS R165 million and Environmental Affairs R643 million. This included some R187 million in Value Added Tax (VAT) for the purchase of the SA Agulhas II Antarctic supply ship. It has initially been accepted that no VAT was payable. He added that R118 million would go to the Department of Public Enterprises (DPE) and R470 million to the Department of Transport (DoT).

Mr Simmonds said that certain roll-overs had been approved. The Department of Cooperative Government and Traditional Affairs (COGTA) would receive R139 million, the Department of Basic Education (DBE) R104 million, SAPS R200 million and Department of Water Affairs (DWA) R416 million.

Mr Simmonds said that there had been cases of self-financing expenditure. The Department of Correctional Services (DCS) would be allocated R691 000 of the R2.1 million raised from the hiring out of offender labour to be used as offender gratuities. It would also retain a donation of R204 000. The Department of Defence and Military Veterans would retain R142 million raised from the sale of equipment. The Department of Justice and Constitutional Development (DOJCD) would retain a R100 000 cash sponsorship. The DoT would retain R297 million from vehicle registration fees.

Mr Simmonds presented a list of declared savings by various Departments. The most significant were from the Department of Public Works (DPW) (R212 million on infrastructure projects), Treasury (R408 million in respect of the Employment Creation Facilitation Fund), Department of Basic Education (DBE) (R250 million from savings on Schools Infrastructure Backlogs Grant), DOJCD (R200 million on infrastructure), SAPS (R300 million on infrastructure), Department of Trade and Industry (dti) (R686 million on delayed implementation of the Economic Competitiveness and Support Package) and DWA (R227 million due to increased operational efficiency).

Mr Simmonds said that the main appropriation had been R543.6 billion in the main appropriation, and R419.9 billion in direct charges against the NRF. This had been a total of R963.5 billion. As a result of the adjustment, the AENE reflected an amount of R971.4 This would be compensated in part by a transfer from the contingency reserve of R5.8 billion, projected underspending of R3.5 billion and local government payments tot he NRF totalling R500 million. The final estimated expenditure for the 2012/13 FY was thus R967 billion. The original estimate of revenue was R799.3 billion. There was a projected reduced tax revenue to the tune of R5.0 billion. This left the adjusted estimate of revenue at R794.4 billion, resulting in a deficit of R173.0 billion.

Mr Simmonds summarised the figures. The additional adjustments allocations amounted to R11.5 billion. This was made up of increased compensation for employees (R5.5 billion), unforeseeable and unavoidable expenditure (R2.3 billion), roll-overs (R1.5 billion), self-financing expenditure (R440.1 million), unallocated amounts in the 2012 budget (R30 million) and skills levies (R1.8 billion). This would be financed by the contingency reserve (R5.8 billion), unallocated amounts in the budget (R30 million), declared savings (R3 billion), local government repayments to the NRF (R500 million), projected decreases in state debt costs (R594.6 million) and projected underspending (R3.5 billion). If these projections were realised, spending would decrease by R1.9 billion.

Mr M Swart (DA) asked for clarity on the item listed as a DVD shoot for the national nutrition programme. He noted that the document was marked as 'Secret'.

Mr Simmonds confirmed that it was an open document, and had been marked as Secret in error.

Mr A Lees (DA, KwaZulu-Natal) remarked in passing how easy it was that a document could be incorrectly classified. He noted too that there was a fine line between savings and underspending. He asked what commitment there was from the Departments that the level of savings would be achieved. He asked how the figure of R3.5 billion would be achieved, or if this was an estimate. He questioned the definition on unforeseen events. Extreme weather events were unforeseen, but not AFCON. He asked to whom the VAT on the SA Agulhas II was being paid. If it was going to the South African Revenue Service (SARS), then the money was coming back to government. The issue of Denel was an old one. The Mthatha airport was also a long standing problem, and he asked why it was so critical to include this in an adjustment appropriation. He asked why offenders were being paid gratuities. On the HIG and HRG, he asked what the progress was while at the same time there was no budget for the desperately needed Kimberley Mental Hospital. He understood that money from other budgets was being used illegally. The underspend on rural housing was unconscionable. This was desperately needed. He asked if the Department of Human Settlements (DHS) had said that they would not spend the money. Money was being made available to provinces and municipalities in AFCON grants. He asked who would monitor these funds, as there had been many cases of inappropriate spending. Conditions for some grants were open-ended. There should be time limits attached.

