Unemployment Insurance Amendment Bill: adoption; Department of Labour 2nd & 3rd quarter performance: FFC comments

Meeting report

Unemployment Insurance Amendment Bill: finalisation
The Committee went through its proposed amendments to the Bill:

Clause 4 amendment of section 11 of Act 63 of 2001
Clause 4 was rejected by all members.

Clause 10 amendment of section 24 of Act 63 of 2001, as amended by section 8 of Act 32 of 2003
Clause 10 was amended by agreement to omit ‘subsections’ in line 25 and substitute it with ‘subsection.’ It was also agreed to omit the provision ‘(7) Subsection (5) does not apply to a contributor who voluntarily terminated her pregnancy’ in line 29.

Clause 13 amendment of section 33 of Act 63 of 2001
Clause 13 was amended by agreement to omit ‘any’ in line 10 and substitute it with ‘a.’

Mr I Ollis (DA) asked for clarification on clause 4 which was rejected.

The Chairperson directed Mr Ollis to the clause in the Bill and reminded him that during the public hearings, the Labour Movement complained that the changes in this clause were not deliberated on by NEDLAC. The Department did not argue with this but withdrew that clause.

The Chairperson noted that the Committee approved its proposed amendments. Another stage of clause-by-clause deliberations on the Amendment Bill must be undertaken and any objections to a clause must be stated by members. The Chairperson submitted each clause of the Amendment Bill and no objections on the any clause was received. The Chairperson confirmed that all members agreed to the amendments.

Mr Ollis stated that he had to ask a few questions to ensure that they were on record. He asked whether a regulatory impact assessment was done on the Bill and whether the financial implications of the Bill had been considered. These issues would be raised in his party caucus and even though many of these issues had been addressed, it was important that they were on record.

The Chairperson put the questions to the departmental officials who answered that a regulatory impact assessment has been undertaken and the financial impact assessment has been conducted by the Actuaries Board.

The Committee Secretary then read the Committee Report on the Bill:
‘Report of the Portfolio Committee on Labour on the Unemployment Insurance Amendment Bill [B25-2015], dated 9 March 2016. The Portfolio Committee on Labour, having considered the subject of the Unemployment Insurance Amendment Bill (National Assembly sec - 75), referred to it and classified by the JTM as a section 75 Bill, reports the Bill with amendments [B 25A - 2015]. Report to be considered.’

The Chairperson confirmed that this is what would be placed in the ATC (Announcements, Tablings and Committee Reports) and all members agreed to the Report.

Mr Ollis said that he would recommend to the DA caucus tomorrow that they vote in favour of the Bill. He stated that as an individual member he is in favour of the Bill but the caucus may decide something different and he wanted the Committee to be aware of this possibility.


The Chairperson thanked the DA and said that she was pleased that they brought this matter up and that if the DA caucus has a different approach, the Committee would be prepared.

Ms F Loliwe (ANC) suggested that for emergency matters like this Bill, it would be preferable if the DA members could approach leaders beforehand so as not to delay the process any further.

Mr T Rawula (EFF) said that he too was not representing the entire EFF position but that he would submit the Bill and recommend that the EFF adopt the Bill.

The Chairperson thanked him and said that any changes that arise would be as a result of the mandate of the parties and not disagreement within the Portfolio Committee.

Mr M Bagraim (DA) thanked the Department of labour for changing the regulations and helping the unemployed and that as a Committee they appreciated this.

The Chairperson thanked everyone for their gratitude and said that the Committee had produced something which was good for the nation and thanked all for their assistance.

The Chairperson introduced the Financial and Fiscal Commission presentation, saying that it would assist the Committee on how the Department has fared regarding finances.

Department of Labour 2nd/3rd quarter performance: Financial and Fiscal Commission (FFC) input
Mr Bongani Khumalo, FFC Chair, said that the presentation was on the Department of Labour (DoL) budget and how the Department and its entities have performed. He gave a brief background on the role and function of the FFC, which is an independent, permanent, statutory institution established in terms of section 220 of the Constitution. The mandate of the Commission is to make recommendations to Parliament, provincial legislatures, and any other organ of state determined by national legislation. The Commission’s focus is primarily on the equitable division of nationally collected revenue among the three spheres of government and any other financial or fiscal matters.

