Appropriation Bill [B1-2013]: briefing by National Treasury

Standing Committee on Appropriations

13 May 2013
Chairperson: Mr E Sogoni (ANC)
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Meeting Summary

The National Treasury briefed the Committee on the Appropriation Bill for 2013 [B 1 - 2013]. The Bill provided for appropriation of money from the National Revenue Fund. Spending was subject to the Public Finances Management Act. The Division of Revenue Bill/Act contained provisions for transfers to sub-national government. Parliament was asked to pass the Bill. The Committee was taken through consolidated expenditure by economic classification; infrastructure investment, and key national government baseline additions for 2013/14.

In discussion, there was a question about the relation between capital assets and infrastructure, and the decrease in debt services. There was discussion about the extent to which expenditure was directly from the fiscus. There were questions about spending on roads, compensation of government staff and Public Private Partnership projects. Members were further interested about long term planning for funding, land claims, water services, government entities acquiring money from overseas and other sources that was not properly monitored and the large amounts given to state owned enterprises, without the monitoring of compliance and internal policies. There was dissatisfaction among the Committee that the Bill did not contain clauses about long term spending planning and budget adjustments that had been recommended by them. There was discussion about possible amendment to the Public Finances Management Act. There was concern about local government not spending allocations correctly.

 

Meeting report

Briefing by the National Treasury on the Appropriations Bill for 2013 [B 1 - 2013]
Mr Matthew Simmonds, Deputy Director General (DDG) and Head of Budget Office, National Treasury, noted that the Bill provided for appropriation of money from the National Revenue Fund. Spending was subject to the Public Finances Management Act (PFMA). The Division of Revenue Bill/Act contained provisions for transfers to sub-national government. Parliament was asked to pass the Bill.

This was necessary, as prior to that, departments would need to incur expenditure in terms of section 29 of the PFMA which made provision for spending before an annual budget was passed. Up to the end of July, expenditure could not exceed 45% of the 2012/13 financial year budget. After July, monthly expenditure could only amount to 10% of the 2012/13 budget. Departmental activities could thus be constrained should there be delays in the Appropriation Act coming into effect

The Bill was divided by vote and by main division within a vote (i.e. by programme). An aim was set out for each vote and a purpose was set out for each programme. Allocations were categorised in terms of current payments, transfers and subsidies, payments for capital assets, and payments for financial assets. Conditional grants were specifically and exclusively appropriated and were also listed in the Division of Revenue Bill, 2013

The 2013 budget focused on national development and fiscal sustainability. Within a constrained fiscal environment, the budget continued to support government’s commitment to broadening service delivery and expanding investment in infrastructure. In order to create the fiscal space to fund investment in these key areas, government at all levels contributed to making funds available
via reprioritisation.

Provincial and national departments and public entities were asked to identify areas of inefficient and non-priority expenditure. Expenditure reductions were effected through government seeking efficiencies in delivering planned services at lower costs, reducing allocations to programmes performing below expected levels, and through decreasing outputs in lower priority programmes; in order to fund the delivery of new or expanded services. Funds made available for allocation amounted to R117.2 billion for the 2013 MTEF period, of which:
– R52.1 billion was due to expenditure reductions effected;
– R37.2 billion was made available to compensate mainly for general inflation
costs; and
– R27.9 billion was due to the drawdown from the contingency reserve

The Committee was taken through consolidated expenditure by economic classification; infrastructure investment, and key national government baseline additions for 2013/14. R827.1 billion was available for public sector infrastructure expenditure over the following three years. R2.6 billion would go to compensation of employees adjustment. R2.9 billion was proposed for the South African National Roads Agency Limited (SANRAL), the Passenger Rail Agency of South Africa (PRASA) and Eskom. R2.4 billion would go to recapitalisation of the Development Bank of South Africa (DBSA).

Other national government baseline additions were to local governmet, housing and community amenities; education and related functions; health and social protection; economic and general public services; defence; science and technology, and employment and social security.

