2017 MTBPS; Adjustments Appropriation Bill: hearings

Meeting report

Appropriation Bill: Procedural issues

The Chairperson welcomed Members, the delegation from the United Nations Children’s Fund (UNICEF) and the other organisations that constituted the Civil Society Organisation (CSO); the Heinrich Boll Foundation, the National Shelter Movement of South Africa, and the Public Service Accountability Monitor (PSAM), which was comprised of delegates from Studies in Poverty and Inequality Institute (SPII). Submissions and inputs would be received from stakeholders on the 2017 Medium Term Budget Policy Statement (MTBPS) and the 2017 Adjustments Appropriation Bill. It was a challenging time in the economy of South Africa and all inputs were welcome on how to use the limited resources in the best interest of South Africans.

Mr O Terblanche (DA, Western Cape) raised an objection. He said that on 22 November, when the Division of Revenue Amendment Bill was considered in the National Council of Provinces (NCOP), it had not been dealt with in terms of Section 12(11) of the Money Bills Amendment Procedure and Related Matters Act. He wanted this to be minuted, as all proceedings that had followed since then were illegal.

The Chairperson asked Mr Terblanche to read the Act so that all members could refer to it.

Mr O Terblanche said he did not have the Act.

Ms S Shope-Sithole said she did not support the submission of the Mr Terblanche, and the Committee should call the legal advisors.

The Co-Chairperson said, during the briefing by the National Treasury on adjustment appropriations, a legal opinion had been tabled that there would be no considerations on the day, but the meeting’s agenda would be to take public opinion on 24 November. He said consideration of the Amendment Appropriation Bill would take place on 1 December. He was in support of the submission of Ms Shope-Sithole that the Committee should carry on with the hearing.

Mr Terblanche said he now had the Act and would read out what was written in the Section quoted earlier.

Mr T Motlashuping (ANC, North West) said the Committee had deliberated on the matter earlier and should not waste time with further deliberations. He recommended that the Committee continue with the day’s agenda, because a proposal had been adopted and seconded to continue with the day’s agenda.

The Chairperson said she would still like to give Mr Terblanche a chance to clarify his point. She asked him to proceed with the reading of the Act so that the rulings would be from legislation.

Mr Terblanche read out Subsection 12(11) of the Money Bills Amendment Procedure and Related Matters Act: ‘The Committee on Appropriations must report nine days after the adoption of the fiscal framework report to the respective Houses on the Division of Revenue Amendment Bill’. He remarked that the report had got to the NCOP on the tenth day.

The Chairperson said the matter that Mr Terblanche was talking about had already being been tabled in the Announcements, Tablings and Committees (ATC), and a formal instruction to continue with the joint public hearings had been received. The Committee would proceed with the meeting because it was acting within the parameters of the law. She informed Mr Terblanche that the Committee would proceed with the public hearings because this was the next step of the budget cycle after tabling. The matter had been referred to both committees present at the meeting. Both committees had dealt with the Division of Revenue Bill and the next stage was the consideration of the Appropriation Bill.

During the consideration of the Appropriation Bill, there was a need for the community to give their opinions about the Appropriation Bill, and the information that would be received at the meeting would be used to inform consideration of its adoption. Therefore the days’ agenda had to continue.

Mr Terblanche and Mr F Essack (DA, Mpumalanga) asked to leave the meeting.

The Chairperson granted both Members their request, and they left.

Mr Motlashuping said Members had deliberated on the issue raised by Mr Terblanche at a previous meeting and they were surprised at the attitude of DA members concerning the meeting.

United Nations Children’s Fund (UNICEF): Briefing

Ms Mayke Huijbregts, Chief Social Policy Specialist: UNICEF gave an overview of the presentation, and introduced her team.

Mr Russel Wildeman, Senior Social Policy Specialist: UNICEF spoke about the implications of the Medium Term Budget Policy Statement (MTBPS) on children. He gave the public finance context, and said expenditure cuts had been made prior the MTBPS 2017 and would still have to be intensified if some broader fiscal goals were to be met. This raised questions about the severity of the expenditure cuts and what it meant for children. The MTBPS 2017 suggested that deeper cuts could dominate the entire 2018 MTEF.