Mr Khumalo provided an overview of the labour market, saying there was a close association between the economic growth rate of South Africa and the unemployment rate. When economic growth was strong during the 2000s, the unemployment rate declined but with economic growth weakening, unemployment is increasing. Mr Khumalo said that a large number of jobs are based in the Community, Trade and Manufacturing sector. The average yearly growth in manufacturing has been negative between 2008 and 2015 – this is a concerning trend as manufacturing has been earmarked as the sector with the most employment creation opportunities. The main sources of employment creation last year was agriculture, in spite of the drought, and construction, in spite of the reports of absence of sufficient projects, financial services and community services.

The 2015 quarterly data revealed that total employment increased by 190 000 in the last quarter, up slightly from the 171 000 increase recorded in the third quarter. Employment in the fourth quarter of any year does tend to be boosted seasonally by increased temporary employment in the retail and tourist sectors over the Christmas period. It is encouraging that there was a 250 000 increase in formal sector employment in the fourth quarter on a q-o-q basis. A table showed the relationship between demand, output and employment for various labour sectors. For example, R1 million extra output generated in the Agriculture sector, overall output increases by R1.7 million and creates 4.9 jobs.

In terms of population dynamics, Mr Khumalo said that there is a need to find job strategies to deal with the pressures that urban areas and large cities are facing. Urban population is increasing while rural population is decreasing. The role of government and how government allocates resources is important in this regard.

The National Development Plan (NDP) recognises job creation as a key driver for accelerated growth and a higher standard of living. The NDP has certain targets, including a reduction in the unemployment rate to 14% by 2020 and 6% by 2030. There must be an increase in the number of people employed to 23.8 million in 2030, therefore increasing the percentage of the working age population (15-64 years) employed to 61%. Mr Khumalo said that to achieve these goals, the NDP highlights that workforce capabilities must improve, bargaining and labour relations should be stabilised, a move away from resource-intensive to more energy-efficient labour-absorptive industries should be promoted and economies with high potential for job creation should be supported.

The South African labour market faces a number of critical challenges that need to be addressed if the economy is going to create the level of jobs required by the NDP. Labour market challenges include a skills mismatch (possibly a result of disconnect between industries and the education system), restrictive labour legislation in terms of global standards and an adversarial collective bargaining system.

Mr Ghalieb Dawood, FFC Program Manager, continued the presentation by doing a Departmental Medium Term Expenditure Framework (MTEF) Analysis. DOL has four main programmes – Administration, Inspection and Enforcement Services, Public Employment Services, Labour Policy and Industrial Relations – and the DoL makes transfer payments to five public entities. The main focus of the department over the medium term in line with the NDP relates to minimum working conditions, fair labour practices, supporting work seekers and regulating the workplace. DOL contributes to outcome 4 of the Medium Term Strategic Framework (decent employment through inclusive growth).

The Department’s budget is increasing from R2.8 billion (2016/17) to R3.2 billion (2018/19). This represents a real annual average growth of 0.1% per annum compared to 4.2% for the period 2012/13 to 2015/16. The slower growth rate is a result of a Cabinet decision to lower national aggregate expenditure ceilings which has resulted in R197 million reduction in compensation and R50 million reduction in goods and services over the 2016 MTEF.

In terms of the spread of the budget across DOL programmes, Administration and Labour Policy and Industrial Relations consumes the largest share of the budget over both periods reviewed. Over the 2016 MTEF period, the proportion of the budget allocated to Labour Policy and Industrial Relations highlights the priority attached to the implementation of labour legislation and a national minimum wage.