Mr M Makhubela (COPE, Limpopo) asked what effects would result from the recent downgrading of South Africa's credit ratings. He asked if the government was managing budget deficit by use of contingency reserves. Funds had been shifted from departments with vacancies, and yet there was an increase in compensation.

Dr M van Dyk (DA) was worried that while Treasury should be responsible for the fiscus, but was itself seeming to be incorrectly transferring funds. The personnel budget was being used as an easy source of transfer funds, while it was of critical importance to create jobs and fill vacancies. This was not happening. Unspent funds should go back to the fiscus and not become roll-over funds. Treasury should set the example.

Mr J Gelderblom (ANC) was worried about savings on public works and education. There was also a saving reported by dti. These were the fundamental components of job creation.

Mr L Ramatlakane (COPE) asked about the payment on the Airbus A400M contract. He had been under the impression that there had already been a once-off payment. He was concerned that there might be more payments for the cancellation of the contract. He asked about cases where the programme was described as running ahead of budget. He was not sure what this might mean. There was a question over the reliability of the budget. In the previous discussion, Treasury had held a degree of certainty that vacant positions were being filled. There were still many virements, moving money from salaries allocated for vacant positions to other programmes. He asked if this meant that the post would remain vacant or deleted from the establishment. There was a degree of comebacks on the management of municipal grants and payments. Some certainty was needed on the question of savings. Even Treasury was saying that the savings were actually a failure to implement programmes rather than genuine savings. He also took issue with the definition of unforeseen expenditure. It was being used too flexibly in his opinion. SAPS had a huge budget, and yet there was already a projection of a shortfall. Many contingencies were already included in their budget.

Ms L Yengeni (ANC) said that Parliament would approve virements of more than 8% in terms of the PFMA, and Treasury approved of lesser requests. There had been a virement of R1.8 million from Treasury's programme 2. This amounted to 14% of the budget, and she could not recall such a request coming to Parliament. R8 million funded for vacant positions was to be moved to other programmes. More detail was needed on the nature of infrastructure programmes. She asked what was meant by interventions in Limpopo. She asked what consultation had taken place on infrastructure projects. Once budget allocations were moved, these were not real savings. It was a poor reflection. There was another budget of R9.2 million being moved to support services. She asked if these posts were no longer needed, or if this was more poor planning. She asked if these were national problems or restricted to a certain province. Treasury should lead by example. Provinces and departments were being penalised for not sticking to their budgets.

Ms R Mashigo (ANC) said that the Extended Public Works Programme (EPWP) had roll-overs due to funds not being transferred. If mechanisms were not in place then these roll-overs would be repeated. This was not an acceptable way to manage funds. People were getting away with murder because they could make use of roll-overs funds. She asked what other mechanisms could be used to get the money to the people. Service providers were absorbing too much of the allocated funds. She believed in what SAPS management told Members. When reports were tabled, money budgeted did not lead to performance. The performance in SAPS was low. The public needed security, but this was not happening. Members wanted surety that the programmes they approved would be implemented.

Mr S Mazosiwe (ANC, Eastern Cape) asked if the medium term budget was working. He was not sure if government was on track with this concept. Appropriate allocations were not being made. One of the reasons for the introduction of Medium Term Expenditure Framework (MTEF) budgeting was to eliminate roll-overs, but this was still happening. He asked if the vision was being met.

Co-Chairperson Chaane also wanted more clarity on savings, especially regarding infrastructure projects. Municipalities that were not returning funds were in breach of legislation and steps should be taken against them. There were serious implications for the future.

Mr Ramatlakane noted that DWA had recorded a saving. A number of their programmes faced challenges. Availability of land and personnel were issues. Some posts would not be filled. There were unforeseen legal costs amounting to R20 million, and R2 million for unforeseen expenditure by the Deputy President.