Discussion
The Chairperson referred to a growth in capital assets. The Treasury had said that it was good. He asked what capital assets meant. It did not necessary refer to infrastructure. The Committee had seen departments decrease in capital assets. There was a relation between function and assets.

The Chairperson asked about debt service having gone down, in relation to expenditure between 2009 and 2012. He asked if that was correct, seeing that the Minister had stated in the budget speech that the country’s debt was growing in relation to the gross domestic product (GDP).

The Chairperson said that general government expenditure on infrastructure was not always directly from the fiscus. Money was also raised internationally. He asked how Parliament could monitor that.

The Chairperson asked about South African National Roads Agency Limited (SANRAL) expenditure. There seemed to be expenditure on toll roads, as well as others. In Gauteng there was still not payment for toll roads. Allocations had to be clarified.

The Chairperson asked about the Square Kilometre Array (SKA) telescope project, and how much South Africa was supposed to spend.

The Chairperson asked about upfront budgeting for staff compensation that was set at 5%. The 5% would be granted, and later adjusted to 6%. He asked if it would not be better for money to go to the contingency reserve. 

Mr Simmonds replied that there had been a strong growth in spending on compensation for employees over the preceding years. It crowded out other forms of spending, and placed constraints on capital spending. If growth on employee compensation could be stabilised, there could be spending in other areas. There was tension between the budget and negotiations. The Treasury did not publish cost of living assumptions. Assumptions had to be presented, but that could muddy the water for negotiations. The approach to negotiations was to confer with the Department of Public Service and Administration.

The Chairperson remarked that the Treasury was setting itself up when it presented 5% for staff compensation. It was clear that it would not be accepted. Some years back Cosatu had boycotted Parliament. He suggested a different approach that allowed room for negotiation.

Mr M Swart (DA) noted that the fastest growth had been in finance assets. He asked what that included (Slide seven). He asked if the Municipal Infrastructure Support Agency (MISA) was yielding results.

Mr J Gelderblom (ANC) noted that some Public Private Partnership (PPP) projects ran on a 50% to 50% basis, and others were 80% to 20%. About those who ran on a 20%, he asked if there many contractors or only one, and whether they were big contractors. He asked about guidelines for subcontractors.

Mr Andrew Donaldson, DDG: Public Finance, Department of Finance, replied that PPPs included long standing roads concessions and highways. The ratio was 80% to 20%. For government buildings 50% came from the private party. For hospitals like Baragwanath, 40% or 50% came from private investors.

Dr S Van Dyk (DA) referred to large amounts invested in infrastructure. He asked if Finance and the Treasury gave thought to investment for long term growth. R46 Billion had been earmarked for local government long term growth. Certain areas of local government infrastructure had almost collapsed. Long term and short term development had to be distinguished between. There were Finance and Treasury officials for every department who could draw that distinction. Transnet would receive R37 billion, yet thousands of kilometers of rail had collapsed. The 2010 Transnet Annual Report had stated that if they improved their balance sheet, management would get bonuses. Real need had to be balanced with Transnet’s own agenda. Finance and the Treasury had to see to it that money was supplied for real growth, not to cover internal policies. There were large amounts for infrastructure development.

Mr Donaldson replied that engagement with municipalities was long term. Whatever had collapsed was addressed. The aim was to create sustainable infrastructure. But all funding could not be viewed as long term. Most capital spending went towards replacement of existing infrastructure. Less than 10% of the GDP was for new stock. Netting off of gross investment was very problematic.

The Chairperson remarked that the Treasury had attempted some years back to budget for maintenance, but that was no longer to be seen.

Mr Donaldson replied that there was an improved budget for maintenance, but smaller budgets had to be used to fill potholes. Capital spending was largely on replacing of worn out infrastructure. R23 billion spent on Gauteng roads was capital spending to fix existing roads. A substantial part of capital spending was just replacement. There were large dams that periodically had to be cleared of silt by huge machinery.

Mr Gelderblom referred to a study by the Department of Transport that showed that South Africa was lagging far behind with road maintenance. He asked about a maintenance programme.

