Appropriation Bill [B1-2013]: National Treasury briefing

NCOP Appropriations

19 June 2013
Chairperson: Mr T Chaane (ANC, North West)
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Meeting Summary

The Committee was briefed by National Treasury on the 2013 Appropriation Bill. The briefing began with a short introduction to the background of the Bill, noting that since money was appropriated in terms of the Constitution and Public Finance Management Act, all spending was similarly subject to the latter Act and the Appropriation Bill, whilst transfers to sub-national government were covered by the Division of Revenue Bill. It was crucial that the Appropriation Bill be passed before end July as departments were only allowed a certain window of spending prior to that time, and a delay in passing the Bill could mean that their activities had to be curtailed. The structure of the Bill was explained and it was noted that the focus of the 2013 budget was national development and fiscal sustainability. To ensure efficient and effective spending, provincial and national departments and public entities were asked to identify areas of inefficient and non-priority expenditure, and expenditure reductions were then achieved by improving efficiency on services, reducing allocations to programmes performing less well than expected, and lower priority budgets were cut. The expenditure by economic classification was outlined, and the largest components in terms of vote shares were detailed.

Members questioned the amounts allocated to Acid Mine Drainage, and whether this was a single allocations, the amounts for roads, and questioned whether the skewing of the equitable share by additional grants to municipalities by provinces was correct, or amounted to buffers to prevent financial difficulties. Members also asked for more clarity on the contingency reserve, and whether it was likely to be used. They also questioned the decline in growth for compensation of employees, asking firstly if it was correct, and secondly what level of spending on employees was considered acceptable. It was explained that there were a number of variables affecting this so that no benchmarks were set by National Treasury, although various sectors may use international comparisons or own benchmarks. Members noted that they had heard mention of ‘acceptable’ standards or rates of under-expenditure, ranging from 2% to 5%, and asked for comment from National Treasury. The discussion on this then linked on to the concerns of the Committee that under-spending was increasingly being described as a “saving” and as something to be applauded, rather than recognising, firstly, that under-spending meant less services to the people, and that the money allocated came at a cost. National Treasury explained the requirements of the Division of Revenue Act in this regard, and noted that it was becoming increasingly vigilant about transfers, and particularly the time of transfers linked to performance and targets, to try to curb fiscal dumping. Members also noted that under-spending in one year, and a return of money to the National Revenue Fund, could impact adversely on the following year’s allocations and sought comment on this point. Members also asked about bail-outs, and section 139 interventions, asked the reasons for the allocations to the Development Bank of Southern Africa, for more information on revenue forecasts, and whether there were key legislative changes that would be needed. National Treasury emphasised that a multi-pronged approach was needed, and described what some of the interventions had entailed. One Member suggested that it would be useful to get specific comment from another unit in National Treasury as well as the Municipal Demarcation Boards.

The Members adopted the standard Committee report on the Appropriation Bill [B1-2013] without any amendments.

The Members also adopted the Committee Minutes dated 18 June 2013.
 

Meeting report

Appropriation Bill [B1-2013] : National Treasury briefing
Ms Kay Brown, Chief Director: Expenditure Planning, National Treasury, noted that the Appropriation Bill (the Bill) would always be tabled in Parliament on budget day.  The Bill provided for the appropriation of money from the National Revenue Fund, in terms of section 213 of the Constitution and section 15 of the Public Finance Management Act (PFMA). Therefore, all spending of that money was similarly subject to the PFMA and the provisions of the Appropriation Bill itself. The Division of Revenue Bill (DORA) also contained provisions around spending, but related to transfers to sub-national government. Parliament was essentially asked to pass the Appropriation Bill so that the President could assent to it and the Act could be promulgated before the end of July. This was critical, as prior to that departments would need to incur expenditure. Section 29 of the PFMA did make provision for spending before an annual budget was passed, but the requirement was that this expenditure must not, before end July, exceed 45% of the 2012/13 financial budget. If the Appropriation Bill was not passed, or there were delays in putting it into effect, the departments’ activities could therefore be constrained.

She took Members through the structure of the Bill, noting that it was divided by vote and by main division within a vote, in other words, programmes inside a vote. 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 (compensation of employees, goods and services and other), transfers and subsidies, payments for capital assets and payments for financial assets. Very importantly, allocations marked with an asterisk referred specifically and exclusively to appropriated allocations. Conditional grants were specifically and exclusively appropriated, and were also listed in DORA. 