The Statistics South Africa (StatsSA) data on poverty sets the children’s poverty rate at 51%, while the national poverty rate for the country was 40%, which showed that poverty amongst children was greater than the national average. Further expenditure cuts at the provincial level could hinder the ability of provinces to deliver their mandates, as a small reduction in funding could affect performance considerably. He emphasised the need to consider the opportunity costs involved in expenditure cuts.

Although the children’s poverty rate had reduced between 2006 and 2011, mainly because of the government social grant, it had increased between 2011 and 2015 and children had become poorer. Older people were less poor compared to children because of the amount disbursed as social grants to the older people compared to children. It was important to consider how programmes and services that benefited children would absorb expenditure cuts, and the possibility of reversing the important gains made earlier. Actions on investing in children, especially poor children, should be intensified.

He said opportunities and services to children differed significantly across the provinces. He gave examples, using distances to health facilities and per-pupil expenditure rates on basic education of the provinces and rural areas, compared to the national average. The government should therefore prioritise equity to counter the effects of child poverty by investing in infrastructure in provinces and rural areas.

It was important to understand how fiscal adjustments could be done in a way that would build the confidence of people by harnessing the gains made in caring for children. He explained that fiscal adjustments could be done on both the revenue and expenditure side, living within means, spending money where it could be most productively used, and providing evidence to Parliament that services were extended to more individuals. The other concern in Southern Africa was to get the get the public finances in order. There was also a need for appropriate discussion on what the adjustment meant for different departments.

He also explained different types of fiscal adjustment principles adopted by countries and continents of the world. Successful fiscal adjustment reforms should be followed up with campaigns that made people aware and understand the changes taking place. Parliament needed to be informed of changes in targets, because fiscal adjustment needed rigorous monitoring and accountability. Fiscal adjustment plans that targeted bringing public finances to order by large margins needed to be backed up by structural reforms, but this depended on the social and economic context of the country. Structural reforms involved tax administration, tax compliance, moderation of the wage bill and limiting the state exposure to state-owned enterprises. Existing intergovernmental mechanisms should also be used to build consensus to digest the intensity of expenditure costs.

He gave scenarios of fiscal adjustment by looking at government expenditure reviews. R500m could purchase about 3 000 reconstruction and development programme (RDP) homes; extend the subsidy to about 127 000 Early Childhood Development (ECD) learners; employ 1 500 secondary or primary school teachers; and register 480 000 non-profit organisations. Therefore, even a small percentage of budget cuts could have serious implications for service delivery. He listed the implications of MTBPS 2017 for children

.Ms Huijbregts highlighted the recommendations of UNICEF for the 2018 medium term expenditure framework (MTEF). The recommendations listed were that government:

• Should preserve and expand rights-based and equity-focused service delivery for children;
• Expand quality primary health care and accelerate infrastructure spending in rural areas;
• Improve effectiveness of spending on children;
• Augment the child support grant to meet children’s nutrition and food diversity requirements; and
• Safeguard and improve mechanisms for the National Payment Systems (NPSs) to ensure consistent provision of child welfare services.

Discussion

The co-Chairperson said it would have been helpful if there were footnotes in the brief. He asked how UNICEF had arrived at the figure of about R500m used in the example. He confirmed that poor children were dependent on the plate of food they got at school. The fastest growing elements of spending were learning and culture, which included post-school education and training, health and community development, with growth rates of 7.6%, 7.5% and 7.9% respectively, which could be found on Page 7 of the MTBPS. He said the increases were above the inflation rate, but the MTBPS recognised the social plight of the children. He asked UNICEF to look into the Financial and Fiscal Commission’s (FFC’s) proposal for the National Fiscal Commission recommendation for the 2018/19 Division of Revenue, which was an important document.

Ms D Senokoayane (ANC) remarked that poverty in the rural area affected children as well as older people and asked UNICEF to confirm if there were comparative studies that substantiated the claim that children were poorer than older people. She was not sure that older people were not as poor as children because of the size of their social grant. Older people used their grants for the family, and they were still poor. She observed from UNICEFs’ brief that structural reforms might be needed for fiscal adjustment, but it depended on the social and economic context of the country. She therefore asked for clarity on UNICEF’s model on structural reforms because she had thought that the current adjustment in plans by the government was a structural reform. The adjustment had taken into account social support within the economic context. She asked UNICEF to explain the point made on ECD, because ECD had to be applied across the country. She observed that UNICEF had stated that the attempt to preserve spending in the three large social service sectors was dependent on the outcome of wage negotiations, and asked for clarity on the statement.

