National Treasury on its 4 Quarter 15/16 & 1 Quarter 16/17 performance

Standing Committee on Appropriations

23 August 2016
Chairperson: Ms Y Phosa (ANC)
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Meeting Summary

The National Treasury presented on the preliminary revenue and expenditure outcomes for national departments. The main budget deficit amounted to 4.2 percent of the gross domestic product (GDP). Departments had spent R699 billion against the final available budget of R706 billion, indicating under-spending of one percent. There had been significant under-spending on payments for capital assets. Departments which had under-spent were Cooperative Governance and Traditional Affairs (CoGTA), Social Development, Human Settlements and basic Education. Departments that had over-spent were the Department of International Relations and Cooperation (DIRCO), Parliament and the Department of Correctional Services (DCS).

First quarter expenditure estimates showed a total expenditure for 2016/17 of R1.463 trillion. The deficit estimate was R139 billion. Home Affairs had spent three percent more than its projected expenditure. The National Treasury had spent 3.4 percent more than the projected expenditure.

In discussion, the most urgent concern among Members was with under-spending on capital assets and job creation programmes, which one Member described as “criminal.” The role of the Committee was questioned by opposition parties, who cautioned against duplication, and who felt that interrogation had to be taken to ground level, asserting that the NT could not answer on behalf of departments. Several Members asked if the NT was satisfied with the explanations given by departments. The NT itself was chided for over-spending.

Several Members did not agree with the NT about what constituted savings. The NT was also told that savings should not be rated above compliance. There could not be savings if this was on account of under-performance. Under-spending on the school infrastructure backlog grant were cause for concern, as were accruals and high vacancy rates.

Meeting report

Chairperson’s introductory comments
The Chairperson opened the meeting and reiterated what the Committee had emphasised in its last meeting of the previous term. Oversight of public finances was a most important role. Citizens and taxpayers had to be accounted to. There had to be proper oversight of government spending. Radical economic transformation was possible only if the resources and expenditure of departments led to attainment of delivery targets. The Committee had noted in the previous term that there was budget pressure, as indicated by departments in public hearings. Pressures could have a negative effect on the ability to adhere to strategic frameworks. The Standing Committee was of the opinion that doing more with less had to become the central ethos of departments.

The role of National Treasury (NT) was critical. Its oversight of public spending was to provide a breakdown of preliminary spending for all votes. Out of a total of R721 billion, 55 percent went to national departments. There had to be robust engagement, and challenges had to be addressed. The spending performance of departments had to be discussed, with concrete proposals issuing from that. There was a nine-point plan to maintain the country’s credit rating and to see that Medium Term Expenditure Framework (MTEF) targets were attained.

Mr N Gcwabaza (ANC) drew attention to the fact that there was a memorial service for Ms Nyalungu, a former member of the Committee. He proposed that the meeting be adjourned at 12h00, so that Members could attend the service.

The Chairperson recognised that there was a reason to end earlier on humanitarian grounds, but there were important matters to attend to. She asked Members for inputs.                                                                                                 

Members agreed that the presentation and deliberations had to be gone through, but speedily, so that the service could be attended.

The Chairperson asked the NT how much time it needed, and was told it could move through the presentation quickly, as it was not overly long.

The Chairperson agreed that the meeting be adjourned at 12h00.

National Treasury: 2015/16 preliminary expenditure outcomes and 2016/17 first quarter spending
The briefing was presented by a National Treasury delegation consisting of Mr Dondo Mogajane, DDG: Public Finance; Ms Gillian Wilson, Chief Director; Mr Rendani Randela; Chief Director; Mr Owen Willcox, CD: Economic Services; Ms Julia de Bruyn, CD: Education and related departments, and Ms Ulrika Rwida, Acting CD: Urban Development and infrastructure.

Preliminary revenue and expenditure outcomes for national government were presented. The main budget deficit stood at 4.2 percent of gross domestic product (GDP). Departments had spent R699 billion against the final available budget of R706 billion, which was under-spending of one percent. There had been significant under-spending on payments for capital assets, amounting to 4.7 percent of the final available budget. Departments that under-spent were Cooperative Governance and Traditional Affairs (CoGTA), Social Development, Human Settlements and Basic Education. Departments that had over-spent their final available budgets were International Relations and Cooperation (DIRCO), Parliament and Correctional Services.

Basic Education had under-spent by R423.4 million on the Accelerated Schools Infrastructure Delivery Initiative (ASIDI) grant due to poor performance and difficulty in replacing underperformers. In the Department of Health, there had been R75 million under-spending on condoms.

Based on the 2016 budget, the main budget revenue was estimated at R1.324 trillion. Revenue and expenditure estimates for the first quarter of 2016/17 showed that the total expenditure for 2016/17 was projected at R1.463 trillion. The deficit was estimated at R139 billion. Home Affairs had spent three percent more than its projected expenditure. The National Treasury had spent 18 percent of the available budget, 3.4 percent more than projected expenditure.