Ms Brown said that the focus of the 2013 budget was 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 key areas, government, at all levels, contributed to making funds available via reprioritisation.

To ensure efficient and effective spending, 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, through 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.

The funds made available for allocation amounted to R117.02 billion for the 2013 Medium Term Expenditure Framework (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 draw-down from the Contingency Reserve.

Ms Brown discussed consolidated expenditure by economic classification. Payments for financial assets were still the fastest growing area of expenditure. Payments for capital assets showed an increase in growth. Compensation of employees growth had declined, and other current payments showed moderation in growth. Growth in transfers and subsidies declined slightly and debt service costs growth remained relatively stable.

She noted that infrastructure investment supported long-term growth and development. R827.1 billion was to be spent in public-sector infrastructure development over the next three years and, on the vote appropriation level, R104 billion was included in the 2013 Appropriation Bill.

For social infrastructure, particularly investments in social infrastructure, R2.4 billion was for the recapitalisation of the Development Bank of Southern Africa (DBSA), to allow it to grow its assets and loan disbursements, in support of its refocused mandate on core infrastructure funding, of which a large component was local socio-economic development. R85 million (R160 million over the Medium Term Expenditure Framework (MTEF), was allocated to the Social Housing Regulatory Authority to increase delivery of medium-density rental housing. R200 million was for the Magalies Water project for the establishment of a bulk water scheme service in the Pilansberg area in 2013/14, whilst R312 million (or R1.9 billion over the MTEF) was set aside for the Municipal Water Infrastructure Grant for water treatment, distribution, demand management and other support for rural municipalities. R171 million (R105 billion over the MTEF) was to go to the De Hoop Dam bulk distribution system for the completion of pipelines. R150 million was to manage the acid mine water drainage problem in 2013/14.

Ms Brown then looked at the largest components of the 2013 Appropriation Bill, in terms of vote shares. She said the total Appropriation Bill appropriation amounted to R588.7 billion.R2.6 billion (R10.9 billion over the MTEF) went to compensation of employees adjustments, to cover the costs of the improved conditions for service for the public sector. Social development sector made up 20.5% of the total Bill appropriated, and this included social assistance grants to the value of R113 billion (19.2% of the total Bill appropriation). 11.5% of the total Bill appropriation went to Police, which included the Visible Policing programme to the value of R31.5 billion (5.4% of the total Bill appropriation). 9.9% of the total Bill appropriation went to Cooperative Governance and Traditional Affairs, which included the Local Government Equitable Share transfer to the value of R40.6 billion, which was supplemented by municipalities’ own revenue. 7.2% of the total Bill appropriation went to transport, which included the Road Transport programme to the value of R19.5 billion (3.3% of the total Bill appropriation). She also noted R275 million in additional allocations to the South African National Roads Agency Limited (SANRAL) for national road upgrades, and R250 million (R3.3 billion over the MTEF) as additional allocations for the Passenger Rail Agency of South Africa (PRASA) to invest in rolling stock and signalling infrastructure. Defence and Military Veterans received 6.8% of the total Bill Appropriation, and this included the Landward Defence Programme to the value of R13.9 billion (2.4% of the total Bill appropriation). Higher Education and Training was allocated 5.8% of the total Bill appropriation, and this included transfers to higher education institutions to the value of R22.1 billion and R1.7 billion over the MTEF, as additional allocations to build two new universities in Mpumalanga and the Northern Cape. Health accounted for 5.2% of the total Bill appropriation, and its vote amount included hospitals, tertiary health services and a human resource development programme to the value of R17.9 billion (3.0% of the total Bill appropriation). Science and Technology  received 1.1% of the total appropriation, with R300 million (R1.1 billion over the MTEF) as additional allocations for the design and pre-construction phase of the Square Kilometre Array (SKA) project and R605 million over the MTEF as additional allocations to the National Research Foundation, for the modernisation of laboratories and purchase for equipment. The Communications sector would get 0.3% of the total Bill appropriation, with R277 million in additional allocations in 2013/14 to Sentech, for the roll-out of infrastructure for digital terrestrial television.

Discussion
Mr B Mashile (ANC, Mpumalanga) questioned if the amount allocated toward Acid Mine Drainage (AMD) was only a single financial year allocation.

