National Treasury 2018/19 Annual Performance Plan; with Minister

Meeting report

Remarks by the Minister
Mr Nhlanhla Nene, Minister of Finance, briefed the Committee about Treasury’s strategic plan and highlighted Treasury’s priorities over the coming year. Apart from being committed to driving faster economic growth and encouraging significant new investment in the economy through boosting investor confidence, Treasury was also focusing on its commitment to ethical behaviour and ethical leadership. Treasury was geared to fighting corruption, and not paying lip service to it. Consequently, Treasury was both funding and supporting the commission of inquiry into state capture, by providing information on state-owned enterprises (SOEs) procurement payments, and other forensic investigation reports. Treasury would also provide expert witnesses when required. Furthermore, Treasury’s priorities include rebuilding of the South African Revenue Service (SARS), and stabilising SOEs. Treasury was dedicating much effort towards building the future with constrained public finances. Despite the constraints and the demand for R57 billion to be made available for fee-free higher education at a late stage in the budgeting process last year, government managed to maintain the expenditure ceiling in 2017. The expenditure ceilings for the medium term (up until the year 2021) have been revised down. However, risks to the expenditure ceiling remain, these being the public-sector wage agreement and the financial position of several SOEs. More so, Treasury was working on rebuilding trust in public institutions. SOEs, which pose a fiscal risk on government’s balance sheet in particular, were being dealt with. On deviations, Treasury has noted with concern the areas of deviations. These were areas being paid attention to. Treasury was strengthening its oversight, tightening stipulations and addressing gaps in the process. He added it was important to reconsider the guidelines for deviations as the process was being abused.

National Treasury presentation
Mr Dondo Mogajane, Director-General, National Treasury, took the Committee through National Treasury’s 2018/19 annual performance plan (APP). The 2018/19 APP focuses the work of Treasury in: coordinating fiscal relations between national, provincial and local government and promoting sound budgetary planning at provincial and local spheres of government; monitoring the use of scarce public resources by national spending agencies; developing the necessary Twin Peaks implementation regulations and a comprehensive prudential and market conduct framework for new authorities; conducting relevant economic research that informs economic policy and frameworks; and preparing and publishing the national budget to ensure that resource allocations meet the priorities set by government while maintaining the expenditure ceiling.

Exercising oversight over state-owned companies and enabling them to better achieve government’s policy objectives in a financially and fiscally sustainable manner was of paramount importance. This would involve: optimally managing public debt and funding of government’s borrowing requirements as well as government’s cash resources; investigating processes and capacity building initiatives to improve financial management governance and compliance across all spheres and entities in government; further developing and implementing strategic procurement as well as modernising and automating government supply chain processes; and effectively administering and optimising the following programmes for impactful results, namely: the Jobs Fund (employment creation facilitation programme), the municipal finance improvement programme (MFIP) and the cities support programme (CSP).

Treasury’s 2018/19 strategic plans and APPs were as follows:

Programme One: Administration would ensure effective leadership, strategic management and administrative support services to the Department through continuous refinement of organisational strategy and structure in line with appropriate legislation and best practice. This would give further effect to organisational optimisation by providing integrated business solutions focusing on the areas of business continuity and cost savings; ensure good governance and sound control environment by implementing the risk-based IA plan, manage enterprise-wide risks and assist the Ministry with effective oversight of Public Entities, reporting to the Minister of Finance, governance and performance; and provide support for strategic planning, performance management and reporting across the organisation.

Programme Two: Economic Policy, Tax, Financial Regulation and Research, would provide specialist policy research, analysis and advisory services in the area of macroeconomics, microeconomics, the financial sector, taxation and regulatory reform. The programme would have Treasury conduct relevant micro and macro-economic research that contributes to the promotion of macroeconomic stability, poverty alleviation, retirement reform, social security and the development of inclusive growth and job creating policies; monitor the impact of employment creating incentives such as ETI with the aim of enhancing their transformational impact; continue to monitor external vulnerabilities facing the domestic economy and provide recommendations on how to address them and maintain macro stability thus providing a supportive environment for transformational policies; implement Twin Peaks model legislation; and prepare, publish and table tax legislation in Parliament.