Mr Sogoni said the question was that there was an outstanding need for a workshop with Treasury, which would touch on many errors raised by Members. The credibility of the budget was now being questioned. The reason for moving to an MTEF style of budget was to move towards better certainty, but he asked how the different spheres of government were buying into the process. There would always be roll-overs, but Members would like to see the budgeting process being taken seriously with deviations only happening in exceptional circumstances. Many of the projects delivering what was called savings should have contributed to changing the lives of the people. Money was requested but not spent. The PFMA laid certain obligations on Treasury.

Mr Brown replied that the key issue was the rescheduling of infrastructure projects. Municipalities knew well in advance about the projects, but had not planned properly. The capacity to absorb funding was not there. The vacancy rate could not be predicted. A school backlog grant of R8.2 billion had been introduced. DBE had taken ten months to get the project off the ground. Only 20% of the grant had been spent.

Mr Brown said that a number of community health centres were being fast-tracked in KZN. A mortuary was being built in Phoenix, and he mentioned other projects. In the Free State there were also various projects. In some areas funding would be stopped and funds moved to better performing areas. In most cases at present, spending was progressing well and there was limited scope to withhold funding from certain projects. Treasury was happy to see capital spending progressing. He agreed that the situation in Kimberley was a disaster. The contractor had had to be replaced, and the new one was also not living up to expectations. Expertise from the Department was being put in place. On the rural household grant, this had started some two to three years previously. It had been under DWA before being moved to DHS. There had been implementation challenges. The programme manager had been suspended, leading to delays. It was unfortunate that the impact was on the communities who needed the service. This was predominantly a water and sanitation issue, and there was debate on moving the function back to DWA. Treasury was publishing the framework for the AFCON grant. Legislatures and Councils would have to ensure that the grant was implemented properly. On the rates devolution grant, DPW had previously paid the property rates on behalf of the provinces. These properties had since being devolved to the provinces. The PES grants were not always correctly allocated. Census results would provide a means of correcting this issue.

Mr Brown said that when a Deputy Director position was identified, it would be filled internally. The position previously occupied by the applicant now became vacant. Regarding Limpopo, there had not been a budget for this. Treasury could have declared a saving. The cost to Treasury was about R5 million in terms of staff costs and travel allowances. In Limpopo, the Department of Education was spending slowly on its capital expenditure budget. Some technical support had been provided, and this was the reason for the extra funding request.

Mr Brown said that the MIG was paid in three instalments over the FY. Funds were transferred in the expectation that the money would be spent. Before the next instalment was paid there was an audit on actual spending before it was paid over. Provinces and municipalities had to account for their spending, resulting in the lower spending.

Mr Brown added that the EPWP was an incentive grant. If a municipality ran its maintenance programmes according to labour intensive methods, it would have to advise DPW on the number of people employed. Money would then be given to municipalities in the form of a roll-over in the following year based on their performance in the preceding year. Municipalities should use their own funding to create programmes, and if their performance was good then Treasury could provide the incentive.

Mr Simmonds said that the MTEF model had led to a considerable improvement in budgeting allowing better alignment with strategic plans. There were still a number of issues on capacity for delivery. The MTEF was an important tool to signal to Parliament and the public that programmes could be implemented. One needed to be careful about overreacting to some of the developments listed in the presentation. There was R9 billion allocated, of which R1.5 billion was for roll-overs. This did not necessarily indicate a management failure.

Mr Sogoni said that roll-over was just one facet of the problem being highlighted by Members. There was a whole package of under spending.

Ms Mashigo was concerned that nothing would be achieved by the Financial and Fiscal Commission (FFC) and Public Service Commission (PSC), as the discussion with Treasury did not seem to be heading for a conclusion.

Mr Simmonds said that compared to the position ten years previously on year-end adjustments, there had been a much higher degree of discipline and accountability. Members were right to raise their concerns on planning and the definitions of savings and underspending. At no point was Treasury trying to pass under spending off as a form of enhanced budgeting. Treasury was trying to be as clear as possible in showing how savings were achieved as opposed to under spending. Savings were what the Departments declared they would not be spending. Under spending was the difference between expenditure at the end of the FY compared to the budget.

Mr Simmonds said that AFCON was an important item in agenda. The tournament had been scheduled for Libya, but events had precluded this. Given South Africa's infrastructure it was a good alternative. The Denel issue was being dealt with by DPE, and the Committee should engage with them. An indication was needed if this item would be met or would remain an ongoing issue. Virements were in excess of 8% were noted in the AENE publication. This was the process whereby Treasury was raising the matter for approval. The legal fees were in connection with the e-tolling issue. Mindful of the time, he did not answer further questions.

