Western Cape Appropriation Bill: Provincial Treasury briefing; Western Cape Gambling and Racing Board; with MEC

Meeting report

Vote 3: Opening remarks by Minister

Dr Ivan Meyer, MEC of Finance: Western Cape, said he was tabling Vote 3, which was the main appropriation of R325.39 million, R343.127 million and R359.392 million for the years 2018/19, 2019/20, 2020/21, respectively. He also congratulated Mr David Lakay on his appointment as Chairperson of the Western Cape Gambling and Racing Board.

There were four issues he brought to Members. Firstly, there were the wage negotiations -- the current agreement had come to an end and a new agreement was now being discussed, and it would impact on the wage and salary bill. Secondly, it related to goods and services. Thirdly, there was the 1% increase in Value Added Tax (VAT) and its implication on the budget. Lastly, the Chief Financial Officer (CFO) had retired, but the acting CFO was present.

Mr Zakariya Hoosain, Head Official: Treasury, commenced with apologies from the absent senior members of staff from the Provincial Treasury. He indicated that the Department was now in the fourth year of its strategic plan, and alignment checks had been conducted with the annual performance plan (APP) and other various legislative documents. With a budget of over R325 million in the current year, broadly about 60% of the budget was allocated to salaries or wages, 18% to goods and services, and the balance towards transfer payments.

Discussion

Mr R Mackenzie (DA) asked about the process involving the appointment of a new CFO. It appeared that there was vacancy for the post of Deputy Director General (DDG), and he wanted to know how far the process of appointment was, as well as the progress with the wage negotiations.

Mr P Uys (ANC) also asked about the amount that had been agreed on during the wage negotiations, or made available in the budget for the increases. What percentage would come from the National Government, and what percentage would be carried by the Provincial Treasury? He wanted to know what measures had been undertaken by the Department to save water. The Department should indicate whether it had budgeted for the increase in VAT, the total amount involved, as well how it planned to finance that increase.

Ms C Beerwinkel (ANC) asked up which level officials had been invited to be present at today’s meeting. How much was this vote putting aside specifically for implementation to empower women? Although, the Committee could question the programmes and expenditures, it could not change anything. She found this quite frustrating because the Committee had not yet received any correspondence on the legislation and why it had been held up. The last time, it had been told that it was held up at the Speakers’ Forum.

The Chairperson responded to that the Deputy Speaker had written to the Committee, and he would table the correspondence at the budget meeting.

Dr Meyer said that the national negotiations were still in process, but the previous Minister of Finance had made provision for R110 billion for wage negotiations. At the last meeting there had been an additional request for R9 billion countrywide to be divided amongst different Departments. The current union wage demand was about R300 billion, and the current government wage bill was R580 billion. All members of the wage negotiating mandate had confirmed that this was unsustainable and unaffordable. South Africa needed a wage bill of about R300 billion, but it was currently sitting at about R580 billion. He could not communicate any further details on the matter because it was still before the negotiation committee.

He said that it was technically incorrect that things had not been changed, as the Department had heeded all previous inputs from the Committee.

Ms Beerwinkel rephrased her comment, saying that currently the Committee was unable to change anything that had been presented. Treasury had indicated that it was only allowed to insert changes at the 8% level but at the current moment, nothing could be changed by the Committee on what had been presented.

Mr Hoosain said that it was customary to present the documents to the Committee and be represented by the senior managers, but two of the senior managers were off sick. The Department’s forces had had to be divided due to its various commitments.

Advertisements for all the posts that had been funded were now under way. The Department could provide a list of the posts.

Mr Harry Malila, Deputy Director-General: Fiscal and Economic Services, said that the risk of the 1% VAT increase had been taken into account. About R30 billion was believed to be subject to the VAT increase, which would be taken into account in expenditures.

Ms Annamarie Smit, Director: Strategic and operational Management Support, responded to the question about water usage in the Department, and said that the behaviour was changing and getting the basics right. The Department of Public Works (DPW) had installed taps that closed automatically, and there were a number of awareness posts that were hung on the desks and in the ablution facilities.