Dr Van Dyk asked if it was possible to monitor the replacement of infrastructure, to see whether a 20 year maintenance project was not sustained after 10 years, for instance. Many municipalities were not maintaining infrastructure well, and it was easier for infrastructure to collapse. The easy solution was simply to ask for more money from the fiscus. Certain allocations had to be made because of negligence. He asked how pressure could be exerted on entities.

Mr Donaldson replied that with regard to national roads, SANRAL had maintained a good balance between maintenance and capital expenditure. There were increased allocations for toll roads, and long term maintenance plans. On the provincial level, maintenance of rural roads was not up to par. The Treasury was working to improve data on municipal maintenance and capital expenditure, to understand trends. There was great variance in the performance of municipalities.

Mr Steven Kenyon, Director: Local Government Budget, National Treasury, responded that budgets were being spent on routine maintenance. There was a new local government equitable share, which indicated what monies were to be spent on maintenance. Municipalities had to explain if they varied from benchmarks. Both the national and the provincial Treasury monitored the process. There was investment in systems to help plan maintenance. Provinces were collecting data on roads. R9 billion was available for provincial road maintenance. There were funds for collecting data on road quality and usage. Maintenance of rural roads was prioritised. Funds for municipal infrastructure were not just from the National Treasury.

Ms A Mfulo (ANC) said that the Treasury had money, but could not see if entities were complying. She asked if the Treasury was aware if entities like ESKOM and Transnet had proper policies. She asked how compliance was monitored, and whether the Treasury would actually go out and see what was happening on the ground. There were good plans but things were not happening. Money was handed out but there was no checking. Time frames were also not monitored. She referred to the fact that Transnet managers were fired if they failed to make a profit. It had to be checked whether directors were not benefitting from state money.

Mr Donaldson responded that checking for clean procedure was the responsibility of the Auditor General and inspection agencies. The Treasury was part of transparent budgeting by increasing the volume of information about municipalities. But the Treasury could not check and inspect everywhere. The internal policies of Transnet were not Treasury territory. They received money from the Department of Public Enterprises.

Ms Mfulo commented that Treasury knew what Transnet was getting, even if it was not from them.

Mr Van Dyk remarked that R37 billion had been given to Transnet from Department of Finance and National Treasury officials. When the Department of Public Enterprises asked for money for ESKOM and Transnet, it had to be explained. It was possible for the Treasury to know how much money was being used to what purpose. It was not right for the Treasury to just dish out money.

Mr Donaldson replied that the R37 billion was not transferred from the budget, it was raised by Transnet itself. It was not in the Estimates of National Expenditure (ENE) or the Appropriation Bill. The Treasury monitored overall infrastructure spending in the public sector.

The Chairperson remarked that it was clear that not all monies were from the fiscus. The question was how Parliament could monitor, and what guarantees there were.

Mr Donaldson replied that the Treasury had oversight over borrowing and investment plans. Estimates of public sector borrowing by ESKOM and Transnet did not only include what came from taxpayers. Contingent liability and guarantees were considered. The assets and liability team looked at borrowing and investment. The Municipal Infrastructure Support Agency (MISA) was new, and would take over Treasury support for municipal management, which would be strengthened.

The Chairperson remarked that the President had said that land claims had been extended. He could not see that it had been budgeted for.

Mr Donaldson replied that there were implications. Legislation was being developed. There was a backlog of restitution claims. There was still an obligation of R40 billion.

Ms Mashego (ANC) asked for clarity about water issues.

Mr Donaldson replied that water was a huge sector. The national water appropriation for the year was R101 billion. Two and a half billion went to the Water Trading Entity for their own capital investment. Six billion went to regional schemes and two billion for water treatment schemes. The Water Trading Entity created four to five billion in revenue from water boards, and then spent some of that. R20 billion covered water delivery. Distribution systems were regulated by the national department. It was a large sector, and the national budget only covered a fraction.

Dr Van Dyk referred to the fact that the Appropriation Bill provided for appropriation from the National Revenue Fund. He asked if public profits became part of state income through going into the fiscus. He asked to what degree the fiscus was filled by the taxpayer or public funds. He asked what motivated the fiscus to hand money back.