In terms of the spending and MTEF budget by economic classification, the effect of the Cabinet-approved reductions is evident with respect to transfers and subsidies, goods and services and compensation compensation of employees. Despite the reductions, compensation and goods and services budgets are still growing positively over the 2016 MTEF, although by a smaller amount compared to 2012/13 - 2015/16. The number of wage inspectors and employment counsellors are expected to increase over the 2016 MTEF in line with an increased demand for those services. Looking at the line item share of total spending and the MTEF budget, the compensation of employees (CoE) and Transfers and Subsidies budgets consume the bulk of allocations in the DoL.

Mr Dawood reported that underspending has been persistent in the Department, worsening from 97% (R73.8 million) in 2013/14 to 94% (R126 million) in 2014/15. Poor spending took place across all programmes in 2014/15, although significant underspending was noticeable in Administration and Inspection and Enforcement Services. Reasons for the 2014/15 underspending included the Department of Public Works invoicing for an amount significantly less than budgeted for and the claims from the Compensation Fund were fewer than anticipated.

Certain audit findings were highlighted by the Auditor-General. Matters of emphasis in the 2014/15 report include underspending of the budget and that performance target information contained in Programmes 2,3 and 4 were not specific, time-bound, measurable and well-defined (sometimes no variances were reported). the Auditor-General noted that the Accounting Officer did not take effective steps to avoid irregular expenditure as required by the PFMA and neither were effective steps taken against those possibly responsible for financial misconduct. It was also found that DOL did not prepare complete, accurate and reliable financial statements which are supported by reliable evidence.

Mr Dawood held that the performance assessment of the second quarter of 2015/16 shows that there was an underachievement of targets across all programmes, especially in Administration and Public Employment Services. In terms of the third quarter, there was a similar underachievement of targets in Public Employment Services and Labour Policy and Industrial Relations.

Over second and third quarter, there was significant underachievement of departmental targets. Programme 3: Employment Services, consistently performed poorly, achieving less than 50% of its targets in both quarters. The major challenge appears to be the difficulty in achieving turnaround times of some performance indicators. To improve turnaround times, work processes need to be re-examined to identify any overlaps, duplication or bottlenecks in the system. Programme 2: Inspection Services, was the best performer and achieved close to 75% of its targets in both quarters.

Most of the programmes did not include any spending information even though this is a requirement in the quarterly performance template. Thus assessing whether spending by programmes was in line with quarterly projections could not be determined.

Big variances were reported for critical indicators related to good governance and employment creation. Some indicators may not take into account the need to control expenditure to achieve cost savings as highlighted in Budget 2016.

In terms of the in-year spending performance of the Department, the underspending problem is clearly illustrated in a graph which shows that a large portion of underspending occurs in the fourth quarter.

Mr Dawood explained that five entities report to the DoL. Four of the entities received a transfer payment and the Unemployment Insurance Fund does not. He explained that the CCMA receives the bulk of transfer payments disbursed to entities, with transfers estimated at R687 million received in 2014/15, although underspending of just under R10 million is noticeable. All of the other entities spent the full allocation of transfers received in 2014/15. The Department also transferred an amount of R99 million in 2014/15 to sheltered employment services to provide employment for people with physical and mental handicaps.

The FFC called on the DoL in its response to the 2015 Appropriation Bill to play a more active role in its oversight of the Compensation Fund. This was in the context of poor audit outcomes by the Compensation Fund and also a significant expenditure spike in 2014/15 as a result of compensation claims in excess of 200% of the budget allocated. The FFC welcomed the establishment of a task team by the Minister of Labour and the implementation of a system that will account for all the benefits paid.

Mr Dawood noted that the NDP has set ambitious job creation goals for the South African economy. With economic growth expected to decline over the medium term, budget allocations to the DoL are growing at a slower pace compared to previous years. The DoL has received an unqualified audit in the past three year, although the Auditor-General raised matters of interest, especially in relation to performance information in its 2014/15 report.

Mr Khumalo said that the last part of the presentation dealt with recommendations made in the past after the global economic crisis period. He said that this might be of interest to members.

Discussion
The Chairperson asked Mr Khumalo if the FFC were happy with the rate of response of the Department to the FFC’s recommendations and if not, whether the problem was identifiable.