Mr Ramatlakane said that the commitment for 2021 was still on the table. The Committee needed to be briefed by Treasury.

Mr Mazosiwe said that when considering the figures, a holistic approach was needed. It created problems to consider the figures in isolation. In-depth discussion was needed on service delivery, the use of consultants and employment. The log jam had to be broken.

Mr Sogoni said that the Committees were responsible for appropriation and for oversight. More time was needed to address the issues. There was a good intention to the use of consultants. The new grants for water affairs needed to be discussed in more detail. The EPWP must be considered, and panel-beaten where needed. It must be evaluated if the programme was dealing with what it was planned to achieve.

Mr Sogoni apologised to the Public Service Commission (PSC) and Financial and Fiscal Commission (FFC) for the short time period given to them. The budget had only recently been tabled, but they were already being expected to react.

Public Service Commission submission
Mr B Mthembu, Chairperson, PSC, introduced the delegation. The PSC had been requested to comment on the Medium Term Budget Policy Statement (MTBPS) as tabled in Parliament on 25 October. The PSC welcomed this invitation. The specific request fell within their mandate of promoting an efficient, effective, transparent, accountable and professional public service which promoted good human resource practices. The PSC was the champion of administration excellence. Performance was a critical issue, based on outcomes. Information had been sourced from various areas to provide accurate analysis.

Prof Richard Levin, Director General, Office of the PSC, emphasised that multiple data sources were used. These included Annual Reports, information from Statistics South Africa and Treasury. More success should have been achieved in addressing systematic unfairness and structural inequality. Development performance had been undermined by global economic uncertainty. There was a challenge of implementation. There was also a challenge of a complicated regularity framework. The intention of the MTBPS was to cut costs, but a lot of administrative capacity was required. Value for money was needed going forward. A Memorandum of Understanding was needed with the FFC. Close scrutiny was needed on the plans of departments.

Prof Levin said that the five priority areas of government were decent work, education, health, rural development and the fight against crime. A barometer was being developed. PSC had been asked to focus on the issue of governance. The focus was on expenditure against performance, quality of performance information, service delivery improvement, filing of performance agreements, anti-corruption hot-lines, financial disclosure frameworks and financial misconduct.

Prof Levin said that expenditure over a sample of twelve departments was within limits, but performance against objectives was not good. Some departments had improved on their audit outcomes. There was still a major discrepancy between plans and achievements. This posed real questions. This might relate to the capabilities around planning and reporting. Unrealistic targets might be set. Over time there should be greater improvement than was currently evident.

Prof Levin found the quality of performance information striking. DHS had improved its reliability as had DPW and the dti. The usefulness of information had improved in half of the departments sampled.

Prof Levin said that monitoring and evaluation was the centre of measurement of performance. There was a regulatory requirement for service delivery improvement plans. 74% of departments had rated themselves as fully or partially non-compliant. The more that was put into compliance, the more the balance was upset. There was a lot of focus on compliance, but it was not adding the required value.

Prof Levin looked at the compliance of performance agreements made by heads of department. Only 57% of Ministers and DGs had signed the performance agreement by 30 June 2012. The position was a bit better in the provinces, at 73%. The trend was improving.

Prof Levin then looked at the capacity of departments to deal with cases reported to the National Anti-Corruption hotline. Administrative capacity was needed to follow up on these cases. In terms of financial disclosure framework, senior management were required to disclose their interests by 30 April each year. Pure compliance was acceptable, although three of the sampled departments had not submitted any information. The trend had improved from the previous FY. The interests disclosed had then being analysed. The findings on a small sample were of grave concern. At COGTA there were 31% potential conflicts of interest (COI). Of their senior members, 20% had partnerships with multiple companies. The figures at the other departments sampled were a bit better. It was concerning that many senior managers were directing their priorities elsewhere.

Prof Levin felt that financial misconduct was being under-reported. There was a decline in the number of reported cases. At the same time, the costs involved had increased substantially. The figure for the 2010/11 FY was close to R1 billion. The figures for 2011/12 were still being analysed.