Mr Hoosain added that every Department needed to have a business continuity plan, so what had been done was to revisit that plan to check if it was aligned to the drought disaster in the province. The Department also had gone through a process of disaster planning to ensure that there was a process in place to communicate with all members of the staff should a disaster become imminent.

With regard to the CFO post, the Department would go to Cabinet within the next month for support. The DDG processes had already started, and they might take about four to five months to complete. Lastly, the short-listing of the director: financial governance, had been approved and the interviewing would be commencing in the upcoming weeks.

Mr Malila added that the plan was to advertise the chief director: local governance post within the next month, the organisational development (OD) processes had been adhered to already.

Mr Uys said that with regard to the vacancies, it would be good for the Committee to get a full matrix of the posts that had been advertised and filled. In addition, there should be a presentation from the business continuity unit on the plan, because it was a very important division. He wanted to know how the VAT increase was going to be funded by the Department.

Would all the money for any salary increases come from national government? What were the risks or threats associated with the salary increases?

The Minister responded that the Department had done some preliminary calculations for the Department of Health, and the VAT increase was a big risk. The calculations indicated that the increase would have a R183 million impact. This meant that places would have to be closed, but people were already sleeping on the floors in hospitals because there was no money. The 1% increase would have a significant impact right across various Departments.

When the wage negotiations were discussed in the executive wage committee, the wages and salaries were excluded for public entities, and that would have a huge impact. In the figures of the main budget, provision was made for all the Departments to the tune of R110 billion.

Mr Malila added that the wage negotiations usually ran for a process of about three years, and in most of these processes one either got an increase of inflation plus a percentage, but in this case all Departments had to budget for 8.4%, which included 2% pay progressions in the budgeting system. Some of the proposals on the table far outstripped the normal inflation adjustments, which did not include things such as housing subsidies and other benefits which formed part of the wage and salary packages. There were various discussions taking place with the relevant stakeholders to try and come to agreements that would be favourable to all the parties.

The Department had not budgeted for any difference in the current year, but funding of about R700 million had been set aside to deal with the possible wage negotiations outcome. At the moment the negotiations were still on-going.

The VAT issue had been part of the fiscal consolidation measures. No additional funding had come forth, but various Departments had been asked to provide for the implications for the additional VAT. One should not regard this increase lightly -- it would have major implications for Departments, because there were currently contracts that were running even though they may have been concluded two or three years ago, they probably had not accounted for the tax increases. Investigation should be done to ascertain whether the increase in VAT would be borne by the government or the service provider.

Consideration of Vote 3 of the Budget – Revenue and Expenditure

The Chairperson led the delegation and Members through Vote 3 of the budget.

Page 80

Mr Uys asked whether all municipalities were on board for the bursary programme, whether there was co-funding, and to what extent the Department had compromised itself. Had the Department experienced any successes with the students, and could those success stories be provided?

Mr Hoosain responded that last year there were challenges with two municipalities, but now they had come on board. It was still too early to talk about success stories, because the programme had been initiated due to the shortage of capacity in the municipalities.

Mr Malila said that the grant was typically a grant-in-aid, and the Department had engaged with various municipalities. Most of the municipalities had either given money in co-funding or had provided money to subsidise or assist students in certain areas of their studies. This would be the first year the Department would be deploying its own graduates. It would provide an updated report.

Mr Uys asked about progress with the third round of chartered accountant (CA) interns, and if there had been any successes.

Mr Hoosain said that the third round had been subjected to a reduction in the number of interns due to pressure on the budget. The maximum number the CA manager had been allowed to have had been reduced to 15 by the SA Institute of Chartered Accountants (SAICA). With regard to successes, there had been progress in terms of passes and academic advancement, and a list could be furnished to the Committee at a later stage. So far the Department was on track to produce its first round of CA interns.

Mr Uys wanted to know about the Department’s expectations in terms of spending and under-spending in the current financial year.

Mr T Mahlaba, Deputy Director: Management Accounting, said some issues had been identified in the compensation of employees (COE), where positions had to fall within the 2018 financial year. In goods and services, savings had been identified and there would not be any roll-overs because there no capital projects that needed to be rolled over. It seemed as if the Department would be within the 2% variance for under-spending.

Page 83

Mr Mackenzie wanted to know what training was provided to national departments.