Mr D Joseph (DA, Western Cape) asked if the amount allocated to AMD was building on the previous year by way of an increase or whether it would be a new addition to the budget. He noted that during “Taking Parliament to the People”, there had been a huge outcry by communities on the contamination of the water caused by AMD, and Parliament had committed itself to investigate this.

Ms Brown explained this was additional money, only for this financial year. A lot of rehabilitation had to take place to prevent further damage of water sources. This problem of AMD was especially critical in Gauteng, and needed urgent attention. The fact that this amount was an additional allocation was due to the fact that an emergency response was needed. She felt the problem needed to be addressed more broadly, but understood that the Department of Mineral Resources had been giving the necessary attention to the issues and was planning to rehabilitate 150 mines.

Mr A Lees (DA, KZN) wanted clarity on the amount allocated to SANRAL, asking whether this was to pay for roads that had already been constructed, where loans needed to be repaid, or for roads as yet unconstructed.

Ms Brown responded that this was to cover expenditure which still needed to be incurred.

Mr Lees asked how legal was the skewing of the equitable share by the provisional of additional grants to municipalities by provinces. He saw these additional grants as a “slush fund” or a buffer for when municipalities went bankrupt. In relation to the contingency reserves, he asked if this was historically something never touched, but asked if it was probable that it would be used. In other words, he wondered if the contingency had historically been over-provided for

Ms Brown then explained that the reserve had historically been called a “contingency reserve”, but it was now thought of as both a contingency and policy reserve, although, in practice, the policy side of that was essentially lost with the money being used for real contingency and other unforeseen events. In one sense, this meant that it would be harder to budget, and it called for extreme scrutiny of departments. She thought there was enough in the contingency to cover contingencies properly, but without any policy buffers. 

Mr D Joseph (DA, Western Cape) wanted to know if the National Development Plan (NDP) was part of the focus for fiscal stability.

Ms Brown responded that “national development” was a turn of phrase and not a direct reference to the NDP. When this budget was prepared, the NDP was still in draft form. Departments were still planning to incorporate the goals of the NDP, and National Treasury anticipated that this would be seen strongly in next year’s budget.

Mr Joseph noted the amount of R52.1 billion for priorities, and questioned what these priorities were, especially if they were any different to what was outlined in the presentation.

Ms Brown said that the actual priorities were essentially infrastructure investment, employment, local government support an economic support in terms of the comprehensive support package. These were the four main themes or areas of focus in the last budget.

Mr Joseph questioned the decline in growth for compensation of employees. He had believed that employment compensation was growing, almost to 50% in some municipalities, which meant that the more money was spent on the compensation of employees, the less money there was for service delivery.

The Chairperson wanted to know the reason for the stated decline in employee compensation.

Mr C De Beer (ANC, Northern Cape) noted that head-counts were done in Limpopo, and he had noted that huge amounts were being spent on employee compensation.
Ms Brown explained that the presentation had referred specifically to the “growth of the spending”, which implied that it was not that the actual amounts were decreasing, but rather that the growth of increase was contained. This had been achieved using a number of initiatives, like the head count, with the assistance of Statistics SA in all the provinces. Containing compensation in general meant looking at vacant posts, asking departments, in their reprioritisation, if the vacant posts needed to be filled, and then, where appropriate, moving money out of the budget for employees, and into core service delivery areas where it was needed. There could be reprioritisation within compensation of employees, and there was a definite need to control the head-count numbers to contain growth. Where there was head-count growth, it needed to be justified in the context of departmental performance.

Ms Wendy Fanoe, Chief Director: Inter-Governmental Relations, National Treasury, added that in the past, a uniform growth rate was accounted for in terms of employee compensation. She said the head-count would definitely be replicated in other provinces, along with various other initiatives. Key department where personnel numbers were quite large were those such as Defence or Police, and this sector would probably be subjected to a personnel review.

The Chairperson questioned what an accepted rate or standard of under-expenditure would be, for departments and provincial government. Some people suggested 2%, others suggested 5%, but he was interested to hear the opinion f National Treasury.

Ms Brown said that she was not sure whether under-spending could ever be spoken about in terms of “acceptable levels”. One example where under-spending was unequivocally acceptable was in the area of grants for disaster risk response, for the Department of Cooperative Governance and Traditional Affairs. If there was no such disaster, the funding should not be spent, so that “underspend” would be acceptable. However, in all instances where under-spending was claimed, it was necessary to analyse why it occurred. She did not want to say that all under-spending was completely unacceptable (given that plans did not always work out) nor that all under-spending was acceptable either. A focused judgment was needed around the performance in areas of under-spending, rather than on the over- or under-spending in isolation.

