2018 Appropriation Bill: public hearings; Parliamentary Budget Office Director reappointment

Standing Committee on Appropriations

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

The Standing Committee on Appropriations held public hearings on the 2018 Appropriation Bill. There were three submissions and an input from National Treasury.

Mr Guy Harris, Education and Governance Activist, said more needed to be done with the available resources, and identified the need for much more emphasis on high return areas. For instance, more investments in SMEs and education could deliver significant returns in the long run. Moreover, work done by Treasury and parliamentary committees to improve governance and returns on tax gathered were appreciated but much more still needed to be done. The lard was spread thin by recent rash populous decisions but government should have found some jam for the two corners of early childhood development (ECD) and SMEs that would put the country on the right growth path and contribute towards job creation in the long and short term. This required even greater innovation and bolder leadership. Investment in these two will provide the pathways out of poverty; and turnaround the freeways into poverty, built by past and current education systems. In conclusion, education is the key driver of reducing inequality, along with redistribution- which is not sustainable. In a knowledge based economy, an effective educational structure was paramount. ECD is the base and needed even more support. Furthermore, job creation, most likely via medium sized business, is key to reducing unemployment and avoiding an uprising and if job opportunities are entry level, poverty levels would be decimated. To fund the above without raising Debt/GDP ratio or further increasing marginal tax rates required innovative thinking and strong leadership.

The Congress of South African Trade Unions (COSATU) expressed appreciation for the detailed commitments by the President, particularly the focus on jobs and investment, as well as dealing with corruption in SOEs. However, COSATU was disappointed by the tax increases upon working and middle classes, fuel hikes, and reduced public service employment. Also, there seemed to be no clear plan to reduce wasteful expenditure, recover stolen assets, and employment creation. Government should also focus on sorting out the leadership and collection crises in South African Revenue Service. On revenue generation without resorting to overtaxing the poor, COSATU proposed: cancellation of VAT hike; reduction of fuel levy hikes; 2-4% company tax hike; increasing estate duty and inheritance taxes; higher tax for above R1 million income earners; capital gains tax; and investment incentives. Budget sustainability and getting the right balance between revenue collection and expenditure was crucial. COSATU wanted to see much more effort by government in dealing with corruption such that transgressors should be seen being sent to prison. Its proposals to reduce government expenditure were outlined as follows: reduce wasteful expenditure by, for example, cutting national, provincial and mayoral cabinets by half; stop roll over of unspent budgets; and hold politicians and management accountable. One of the critical issues was the state of SOEs. Although positive steps had been taken, there was need for robust turn around plans coupled with comprehensive forensic audits, asset seizures and arrests. Furthermore, the impact of austerity on the poor was of concern. Expenditure cuts which could compromise service delivery, lead to infrastructure backlogs, and freeze critical public service posts was of concern. Therefore, special consideration should be given to these.

Consulting Engineers South Africa (CESA) made mention of key infrastructure challenges facing South Africa. The challenges were outlined as follows: lack of technical skills and capacity in public sector; generic approach to procurement; feast or famine phenomenon in construction industry - inconsistency of workload thus not allowing profession to put proper plans for succession planning and training; lack of planning in advance of need; and inadequate regulation in respect of professional registration with Engineering Council of South Africa (ECSA). In addition, cases of poorly articulated terms of reference by public sector clients, resulting in costly tendering were issues of concern. On the way forward, CESA made the following recommendations: capacitation of delivery departments to ensure that all SOEs, national and provincial departments have full understanding and capacity to implement Standard for Infrastructure Procurement and Delivery Management (SIPDM); changing Procurement of Professional Services to consider “value for money” instead of “lowest cost”; and ushering in a system of framework contracts with more quality-based selection. CESA further recommended the establishment of an infrastructure advisory team (independent experts, preferably qualified technical people). Furthermore, there was need for stronger collaboration between the private sector and ECSA such that collective responsibility is taken for engineering skills within the industry. A “Marshall Plan” around Housing, Water or Energy that could be used to re-invigorate economy, create employment and drive growth should be created. In addition, integrity-based dialogue between infrastructural role-players in public and private sector, focused on optimising infrastructure investment spend was crucial.

National Treasury indicated that there were a lot of inefficiencies in infrastructure spending within departments. A number of departments spend huge sums of money year-on-year on planning rather than actual development. These were areas which needed to be looked into and oversight strengthened. This was a substantial problem which they needed to find a way around. Important points had been raised, and professional engagements would hopefully be deepened. Furthermore, from the Treasury side, there was an appreciation that ECD did not get as much prominence as it might have been desired in the current budget. Also, there had been a significant focus by cabinet in coming up with a robust ECD strategy, but these plans were inadequately unfunded.