Mr Uys asked about the supplier development initiative -- what the objective of this initiative was, and what its outcomes or successes were.

Mr Hoosain responded that in the province, the Department was responsible for training under the financial system to get accredited training officials, so Treasury had requested that national departments within the Western Cape should attend the training on a continuous basis.

Ms Nadia Ebrahim, Director: Provincial Government Supply Chain Management, said the same applied in the procurement environment if there were any initiatives around the Central Supplier Database (CSD). If the departments wanted to tap into the initiatives, then they were invited. Most of the training was focused on procurement and how to do business with government, and the door was opened to allow suppliers to ask questions about the challenges, and the support that could be provided, etc. The key focus last year was on CSD registrations. The biggest success may not be measurable, but it was that during the sessions suppliers were exposed to transparency on procurement and officials were able to respond to questions. This had been very useful for suppliers. A number of things were picked up and used to develop the procurement policies further, or to identify other initiatives.

Mr Mackenzie asked for an update on municipalities that were struggling with their finances for training, or assisting them when they were in trouble. Had there been some push-backs?

Mr Uys asked if Treasury had a help desk where people could phone in to ask for help.

Ms Ebrahim said it depended on time and space, but it there was some positive engagement with the local government procurement unit in respect of the support it provided to municipalities. Whenever there was an issue and there was a request for help, the team would assist. However, often when there was something wrong, there was a reluctance to request assistance from Treasury. The response had been positive, but there were instances where there were push-backs. There was a help desk, but it was broader than a call centre system. There was also a supplier help desk which could be found on the website. The up-take by suppliers in the last three years had multiplied, and in the last quarter 7 000 queries had been attended to.

To reduce red tape, there was a bigger footprint with provincial departments, because the governance role of the Treasury was emphasised in the Municipal Finance Management Act (MFMA). The reduction of red tape may introduce other governance requirements, but communication was not the Western Cape government’s strong suit, but a way had to be found on how messages could be communicated to suppliers. The volume of the Department’s engagements with the suppliers was massive.

Page 84

Ms Beerwinkel said on page 25 of the APP -- the strategic objectives, starting with programme one and so on – there was a list of issues that would be dealt with under administration. Why had the Department left out programme one, or improving on the issues raised on pages 26 and 27?

Mr T Simmers (DA) asked about the local government budget. Had the Department been able to assess the possible impact of the 1% increase in VAT, and if so, were there any guidelines that had been issued pertaining to that, because it may have caught quite a few municipalities off guard.

Mr Hoosain said when the issue of a possible VAT increase arose, one of the key things that was done was to communicate with the Municipal Managers’ (MM) Forum. Although some municipalities could to a certain extent claim input VAT, this red flag had been raised.

Mr Malila added that the 1% increase would have less of an effect on municipalities than provincial departments, because they were not registered for VAT. They would have the opportunity to claim the input VAT -- the additional VAT burden that had been placed on them by service providers -- but also concurrently pass on the increase on customers, who would now have to pay more for municipal services.

The Department was going through a process now to assess municipalities’ budgets, where these risks had to be taken into account, as they would table their budgets at the end of March. They had been made aware of these risks, but more importantly of other reductions that had occurred in the local government space and how that would impact on communities. They would have to take those things into account when they conducted their community awareness programmes.

The Minister said that this week he had tabled the budget performance at the Cabinet meeting, and it had not looked good due to the outstanding debt of municipalities and their inability to spend their capital budgets. He was concerned about the impact on the current national fiscal framework on municipalities, and the Treasury had indicated at the budget committee that there had been no cuts in the local government equitable share, but substantial cuts in the conditional grants which would affect capital infrastructure.

Ms Smith said the reason for not including the programme was due to the fact that the initiatives were more external, and programme one was more internal.

Mr Mackenzie asked about the fuel increase and the cost implications for provincial services such as ambulances and fleets. Would this result in any decrease in the numbers? Where would the funding come from?

Mr Malila said that would be part of the input costing. There was much more responsiveness to the fuel price fluctuations on a monthly basis, and the predictability for departments had improved over the last year. There was a consumer price index (CPI) inflationary increase built into the entire vote to deal with inflation increases.