Prof Levin said that a big thrust of the national development plan was the development of a professional public service cadre. Focus was needed on the performance of the heads of departments. There was a major political interface. Information in annual reports was overwhelming, but tended to obfuscate rather than enlighten. The PSC proposed that public service should be prohibited from doing business with government. He acknowledged that this proposal might meet with opposition. Senior management could then focus on what they were employed to do. Executive authorities should focus more on performance management. Investigative capabilities needed to be strengthened. The consequences for irregular, fruitless and wasteful expenditure did not have consequences, or these were not being imposed.

Prof Levin said that while there had been an increase in service delivery protests, there had been an increase in the number of households being connected to water and electricity supplies. Figures from the general household survey conducted by Statistics SA showed that in terms of health, 62% of the population was very satisfied and only 9% dissatisfied. The most important problems in terms of education were lack of books, high tuition fees and class sizes.

Prof Levin showed that there were concerns on the quality of services. Many Western Cape residents were unhappy with the quality of their housing. A real focus was needed on quality. There was a decline in the proportion of the population living below R422 per month. The number of beneficiaries of social grants would continue to increase. The social grant system would remain very important.

Prof Levin said that a narrow definition of unemployment showed a figure of 25% and was geographically skewed. This was particularly so in the former Bantustan areas of Eastern Cape, Mpumalanga and North West. Government could engage in short term employment programmes. The size of programmes such as EPWP was generally small. From 2004 until the second quarter of 2012 more than 3.2 million work opportunities had been created.

Prof Levin said that Cabinet had taken a decision to ramp up the Community Works Programme (CWP). These initiatives were more sustainable. The commitments in the medium term budget amount to R7.6 billion in the medium term. COGTA needed the ability to roll this out. There should have been an increase during 2011/12, but this had not happened. Such sort term job opportunities were important.

Prof Levin said that 30% of South Africans lived in the former Bantustans. Of these one adult in four was employed (as compared to one in two in the metros). 45% of the population was either too old or too young to work, compared to 34% in the rest of the country. Only 31% of working age adults had more than primary education. Major expenditure would be needed to upgrade household infrastructure. Households and enterprises were widely scattered. Government had identified the high cost of implementing the CRDP. The Department of Rural Development and Land Reform (DRDLR) was duplicating work being done by other departments. Land Reform and Agriculture had fallen under a single ministry at times but were now separate, although they still shared similar objectives. There was a lack of synergy. The National Rural Youth Service Corps was making a contribution in youth employment, but the numbers were still lower than those of 2009. To date, 6.7 million hectares had been transferred but this was only 27% of the target for 2014.

Prof Levin noted that DHS had achieved some of its objectives. It had upgraded 400 000 housing units in informal settlements, facilitated the provision of 80 000 affordable social and rental units, facilitated the provision of finance and improved the access to basic services.

Prof Levin said it was often not clear what interventions were needed. Emerging farmers were not provided with support to establish themselves. Critical outcomes had been identified. Many outputs had been identified. The theory of change had to be understood to align outputs with the desired outcome. Government's genuine achievements were not appreciated nor communicated. The process of participation was inadequate.

Prof Levin said that the last category was human capital management. The MTBPS highlighted the need to contain public sector wage increases. The real growth in compensation was 8.3% between 2008/09 and 2011/12. While the decrease in the compensation costs was desirable, it was not clear how this could happen. Government had overspent in its wage agreements. The multi-year agreement was welcome. The proposal to link salary increases to productivity was welcomed, but it was not clear on what would happen if the converse happened. The wave of labour unrest and salary demands would impact on the expectations of workers in the public sector.

Prof Levin said that if the structures were not set up according to the budget, the number of vacancies might seem higher than they actually were. A self-assessment had been conducted in 103 departments. The results showed that 65% were not in compliance with organisational design requirements. About 28% had incomplete human resource plans. In 88% of the departments, the vacancy rate for professionals and senior management was over 10%. The length of time to fill vacant posts was worrying. Only two departments were able to fill vacancies within an average period of below six months. SAPS had the greatest difficulty, with an average period of over 58 months.