The Chairperson observed that UNICEF had stated that urban provinces had a lower child poverty rate than rural provinces, and almost two-thirds of rural provinces were poor. Also, the pressing financial challenges made it unlikely that historical funding deadlocks would be eliminated. She asked UNICEF to propose a short term and medium term solution to government.

Ms Shope-Sithole observed that UNICEF had made reference to structural adjustment. She said there was no evidence that structural adjustment had helped any country, and that Greece had been negatively affected by structural adjustment. The former Greek Finance Minister had been advocating against austerity measures. The South African government had been trying to spend within its budget. She worried about people saying that South Africa was in a financial crisis. Other countries of the world, such as Europe and the USA, were in similar situation. She observed that it was the comments of people that had brought about the downgrading of South Africa. She was surprised that some members of the DA did not want public participation to take place, because it was a constitutional obligation to engage the public.

UNICEF response

Ms Huijbregts said the emphasis in the recommendations were the areas that needed to be worked on in the MTBPS 2018.

Mr Wilderman said the R500m referred to as a revenue loss in the presentation had been the actual amount taken out of the equitable share in 2017. It had not been calculated by UNICEF, but was officially documented because it was part of the adjustment process. There was no punitive intention in the presentation.

UNICEF agreed with learning and culture, which included post-school education and training, health and community development, in spending that was above inflation rate. The poverty line was drawn at R647 per person per month. Based on the grant, the older people fell above the poverty line, while children fell below the poverty line.

Structural reforms initially attempted to moderate wages and reduce goods and services expenditure, followed by a reduction in capital expenditure. He remarked that the government was aware of the challenges, and it was considering structural reform. The presentation had not spoken about structural adjustment, but fiscal adjustment and structural adjustment was not supported by UNICEF. Infrastructure backlogs were difficult to eliminate, and when money was in short supply it was unlikely that money would be spent on infrastructure backlogs over the medium term. He said the request of UNICEF was that equity provision must be priortised and reinforced, so that poverty was addressed.

Joint Civil Society Organisations (CSOs): Briefing

Ms Zukiswa Kota, Program Head: Monitoring and Advocacy, Public Service Accountability Monitor (PSAM), said the CSOs were united by a joint passion for social justice and the conviction that Parliament was important for their voices to be heard. She introduced the representatives from each of the organisations, and said she was happy that UNICEF had touched on some of the issues in the MTBPS. She said poor governance by state-owned enterprises and lack of consequence management was unacceptable, and citied examples of ESKOM and South African Airways (SAA). She said the Committee should conduct oversight over SOEs to ensure that they were properly managed.

Ms Philile Ntombela, Researcher: Equal Education, observed that looking at the previous MTBP statements, funding for basic education would be lower than had been previously budgeted. Under-expenditure in basic education had continuously led to reduced school infrastructure allocations. She advocated the need to provide transport for learners in rural areas who walked extremely long distances to get to school. Findings showed that there had been under-expenditure of R415m in the school infrastructure backlogs grant, which had led to a reduction in the allocation, despite huge infrastructure backlogs. She maintained that this should not be so, and that the Ministry of Finance should rather ensure that school infrastructure funds were effectively spent in providing support to rural provinces. The Ministry should also assist in addressing the lack of capacity to effectively plan, spend funds and implement.

Mr Daniel McLaren, Budget Analyst: Section 27, said Post-School Education and Training (PSET) had been revised downwards in the 2017 MTBPS. The rate of transfer to higher education institutions had been reduced to lower than the inflation rate, and higher education needed support. The overall adjusted budget had also been revised downwards, with the Sector Education and Training Authority (SETA) taking the lion’s share of the cut. Section 27 welcomed the Higher Education Commission’s report on higher education funding, but expressed concern about the finding that higher education should be financed through individual debt. Section 27 would appreciate an opportunity to discuss the implications of the report with government.