Page 85

Mr Uys asked what progress had been made in supporting municipalities and improving their responsiveness in the budget to achieve socio-economic objectives. With regard to the Infrastructure Delivery Management System (IDMS), Treasury had indicated last year that it was busy with a document -- had it been concluded? Had the Department increased its role and responsibility on the User Asset Management Plans (U-AMPs)?

Mr Malila said the work done on the IDMS was still on-going. A commitment had been made in consultation with the Departments of Public Works, Education and Health to review the current issue around the IDMS. This was part of the work included in the APP.

On the U-AMPs, the Treasury played a much more inclusive role than just a post office role. In fact, it assessed the U-AMPS and the Custodial Asset Management Plans (C-AMPs), and in the APP the targets for the U-AMPs had been adjusted. Treasury had also strengthened the U-AMPs, but the main issue was about capacity. National Treasury had written to the Department to make some funding available to deal with the infrastructure. More was being done, and key initiatives were being implemented at local municipalities.

The Minister said that this was an important matter, and indicated that the Treasury had now taken control substantively for this. There were more than 2 000 buildings, and the Department had looked at municipal building for continuity plans and repairs, and spending patterns for new infrastructure. This year, the focus would be on the maintenance of schools and hospitals, because R25 billion was a lot of money to spend over the next three years.

Page 86

Mr Uys asked about the progress and implementation of the integrated financial management system – was it going ahead?

Mr Hoosain said it was still a pilot project from the Treasury’s perspective. The project was still going ahead but there were still challenges, and it was envisaged that it would come into operation in 2021.

Page 87

Mr Uys asked about the supplier database, and whether the Provincial Treasury still ran the central and the Western Cape databases. What was the extent of the integration? There had been major progress made with municipalities in terms of electronic grant application and processing (e-GAP) last year, and he asked for an update.

Ms Smit said there was still a two database process, but they used for different things. The CSD was there for compliance profiling of suppliers -- tax clearance, black economic empowerment (BEE) requirements and banking details -- and was used as the main data source for basic accounting systems. As for the Western Cape database, there was duplication because of data sets being conflicted. The Department had moved quite progressively with that, but there were still challenges at times where the system was not available. The Western Cape supplier database would become the evidence bank, because there was a two-prompt approach in government -- one was the basic compliance, and the evidence that supported the decision-making process -- so the second leg would be housed in the Western Cape. There was a level of duplication, but when the challenges were dealt with, there would be a switch over.

Mr Hoosain said municipalities had been assisted with implementation managers to assist them with accounts. The Department had appointed CFOs about a month ago, and they had been put in place to ensure that capacity challenges were resolved.

Page 88

Mr Uys asked why the Department had cut back on goods and services, pointing out that certain aspects would be delayed, and why they would be delayed. To what extent had it implemented the new BEE codes within government?

Mr Mackenzie asked how the Department worked with government departments on capital asset refreshment periods, and what assets the Provincial Treasury was looking at, or rather focusing on. With the Western Cape Gambling Board generating revenue, how was it still receiving funding as a line item from the Department?

Mr Hoosain said that in the run up to the finalisation of the budget, the Department had gone through the exercise of understanding how the reductions were going to affect it. It had also gone through the process of understanding which reductions were critical. It was now were trying to minimise the impact of the reduction on goods and services, but had decided to stretch the computer equipment to a longer life cycle. Some projects would be spread out over a long period of time to try to manage the budget reduction over the medium term expenditure framework (MTEF).

Mr Mackenzie asked whether the Treasury was working with other departments on this as well, specifically in respect of vehicles.

Mr Hoosain said the principles that applied to the vote had been applied across the different budget votes. One of the mechanisms used had been to ask departments what they would maintain and terminate, so the methodology applied would be consistent right across different departments.

Mr Malila said a set of regulations had been published on adjusting the costs and fees for the Gambling Board, and those fees would be adjusted from 1 April onwards to make them more self-sustainable. In the absence of that, there was no option but to provide the transfers.

Ms Smit said not all sectors had been issued with the procurement codes in terms of compliance with the procurement environment, but the B-BBEE requirements as defined in the B-BBEE Act were operational

Ms U Brink, Acting Chief Financial Officer, added that the bulk of the reduction had come from the consultants in programme one. Also linked to the reduction were the savings in assets and general operating costs, so the reduction had added up to R1.3 million.

