Appropriation Bill 2018: National Treasury briefing

Standing Committee on Appropriations

04 May 2018
Chairperson: Ms Y Phosa (ANC)
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Meeting Summary

The Standing Committee on Appropriations was briefed by National Treasury on the 2018 Appropriation Bill.

National Treasury presented the 2018 Appropriation Bill. The Bill was divided by vote and by main division within a vote (i.e. by programme and / or transfer and subsidy to a national department within a vote). A purpose was set out for each vote, programme and transfer and subsidy to a national department within a vote. Allocations were categorised in terms of: Current payments (Compensation of employees, goods and services, interest and rent on land); Transfers and subsidies; Payments for capital assets; and Payments for financial assets. The total main budget spending for the 2018/18 Appropriation Bill was R1.5 trillion:  27% of the total being allocated to current payments, 71% to transfer and subsidies, and 12% to debt-service costs. On the share towards compensation of employees, Police was allocated 43% and Defence and Military Veterans, 16%. This is because security departments tend to be labour intensive. Technical and vocational education and training (TVET) and the community education and training (CET) college lecturers across all provinces account largely for the R8.9 billion higher education compensation budget. On goods and services, the bulk allocation went to Police (24%), and Defence and Military Veterans (19%).

For the security departments, good and services budgets are in line with their size with the main categories being: Computer and fleet services (Police); Contractors (Defence); Nutritional services for inmates and property payments (Correctional Services); Computer services, operating leases and property payments (Justice); Basic Education, of which the largest portion of goods and services is spent on printing and distributing workbooks for grade R to 9 learners at 23 000 schools. The system modernisation programme (maintenance and development) constitute the largest item of goods and services for Home Affairs (31 percent), whilst Health spends most of its goods and services budget on the three components of the National Health Insurance indirect grant (personal services (R713 million), non-personal services (R523 million) and health facility revitalisation (R70 million). In addition, Consultants on restitution claims, operating lease and computer services make over 50 percent of the goods and services budget of Rural Development and Land Reform.

Members asked if there was some disparity between budgetary applications by departments and actual allocations by Treasury in the Appropriation Bill. The variation or shortfalls had to be known by the Committee and the reasons for such variations should be explained. They asked whether allocations took the recent VAT increase into account, particularly in the procurement space. Also, to what extent do accruals affect the ability of departments to ensure uncompromised service delivery in the current year?

The Chairperson asked Treasury to furnish the Committee with responses in writing. Does government have enough capacity to deal with accruals across the board? How can Treasury prevent their recurrence? What would be their impact on service delivery during the current financial year? She further requested a list of all national and provincial departments with accruals.

Meeting report

The Chairperson welcomed everyone and indicated it was the responsibility of government and Committee to ensure the limited resources are allocated inclusively to foster economic development. She expressed concern about the absence of the Director-General. The Committee was prepared to understand only if there was an apology. The working relationship between the Committee and National Treasury needed to be strengthened.

National Treasury presentation

Dr Mampho Modise, Public Finance, National Treasury presented the 2018 Appropriation Bill. The Bill was divided by vote and by main division within a vote (i.e. by programme and / or transfer and subsidy to a national department within a vote). A purpose was set out for each vote, programme and transfer and subsidy to a national department within a vote. Allocations were categorised in terms of: Current payments (Compensation of employees, goods and services, interest and rent on land); Transfers and subsidies; Payments for capital assets; and Payments for financial assets.

The total main budget spending for the 2018/18 Appropriation Bill was R1.5 trillion: 27% of the total being allocated to current payments, 71% to transfer and subsidies, and 12% to debt-service costs. On the share towards compensation of employees, Police was allocated 43% and Defence and Military Veterans, 16%. This is because security departments tend to be labour intensive. Technical and vocational education and training (TVET) and the community education and training (CET) college lecturers across all provinces account largely for the R8.9 billion higher education compensation budget. On goods and services, the bulk allocation went to Police (24%), and Defence and Military Veterans (19%).

For the security departments, good and services budgets are in line with their size with the main categories being: Computer and fleet services (Police); Contractors (Defence); Nutritional services for inmates and property payments (Correctional Services); Computer services, operating leases and property payments (Justice); Basic Education, of which the largest portion of goods and services is spent on printing and distributing workbooks for grade R to 9 learners at 23 000 schools. The system modernisation programme (maintenance and development) constitute the largest item of goods and services for Home Affairs (31 percent), whilst Health spends most of its goods and services budget on the three components of the National Health Insurance indirect grant (personal services (R713 million), non-personal services (R523 million) and health facility revitalisation (R70 million). In addition, Consultants on restitution claims, operating lease and computer services make over 50 percent of the goods and services budget of Rural Development and Land Reform.

On Transfers and Subsidies, the bulk allocation went to National Treasury (47%) and Social Development (16%). National Treasury transfer includes the Provincial Equitable Share and General Fuel Levy, to SARS, Government Pension Administration Agency for the Civil and Military pensions and to Secret Services. For higher education and training, transfers were for: subsidies for 26 public universities; subsidies for nine community colleges (with 2 778 community learning centres); subsidies for 50 public technical and vocational education and training (TVET) colleges; National Student Financial Aid scheme (NSFAS) for student financial aid for university and TVET college students; and the 21 Sector Education and Training Authorities (SETAs).