As a result of the large increases in PSET over the years, reductions in PSET funds should be transferred to ECD, because ECD had had previous funding challenges. Also, short-term political considerations should not primarily motivate budget priorities. He observed that the Expanded Public Works Programme (EPWP) had become a successful intervention in dealing with poverty, but the budget had again been cut in the current financial year. A further cut in the EPWP budget would further impact negatively on poverty eradication, and he recommended that Parliament should look into why the budget of the programme should be cut when SOEs were being bailed out.

Mr Dennis Webster, Researcher: SPII, said the MTBPS indicated that the Department of Human Settlements (DHS) was failing to meet its target on service delivery. The MTBPS highlighted that the target for planned subsidised housing units for the first quarter of the year had not been met. SPII recommended that in the light of the housing crisis facing South Africa, the Committee needed to convene a joint meeting between DHS and National Treasury to resolve the challenges of service delivery and expenditure facing DHS.

Ms Kota said the White Paper on the National Health Insurance (NHI) scheme was of concern to PSAM because medical health claims had grown and the MTBPS spending to implement the NHI scheme would be 6.8% of GDP, which meant that the NHI would probably not meet its targets. PSAM recommended that NT and the DoH provide a comprehensive long-term financial plan to support implementation of the NHI because the ongoing uncertainty on health policies affected strategic planning and service delivery in the districts and provinces

.Ms Fisani Mahlangu, Executive: National Shelter Movement (NSM), in partnership with the Heinrich Boll Foundation (HBF), presented on social development issues. She said that violence against women and children (VAWC) was a significant problem in South Africa, and required both preventative and responsive responses. The NSM and HBF welcomed the provincial equitable share allocation increase to R1.2 billion to aid provinces in addressing VAWC. It recommended that the Committee consider if the 65% percentage allocation to preventative programmes or the 35% to shelter services, was the most optimal ratio in the context of limited funds for the provision of services to shelters across the country. Its research data on provision of shelter in four provinces showed that shelters were under-funded despite their importance. Provinces allocate a percentage of their budget allocation to victim empowerment programmes, so a cut in provincial allocations would negatively affect funding for VAWC preventative and responsive programmes. Other recommendations were publishing of clear timelines for costing research as well as proposed legislation and implementation of a fully cost inclusive and multi-sectoral national strategic plan on gender-based violence should be considered.

Mr Webster brought the Committee's attention to a statement released by CSOs on 17 November 2017. The statement, which was signed by more than 50 CSOs, indicated disagreements on decisions taken by the NT and expressed concern that the budget process was being undermined and was not transparent and could have negative effects on expenditure. The requests of CSOs were to investigate the cause of the growing number of senior officials who had resigned from the NT, and to closely monitor the filling in of existing vacancies. CSO also appealed to Parliament to use its powers under the Money Bill Amendment Act to closely scrutinise any budget proposals that resulted from any undermining of the budget process. It asked Parliament to support NT and relevant agencies to investigate any mismanagement and failures in the South African Revenue Service (SARS) which had led to the large revenue shortfalls observed.

The Co-Chairperson appreciated the brief of the CSO, which had covered a range of matters. It was encouraging that the presentations had been made by young people.

Discussion

The Chairperson observed that the Ministry of Finance must take action to ensure that all school infrastructure funds were effectively spent, which would provide support for rural provinces. She said part of the mandate of the Committee was to make recommendation to the House and after adoption the recommendation became a resolution of the House. She asked the CSO to assist the Committee by stating what the state could do to ensure that the funds for school infrastructure were spent. She also observed that the CSO had called for the poor to be priortised, and for rural provinces to be considered in every stage of the budget process. She asked the CSO to give guidance on how it could be done, because in terms of the National Development Plan (NDP), the eradication of poverty was a priority of the government. Numerous CSOs had lamented the lack of functional regular platforms for dialogue between government departments, civil societies and the public. She asked the CSO to elaborate if there were any successful partnerships between CSOs and government at the national, provincial or municipal level that the Committee could learn from, or if the CSOs had international studies from which the Committee could learn.