Members said the challenges within ECD space went beyond funding. ECD problems were deep-seated and could not only be tackled by throwing more money without interrogating the real issues. They emphasised the need to reduce public service wage bill. Bloating of some government structures needed to be looked into as a matter of urgency. They asked for comments in relation to cases where compensation of employees was seen to be crowding out other areas of spending, particularly in labour intensive departments. In some cases, the budgets for compensation of employees were growing at the expense of service delivery.

Furthermore, the Committee had received correspondence from the Speaker’s Office in relation to the directorship of the Parliamentary Budget Office. The letter was a request that, in terms of section 55 of the Money Bills Amendment Procedure and Related Matters Act, the Committee consider renewal of the current Director’s contract for a further five year period. A Member supported the reappointment and suggested the Committee give the Chairperson the mandate to call for a meeting of the four committees involved in such appointments, and support the reappointment. There were no objections from Members.

Meeting report

The Chairperson welcomed everyone to the public hearings and noted that a vibrant civil society and citizenry plays a pivotal role in a democracy. Efforts and inputs from the public were most valued and appreciated.

Submission by Mr Guy Harris
Mr Guy Harris, Education and Governance Activist, said more needed to be done with the available resources, and identified the need for much more emphasis on high return areas. For instance, more investments in SMEs and education could deliver significant returns in the long run. Moreover, work done by Treasury and parliamentary committees to improve governance and returns on tax gathered were appreciated but much more still needed to be done. The lard was spread thin by recent rash populous decisions but government should have found some jam for the two corners of early childhood development (ECD) and SMEs that would put the country on the right growth path and contribute towards job creation in the long and short term. This required even greater innovation and bolder leadership. Investment in these two will provide the pathways out of poverty; and turnaround the freeways into poverty, built by past and current education systems.

Transforming for inclusive growth was paramount. The economy is currently an unstable, elegant thin stem, top-heavy wine glass characterised by large, overly concentrated industries dominated by a few big companies, supported by big government and big labour, and a fragile thin stem of SME businesses with an economically small (but large population) base of 70% of SA households surviving on less than R6000 per month. There was thus need to transform the economy into a much more robust tumbler by way of transforming the concentrated bowl to make it more competitive through supply chain inclusion. Through a substantially expanded and strong SME stem, a capacitated base that has pathways out of poverty into formal business sector via jobs/entrepreneurship would be realised.

Education is the key driver for reducing inequality sustainably but needs a much stronger ECD base that is well funded and has clarity of where responsibility lies– free tertiary education policy was populous and too late. Effective early childhood education is the foundation for future skills. At present, too much dumping rather than real development of the child in first thousand days, second thousand days and pre Grade 1 was evident. As most brain development occurs prior to age six, there was need for intensive support through policies that would facilitate reduced substance abuse, increased father involvement, and reduced teenage pregnancies. Household level food security also needed to be emphasised as brain cannot function to reasonable capacity on an empty stomach. Community colleges to allow parents and guardians to hone their skills through second opportunities and thereby overcome legacy issues and cut-off the venomous down cycle was also key.

In conclusion, education is the key driver of reducing inequality, along with redistribution- which is not sustainable. In a knowledge based economy, an effective educational structure was paramount. ECD is the base and needed even more support. Furthermore, job creation, most likely via medium sized business, is key to reducing unemployment and avoiding an uprising and if job opportunities are entry level, poverty levels would be decimated. To fund the above without raising Debt/GDP ratio or further increasing marginal tax rates required innovative thinking and strong leadership.

Discussion
Mr A McLaughlin (DA) said the challenges within ECD space went beyond funding. He spoke of cases whereby informal day-care facilities in low-income communities were being closed down by municipalities because of purported non-compliance with regulations. Closure of such facilities was not assisting in anything as the underlying problems were not being addressed. It was not just about providing funding per child but also getting the structure right. Proper nutrition was also crucial. He added ECD problems were deep-seated and could not only be tackled by throwing more money without interrogating the real issues.

Mr N Gcwabaza (ANC) asked for views on bailouts to state-owned entities (SOEs), particularly to South African Airways (SAA). Bailouts seemed not to be assisting in the medium to long run. Would it not be more sustainable to fully capitalise the entities in distress? In addition, factors driving the cost of higher education which made it increasingly inaccessible had to be interrogated.

Ms D Senokoanyane (ANC) agreed that there were a plethora of challenges within the ECD space. The ECD programme should be adequately capacitated as it was critical.

The Chairperson asked about how best small businesses and cooperatives could be capacitated towards inclusive economic growth. Also, how could municipalities be helped to use old money for service delivery as accruals were identified as a recurring challenge within departments?