Prof Levin showed an interesting graph. It indicated that public service members were spending an average of three years at salary level 14, equivalent to a chief director, before being promoted. This was resulting in a lack of experience at higher levels. Only 56% of departments had conducted a skills audit, of which only 13% had evidence of such audits. Distribution of personnel was skewed in some departments.

Prof Levin presented figures on discipline management. This was not being done well. Several of the surveyed national departments had not supplied figures in this regard. The best performing was the Department of Labour, which had resolved the eleven disciplinary cases reported in an average of 60 days. The SAPS had the most cases (916). In the dti, four cases had been reported but it had taken an average of 320 days to resolve these matters. There was a lack of capacity to conduct disciplinary hearings.

Prof Levin said that rapidly developing countries were strong in problem solving capability. Successful countries such as Korea, Japan, China and India had institutions designed to achieve their core objectives. There was a deeply problematic organisational culture of wrongdoing not being punished and non-performance becoming the norm. The decentralised framework was not achieving what it was expected to do. More people would be needed in the administration programmes in order to achieve what the MTBPS was requiring in terms of service delivery. The focus on monitoring and evaluation deepened the compliance orientation rather than demanding real performance.

Mr Levin said that the machine of government did need fine tuning. A more scrutinising approach was needed, looking critically at past performance. Better use must be made of existing human capital. National departments must be encouraged to focus on providing clear policy. The public service needed to offer value for money.

Mr Makhubela noted the comments on the lack of disciplinary capacity within the SAPS. Officers from the rank of captain upwards were trained as disciplinary officers. Commanders had the authority to deal with cases.

Ms Mashigo asked the PSC what they thought was needed to address the issue of non-compliance. She asked if there were systems in place to enforce regulations. She asked what powers the Department of Performance Monitoring and Evaluation (DPME) had. She asked if legislation was needed to ensure a better life for all.

Mr Ramatlakane noted that a number of slides had been omitted from the copy given to Members. It was an important presentation. Many of the issues required a lot of thought. He shared the concern over the lack of consequences. Parliament was always left to think about consequences. There was a grey area around who should take action. While there might be under-reporting on cases of financial misconduct, it was important that there should be some follow-up.

Mr Sogoni regretted the short time available to PSC, but appreciated the work that had been done. The correlation of performance and spending was an important comparison. No information had been available on DPW. More time was needed to engage on these issues. While most departments had spent almost their entire budget, quality of performance was still poor. He wondered if the departments had received this feedback. He asked about the relationship between this comparison and the annual performance plan (APP). He appreciated the honesty by departments in conducting their self-assessments. He asked if government was aware of the issues highlighted in the report. He asked what role the PSC should be playing when making these investigations.

Mr Mthembu replied that it was important to note that the mandate of the PSC revolved around making recommendations. It had no power to enforce. It was essentially an oversight body. The issue had been raised in many ways. It did, however, have recourse to Cabinet and Parliament. The PSC could arm these bodies in their oversight role. Non-compliance was an ongoing theme in government. There were provisions in the current system, such as the performance agreements. These were critical. This information was sent to Parliament and the Minister every year. Disciplinary action should result, but instead there was a culture of impunity. Senior management members were not being taken to task over the non-disclosure of interests. The Public Service Act was being amended in order to make provision for some recommendations made by the PSC to be enforceable. Certain non-compliance issues should be raised to the level of being criminal offences. He wished to incalculable a culture of performance. He hoped to enjoy the support of the Committee when the Bill came to Parliament.

Prof Levin said that the numbers on the management of discipline within the SAPS came from their own Annual Report. A bottleneck was being created due to staff structures. Capacity was needed. The DPME was not operating under a legal framework at present, but he understood something was being developed in this regard. The audit on DPW had not been completed within the time to prepare the presentation. There had been other cases where PSC had struggled to gain access to Annual Reports. The documents should be readily accessible. There should be a link between Annual Report and APP. The Department of Public Service Administration (DPSA) provided a framework for collective agreements on discipline. There was an attempt to amend the regulations. PSC monitored the implementation of the disciplinary framework. Often capacity to investigate and manage cases was lacking. Authority was often delegated to managers. PSC would not have the right to intervene in specific cases even if the proposed amendments to its function were approved. Hospital managers were extremely frustrated by the processes in particular. It was desirable to decentralise, but this could create other problems and challenges. Resources should go into core delivery, but many of the challenges illustrated would impact on the level of service delivery. Performance was measured against predetermined targets.