Page 89

Ms Beerwinkel asked which programme would address the empowerment of women. Which were the most vulnerable municipalities, because the support for funding allocations was the same for all municipalities, but some were vulnerable? Should there not be a difference in allocations for different municipalities?

The Minister said the question involved the individual amounts for vulnerable municipalities. Through its visits, the Treasury discovered that the needs would vary from town to town, so the allocations would vary. There was a team that did the assessments to ensure that adequate amounts were allocated to those municipalities.

Mr Malila said there were allocation criteria, and funds were allocated according to the municipal needs. The support grant was the training grant, while the criteria were different for the bursary grant that was allocated to all the municipalities. In the current year, there was a portion that had been allocated, and at the end of the quarter it would be much clearer how much had been allocated to each municipality.

Page 97

Mr Uys commented that a lot of reserves had been put aside, and asked whether there was a ceiling or percentage of how much of the budget would go towards reserves.

Mr Malila said the Department would try to have about 2% of the total expenditure in the first year of the budget as reserves. The amount was carried through the following year, with the additional amount from last year taking into consideration the impact of the wage bill.

Page 109

Mr Uys said there was an increase of 29% for consultants and professional services. Could the Treasury explain why this was the case?

Mr Mahlaba said there was education research in terms of the fiscal policy, and evaluations that would be done by the provincial budget unit. In programme three, there was an amount of money set aside for the Provincial Treasury (PT) warehouse, as well as for a strategic source and business analyst under the supply chain government unit, which would be dealing with SCM engineering and reforms. In the support and inter-linked financial system, there was also another R2.9 million that had been set aside. The amount was supposed to have been higher than that, but Treasury could only do R2.9 million.

Mr Uys asked for a detailed breakdown on the R25 million for consultants and professional line items.

The Chairperson asked about the impact of the current fuel levy at the national, provincial and metro level, and what benefit the province got.

The Chairperson said that the fuel levy was allocated to the metros. It was about R2 billion for each metro, although it was much less for the Nelson Mandela Metro. He had argued that the fuel levy should be ring-fenced for road maintenance and infrastructure, but National Treasury had a different view.


Western Cape Gambling and Racing Board
 
Mr Lakay, Chairperson of the Board, outlined the composition of the board and indicated there was an issue in respect of office accommodation.

The Chairperson said that the Provincial Treasury would have to attend to the issue of accommodation.

Mr Uys suggested that instead of allowing the Board to go through its APP, Members should be given the opportunity to raise their questions relating to the APP, as he believed that Members had already noted their issues down.

Mr Lakay said the Board had not been able to deal with matters expeditiously, as it was in the process of having the Board reconstituted. There had been an interview process, but at this stage there were only six members instead of seven, and not all members were able to attend – two were absent. The process had been handled by the provincial government, and it had been raised because it was something that it had been dealing with for quite some time.

With regard to office accommodation, there was a provision for the Board to rent out accommodation for a couple of years, but that was also subject to procurement processes. It sometimes had unforeseen and unintended consequences which could impact on efficiency. The Board was in control of the risks to ensure that it delivered on it mandate. It needed to constantly engage to ensure that the negative impacts were dealt with.

The Chairperson asked if Treasury had any progress report on the accommodation issue.

Mr Malila said that the discussion had been on-going for a long time, and the matter had been referred to the Department of Public Works. Last week, Treasury had met with the CEO for an update. In fact, as part of the budget, Treasury had provided additional funding to deal with accommodation constraints of the Board. The Board had already provided the norms -- about 2 000 square metres of accommodation was required. The Departments of Transport and Public Works had been supplied with the norms, and they would put out an advertisement in two weeks. The temporary solution was to find rental accommodation, for which the funding had been allocated.

Mr Uys said the composition of the Board was fine, but there was a need to deal with people who did not attend meetings. He had raised this issue before, because it spoke to the proper functioning of the Board.

He wanted the Board to outline how it would deal with its financial constraints, because this had not been dealt with appropriately in the APP. How was the Board planning to deal with illegal gambling? He asked about the amendments to legislation and whether were there any regulations that would be coming through from the Board.