Mr Khumalo said that the Department’s response to the FFC recommendations was dependent on Government's response. He said that the general response to the Commission’s recommendations has been very positive and over the last five years, there had been about 97% acceptance of the FFC recommendations. He said that each Department must start implementing the recommendations within its broader programmes.

Ms P Mantashe (ANC) said that she appreciated the presentation. She asked what the role of the FFC was when the National Treasury retracted money from poorer provinces and reallocated it. She provided the example of the Department of Education whereby a large sum of money was retracted from the Eastern Cape. She asked whether the FFC could intervene to avoid this.

Mr Bagraim said that the recommendations were based on growth and that it seems that, based on the Minister of Finance’s statements, growth is going to further decline. As the growth rate has now declined, Mr Bagraim asked whether the forecasts should be amended. He then addressed a number of concerns arising from the presentation. He asked whether there should be further growth in Inspection and Enforcement Services and whether the FFC could comment on this. He said that a large amount of money was spent on Labour Policy and Industrial Relations but that nothing is produced from that sector. He asked the FFC to comment on this too.

Mr Bagraim referred to slide 16 where it stated that ‘the number of wage inspectors and employment counsellors are expected to increase over 2016 MTEF in line with increased demand for these services'. He asked the FFC to comment on this. He referred to slide 18 where it stated that the ‘claims from the compensation fund are less than anticipated'. He said that this phrasing was critical as thousands of claims were coming in but not being activated. He said that this would skew the figures.

Mr Bagraim referred to the Administration programme not achieving 53% of its performance targets. He said that this was purely a fault of staffing and was not an external fault. He asked for the FFC to comment on this. He referred to the underachievement of performance targets in Public Employment Services of 56% in the second quarter, and again 56% in the third quarter. He quoted the underachievement figures for the third quarter for Labour Policy and Industrial Relations as 78%, asking the FFC to comment on this as it was a high spend sector with poor performance figures.

Mr Bagraim referred to slide 23 which listed the major challenges of Employment Services. He asked why the comment about ‘processing work visas of foreign corporates within thirty days’ was made. He quoted from the same slide that ‘big variances [were] reported for critical indicators related to good governance and employment creation.’ DOL had the same report in the past and this practice had not changed. He asked if there was financial viability in achieving the target. He said that there are vacancies but the FFC should be advising the DOL whether they can afford to fill the vacancies and should not be asking DOL whether it was viable.

Mr Bagraim commented that the Compensation Fund referred to on slide 29 indicates a major problem and that this is reflected sufficiently. He then referred to slide 31 which stated that coordination between the Department and other national departments needs to be strengthened. Mr Bagraim asked who had overview over such coordination and whether the FFC gives advice on this.

Mr D America (DA) said that given the need for increased job creation and considering underperforming programmes such as Employment Services, the objective of job creation is not being assisted. If one looks at the budget allocation for Administration and compares it to the previous year, there is a marginal increase and yet there is a vacancy rate of 12%. There was a need to increase the total staff establishment given the little growth in the Administration programme, never mind trying to fill additional positions. In terms of underspending problems, it could be a result of rollovers or a lack of planning and asked for clarity. He asked about the recommendations geared towards structural shortcomings in DOL and its entities. He asked to what extent DOL was alive to the recommendations and whether the FFC could encourage the Department to take the recommendations seriously.

Ms Loliwe expressed interest in the footnote on slide 23 which stated that assessing whether spending by programmes were in line with quarterly projections could not be determined. She asked how the graphs on the following pages were constructed if the information was not available.

Mr Khumalo replied to Ms Mantashe on what should be done where there is a tight fiscal framework and resources are allocated but not utilised. The grants allocated to a department are meant for certain identified priorities. If grants are allocated to provinces and are not spent, the grant would be reallocated to another place but it would be kept within the sector. An example is the Nelson Mandela Bay municipality which was allocated a significant amount of money for human settlements – this grant was taken from Gauteng. The primary objective of the grant is to achieve human settlements and this must be done in a place where it will be best utilised. The grant will not be removed from the sector but rather re-allocated to a place where it will be better spent.