Mr Harris said he worked extensively in the field of ECD together with other civil society organisations. He agreed that getting things right within the ECD space would require more than additional funding. The basics had to be done right. For example, enhancing quality by fully capacitating ECD trainers, and finding ways to up skill those who become redundant should be part of the policy mix. On SOEs, it was common knowledge that most of them were undercapitalised and this had to be addressed. He did not have enough information on SAA but believed asset rationalisation, particularly in Eskom, could go a long way in dealing with its challenges. He expressed his willingness to further engage Members beyond Committee meetings.

A National Treasury representative supported the strong call for funding of ECDs. He explained there was quite a strong dilemma on Treasury’s side as a lot of money went into higher education such that the differential in funding students in higher education and ECD students had now become quite vast. The average cost of the tertiary education subsidy was going up to R100 000 per student whereas that of ECD was around R2 500 per pupil. This was clearly a huge differential. The current government funding to ECDs amounted to about R3 billion per year, through the Department of Social Development. There had been various costing models conducted by NGOs and these suggested the country needed to spend at least R50 billion per year in ECD subsidies. From the Treasury side, there was an appreciation that ECD did not get as much prominence as it might have been desired in the current budget. Also, there had been a significant focus by cabinet in coming up with a robust ECD strategy, but these plans were inadequately unfunded.

COSATU submission
Mr Matthew Parks, Parliamentary Coordinator, COSATU, expressed COSATU’s appreciation for the detailed commitments by the President, particularly the focus on jobs and investment, as well as dealing with corruption in SOEs. However, COSATU was disappointed by the tax increases upon working and middle classes, fuel hikes, and reduced public service employment. Also, there seemed to be no clear plan to reduce wasteful expenditure, recover stolen assets, and employment creation. Government should also focus on sorting out the leadership and collection crises in South African Revenue Service.

On revenue generation without resorting to overtaxing the poor, COSATU proposed: cancellation of the VAT hike; reduction of fuel levy hikes; proposed a 2-4% company tax hike; increasing estate duty and inheritance taxes; higher tax for above R1 million income earners; capital gains tax; and investment incentives. Budget sustainability and getting the right balance between revenue collection and expenditure was crucial. COSATU wanted to see much more effort by government in dealing with corruption such that transgressors should be seen being sent to prison. For instance, little action was being done to bring the individuals involved in the R64 billion wasteful expenditure and stealing R50 billion worth of government assets to book. Individuals who were involved should be held accountable, charged, tried and convicted, and stolen assets recovered. In addition, Parliament ought to expeditiously pass the Auditor-General Amendment Bill, and Public Investment Corporation Amendment Bill.

COSATUs proposals to reduce government expenditure were outlined as follows: reduce wasteful expenditure by, for example, cutting national, provincial and mayoral cabinets by half; stop roll over of unspent budgets; and hold politicians and management accountable. One of the critical issues was the state of SOEs. Although positive steps had been taken, there was need for robust turn around plans coupled with comprehensive forensic audits, asset seizures and arrests. Furthermore, the impact of austerity on the poor was of concern. Expenditure cuts which could compromise service delivery, lead to infrastructure backlogs, and freeze critical public service posts was of concern. Therefore, special consideration should be given to these. COSATU was willing to engage further on the various proposals.

Discussion
Mr McLaughlin appreciated COSATU’s presentation as it raised pertinent issues. A looming problem within SOEs, which required guarantees after guarantees needed urgent attention. As it stood, a big chunk of government expenditure went to debt servicing. This was a huge challenge which needed to be turned around. SOEs should be in a position to service own debt so as to ease pressure on the state. 

Ms S Shope-Sithole (ANC) also appreciated the presentation and agreed that the tax burden should be borne largely by the rich- the poor were already struggling. She believed COSATU needed to also talk to corruption within Treasury in strong terms.

Ms Senokoanyane emphasised the need to reduce public service wage bill. Bloating of some government structures needed to be looked into as a matter of urgency.

The Chairperson asked for comments in relation to cases where compensation of employees was seen to be crowding out other areas of spending, particularly in labour intensive departments. In some cases, the budgets for compensation of employees were growing at the expense of service delivery.

Mr Parks reiterated that COSATU believed government was not being brutal enough in dealing with corruption and bleeding across the board. There were various low-hanging fruits which could provide additional revenue such as clearing ghost workers, consolidation of departments and streamlining budgets. For example, there were Ministers who exceed the staff complement allowance as per the ministerial handbook without any consequences. Dealing with wasteful expenditure across the board was key. There was ample room to manoeuvre without resorting to additional tax hikes. Getting the right balance between the wage bill and overall budget was also crucial.