Ms S Shope-Sithole (ANC) said that unemployment was a big problem and had to be dealt with seriously. She was concerned about under-spending. The economy had to be helped to grow. Government was not spending, but the private sector was. The question was how to assist growth.

Dr M Figg (DA) said that he had a similar concern. Savings and under-spending were nice words. Oversight had to verify the information received. Departments gave their opinion and the NT and the Committee had to take it further. The information had to be examined to find reasons for under-spending. There were patterns of under-spending similar to the previous year. Reports were simply given in order to comply. In the previous year there had been under-spending in Health on condoms. The year before, it had been because there was a dispute over flavoured or unflavoured condoms. Currently, it was because of intellectual property. Reasons given by departments were frivolous. Information on under-spending and overspending had to be verified. Outcomes of spending were not being attended to. It had been stated that there were savings of R10 billion and R15 billion. This was in fact not savings. The expenditure ceiling had been adjusted down. He referred to the slide about under-spending on capital assets. It was criminal. Capital assets had a number of functions. They had implications for job creation and infrastructure. He referred to Basic Education. Education was in a poor state. There was still under-spending on school infrastructure. Important decisions had to be made, especially at the early stages. The Committee had to look at its role. It was not the same as that of the Standing Committee on Public Accounts (SCOPA), which looked at problems that could not be rectified. Problems had to identified and looked at in the first quarter. It would not do to say that a better report could be expected in the second quarter.

Ms E Louw (EFF) said that she agreed with Dr Figg. In the past, she had questioned the manner in which the Committee conducted its business. Interrogation did not get down to the ground, to check if the information was a true reflection. The NT could not answer on behalf of departments, and time was wasted. The Auditor-General had to be present whenever the NT presented. The Committee had to revisit the way it conducted business. She also referred to the condom saga. The Minister had told the Committee the year before that spending could not be signed off because of a flavour dispute. The current report told a different story. She asked that not only percentages be given, but also amounts. It was not possible to ask the NT much, as the departments themselves had to be asked.

The Chairperson asked that the NT come up with concrete proposals during the preliminary reports. The Committee would then be prepared when it met with departments, and be able to move from an informed position. The NT was under obligation to brief the Committee, which would call in the departments one by one.

Mr A Shaik Emam (IFP) asked where the R139 billion deficit came from, and how it would impact on the economy. It was based on the fact of a high expected deficit. There had been under-spending on the Jobs Fund and DIRCO had overspent. The NT had reason to be worried. DIRCO had overspent because of the exchange rate. He asked if it would be reduced if the exchange rate improved. The Committee had been told in the past that there had been a lack of condom supplies, and it had been said that there were not enough people to manufacture them. There would always be under-spending. Repeat offenders had to be identified. Consequences for non-compliance had to be ensured. The Committee concentrated on financial aspects. He asked if a greater role could be played on the ground, involving communities.

Ms D Senokoanyane (ANC) said she would align herself with Ms Louw. The report received was very raw. She wanted to know if the NT was happy with the reasons given. Under-spending on the school infrastructure backlog grant was a serious challenge. She referred to vacant posts, where departments gave different reasons. She asked if there had been an instruction from the NT to save on posts. If money was there, it had to be used. Departments would still have to answer ,but she wanted to know how the Treasury felt.

Dr C Madlopha (ANC) suggested that when the NT prepared its report, it should also comment on whether it was happy with reasons given. She referred to infrastructure spending on schools. It had been stated that there was difficulty with replacing under-performers.  She asked what the difficulty was, as the Committee had to know this when it met with departments. The NT had mentioned savings on social grants, but there was a difference between saving and under-spending. If the target was fulfilled, there were savings. There could not be savings where there was under-performance. She asked the NT to unpack the meaning of savings. She applauded the cost containment in the Presidency. It was good to cut down on travel expenses, but cutting down on job creation was bad, as unemployment was high. The question was whether the NT had created an organogram it did not need.

Mr Gcwabaza remarked that the NT gave the information, while the Committee had to follow up with oversight on over-spending and under-spending. He asked for details about under-spending due to cost containment. He asked how many funded posts had been filled, and whether they were critical or not. Under-spending on capital assets could not be condoned. There were implications for infrastructure and job creation. The NT had to explain under-spending on the Jobs Fund. It had to pronounce if reasons for over-spending and under-spending were sufficient. The Department of Performance Monitoring and Evaluation (DPME) had to be called in when the Committee met with departments, to correlate with the departments. Information sharing with the NT was essential. He was confused by the information on tax revenue collection, where it was stated that R1 trillion had been collected for the first time in the previous year. Figures given would pertain to all four quarters of the current year. He emphasised that information had to be used for oversight. The NT had to explain about the Jobs Fund itself. It had to explain how much progress had been made in correcting non-compliance in municipalities.