Ms Fanoe added her comment in relation to municipal grants, pointing out that in the DORA, there were many provisions which dealt with this, such as section 28, which said these funds must be displayed in the municipal budget and be gazetted. It should be kept in mind that there were different types of transfers and functions, where the municipality actually carried out the function on behalf of the province. Provinces also had responsibilities to build the capacities of municipalities and they were allowed to make transfers in this regard. Transfers were also made when there were inter-linkages on certain projects. Transfers despite the fact that certain municipalities may have flagrantly broken the rules, were definitely not in compliance with the spirit of any of the legislation. The legislation also made it clear that there were no bail outs to be accepted, as a sphere must take full responsibility and accept accountability. She said the PFMA must be read together with the Municipal Finance Act on this matter.

Mr Joseph asked if there was a benchmark percentage stipulated for the cost of employees. He reiterated that he had heard that some municipalities went up to 50%, while others were using around 33-40%, but wanted to know if there was a national guide or benchmark. He reiterated that municipalities should be spending money on service delivery, not on compensation of numerous employees, although he accepted that the employees were in place to provide that service.

Ms Brown said that, prior to this Bill being enacted, section 29 (and the percentages highlighted) was used to cap spending against last year’s Appropriation Bill, but it was not meant to be a benchmark in relation to the compensation of employees or anything. The benchmark or guideline for the compensation of employees varied from sector to sector, and in some cases there were norms and standards which implied personnel profiles and numbers, for example in hospitals. The Department of Health was working on norms and standards for the doctor : nurse ratio and then relating that to the accompanying goods and services, like medicine, to establish a benchmark range for compensation of employees. Some sectors were very labour intensive, like Police and Defence, which had already been mentioned. Most sectors had a sense of what their own benchmarks should be, with some expressing them as norms and standards, or using international comparisons. National Treasury was very vigilant about the ballooning of administrative staff in comparison to the core service delivery line staff.

Mr Joseph asked if there was any guidance for municipalities for when national or provincial departments “dumped” money on them towards the end of the year to clean up their own books, which would then reflect badly on these municipalities.

Ms Brown said that National Treasury was becoming increasingly vigilant about transfers to entities or other spheres very late in the financial year, which could amount to fiscal dumping. National Treasury was looking to the differentiation between a simple transfer, or transfer where there was spending, and also wanted to sharpen its knowledge of whether funding was planned for a particular time of the year, which would account for transfers at that time, or whether something was planned for the last quarter, and the funds would actually be expended on that event in that quarter. When the funding was unplanned, red flags were raised.

Mr Lees asked what the consequences of bail-outs were, and whose job it was to highlight this. He wondered if it was simply something that the Auditor-General (AG) would note, or whether there was more to it n this. He was aware that the National Treasury wrote to provincial treasuries on this matter, but he was not aware of any change, and wondered if National Treasury was powerless in this regard.

Mr Lees questioned the huge transfer made to the DBSA and asked if the Bank was bankrupt, as this was a massive sum of money. He also asked on what basis the additional allocation was made, whether the DBSA had any specific plans, or whether the money was just handed over as a means of recapitalisation; if it was the latter, then he was worried that the money was actually not needed.

Ms Brown responded that she was not aware that there had been any suggestion that DBSA was bankrupt, but if the funding was allocated through the Minister’s Committee in the budget process, the funding was obviously needed. The money would be spent it in four areas.

Ms Raquel Ferreira, Director: National Budgets, National Treasury, said these four areas were for the recapitalisation of the Bank to support its mandate on core infrastructure funding, by increasing its lending to municipalities, stated owned companies, regional lending and public-private partnerships. The rebuilding of the Bank’s capital base would allow it to increase its assets to R91 billion by 2017 and enable loan disbursements of between R8 billion to R21 billion per year.  In each sector, the target was to increase lending to municipalities, over the three year period, to R12.4 billion, as well as using 5% of the DBSA’s operating income of non-lending support. For state owned companies, the amount would be R8 billion, in other public areas, such as the independent power producers, it was about R6.5 billion, and lending to the private sector, R1.8 billion. Outside of South Africa but within Africa, the amount would be R10.5 billion, with a focus on energy, transport, water and ICT. The total target for the three years was R41.4 billion.