Programme Three: Public Finance and Budget Management would provide analysis and advice on fiscal policy and public finances, intergovernmental financial relations, expenditure planning and priorities. Notably, subsequent to the increase in VAT: Treasury will host workshops with civil society organisations to discuss the rationale for the increase in VAT, their concerns with the increase in more detail (following their submissions made to Parliament) and to explore potential options to mitigate the impact on poor households. The Independent Panel to review the targeting of zero-rated items to mitigate the impact of the VAT increase has been established, and Terms of Reference had been published and members appointed. The panel was expected to hold hearings, take submissions and provide a report to Minister of Finance by 30 June 2018. The VAT increase will be discussed within NEDLAC structures in the latter part of May.

Treasury further aimed to provide analysis and advice on fiscal policy and public finances, expenditure planning and priorities as well as manage government’s annual budget process and provide public finance management support. This would involve on-going engagements with officials from departments, public entities and constitutional institutions to promote efficient utilisation of state resources; provision of support to provincial treasuries to strengthen their oversight and address municipal finance performance failures; strengthening monitoring and assessment to ensure credibility of provincial and local government budget process; leading interventions in provinces and local governments with financial management failure; and driving reforms in the fiscal system and providing technical support to cities to strengthen infrastructure planning, delivery capacity and to support spatial transformation and inclusive developments

On Programme Four: Asset and Liability Management, Treasury would manage government’s annual funding programme in a manner that ensures prudent cash management, an optimal portfolio of debt and other fiscal obligations, as well as promote and enforce the prudent financial management of state owned entities through financial analysis and oversight. This would involve exercising oversight over state-owned enterprises (SOEs) to enable the achievement of government’s policy objectives, whilst ensuring financial and fiscal sustainability; maintaining sound investor relations and engaging with credit rating agencies; and ensuring sound management of government’s cash resources by meeting government’s liquidity requirement at all times.

Programme Five was expected to improve governance and compliance across all spheres of government by: maintaining and enhancing the legislative framework; enforcing compliance with public-sector financial management legislation in each sphere of government; providing technical support services to address implementation challenges in financial management and risk management; support and facilitate capacity development across all spheres of government in order to improve financial management execution; issuing frameworks, guidelines, circulars, treasury instructions and other tools to enable proper implementation of the legislation; monitoring and evaluating financial management and risk management across government; and facilitating and undertaking special investigations and performance audits to improve financial governance and compliance. In addition, Financial Systems and Supply Chain Management Systems plan would facilitate governance and accountability by promoting and enforcing the transparent, economic, and effective management of revenue, expenditure, assets, liabilities and supply chain processes in the public sector. This would include the modernisation of supply chain management policies and procedures by revising process, procedures published and issuance of Instructions in line with policy interventions and proposed designated products or categories to enhance SCM policy.

Lastly, Treasury would provide technical and management support to improve public finance management, support high-impact government initiatives, facilitate employment creation and strengthen infrastructure planning and delivery. This would be through establishment of the Government Technical Advisory Centre (GTAC) as well as the Municipal Finance Improvement Programme (MFIP).

Discussions
Ms D Mahlangu (ANC) made reference to collapsing municipalities throughout the country. She asked how Treasury was planning to rescue them. What were Treasury’s plans on SOEs given that the current allocations would clearly not be enough to resuscitate most of them? Also, how was Treasury planning to finance commitments and programmes announced by the president during the State of the Nation Address?

Mr A Lees (DA) commented on programme four (Assets and Liability Management). The understanding was that an additional R4.8 billion would be availed to South African Airways (SAA) adding to the R9.2 billion loan settlement to the airline’s lenders. What was the plan as these commitments were not touched on in the Strategic Plans? What was the cash position at Eskom in terms of its liquidity status? Also, which other SOEs had applied for guarantees or bailouts?