Mr A McLoughlin (DA) said that he presumed that the NT questioned departments to obtain explanations. If the Committee were to ask the departments the same questions, there would be duplication. He referred to the slide where it was shown that tax revenue was more than estimated. R1.0697 trillion had been estimated, and R1.070 had been collected, yet the last bullet point stated that tax revenue had been lower.

The Chairperson remarked that it was important that departments came to brief the Committee. Section 32 of the Public Finances Management Act (PFMA) required that the NT submit information. Clarity on questions had to be obtained from them. The information helped to identify which departments needed immediate attention. Differences and gaps were not being pointed out, and corrective measures were not being set out to empower the Committee. There was nothing to be happy about concerning savings. There was a structure and a budget, but a lack of people to implement it.

National Treasury’s Response
Mr Mogajane responded that Parliament had instructed that budgets for personnel had to be reduced by R10 billion and R25 billion. The Appropriation Act of the current year instructed a cut of R25 billion, to address other priority needs in government. The R25 billion personnel budget cut was due to a cut in numbers. Defence had lost 7 000 members. The Treasury itself was unable to fill ten positions. The NT did not applaud the fact that it could not employ, but it could not come back and tell Parliament that it had been unable to cut, because there would then be a huge deficit. Departments were struggling with the new budget. There were squeezes in terms of expenditure limits. There was currently a small deficit of one percent that was exceeded in terms of the estimate. It was not palatable to say that R25 billion had been voted for personnel spending cuts. He told Ms Shope-Sithole that under-spending and savings on service delivery was a problem. There was interaction with departments on an ongoing basis. The NT was not supposed to give opinions, but to look at the facts. Yet it was concerned about under-spending on capital asset payments.

Mr Mogajane answered Ms Louw that the NT should also be invited when departments were called in. The role of the Public Finance division in the NT was to oversee the whole of government, including the NT itself. Properly, this division could remove itself out of the NT. The Treasury DG and Chief Financial Officer (CFO) had to be questioned on reasons for under-spending on their own Jobs Fund programme. The Committee could see the NT as a partner who could empower it through knowledge and information. The Public Finance division also looked at NT spending related to 40 departments and hundreds of entities. There was sometimes confusion about its role. The role of the division was to empower the Committee

Mr Mogajane answered Mr Shaik about the R139 billion deficit. Deficit targets were set every year. Estimates were published in the budget review. What was collected had to be balanced against what was spent.  Budgeting for a deficit had been done since 2009. A deficit meant that more had to be borrowed. The deficit had been exceeded by R139 billion.

Mr Mogajane agreed with Ms Senokoanyane that the information provided was raw. But the NT was happy to save money that had not been spent. He cited the example of learner social grants. It had been intended that 100 youths would be brought into the system, and only 90 would be registered. The NT would ask if there was advertising to reach the full number, to give youths in the rural areas a chance. In the NT books, money not spent became savings, to stay within the budget deficit every year. Patterns of under-spending over the years were examined. The NT had always indicated that it was worried about under-spending on capital and infrastructure projects. This was not boosting economic activity and the result was no growth. Departments went to the Department of Public Service and Administration (DPSA) for approval of organograms, and posts were funded on the basis of that. What had been done the year before in January was to come to Parliament and say that departments had to reduce their budgets by R25 billion. Some funded posts had had to be cut. It was the dilemma the NT was in. It had to ensure that other government programmes like education benefited. Money had to be moved around to address that.

Ms De Bruyn responded about under-performing contractors in the school infrastructure backlogs grant  -- the ASIDI programme. If a contractor was a problem and got fired, the contractor would say that there was a contract and would take government to court, which made it impossible to give money to another contractor, hence there were delays in getting rid of under-performers. The same questions had been asked of the Department since 2011. In the provinces, spending on ASIDI was not what it had to be.

Ms Rwida referred to under-spending on the Jobs Fund. The Jobs Fund had disbursed R3.3 billion, which was 85% of the R3.9 billion target. The matching fund from the private sector had been R4.7 billion, which was 97 percent of the R4.9 billion target. There were 76 000 jobs created, which was 98 percent of the 78 000 target. In the new year, disbursements would go up to R11 billion. It was a huge project which was bound to have some impact.

Mr Mogajane said that the role of the NT was eroded through its responsibilty to the DPME. The NT interacted with the DPME in terms of numbers and their impact. He suggested that the NT be called together with the DPME.

The Chairperson advised that the NT should point out the impact and gaps picked up. Corrective measures had to be proposed.