Ms Fanoe added that she attended a meeting on the previous day, with the Portfolio Committee on Energy where the Department indicated that municipalities were actually signing contracts with the DBSA to assist them in the process of electrification, so these funds were already being used. The DBSA could play a good role here, because it had the technical and engineering competencies which some of the smaller municipalities really lacked. It was an excellent development for the DBSA to extend its focus to the smaller municipalities where capacity was constrained.

Mr Lees asked if National Treasury was involved in the forecasting of revenue as he gathered the latest forecast was quite dismal. He asked if more information could be provided on this, and what impact it might have on this particular Bill or budget.

Ms Brown said that she was not directly involved in the revenue forecast section, as her section focused more on spending forecasts, but she was sure that Members would appreciate that the downward provision in the GDP forecasts resulted from what was happening internationally and with the domestic SA economy, which obviously also in turn had an impact on the revenue forecasts.  Adding to the spending woes was the cost of the debt. There was a large potential for a downgrade. The issue was whether the spending level could be sustained. National Treasury was looking at the revenue forecasts and scenarios, almost on a weekly basis, looking at the cost of the debt, the interest rate, and what this meant for spending. She reminded Members that for this budget there was an expenditure ceiling which would not be breached, and there was now consideration being given t the appropriate level of that ceiling. She thought it was still too early to make suggestions, but assured the Committee that the issues were being looked at, especially since recently the service costs of debt increased greatly, compared to their levels five years previously. If this cost was not managed, it meant that there would be less money for government service delivery.

Mr Mashile wanted to know if there was anything in the key public financial legislation which Treasury had picked up that needed to be looked at again.

Ms Brown responded that she was aware that National Treasury was looking at the Treasury regulations that supported the PFMA, and changing some of the procedures. This would be more in line with tightening them as opposed to softening them. This particularly would apply to the procedures around budgeting and procurement aspects, especially given that some time had lapsed.

Mr Mashile questioned where certain amounts in the presentation came from, such as expenditure reductions, compensation for general inflation and the level of the contingency reserve after the draw-down.

Ms Brown answered that as far as the contingency reserve was concerned, no chances were being taken and the country would be able to fund real and proper contingency. However, she reiterated that the luxury of the policy reserve had been lost. If National Treasury thought the country was heading into a really uncertain period, and was unable to choose a scenario, it would add a buffer back into the contingency, but it was definitely not taking chances in preparation for this budget.

Mr Mashile returned to the question raised earlier on under-spending. On the previous evening, he had heard a mayor from a municipality in the Eastern Cape who claimed it was acceptable to under-spend by 5%, which was being hailed as a victory and something to boast about. He noted that this Committee had been very concerned about municipalities under-spending, for example, on their grants, with the result that the money was transferred back to National Treasury. In the next financial year, however, the municipalities would be “punished” by receiving less funds, but in fact it was the people on the ground who needed the money desperately, and this could lead to agitation and protest. He wondered if the comments had been filtered through to National Treasury. Members of this Committee, as politicians, had to ensure that services reached the people, and the budget was the tool for doing this. He also asked for National Treasury’s response on the fact that Gauteng and the Western Cape had dumped under-spent funds to agents and implementers, which meant that the fact of under-spending was not reflected in the financial statements, with the result that National Treasury then granted them full allocations in the next financial year. This was in contrast to other provinces and municipalities who had actually been more honest about their under-expenditure but had had their allocations slashed in consequence.

Mr M Makhubela (COPE, Limpopo)  asked when it would be possible to break the chain between roll over money, which was not spent, and allocating more money.

The Chairperson added that he heard the Minister of Human Settlements, on the previous day, in the House, as well as the MEC for Finance in the Western Cape, two weeks back, saying that the overall goal of under-expenditure was 2%. In Gauteng, the DA was up in arms at the statement that under-expenditure was within accepted norms and standards. He agreed that many entities, from national departments to local municipalities, were “celebrating” under-expenditure, and this was very worrying. What was worse was the tendency, almost now becoming a trend, where non-performance would be hailed as a “saving” and used as a means of reprioritisation. It was worrying if the fact of “savings” because projects had not taken off was accepted, because if encouraged people to under-perform, with anything not spent simply being described as a saving. The Committee was deeply concerned about this, particularly the fact that it was often coupled with “acceptable levels” of under-expenditure. He wanted National Treasury to take these concerns back to the Minister. He was disappointed that there was not enough time to engage on this matter more deeply. He said that many of the savings were questionable, but reiterated that the more worrying trend was that people were hailing under-expenditure as an achievement.