Ms Mfulo commented that if money was not from the fiscus, there had to be a clause that made that clear. Departments borrowed from overseas and government could not oversee that. Government had to agree to borrowing, profits and donations.

The Chairperson commented that money went from the fiscus to departments for what they could not afford. If Transnet or the South African Airways (SAA) could raise money, they had to be allowed to do so. Government had to stand in and provide guarantees if they could not pay back.

Mr Donaldson replied that in some instances the PFMA provided exemption from the obligation to pay into the fiscus. But the Treasury looked for dividends from state owned companies. There were periodic revenue probes.

Mr Simmonds added that some spending fell outside of the national sphere, and was not financed from the National Revenue Fund.

The Chairperson noted that members had asked in the budget review for clarification about contributions from the fiscus.

The Chairperson asked why SANRAL was mentioned twice in slide eight.

Mr Donaldson replied that it was due to a distinction between toll roads and non-toll roads. SANRAL knew that the toll would take time. The budget of that year was based on the entry of toll money. With reference to the Square Kilometre Array (SKA) project, he noted that there would be one and a half billion in the next three years to complete the MeerKAT project. Costs were also borne by the international consortium, but South Africa was committed to complete the MEERKAT. It was an investment in the country.

Ms Mashego remarked that the contradiction between what was adopted and approved was reflected in adjustments, new things came up, unforeseen and unavoidable, but it was not authorised. The Committee had to be satisfied in November. The Minister had the right to adjust. What had been approved by the Committee flowed easily into adjustments.

Mr Donaldson responded that the Treasury dealt with the unforeseen and unavoidable, and with rollover requests. Limits were set to amounts. The Minister could grant approval for adjustments. Ministerial approval of amounts added was limited to the contingency reserve. The Bill recognised that the Treasury had to deal with internal issues leading up to adjustment.

Ms Mfulo noted that R312 million went towards the De Hoop dam. She asked when the dam would be completed. Water was a basic right. There were too many water role players. She wondered if they talked to one another at all.

Mr Donaldson replied that he could not say when the dam would be completed. He assured the Committee that water for communities was well budgeted for.

The Chairperson commented that progress had been made with the Appropriation Bill the year before, but he was not seeing it reflected. Infrastructure had been discussed, and the fact that national departments were not spending on time. The Committee had recommended a clause similar to what had been taken up in the Division of Revenue Bill, to apply to provinces and local departments. Applications had to be made two years upfront. He did not see such a clause included. Water Affairs was the the biggest spender on infrastructure. The Committee had commented on challenges of planning. The clause had to be added in the future.

Mr Simmonds referred to clause 4 of the Bill, which stated that:

(1) The Minister may, in writing—
(a) impose conditions on an allocation in an appropriation listed in the Schedule
to this Act, in order to promote and enforce transparency and effective
management in respect of revenue, expenditure, assets and liabilities of
departments, public entities and constitutional institutions as required by
section 6(1)(g) of the Public Finance Management Act; and
(b) stop the use of an allocation in respect of which conditions have been
imposed, until such conditions are met.
(2) The stoppage of an allocation in terms of subsection (1)(b) must be disclosed in
the National Treasury’s next quarterly report to the relevant Parliamentary Committees.

and to clause 8, which stated:
(1) The Minister may, in writing—
(a) delegate to an employee of the National Treasury any power conferred on the
Minister in terms of this Act, except section 9; and
(b) authorise an employee of the National Treasury to perform any duty imposed
on the Minister in terms of this Act.
(2) A delegation or authorisation in terms of subsection (1)—
(a) must be in writing;
(b) was subject to any limitations or conditions that the Minister may impose;
(c) may authorise that employee to subdelegate, in writing, the delegated power
or authorised duty to another employee of the National Treasury;
(d) does not divest the Minister of the responsibility concerning the exercise of
the delegated power or the performance of the authorised duty; and
(e) may be withdrawn in writing.
(3) The Minister may vary or revoke any decision taken by an employee as a result of
a delegation or authorisation in terms of subsection (1), subject to any rights that may
have vested as a result of the decision.