Mr Bagraim’s questions were then addressed. Mr Khumalo said that the NDP targets were set on the basis of assumptions on the performance of the economy. The NDP came into effect in 2012 after the diagnostic report identified areas which needed attention. This period coincided with the global economic crisis. The New Growth Path also set growth targets. These projects assumed certain things about the impact, recovery and response of South Africa in the context of the crisis. Three scenarios were established: ‘business as usual’ (where South Africa would continue as if nothing has happened), ‘severe’ (where the growth path would significantly deviate from the previous trend as a response to the crisis and would recover to the original position pre-crisis) and ‘low’ (where the economy would not return to the original pre-crisis position). Mr Khumalo said that the targets need to be revised as the crisis has resulted in a large deviation from the normal growth path which has revealed some structural weakness of the economy. The impact of the crisis on South Africa could be labelled as severe as it exposed South Africa’s reliance on commodities and its dependence on imports. Mr Khumalo said he agreed with Mr Bagraim that the numbers needed to be revised and recalibrated.

Mr Khumalo replied that where there are a number of vacancies, the entire scheme has to be rethought. Some of the challenges of the State include how much the State has to compensate employees. A productivity linked scheme could be considered as it would stimulate growth. The Presidential Review Committee on State-owned Entities is also considered vacancies. The Presidential Review Committee said that frontline service delivery employees are needed instead of those in higher positions who do their work through consultants. He said that it is not about the salaries paid but rather the value generated for the salary. Where vacancies were considered in the presentation, the considerations were not directives but rather important things for the Department to consider.

Mr Khumalo said that in terms of departmental coordination, Chapter Three of the Constitution talks about cooperative governance. It was the responsibility of those in government to coordinate and cooperate with different departments.

Mr Dawood replied on the allocation of resources and the cost of the programmes and whether the allocations should be revised. The way that DOL allocates resources is based on the work planned for the year and the next three years. Based on what is in the Annual Performance Plan, resources are allocated. For the Annual Performance Plan, it was important to see how it aligned with the priorities of the MTEF. He said that outcome 4, employment creation, was particularly important and that when the Department creates the Plan, it is important that it is consistent with the outcomes.

Mr Dawood replied about the comment made about working visas. He said that the point was to highlight that the Department has quite a few indicators which are time-bound. This was a good quality for an indicator as it indicates the performance of the Department. He could have used any indicator but this one showed the relationship between achieving the target and achieving outcomes in the economy.

Mr Dawood replied that variances were important tools and a big variance is considered to be between 2% to 5%. In this case, there was a significant gap. The management of the Department should put in place actions which address those specific variances. Quarterly reports are meant for management and should be used to avoid big variances at the end of the year.

Mr Ollis referred to slide 5 of the presentation which concerned the relationship between GDP and unemployment. He asked why the ‘nano definition’ of employment was used, saying that the former Governor of the Reserve Bank said that it was ridiculous to use the ‘nano definition'.

Mr Ollis directed a question to the Chairperson, asking why the Accounting Officer did not take steps to avoid irregular expenditure. He asked how this can be addressed and that the Department should be asked why the Department is only achieving 60% of its targets.

Mr Ollis asked the FFC whether the 41% achievement of performance targets in quarter two was in the current financial year. The figures he received from the Department showed they had processed a higher percentage of visas. What had happened in the third and fourth quarter and what was the average figure for the year? He said that the problem was that DOL was not processing the visas and that they needed more information. He asked about problems surrounding disciplinary cases and fraud and the fourth quarter lack of spending. The Committee needs an opportunity to ask Department these questions.

Mr Rawula said that he agreed that the focus should be on low wage employees. There was a disjuncture between the budget for policy and growth. He was interested to see the impact of the policies implemented in the economic depression and that an impact analysis would be valuable. He asked whether the decline in economic growth was related to the policies adopted in this period.

