Appropriation Bill [B3-2016]: briefing by National Treasury

Meeting report

The Chairperson, in his introductory remarks, lambasted National Treasury for not sending the head of the department or a written apology for not being able to attend. It is important for the Director General to avail himself because the Committee is dealing with the appropriation of taxpayers’ money. It is not acceptable to process a Bill while the senior head of the Department is absent. Departments are disrespecting the Committee by sending substitutes, and the Committee is going to take a stance on this matter and write a letter of displeasure to the head of the department.

Appropriation Bill: briefing by National Treasury
Dr Kay Brown, Chief Director on Expenditure Planning: National Treasury, informed the Committee that prior to the 2016 Appropriation Bill being promulgated, from 1 April departments could incur expenditure in terms of Section 29 of the PFMA that makes provision for spending before an annual budget is passed. Up to 31 July, the expenditure may not exceed 45% of the budget. After July, the monthly expenditure could only amount to 10% of the budget. The promulgation of the 2016 Appropriation Act is necessary to allow for monthly expenditure above the transitional provisions contained in the PFMA, and to ensure expenditure in accordance with the vote and programme purposes as stated in the Act.

The expenditure ceiling for the two outer years of the 2016 MTEF period has been reduced by R10 billion in 2017/18 and R15 billion in 2018/19. The expenditure baselines are growing at a rate of 7.5% over the 2016 MTEF period. The expenditure baselines amounted to R1.15 trillion in 2016/17, R1.24 trillion in 2017/18, and R1.34 trillion in 2018/19. Budget amendments are effected through the reprioritisation of existing funding within the lowered expenditure ceiling, with movements away from areas of lower priority to key areas.

The main draw-down on the contingency reserve is to cover a portion of the Compensation of Employees budget pressures that emanated from the 2015 public sector wage agreement. The Compensation of Employees budgets for departments that historically under-spent have been reduced by R6, 8 billion over the 2016 MTEF period. Through the 2016 Appropriation Bill, a ceiling is put on the compensation of employees budgets of all national votes, and Compensation of Employees budgets are specifically and exclusively appropriated so as to prevent funds from being diverted. These measures mean that departments need to closely monitor and control their Compensation of Employees budgets.

The reduced expenditure ceiling means that real growth rates decline in most economic areas except for goods and services. However, all areas do grow in nominal terms, with the exception of payments for capital assets. Growth in debt-service costs is the fastest growing area.

The total 2016/17 appropriation is R721.1 billion. The largest reprioritised funding additions to budget baselines, excluding additions for the compensation of employees over the 2016 MTEF period, are:
• National Treasury (3.9% of total Bill appropriation): It is allocated R12.8 billion over the 2016 MTEF period. R3.8 billion during the 2016/17 period is for the capital contribution for the New Development Bank.
• Higher Education and Training (6.8% of total Bill appropriation): It received R8 billion over the 2016 MTEF period, and R2 billion during the 2016/17 period is for the National Student Financial Aid Scheme to support unfunded continuing students. A further R2.5 billion is for the National Student Financial Aid Scheme for historic debt relief. It received another R5.7 billion over the 2016 MTEF period, and R300 million during the 2016/17 period is for the contribution from the fiscus towards the 0% increase in university fees.
• Transport (7.8% of total Bill appropriation): It is allocated R2.3 billion over the 2016 MTEF period. R960m during the 2017/18 period is for strengthening the national non-toll road network. R200m during the 2016/17 period is for the South African National Roads Agency Limited: Moloto Road upgrade. R425 million in 2016/17 is for the Gauteng Freeway Improvement Project.
• Trade and Industry (1.4% of total Bill appropriation): R1.5 billion in 2018/19 is for the Special Economic Zones for industrialisation and economic growth.
• Defence and Military Veterans (6.5% of total Bill appropriation): R1 billion has been allocated over the MTEF period. R467.6m during the 2016/17 period is for various aircraft equipment.
• Correctional Services (3% of total Bill appropriation): R1.3 billion is allocated over the 2016 MTEF period. R421.3m during the 2016/17 period is for the filling of vacancies and operations of the inmate case management committees.
• Police (11.2% of total Bill appropriation): R597.8m is allocated over the 2016 MTEF period. R242m during 2017/18 is for the capacitation of existing Public Order Policing Units.
• Cooperative Governance and Traditional Affairs (10.1% of total Bill appropriation): It is allocated R4.5 billion over the 2016 MTEF period. R1.5 billion during 2017/18 is for the local government equitable share for the provision of free basic services to poor households.

Investment in infrastructure supports long-term growth and development. R865 billion would be spent in public-sector infrastructure over the next three years, and R129 billion is included in the Appropriation Bill.

(Tables and graphs were shown to illustrate the contingency reserve, expenditure by economic classification, and infrastructure expenditure estimates: 2016/17 to 2018/19)

Discussion
Mr D Maynier (DA) asked for clarity on the unallocated reserves and what they are prioritised for. He asked if the reprioritisation of the Defence and Military Veterans Department’s budget includes the acquisition of the presidential VIP jet.

Dr Brown, on the unallocated reserves, replied that the details would be forwarded to the Committee. Many other priorities were accommodated in the baseline. The contingency reserves are for unforeseen events.

The Chairperson, on the acquisition of the VIP jet, said National Treasury does not have an item on its allocation programme for the acquisition of the VIP jet. That is the work of the Defence Department.

Ms S Shope-Sithole (ANC) expressed concern that the infrastructure grant budget is not growing to assist economic growth and she asked what informed the budget cut. She asked if the Defence budget includes the refurbishing of court buildings and Defence Intelligence buildings.