Financial and Fiscal Commission (FFC) submission
Mr Bongani Khumalo, Acting Chairperson, FFC, said that the FFC had raised concerns over conditional grants in the past. More accountability was needed from transferring officers as well as accounting officers and recipients. The MoU which was about to be signed with the PSC would combine the interests. FFC looked at finances from a macro level, and the work of PSC was supplementary to theirs.

Dr Ramos Mabugu, Research and Recommendations Programme Director, FFC, said that the budget started with total revenue. Two slices were taken from this for borrowing and for the contingency reserve. This was put aside for unforeseen and unavoidable expenditure. The rest of the money was allocated to the three spheres of government. Local government took the smallest portion as they had their own revenue generating capacity.

Dr Mabugu said that an important strategy of the MTBPS was speeding up job creation. The Commission welcomed several initiatives being taken, especially amongst the youth and making it easier for small business to create jobs. The EPWP was a state initiative. 125 000 jobs had been created in the previous twelve months. Labour laws had to be flexible enough to create an environment that would stimulate job creation. A number of the policy initiatives were new ideas put into the public domain. The FFC was encouraged to see the attempt to address problems through a social compact of government and business.

Dr Mabugu said that education, health and protection services took up a large proportion of the budget. Education was a primary driver of long term economic growth. FFC compared 2012 baseline allocations to the MTBPS for 2012/13. Growth had increased from 1.2 to 3.2%. This was mainly due to increased wages, and infrastructure upgrades in poorer areas. The infrastructure programme was long overdue. Operational costs had to be examined. Infrastructure depreciated because maintenance costs had not been considered. Many schools did not have the conditions to improve learning outcomes. Poor results had been reported. Students at Grades 1 to 6 had scored less than 20% on average in assessments. Structural issues had to be analysed. In certain provinces there had been an attempt to achieve fiscal consolidation due to historical under-spending. Some of the cuts made had been indiscriminate.

Dr Mabugu said that there had been a marginal increase in health spending of 0.2% in real terms. The FFC was concerned over the quality of health services. Better monitoring was needed over procurement practices. Machines were being procured with no maintenance contract. If one broke, then a new machine had to be purchased. Procurement management processes should be devolved to hospital management.

Dr Mabugu said that in terms of social development, there had been a significant decrease in expenditure. There had been a decrease from R535 to R315 billion. There had been savings. Administration costs should drop by 5%, but there would be a substantial increase in grants. The FFC would like to know how this reduction had been achieved. Provincial branches were diversifying from transfer funds to non-governmental organisations (NGOs), which were playing an important role as a extended arm of government. Reducing these transfers would result in reduced service delivery.

Mr Jugal Mahabir, Researcher, Local Government Unit, FFC, said that the FFC supported government efforts to improve conditional grant spending in provinces. The thinking was that poorer provinces might not have the capacity to adopt a new framework. A new approach should be adopted with caution. On local government grants, the FFC welcomed moves to improve monitoring. It was important to note that improved oversight would not necessarily result in improved outcomes. The role that national and provincial government should play in building capacity at a local level must be appreciated. If an allocation was stopped, one could not be sure what support measures were in place. An inter-governmental fiscal relationship was needed.

Mr Mahabir said that there was a proliferation of grants in the system. There had been a move towards a consolidated system, but this was now being reversed. Problems were identified. There were even shortcomings at national level on the part of transferring officers. Forward engagement was needed with all stakeholders.

Mr Mahabir supported the new equitable share formulas. It was important that the equitable share be linked to increased operating costs. The ability of a municipality to use grants had to be considered. The FFC supported the funding of urban municipalities in funding the urban built environment. Where there was a conception of rich urban an poor rural municipalities, one must consider the level of capital grants to municipalities. They might suffer from constraints on their borrowing. Higher administrative prices were charged for utility services.

Mr Mahabir said that FFC welcomed the creation of jobs. The best advantage should be taken of manufacturing capacity. A holistic approach was needed including individual institutions. Local grants should be determined by census information. The FFC felt that the ten year gap between censuses was too long.