Mr Khumalo answered about the choice of the definition of the unemployment rate, saying that if the expanded definition is used, the trend will still be the same. The link between economic growth and unemployment is not dependent on the definition of unemployment used but rather on the relationship between them, which can be deduced from the trend. The most accessible, uncontested number is the narrow definition figure from Stats SA and this is why it has been used by the FFC.

Mr Khumalo replied about irregular expenditure, saying that irregular expenditure is not necessarily negative as it may be compliance related. Irregular expenditure is either condoned (because no one has been unduly enriched) or someone is held accountable for it.

Mr Khumalo replied to Mr Rawula that if they shifted the SETAs (Sector Education and Training Authorities) from where they were (Labour) to where they are now (Higher Education and Training), he asked whether this would make a difference to the South African economy and the DoL. SETAs were probably the biggest under-spenders of resources. There had been a number of interventions to put them under administration as there were significant challenges and under-utilised resources. The mandate of SETAs was not changed but instead their scope was broadened. FFC could evaluate impact of the SETAs on DoL and whether the mandate of the DoL was affected by the SETAs.

Mr Dawood replied that the 2nd quarter indicator measuring the visas was for 2015/16. The third quarter was not evaluated in this respect but it was evaluated in terms of the second quarter. Once this quarter ends, they will be able to determine the overall performance of the Department.

Mr Dawood responded to Ms Loliwe’s comment stating that there was no spending information but that data was presented based on the information. The data looked at the in-year spending by the Department as a whole which is published by National Treasury. The information is not divided into quarters. Quarterly information was usually contained in the Quarterly Performance Reports. Most of the programmes did not supply the required information in the quarterly reports and as a result, assessment could not be conducted at the programme level. Instead, the FFC could determine whether the performance of the programme was more or less in line with the spending performance.

The Chairperson asked a follow-up question to Ms Mantashe’s question. She referred to funds which were not spent and asked why National Treasury allocated grants to departments which were incapable of spending the grants. She asked why this situation was not monitored and avoided. She asked if there was a link between growth and non-investment of some companies in South Africa. She clarified by asking whether the companies which benefited from South Africa but do not invest in South Africa had a negative impact on SA growth.

Mr Khumalo replied that the monthly departmental grant spending is submitted to Treasury to forecast whether a department will spend the grant. If it is forecast that a department will not be able to spend the grant, the department will receive warnings. The onus and responsibility rests with the department, not with National Treasury. Treasury is concerned whether the money allocated in a constrained fiscal environment is spent properly.

On the second question, he agreed there was a negative impact on economic growth. Domestic savings translated into investment but where investment is invested outside of South Africa, economic growth is adversely affected. Certain measures are used by economists (including competitiveness, business confidence, political stability and labour legislation) and investment leaving the country is a consideration in determining economic growth.

The Chairperson addressed the Committee and said that the increasing unemployment rate has many contributors, some of which are not recognised publicly. These other contributors should also be analysed. The Chairperson thanked the Mr Khumalo for his contribution.

Committee business
The Committee adopted the previous set of minutes after consideration.

Mr Ollis asked about the committee programme for the following term, particularly about the inclusion of the Compensation Fund. He asked that they adopt a programme ahead of the next term. Mr Ollis wanted to meet with the new Compensation Commission which had been appointed to ask them questions, particularly concerning complaints in the Eastern Cape. He asked whether the Minister could attend a meeting to answer questions about the annual reports and about the mismanagement problems in the Department. The third question regarded the site visit to Mpumulanga where labourers were exploited as they did not have documents. Proper process should be followed and that dates should be allocated to address these concerns in the next term’s programme.

Ms Loliwe asked that the Committee agree that before the next meeting, Committee members are sent a draft so that members could have an opportunity to consider the items.

The Chairperson said that draft committee programme for the first term was adopted last week and the draft programme which is outstanding is for the second term. The Chairperson said that the new draft programme should be considered and  revised to include relevant items of interest in the following meeting. She also said that parliamentary programme changes were unavoidable but that an effort would be made to adopt a programme.

The meeting was adjourned.