Dr Figg referred to erratic expenditure. He asked if costs were carried by the NT or by departments. He asked about the office of the Chief Procurement Officer (CPO).

Ms Louw asked that the figures she had asked for, in addition to percentages, be given to her by the end of the week.

Mr Shaik Emam asked what the rationale was for wanting to borrow, to live in debt. He asked what the current debt was.

The Chairperson asked for clarity on accruals. Departments were overspending because of accruals. This was unacceptable. Money for the current year was having to be used to cover costs of the previous year. The NT had gone beyond the projected budget by three percent. Other departments had to learn from the NT not to spend money it did not have. It would impact on the overall budget at the end of the financial year. It had to be explained how accruals would not be allowed in future. It was unacceptable.

Mr Mogajane responded that the debt to GDP stood at 46 percent. The GDP was R3 trillion and R1.5 trillion was owed. The rationale for borrowing was that the economy was not what it should be. When the budget had been presented at the end of the year, the growth rate had been projected as 0.9 percent, but the IMF had forecast 0.1 percent, and the Reserve Bank a zero growth rate. A new estimate would come through in September. Global economic conditions impacted directly on revenue. There had to be borrowing. He answered Dr Figg that the NT had had a session with the Central Procurement Office (CPO). That office had introduced a lot of benefits with regard to automation. The Committee had to be briefed.

Ms De Bruyn said that services were rendered but invoices had not arrived in time to pay for the previous year. There was a problem with the paying of invoices. Normally they would accrue and payment would be in the same year. That was the case for the NT, which was different to the provinces. The Department of Public Works (DPW) invoices came later than services rendered in the previous year, therefore there were municipal charges for all 12 months. Payment was made after the fact, always in the last month.

Mr Randela added that there was a similar problem with the Department of Correctional Services (DCS). Accommodation charges were handled by the DPW. Problems were for the same reason as explained by his colleague.

Mr Mogajane said that national departments had sorted out the problem of accruals. It had been a great problem ten years ago, but in the last year discipline had been instilled in their systems to address accruals. Very few invoices were withdrawn by officials. It was not listed as a big problem, because the national departments were able to deal with it.

Ms Wilson said she had taken note of what the Chairperson had said about the conclusion of contracts by the NT. The NT could save if it concluded a contract and paid over one year. If paid over a longer period, according to what was available in the baseline, there could not be savings. If a contract was concluded in a short time, there could be significant savings. The principle followed by the NT was that that the Information Security Management System (ISMS) project would be instituted across departments. It was a large project that had run for more than ten years. The NT wanted to ensure progress. The contract for licences had been concluded. Benefits from the project would be huge.

The Chairperson remarked that savings should not be rated above compliance. There was a law in place. Performance had to be balanced with compliance. The NT had to comply and lead by example. It had to be able to speak with authority and provide the influence needed. It had to look at affordable ways to deal with issues. It was unacceptable to spend money it did not have on services. The NT was contradicting itself.

Mr Mogajane responded that the NT had to be held accountable. When the CFO and the National DG appeared before the Public Finances division, they would be asked the same questions and issues would be approached in the same way.

Ms M Manana (ANC) said that Home Affairs had spent three percent more than projected. What was meant by the explanation that this was related to the date of the municipal elections? There had been unplanned spending by the DPSA on public participation programmes. She asked if those programmes were not part of its Annual Performance Plan (APP). Had it just been decided to do it for the first quarter, without a plan?

Ms Wilson responded that all the contracts for outsourced services related to the elections had been due to be concluded by May. The date had then been changed to August. Contracts had had to be extended, which had led to additional expenditure on the elections. An unforeseen adjustment process had to be gone through. Budgeting was in the Home Affairs annual performance plan (APP), but it had been lower than realised. There had been a difference between the amount budgeted for and the amount explained.

The Chairperson asked that an analysis of public entities be submitted. Cost containment measures were highly important. She asked for a report for the Committeee’s own information.

Ms De Bruyn responded that there were 350 public entities. Every museum was a public entity. She asked if the entities had to be large ones, like the National Schools Financial Aid Scheme (NSFAS) or the Passenger Rail Association of South Africa (PRASA).

The Chairperson said that it was up to the NT to prioritise. She thanked the Department. It had to be clear to the NT that there was zero tolerance in the Committee for under-expenditure on capital assets and job creation programmes. The Committee would call departments that under-spent consistently. They would be called to account. The presentation of the day would assist the Committee to identify departments that needed attention. It could not be business as usual if radical transformation of the country was required.  She was concerned about the high vacancy rates. Lack of personnel had an adverse impact. The NT had to partner with the Committee to see to it that departments spent their budgets. The Committee wanted departments to achieve their APP targets at the end of the year. The Auditor-General and the DPSA would be called on to verify the impact of the budget on the ground.

The Chairperson adjourned the meeting.


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