Consulting Engineers South Africa (CESA) submission
Mr Neresh Pather, President, Consulting Engineers South Africa, made mention of key infrastructure challenges facing South Africa. The challenges were outlined as follows: lack of technical skills and capacity in public sector; generic approach to procurement; feast or famine phenomenon in construction industry - inconsistency of workload thus not allowing profession to put proper plans for succession planning and training; lack of planning in advance of need; and inadequate regulation in respect of professional registration with Engineering Council of South Africa (ECSA). In addition, cases of poorly articulated terms of reference by public sector clients, resulting in costly tendering were issues of concern.

On infrastructure investment, a total of R297 billion was spent on construction infrastructure in 2017, including investment in residential and non-residential buildings and construction works, representing a decrease of 2.6% year-on-year. This would also include purchases of machinery and equipment, often imported, used in the construction process such as the installation of turbines. Investment in buildings (residential and non-residential buildings), decreased by 4% to R102 billion, while investment in construction works (largely civil construction including investment in energy, transport and water), decreased by 1.8% to R194 billion.

On the way forward, CESA made the following recommendations: capacitation of delivery departments to ensure that all SOEs, national and provincial departments have full understanding and capacity to implement Standard for Infrastructure Procurement and Delivery Management (SIPDM); changing Procurement of Professional Services to consider “value for money” instead of “lowest cost”; and ushering in a system of framework contracts with more quality-based selection. CESA further recommended the establishment of an infrastructure advisory team (independent experts, preferably qualified technical people). Furthermore, there was need for stronger collaboration between the private sector and ECSA such that collective responsibility is taken for engineering skills within the industry. A “Marshall Plan” around Housing, Water or Energy that could be used to re-invigorate economy, create employment and drive growth should be created. In addition, integrity-based dialogue between infrastructural role-players in public and private sector, focused on optimising infrastructure investment spend was crucial.

Discussion
Mr Gcwabaza asked about the extent to which foreign construction companies were posing a competitive challenge to domestic companies. What were the negative implications of having these foreign engineering companies crowding out local ones?

Mr Pather reiterated that construction activity in the country was down, as evidenced by the drop in construction spend in 2017. He pointed out that the South African National Roads Agency (SANRAL) had not issued any construction contracts for an entire year. He did not believe foreign companies were taking up contracts at the expense of domestic ones. However, there was a fine balance between foreign direct investment and the importance of capacitating local players. Foreign engineering companies had to be more proactive in facilitating skill-sharing with locals.

A National Treasury representative indicated that there were a lot of inefficiencies in infrastructure spending within departments. A number of departments spend huge sums of money year-on-year on planning rather than actual development. These were areas which needed to be looked into and oversight strengthened. This was a substantial problem which they needed to find a way around. Important points had been raised, and professional engagements would hopefully be deepened.

The Chairperson appreciated the informative engagements from the various stakeholders. She indicated the Committee had received correspondence from the Speaker’s Office in relation to the directorship of the Parliamentary Budget Office. She asked for the parliamentary legal advisor’s input on this. 

Deliberations on reappointment of Parliamentary Budget Office (PBO) Director
Adv Frank Jenkins, Senior Parliamentary Legal Advisor, said the Committee received the aforesaid letter indicating that the term of office of the PBO Director, Prof Jahed, was expiring in June 2018. The letter was a request that, in terms of section 55 of the Money Bills Amendment Procedure and Related Matters Act, the Committee consider renewal of the Director’s contract for a further five year period. The Act provides a guide on the approach for appointment of a Director but there was no provision for the renewal of such appointments. He advised that whether it was an appointment or reappointment, Parliament would need to go through the very same appointment process as stipulated in the relevant statutory provision. The process might require some form of public facilitation- at the very least, to publish the intention of the four committees (Standing and Select Committees on Appropriations, and Standing and Select Committees on Finance) to engage in the appointment or reappointment process. However, there was no provision for call for nominations in the Act. As the letter from Speaker’s Office was recommending that the four committees look into the reappointment of the candidate on materially the same conditions of employment as before, the four committees must then go ahead and consider Prof Jahed’s candidature. Procedurally, the four committees must deal with the issue and make recommendations by 28 May 2018.

Mr McLaughlin said it was clear from the aforementioned letter that both the National Assembly Speaker as well as the National Council of Provinces Chairperson were in favour of the reappointment of the current Director. He suggested that the four committees meet to review the candidate’s résumé, and thereafter make recommendations. He felt this would be the quickest procedure given the time constraints.

Ms Shope-Sithole supported the current Director’s reappointment and suggested the Committee give the Chairperson the mandate to call for a meeting of the four committees and support his reappointment.

There were no objections from Members.

The Chairperson agreed and thanked everyone for their inputs.

The meeting was adjourned.

 

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