The Chairperson said that the clause about infrastructure spending by national departments was not there.

Mr Simmonds replied that it could be phrased to extend beyond the infrastructure environment.

Ms Mfulo said that departments were not planning.

Mr Ramatlakane (COPE) said that the concern was not foreign. He asked what would be done in terms of amendment. The introducer of the Money Bill could do the amendment. The Minister had to say what the conditions were that forced departments to plan. There were ongoing issues about the PFMA, the review process, and the authority to amend budgets in midstream.

Mr G Snell (ANC) said that provincial spending of conditional grants was shocking. If provinces did not perform, national departments offered support. Conditional grants went through provincial departments with concurrent functions. There were urgent conditional grants. He asked what the Treasury did to capacitate local government to spend. The grants were in the Bill.

Mr Donaldson replied that infrastructure spending was subject to stringent regulations governing planning. The PFMA and the Treasury regulated the planning of capital projects. He granted that the Committee wanted to see it in the law that plans would be required two years in advance. But that was demanding. There was the risk that it could slow down spending. There was the option of amending the PFMA. The amendment project had stalled. The Division of Revenue Act applied to grants for provinces, but also to national transfers. More planning language could be introduced. The language of the Appropriation Bill could be changed. There were different kinds of capital spending. Care had to be taken not to be heavy handed, when rules for capital spending were formulated. Language could be changed in that year.

The Chairperson said that copies of recommendations for the previous Appropriation Bill had to be found.

Mr Simmonds replied that it was in the Adjustment Bill.

The Chairperson said that the matter had been raised over and over.

Mr Ramatlakane said that the proposal had been that it had to be in the Appropriation Bill. It compelled the Treasury to act. It had to be resolved as a Committee.

Mr Donaldson responded that Clause four granted wide authority to the Minister. It was used in appropriation letters to departments. The term “planning” could be added.

The Chairperson suggested that Ministerial responses had to be looked at, if there was a gap between his responses and Committee aspirations, the matter could be taken from there.

Mr Ramatlakane asked why the review process of the PFMA had stopped.

Mr Donaldson replied that he did not know. There had been no work done for three years. There had been amendments to regulations, but there was no current project.

The Chairperson asked about the way forward.

Mr Donaldson replied that amendment created uncertainty and loss of continuity. Amendment was needed, but it had best not be done in a hurry.

Mr Ramatlakane remarked that another conversation was needed. Clearer answers were required. The PFMA had to be adjusted to grant Parliament the power to challenge. Parliament approved the budget. Amendment of regulations granted no role to Parliament. Regulations expressed laws, and referred to the executive function. Parliament was almost powerless to intervene in adjustments because of the PFMA.
 
Mr Kenyon responded that there was an evolving system to build capacity in municipalities. A two year plan for provinces could be implemented. Provincial treasuries were responsible to monitor finance management in rural areas. MISA would roll out infrastructure skills capacity. There was not a single answer for building municipal capacity. Conditional grants were improving; there was better knowledge of what municipalities were spending. There were built in consequences.

Mr Snell commented that local governments did not spend allocations correctly. There was a failure to spend conditional grants. Provinces were not supportive.

The Chairperson noted that The Department of Cooperative Government and Traditional Affairs (Cogta) had been invited to assist with local government spending. During 2012/13 Cogta spent 95%, including the Municipal Infrastructure Grant (MIG). Water Affairs presented challenges. There had never been a proper focus on how to assist local government. The question was how improvement could be ensured. The support of MISA to the Treasury had to be interrogated. Beneficiaries were affected. The Treasury and Cogta had to be engaged to ensure the improvement of spending in local government.

Mr Kenyon responded that the Minister had said that infrastructure grants in local government would be reviewed that year.

The Chairperson said that he had just been informed that the Minister had acknowledged that the clause discussed earlier had been incorporated but was not in the Bill.

The Chairperson noted that due to time constraints, adoption of Committee reports would be rescheduled.

The Chairperson adjourned the meeting.
 

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