Mr Mahabir said that FFC welcomed the progress made in terms of section 100 interventions. There was a regulatory vacuum where guidance was needed for such interventions.

Mr Mahabir said that most adjustments were driven by salary increases. The FFC welcomed the approach of shifting expenditure over the MTEF. AFCON expenditure would benefit certain cities and higher income earners. Maintenance of infrastructure should be accentuated.

Mr Mahabir said that the implementation of e-tolls should be carried out to ensure the viability of the South African National Roads Agency Limited (SANRAL). The Gauteng experience should be used as a guide for the implementation of e-tolling in the rest of the country. The FFC supported interim measures to counter wastage. Punitive measures should be a last resort, such as the withholding of funds.

Mr Khumalo said that the MTBPS reflected a major thrust and spirit of recommendations made by FFC since the onset of the global economic crisis. The county was feeling the severe effects forecast in 2009. In order to achieve growth and employment, a combination of fiscal intervention and investment was needed. The country was moving in the right direction. Vulnerable sectors needed protection. Given the constraints on growth, no new money was coming into the system. The developmental impact of current resources should be enhanced. Wasteful and unproductive expenditure had to be curbed. When discussing savings, one had to be careful to avoid consistent labelling of under-expenditure as savings, then there could be some allocation inefficiency. He had made oversight visits to areas such as Limpopo. The absence of clear terms weakened the ability of the legislature to exercise oversight.

Mr Makhubela agreed with the recommendations made by the FFC, but found that the tone of the speakers should have been more assertive.

Ms Mashigo asked if there was still a need for service providers for solid waste management, given the EPWP.

Mr Ramatlakane said that a point had been made about the Gauteng model for e-tolling. He needed more clarity. He asked if there had been a proper, long-term projection on the subject. The statement had been profound.

Mr Sogoni said that Members would agree with a number of the recommendations made. The Committee raised the issue of punitive measures daily. Section 154 of the Constitution urged government at national and provincial level to take action in the event of misconduct. The message should be conveyed as quickly as possible. Not enough was being done to capacitate the municipalities. Over 90% of the 'so-called' savings were taken from salary allocations for vacant posts. Section 100 had important lessons on the accounting hierarchy. Legislation might be needed. In some cases, money should be ring-fenced. Although there was an instruction to budget money for maintenance, municipalities were not doing this.

Mr Khumalo said that the FFC was not opposed to conditional grants. From the outset, the idea was to introduce such grants to address specific priority programmes. Many revolved around concurrent functions. Every time that there was a perceived failure, there was a feeling that the solution lay in a conditional grant. A more comprehensive approach was needed. Certain concrete proposals should be made to find a way to hold transferring officers accountable where recipients had no capacity to deliver. There were good and bad lessons from the Gauteng Freeway Improvement Project. A submission had been made in February which had appropriated R5.2 billion for SANRAL. The FFC had not got the model from SANRAL, but had worked on the amount of money that would be saved by road users and what cushion could be given for the poor.

Ms Tania Ajam, FFC Commissioner, said that the FFC was looking at the job opportunities created by recycling. Buy-back centres were needed. In some cases, outsourcing could be an option because capital investment was needed. This could be the rationale for a private-public partnership. Where it was simply a labour intensive exercise, an economist would say it did not matter where the job was created. There had not been a lot of research on this issue, but some municipalities still had an incentive to outsource. There might be a lack of capacity to manage a labour force. Costs to the municipality might be lowered by outsourcing. FFC had not conducted systematic research on this matter. Where punitive financial measures were imposed, the public would suffer. Action against responsible individuals would be better. Capacity building grants were not necessarily going to those municipalities that really needed it. The Municipal Systems Amendment Act was a good piece of legislation but still needed to be implemented. The political situation needed to be stabilised. An increasing number of municipal managers were well qualified. Up to 30% now held Masters or Ph.D. degrees. Many had only been in their jobs for two years, but the signs were promising.

Mr Ramatlakane had not meant to pick on a small point. He had wanted a proper perspective on the e-tolling issue.
Mr Sogoni extended the appreciation of the Committees for the work done at such short notice. More engagement would be needed.

The meeting was adjourned.

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