Were there any vacancies, and when would they be filled? What progress had been made on the compulsory player card process -- was it necessary, and when would it be concluded? Every year it seemed that there was no progress with the automation of licences -- what was the hold up in this process? Could it be the IT processes or systems? Had the Board started to address the potential water crisis this in respect of the different role players, like the casinos and other players within the sector?

Ms Beerwinkel referred to page 17, and asked who was taking the lead on the programmes with the partners outlined on page 17. There were only four awareness programmes, but many partners. How did the Board improve education outcomes, as outlined on the page? How did it play a meaningful role in enabling a resilient, sustainable, quality and inclusive living environment?

The Board was not saying who had initiated the relevant court rulings it, or why.  Could more information be provided on this? What did this mean to the Committee?

On page 16, on performance environment, how were the Limited Payout Machine (LPM) route operators and LPM premises connected?

On page 19, she wanted to know where and when the promotions of cultural diversity were held, and how the Board was going to ensure that continued development of the talent pipeline was achieved, as outlined under organisational environment.

Over the years, the Board had had 11 meetings, but now it would be having 13. What had informed that decision?

With regards to the issue of legal opinions that would be drafted, one would prefer that to decrease and not increase.

The Chairperson said he had written a letter to the Board about its role in avoiding “day-zero,” and perhaps the Board could respond on that. An update on the illegal gambling issue would be welcomed.

Board’s response

Mr Lakay said the Board was doing everything it could at its premises to ensure that water was recycled and saved. All major casinos had already started implementing water saving initiatives, and in some casinos, water purifications systems had been installed and water was being pumped back into the communities. Some casinos had budgeted substantial amounts of money to assist communities regarding the water crisis.

Mr Primo Abrahams, Chief Executive Officer: Gambling and Racing Board, referred to the its financial sustainability, and said the Board had done an exercise already and was approaching Treasury. There were a number of exercises that the Board would embark on this year to obtain more finances.

Mr Mackenzie asked for an indication of the time line for the processing of the Act.
 
Mr Abrahams said the process for the legislation had started, and feedback from the provinces would be received soon, but by June a further review would be conducted.

Mr Ray Bennett, Head of Department: Gambling Compliance, said that illegal gambling was something that would always be a challenge nationally, but in the Western Cape there had been progress. The more illegal gambling there was, the less money was received by the Board in terms of revenue. There was one facility in the Western Cape that had been closed down on 20 December 2017, and another one had been spotted in George, and that matter was being handled. The Board had established good relationships, meeting with cluster heads to minimise illegal gambling. In addition, awareness campaigns had been held in various communities to educate people about what constituted illegal gambling, and contact details to report had been widely published to ensure that people were able to report. The Board also intended having its staff trained on the technical side of downloading information to decipher illegal information.

There had been two successful prosecutions involving internet cafes, and a third one was being dealt with.

Ms Liezel Hartman, Professional Assistant: Legal Services, said that there have been amendments to the regulations, and the Board was looking at rewriting the regulations for easy reading. There were certain things that would be included, and this was currently being discussed by legal services and Treasury. In the past year, amended regulations had been published with regard to the increases in various licenses and investigation fees. There were regulations pertaining to the alignment of how accurate the regulations read with the audited financial statements – this was still in discussion. Hopefully, the revision of the regulations would be completed within the next year.

The amendments to the Bill would deal with the relocation of the casinos to the metros so that it would be possible for the relocations to take place. The Act also covered the fees that had been included in the Bill which were payable to the Board to make it more sustainable. One of the objectives in the New Year was to review the Act.

The Board was still in the process of researching the player card, and the idea of implementing it. The research was desk top, and other international case studies were being looked at.

Mr Abrahams said there had been four Board vacancies at the time of going to print, but now there were only two. One was currently being re-advertised, because a suitable candidate had not been found. The other member was new. The Board conducted the short-listing internally, and did not make use of external consultants.

Adoption of minutes

The draft Committee minutes dated 22 November and 24 November 2017, and 31 January 2018 were considered and adopted without any amendments.

The meeting was adjourned