Mr W Wessels (FF+) said Treasury had to be commended as it had a difficult task. However, coordination between the various programmes was unclear. Also, there had not been any significant improvements within grassroots especially at municipal level. On provincial budgets, the problem of accruals owed to a failure by municipalities to take possible tariff increases into account beforehand. This largely explained the huge accruals in municipalities across the board. He asked Treasury to explain how challenges at Eskom would be dealt to ensure electricity supplies are not disrupted.

Mr D Maynier (DA) directed his comments to the Minister. He expressed concern about delays by the Ministry in responding to correspondence from Members. By and large, the Ministry was in the habit of not acknowledging receipt, not responding or delaying responses to Members’ communication. He asked for the Minister’s commitment in ensuring that this was expeditiously addressed. Also, how did Treasury intend to prioritise the six Bills it wanted processed given the Committee’s time constraints due to the long parliamentary recess ahead?

Ms P Nkonyeni (ANC) asked whether the radical economic transformation policy found expression in Treasury’s 2018/19 APPs.

The Acting Chairperson pointed out the need for clear and concise target setting. She asked how far Treasury had gone in forging a strong partnership with the African Development Bank (AfDB). She emphasised the need for Treasury to stand its ground on expenditure deviations within national departments. What was the strategy to address deviations going forward? Also, the state of affairs at Eskom raises serious alarm and had to be looked into.

Minister Nene replied that the Ministry would look into the issues being raised by Mr Maynier. If indeed there were such delays, the Ministry would certainly work towards improving. He pointed out that, in some instances, delays were owing to the Ministry having to first source the relevant information from entities or do some verifications before tendering its responses. The concerns were noted and due attention would be paid to address them.

Mr Mogajane replied that Treasury’s process to approve deviations must be modernised and there is a need to change the policy framework on deviation. The relationship between South Africa and the AfDB was strategic and cordial, and needed to be enhanced together with other bilateral institutions. Eskom was a huge challenge. However, efforts by Treasury had seen some willingness by lenders to re-engage after they previously expressed concerns about corporate governance. Treasury was therefore happy and comfortable that the re-engagements with the Eskom lenders were yielding fruit, which would enable Eskom to sustain its operations. On radical transformation, Treasury had not been shy in clearly articulating this view in all its strategies and plans. Changing ownership patterns in the economy was crucial and the procurement space should be equally accessed by all South Africans. On distressed municipalities, the issues were clearly not a money problem. Poor governance, political mismanagement and instability at municipalities were the underlying issue in most cases. Lack of proper coordination has also largely rendered Treasury’s support ineffective. However, Treasury was in the process of addressing these challenges. Distressed municipalities were being identified to address financial mismanagement by principally looking into how they were conducting and implementing credit control policies. Addressing these multidimensional problems was Treasury’s focus in collaboration with the Department of Corporate Governance and Traditional Affairs. Also, cost-containment regulations were being formulated to deal with bloated structures at the back of weak revenue bases. Correcting misalignments to ensure that systems are fit for purposes was important. In addition, a turnaround grant would also be availed to compliant municipalities which would assist in their budget readjustments.

Mr Antony Julies, DDG: Asset and Liability Management, National Treasury, commented on SOEs. He indicated that Treasury continually reviewed its corporate plans and annual reports to ensure evidence-based interventions when addressing challenges. Treasury had so far identified weaknesses at board level in most SOEs. However, any credible turnaround plans had to deal with their debt levels through reviews of their debt structure. Treasury would thus want to see such reviews incorporated in their corporate plans. Also, disposal of non-core assets should happen, and had to be in line with cabinet-approved frameworks, and monitoring implementation, by Treasury and Parliament would be crucial. Further, reducing SOEs’ reliance on government guarantees was also key and had to be monitored. Treasury was explicitly working on reducing the level of guarantees to SOEs across the board. This demonstrated its commitments to ensuring that measures to turnaround SOEs were credible and effective.

The Acting Chairperson appreciated the responses and asked Treasury to submit outstanding responses in writing. She thanked everyone for the engagements.

The meeting was adjourned.