Mr Makhubela said he was chuckling at this point, because he remembered, during the time of the Bantustan states, that “savings” from under-expenditure were paid to the secretary as a bonus. 

Mr Mashile felt that a very serious issue was that, year in and year out, municipalities felt free to walk into section 139 interventions, because they were almost bankrupt. He wanted to know how the municipalities managed to do, despite the kinds of reporting mechanisms that were in place, including the requirements for monthly and quarterly and annual financial statements, and the powers of national and provincial spheres. He was concerned that, for example, in the case of Eastern Cape and Limpopo, there were murmurings of trouble for many years, but the report from Treasury only spoke about what had happened in the one year prior to the intervention.

The Chairperson added that in his province, nearly all municipalities went through the process of section 139. The issues would be raised with Treasury but nothing was done until a very late stage, when they were put under section 139 procedures. He thought that maybe Treasury was being too soft on the issue, especially when contrasted to the Auditor-General who was not afraid to point out the problems in specific terms, which were usually lack of leadership, capacity and processes of supply-chain. He found that he often had to push for Treasury to intervene in these municipalities and had a perception that it was reluctant to do so.

Ms Brown was intrigued to hear that Treasury was thought of as “soft”, because at one point people had been wanting to curtail its actions. wanted to clip the wings of Treasury. She commented that Treasury never withheld funds that could be properly spent, and the people who were really punishing the citizens were those who were responsible for executing and implementing the grant. Funds were only withheld when they could not be spent in line with the conditions for the grant. This was done to wake up officials who were not doing what they were supposed to do.

Ms Brown reiterated that she was not aware that any particular level of under-spending was regarded as acceptable, to either National or Provincial treasuries. She knew there was an 8% for making virements, but she did not want to debate this as there were various views as to whether this was a correct percentage or not. Perhaps, in the specific municipality highlighted by Mr Mashile, 2% under-expenditure might be considered as good in relation to the past history of under-spending and it was possible that the comment might have been made in that specific context.

Ms Fanoe added, in relation to benchmarking of municipal costs, that it should be kept in mind that there were currently 208 municipalities. The metro budgets exceeded R20 billion but for smaller municipalities, budgets barely reached R100 million. The services provided were very different, with metros servicing big industries whereas some of the smaller municipalities had only a small customer base, and had agencies such as water boards and Eskom also providing services. All of this variation made it difficult to say what the ratio should be. In the smaller municipalities a higher personnel ratio was actually more acceptable than in a metro, where it would be very worrying if 50% of the budget was for personnel. This was why there were no accepted norms and standards. There would also be a difference, depending on whether the municipality contracted out a service, or provided a service directly. A chapter on personnel management was done for this year’s municipality budgets, which contained useful information. It had been noted that the smaller municipalities paid much higher salaries to their CFOs than bigger municipalities, but various factors drove such types of costs.

Ms Brown then moved on to the “celebration” of savings, as raised by the Chairperson. She thought the dilemma for Treasury was the interest costs paid on money. In the last number of years, not enough money was made to cover what was spent, and borrowings increased every year. On these borrowings, interest was paid, and if the country got downgraded, the interest costs increased. This meant that there were costs involved in putting money into an entity’s budget. National Treasury clearly therefore did not want to put money to a budget if there were no concrete plans for that money, and it was not happy if it discovered, after allocating money, that the departments did not have the plans they claimed to have, or changed their plans. It would be foolhardy for Treasury to continue to leave the money with the department, once this fact had been picked up through monitoring, and it made sense for the money rather to be returned to the National Revenue Fund, or given to another department that could actually deliver services. She reiterated that since interest costs were being charged on the money, it should yield something in return.  

National Treasury continuously appealed to provinces or departments not to “dump” money when it could not be used by them. They should rather have identified an expenditure cut, and let the money be used somewhere else. She noted it was a thorny issue, and was a substantial challenge to National Treasury. The same applied to roll-overs, where National Treasury was being increasingly strict and intolerant of “perpetual” under-spenders.