For Cooperative Governance and traditional affairs, transfers were for: Local Government Equitable Share (R62.7 billion) and the Municipal Infrastructure Grant (R15.3 billion). For Transport, large transfers were to: South African National Roads Agency Limited (R15.6 billion); Passenger Rail Agency of South Africa (R18.8 billion); Provincial Roads Maintenance Grant (R11.03 billion); Public Transport Operations Grant (R6.2 billion); and Public Transport Network Grant (R6 billion).

Transfers to Social Development were mainly for social grants (R163 billion) as well as payments for capital assets for Police (26%), Water and Sanitation (25%), Basic Education (19%) as well as infrastructure building programmes such as erection, refurbishment and rehabilitation of police stations, courts, army bases and military hospital that are on-going. The large capital budget for police also provides for transport equipment (R1.9 billion). Water and sanitation budget is driven by indirect grants: Regional Bulk Infrastructure Grant (R2.9 billion) and Water Services Infrastructure Grant (R608 million), and Basic Education provides for the school infrastructure backlogs grant which represents 99 per cent of their appropriation of capital assets. For Health, R821 million was to pay for infrastructure projects under the Health Facility Revitalisation Component.

On Specifically & Exclusively Appropriated Amounts, in Schedule 1 or 2 to the Appropriations Bill, these may be used only for the purpose indicated, unless the amount or purpose, is amended by, or in terms of, an Act of Parliament. There were a large number of these items and they include: All conditional grants (direct and indirect); all compensation of employees; all compensation linked to capital projects; all funding allocated to departments within a vote; all funding allocated to constitutional institutions; social grants; contractual membership fees to multilateral institutions, and commitments that bind the National Revenue Fund such as the rolling stock fleet renewal programme in PRASA and contributions to the reduced Gauteng Freeway Improvement Programme tariffs based on the 2015 new dispensation.

On the largest positive reallocation and funding additions, total Bill appropriation amounts to R814.5 billion in 2018/19, excluding direct charges such as the provincial equitable share and debt-service costs. The following represent the largest positive reallocation and funding additions to budget baselines, in 2018/19:

Higher Education and Training

  • R7.2 billion for NSFAS for the phasing in of fee free higher education and training, for poor and working class students
  • R2.7 billion for TVET college subsidies for the phasing in of fee free higher education, refurbishing TVET infrastructure and starting operations at 3 new TVET college campuses
  • R2.4 billion for university subsidies

Health

  • R700 million for development of an interim National Health Insurance (NHI) structure and the NHI indirect grant to cater for a package of prioritised NHI services

Basic Education

  • R1.5 billion for the school infrastructure backlogs indirect grant for the completion of current projects – reallocated from Education Infrastructure Grant

Social Development

  • R327.5 million for social assistance grants to offset the likely inflationary impact of new tax measures

Home Affairs

  • R180 million to the Independent Electoral Commission for the 2019 national government elections

Discussion

Mr N Paulsen (EFF) asked if there was some disparity between budgetary applications by departments and actual allocations by Treasury in the Appropriation Bill. The variation or shortfalls had to be known by the Committee and the reasons for such variations should be explained.  

Mr N Gcwabaza (ANC) asked whether allocations took the recent VAT increase into account, particularly in the procurement space. He made reference to ongoing wage negotiations in the public sector; allocations to employee compensation should factor them in. Treasury had to plan ahead and be proactive. Also, to what extent do accruals affect the ability of departments to ensure uncompromised service delivery in the current year?

Ms M Manana (ANC) made reference to a recent plenary presentation by the Minister of Water and Sanitation which revealed large cumulative accruals within the Department of Water and Sanitation (DWS). She asked if the 2018/19 allocations took these accruals into account. Was the current year allocation to the said Department going to offset accruals from the previous year?

Mr D Maynier (DA) asked at what level of public sector wage increases Treasury had budgeted for.

Ms Julia Bruyn, Chief Director: Public Finance, National Treasury, emphasised the need for project prioritisation by departments as a means of dealing with the budget constraints owing to stringent allocations. Further, the VAT increase was meant to fund government priorities and thus departments could not be compensated for the VAT hike. However, the amounts allocated to social grants took the VAT increase into consideration such that fairly significant adjustments would be effected over a three year period. She added that departmental accruals and unauthorised expenditure were under the Standing Committee on Public Accounts (SCOPA) purview. SCOPA recommends how they should be addressed. On accruals at DWS, the processes to deal with these needed to unfold but departments typically use current budget allocations to offset such accruals.

Dr Modise further commented on DWS accruals. Treasury was still busy with determinations but preliminary estimates put them at R2 billion. The general understanding was this might see delays in DSW projects, and they would have to be addressed through corporate governance processes. She pointed out that accruals at national departmental level were not common feature- they are largely at provincial departmental level. In a nutshell, the allocations demonstrate government’s commitment to contain its spending and ensure economic growth despite constraints. Service delivery would not be affected if the fiscal framework was adhered to.

Mr Gcwabaza said accruals were a typical feature even at national level for some departments. These accruals would include non-payment of services rendered by SMMEs to departments which is detrimental to the former’s viability. The Committee should deliberate this thoroughly on a later date and Treasury should be upfront when addressing same. 

The Chairperson asked Treasury to furnish the Committee with responses in writing. Does government have enough capacity to deal with accruals across the board? How can Treasury prevent their recurrence? What would be their impact on service delivery during the current financial year? She further requested a list of all national and provincial departments with accruals.

The meeting was adjourned.

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