Mr A McLoughlin (DA) asked if CSO was aware of overlaps in government departments. He said there was a need to find a way of resolving problems of concurrent functions in service delivery. The Committee was looking into it, and would appreciate inputs from the CSO. He asked for proposals from the CSOs on better ways to look at the Money Bill Amendment Act, as it had been introduced under pressure and the procedure was difficult to follow through. He said Parliament would like to follow the budgetary cycle, but it was constrained by time and legislation.

Ms Senokoayane said social spending for service delivery had not received budget cuts, and NT shifted such funds only when it observed that they could not be used before the end of the financial year. She said one of the focuses of the medium term adjustment was to make the necessary changes. She  agreed more should be allocated to scholar transport in rural areas, not only because of accidents, but because children walked long distances to get to school.

CSO’s response

Ms Ntombela said the regulation concerning the minimum standards of infrastructure in schools had loopholes. Presently there was a matter in the Eastern Cape High Court to ensure that the schools’ infrastructure was provided to schools that were in need of it. CSOs would continue to call for ESKOM and other departments to take responsibility, but it had to wait for the outcome of the court proceedings.

She highlighted measures the state could use to ensure that the funds for school infrastructure were spent, and made a commitment to send written reports to the Committee. She thanked Ms Senokoayanne for supporting scholar transport.

Mr McLaren asked if the Committee was aware of the method engaged by NT to review the equitable share. He said though findings looked like funds were redistributed to provide to the poorer areas, the formula did not take into account that there were extra costs incurred in service provision in the rural areas. Connections to water, electricity and the internet were more difficult and expensive in the poorer provinces. He said the CSO would be pleased to make a presentation on the subject.

Mr Webster said an example of a partnership between CSOs and the government was the engagement between the City of Johannesburg and the Community Development Forum of Slovo Park. Both entities were in the process of upgrading Slovo Park, which was an informal settlement. The magnitude of the upgrade would be the first of its kind in South Africa, although it was not a perfect example because the City of Johannesburg was compelled by a court order. He remarked that the city was not upgrading the informal settlement through the funds provided by the Urban Settlements Development Grant (USDG).

Ms Kota cited another example of a CSO-government partnership. She said South Africa was a member of an open government partnership which encouraged civil societies and the public to be in open dialogue with the state. As a result of this, some of the organisations represented at the meeting, in conjunction with National Treasury, had made information on the process of developing the budget more open and accessible to the people. The comments on the Money Bill Amendment and the time constraints were welcomed and helpful in understanding the legislative framework and constraints of Parliament. It was hoped that the time constraints would be considered in the review of the amendment. The raising of revenue would bring about maintenance of the current provision of service delivery, which may bring about some tension, but CSO had seen that the priority for health, housing and education was significant for the government.

The Co-Chairperson informed the delegates from CSO that the national budget would be tabled in February. The delegates were welcome to participate when it was tabled, and extended the invitations to the including the public hearings.

The Chairperson said the CSO had referred to a cut in SETA’s budget. She said that the impact of SETA was not being felt, and there was consideration to transfer some of its allocation for use within departments because the government would like to utilise the funds for the greatest impact. Also, the surplus of money transferred to SETA was often not known. She asked the CSO members what their take on the SETA was.

Despite the budget cuts, the Department of Higher Education and Training had the second largest budget. She asked the CSOs to assist government with measures that could be taken to stop the destruction of buildings in higher institutions during student protests, because it affected the country’s’ resources. The Committee made recommendations to departments, and often asked for progress reports on the recommendations. She remarked that she had traveled far, and could say that SA was still better off than many other African countries, though progress may be slow.

Mr McLaren said he agreed with the Committee on SETA’s functionality because of prior experience, and accepted the re-prioritisation of the SETA.

The Chairperson asked the CSO to send written reports on how to ensure that higher institution buildings were not destroyed during student protests. She reminded them of the invitation extended by the Co-Chairperson for the CSO to take an interest in the debates of the Committee. The CSO should ensure that its recommendations were sent to the National Treasury, because they had a bearing on the National Treasury, and it was the constitutional right of the people.

She observed that the presence of CSO made inputs possible, and thanked the delegates for showing an interest in Parliament. She appreciated UNICEF for being able to link the MTBPS to the poverty status of children and indicated that the issues raised would be useful in the debates and reports of the Committee.

The meeting was adjourned.