She noted that the Educational Infrastructure Grants were sorely needed in the Eastern Cape, but the truth of the matter was that the funds could not be spent in the last financial budget, and an expenditure reduction had to follow. This was not a happy state of affairs, but the money could not be left lying there when interest costs were being charged on it. Some programmes were not completely useless and they would have liked to use this money if it was given to them. She agreed that these were “tough times”, but the key was that performance must be linked to expenditure. Essentially, departments were not accountable to National Treasury for performance against their plans, so there needed to be some purposeful interventions and for National Treasury and Parliament to become extra vigilant on these issues.

Ms Fanoe also added to the comment on interventions, and noted that a multi-pronged approach was needed. Firstly, if there was a political problem, technical solutions would not help, and if it was a technical problem, political solutions would not help. The challenges were very different, but there were a number of good developments not only with National Treasury but also with the involvement of sector departments. For example, in water quality issues, the National Department needed to be involved, to urge municipalities to pick up their side of the responsibilities. One of the good developments currently under way was that the Cooperative Governance and Traditional Affairs legislation, still in development stage, would allow for more holistic intervention approaches to get more structured interventions for national and provincial government. It was important to remember that when it came to municipalities, the province must firstly intervene, and only where a province neglected to intervene, could national government then come into play. For concurrent functions between national and provincial government, on matters such as water, sanitation and electricity, provinces did not have the technical skills because they did not actually have any responsibilities in this regard. Some of the issues were very complicated but were dealt with in the legislation. Another intervention was that National Treasury could increase its budget oversight over municipalities of those 17 municipalities that it was monitoring directly, and those where the focus was to build capacity in Provincial Treasuries. National Treasury was also improving accounting practices, to allow for better comparisons of “apples with apples”, which would result in regulations in the future. There were, in summary, various initiatives under way to increase the monitoring of Treasury over municipalities.

Ms Fanoe then looked at questions around the under-spending of conditional grants, noting the answer again was multi-pronged. For the Municipal Infrastructure Grant and the Urban Settlements Development Grant, an underspending in this year would not impact on the allocation next year, as these grant allocations were formula-driven. Reduced allocations were also not necessarily bad, as in the case of the Integrated Electrification Grant, where specific projects were identified and then funded, so allocations shifted amongst municipalities according to the roll out of these projects. Other grants, such as the Transport grants, did look at the expenditure of municipalities and allocations could actually be reduced. However, she made the point that they were not always reduced for negative reasons. For instance, some of the local government transport grants were reduced at one point, but given back later so that more appropriate projects could be funded. When municipalities under-spent their grants, the transferring officer in the relevant department, should be doing his or her job of monitoring support. The same applied to other grants.

As far as other initiatives were concerned, Ms Fanoe noted that the Municipal Infrastructure Support Agency (MISA) had been introduced, which would fulfil a gap in the system and assist municipalities. Another initiative was the introduction of indirect grants to municipalities by some departments, but the level of spending here was sometimes worse. The spending had to be raised and it was critical to build capacity. She agreed it was better for the money not spent to be returned to the fiscus, than to use it for other functions, as this could send out a wrong signal. She felt it could be useful to look at local government support and intervention more broadly, and to make more information available to the portfolio committees for them to use in their oversight role. She agreed there were many issues raised here which required a potentially long session of debate. 

Mr De Beer suggested that the full picture would be presented if the Committee contacted Mr Hattingh, who ran the unit in Treasury which actually dealt with this. He had made use of Mr Hattingh in his own constituency, when it had been on the brink of a section 139 situation, and the assistance of National Treasury had reversed the situation and allowed the municipality to keep going. The reality was that income was not covering the expenditure, and this was the issue which needed to be addressed. A solution would have be thought of, and he suggested that it would also be necessary to engage with the Demarcation Board to look at the bigger issues.

Adoption of Committee Report on the Appropriation Bill
The Chairperson read out the standard report of the Committee, which noted that the Committee, having considered the Bill, recommended its adoption without amendments.

Members approved the Report, and the adoption of the Bill, unanimously.

The Chairperson said he would get the report through to the House on the following day, to finish the business on the Appropriation Bill

Committee Minutes dated 18 June 2013
The Chairperson tabled the minutes.

Mr Mashile said they should start with the relevant support staff to the Committee who attended the meetings.

The Chairperson told Ms S Faku (ANC, Eastern Cape) to speak to her secretary about informing him of her late arrival. An apology should not be sent by e-mail when he was in the meeting, but should rather be delivered in person. 

The minutes were adopted.

The meeting was adjourned.
 

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