On the infrastructure grant, Dr Brown explained that the cut is due to the tight fiscal environment. Departments were forced to prioritise. Some funds have been moved away because they were needed in other priority areas like Compensation of Employees. Other funds have been transferred to SOEs for infrastructure improvement. On the refurbishment of courts and Defence Intelligence buildings, she said the Justice Department has a number of projects which include the refurbishment of courts across the country. This is a big programme. The Defence budget does not accommodate the costs for refurbishing the Defence Intelligence buildings.

Mr J Figg (DA) asked for clarity on the contingency reserve and debt service costs. Also, he remarked that the budget allocation says nothing about drought. He asked if the social grant budget has increased because of an increase in beneficiaries.

Dr Brown replied that the contingency reserve is for unforeseen events. It also accommodates major new policy priorities though it is smaller than the baseline. On debt service costs, she said this comprises 10% of the budget, and it is accounted for. There is a change in increase because once the country is downgraded, you do not know what the interest rate is going to be. She noted that drought is included in the R147 billion for debt service costs.

On the increased social grant budget, Dr Mark Blecher, Chief Director on Health and Social Development: National Treasury, reported that the social grant increase happens every year because of the increasing number of beneficiaries in the programme. The increase also has to factor in inflation which grows every year.

Mr Figg asked why Treasury is using “Other” on the “Other government infrastructure investment” table.

Dr Brown replied that “Other” is used because sometimes the amounts are so small that you do not need to show the breakdown.

Mr Figg asked what Treasury meant by “R1 billion for various aircraft equipment” under the Defence budget.

Dr Blecher replied that the figure is for routine maintenance of aircraft equipment.

Mr Figg asked when is the Committee going to get the breakdown of the R10 billion contingency reserve.

Dr Brown replied that it would be forwarded in writing to the Committee and it would include the infrastructure investment breakdown as well.

Mr Maynier remarked that if National Treasury could not answer with certainty on the acquisition of the VIP jet, Treasury is free not to say anything.

The Chairperson asked if the Department of Small Business Development is ready to give support for business incubation, entrepreneurship and informal trading. Secondly, with regard to Telecommunications and Postal Services, he asked if there is a commitment to spend money on broadband rollout which is moving at a very slow pace. Thirdly, is the allocation for the South African Post Office (SAPO) enough?

On support for small business development, Dr Brown replied that the Department of Small Business Development (DSBD) has now gone through the process of establishing itself. DSBD indicated that if the baseline is not big enough, it is going to be difficult to operate on the scale it wants to. But it is hoped the DSBD would spend the money. On the broadband rollout, she said with the baseline of R200m a year, it is reaching the implementation stage of the rollout programme. On the Post Office, she stated it is difficult to look on the spending side because it also generates its own income at the same time. The full costs are included in the R650m allocation. According to an agreement with SAPO, that fund is sufficient.

Ms Shope-Sithole asked why there is no allocation for the Competition Tribunal.

Dr Brown said given the fiscal environment, it could be that the relevant department has reprioritised funding. She maintained that there is allocation for the current and next financial period.

Ms Shope-Sithole asked Treasury to reply in writing on the budget allocated to the Competition Tribunal as a lot of money is leaving the country illegally. She would like to see the Competition Tribunal and Competition Commission strengthened. She asked Treasury to give the Committee a written list of departments that have been given money for infrastructure development but have failed to use it.

The Chairperson stated that the illicit flow of money is the responsibility of Treasury. SARS and SAPS need to look at this because it drains the fiscus. The Competition Tribunal and Competition Commission would need to focus on collusion on price-fixing. He noted that the Defence Department has for years not been given enough budget. We need to appreciate it when we see its budget is increasing. The sovereignty and security of SA is paramount, and that cannot be questioned. The expenditure can be questioned, but not the allocation. It must also be remembered that SA is involved in peacekeeping efforts on the African continent.

Dr Brown replied about monies not spent by departments and accountability, saying that the Office of the Chief Procurement Officer has an e-tender portal which is going to track whether a tender has been put out and indicate the service provider that has been awarded the job. That would allow Members and the public at large to know more about expenditure.

Mr Maynier wanted to know where in the budget are the secret accounts for Police, Defence, Treasury and other departments. Where are they parked in the budget votes and under which departmental account are they held?

Dr Brown replied that the information could be found under Treasury’s Programme 10. The information is there, but not the details.

Mr Maynier asked where the VIP jet budget is because it is public knowledge there is procurement for the acquisition of the jet.

Dr Brown replied that if its budget is in the Defence allocation, Treasury would have known about it. In terms of the general budget process, the VIP jet item was not budgeted for, but in terms of the secret budget, the Defence Department could answer that.

Mr Maynier remarked that it appears National Treasury is unsure about the VIP jet budget, and that is why he insisted that if Treasury could not answer with certainty, it must say nothing.

Ms Shope-Sithole asked the Committee to invite the Defence Department for clarity.

Mr Figg remarked that the information presented by Treasury appears not to be reliable as the figures on infrastructure expenditure by Human Settlements Department is for 2013/14, not for 2015/16 and 2016/17.

The Chairperson stated if there is no quick solution to this query, Treasury should look at some other errors identified and report back to the Committee.

Mr Figg said it is important that information is verified before it is presented to the Committee. He added that he would like to make amendments to the budget, but there would be no time to make them.

Mr Maynier indicated to Treasury that budget politics would feature in the Fifth Parliament more than before. 231 amendments are going to be proposed to the budget. Things have now changed.

The Chairperson said what the DA is stating is the work of Parliament and Treasury could not be expected to respond to that right now.

Mr Maynier stated he wanted Treasury to be aware and be prepared so that it could respond to the amendment proposals.

The meeting was adjourned.