Western Cape 2017/18 expenditure outcomes: Provincial Treasury

Meeting report

The Chairperson welcomed Dr Ivan Meyer, Finance MEC for the Western Cape, and National Treasury. A quarterly economic briefing by the Parliamentary Budget Office (PBO) had been received the previous week. The fiscal position of the provinces was a crucial factor the Select Committee had to consider. Space available in the second half of the year had to be used, so as not to put undue pressure on 2019. He asked the National and Provincial Treasuries to proceed with their presentations.

National Treasury on Western Cape 2017/18 provincial expenditure outcomes
Mr Marumo Maake, National Treasury Director: Provincial Budgets, reported that there were fiscal risks in education and health, and high accruals. Skills capacity had to improve for project execution, along with improved planning skills to reduce underspending, especially with conditional grants. Total underspending amounted to R706 million, chiefly due to contractor payments and continued cost containment on goods and services. Underspending on compensation of employees was due to slow recruitment, vacant posts and resignations. In Health, there was underspending on medicines and property maintenance. There was a loss of 245 critical health professionals. In Human Settlements, there was underspending on emergency housing, informal settlement upgrading, and RDP housing. In Education, administrative staff and contract employees were reduced by 205, although permanent educators increased by 435.

Western Cape 2017/18 provincial expenditure: Western Cape Provincial Treasury briefing
Dr Ivan Meyer, Finance MEC; Ms Ronel Slinger. Director: Provincial Budget, and Ms Analise Pick, Director: Provincial Government Finance, presented. The province was the Western Cape was committed to protection of frontline services in education, health and social development. There was an investment of more than R25 billion in public and economic infrastructure. Housing infrastructure and informal settlements were prioritised. The GDP growth of the province was 0.7%. The unemployment figure was 19.7%. Key challenges were increasing population size; infrastructure gaps; the drought and water crisis, and youth unemployment. Provincial own revenue amounted to R3.1 billion, but tax revenue collection was lower than anticipated. There was a commitment to developing wellness programmes to prevent hospitalisation. An integrated management approach would strengthen alignment between planning, budgeting and implementation across departments and between province and municipalities. R100 million was set aside for immediate drought requirements. Debt prevention and collection by all departments had to be improved.

Discussion
The Chairperson noted that the Select Committee had asked for a report on the fiscal framework and revenue proposals. Cabinet and the Finance Minister wanted inputs on the VAT issue, which would proceed from the Committee to the Minister. The matter would come up in the Budget Lekgotla scheduled for August.

Mr O Terblanche (DA, Western Cape) remarked that the Western Cape presentation answered the concerns raised by National Treasury in its presentation. He referred to maintenance and repairs and capital expenditure. The Western Cape situation was not as bad as some of the other provinces, but still there was underspending. He asked if it was related to implementing agents (IAs). The medical claims figure was disconcerting and he asked about the adoption of procedures to responsibly manage the matter. He asked if there was proper long term planning and budgeting for the water shortage. He asked where the money came for transport, especially for Cape Town.

Mr L Nzimande (ANC, KZN) referred to the stated intent to adhere to constitutionalism. There was a demand for service delivery and he asked how obligations to deliver service was expressed through governance. For finance, it was a matter of honour to respond to the demand for service delivery. He saw a disjuncture between the implementation of controls and constitutional principles. National Treasury cited slow recruitment as the reason for underspending on compensation of employees (CoE). The province noted that there had been savings but he asked what the impact of such underspending would be on the demand for service delivery. There was underspending on the Hospital Revitalisation Grant. He asked for clarity about an action programme to actualise the commitment to wellness, and what structures were being established. Western Cape stated that wellness was to be an alternative to hospitalisation. He asked if people would be encouraged to train in gyms, or if there would be walking campaigns. He asked if there was an outreach campaign. One of the non-negotiables National Treasury mentioned was underspending on property rates. He asked about the status quo, and whether the problem was that municipalities were not ready. He was concerned about the National Treasury slide that showed a spike in conditional grant transactions in March year-end. A tangible response was needed.

Mr M Shabangu (EFF, Free State) commended the presentation. National Treasury was mainly concerned about the health sector and education. The Western Cape used to be the best in the world with heart transplants. He asked if it was still number one. He asked if medical specialists were leaving because of poor incentives and inadequate salaries. He asked how the use of contract service providers to transport patients impacted on workers. In his province, Free State, the learner/teacher ratio also caused concern. There were too many part-time teachers. There were challenges with black service providers in Human Settlements. He asked for clarity about contractors and underspending, and measures to curb underspending. He asked about harvesting water for the future. He asked how corruption around obtaining driver licences affected the Western Cape.

Mr F Essack (DA, Mpumalanga) referred to the National Treasury slide on Capex construction procurement delays. He asked that the Provincial Treasury (PT) expand on that, as well as the reduction in personnel. He commended the throughput pass rate. National Treasury slide 10 dealt with payment trends for claims against the state, in Health. There was a spike in 2017/18, claims had quadrupled since 2012/13 and he asked for comment. National Treasury slide 13 dealt with headcounts and distribution of critical health professionals. The loss of 245 medical specialists was cause for concern. Provincial Treasury slide 16 cited that local government had collected 2000% of the adjusted budget. It was a fantastic collection rate, and the province had to advise on what was being done right.

Mr M Monakedi (ANC, Free State) commended the presentation. Underspending on CoE was explained, but the negative impact on service delivery had to be considered, especially for areas that had been historically marginalised. The Provincial Treasury had to explain the high numbers of medical specialists lost. He asked National Treasury if anything was done about medical specialists for disadvantaged provinces like Limpopo. He was concerned about access to specialists in his own province. He referred to medical claims against the state. Although some claims dated back seven years, it was a fact that people were becoming more aware of their rights. People were approaching lawyers for intervention. Government had to look into this matter to consider preventative measures. It was commendable that there was a blank page on unauthorised expenditure. He asked how far the process was for Atlantis to be declared an SEZ and what the challenges were.

Mr T Motlashuping (ANC, North West) addressed the meeting in Afrikaans at first. He said that the achievements were appreciated, but advantages and disadvantages had to be considered. As a patriot, he had to commend Western Cape achievements in education, and the achievement had to be corroborated. PT slide 21 mentioned delays in the filling of posts. Unemployment, inequality and poverty were the main challenges facing the country. Unfilled funded posts did not address unemployment. He asked for an explanation. He asked about the R185 underspending in Transport and Public Works. He agreed with Mr Terblanche that poor maintenance of infrastructure was a challenge. There was R15 million underspending by local government. He asked about the effect of reduced budgets on the execution of Annual Performance Plans. He referred to National Treasury slide 23 which had him worried. As a patriot, he wanted to congratulate Mayor Patricia de Lille for keeping Cape Town clean, but underspending on emergency housing and RDP phase 1 housing was cause for concern. He had seen crowding and lack of land and housing in Langa. Underspending had to be explained. He commended the absence of unauthorised expenditure, but noted irregular, fruitless and wasteful expenditure expenditure in the Premier’s Office, and underspending on Community Safety (R31 million), Social Development (R31 million), Agriculture (R119 million) and Economic Development.

Mr Motlashuping commented the VAT increase was a serious matter as it impacted on budgets and the people. The governing party took the position there had to be a basket of zero rated items that assisted the poor. This had to be investigated to develop an inclusive approach. Engagement on the VAT increase had to bear in mind that VAT had not been increased for 21 years. It was not the current democratic government that had instituted it. Democratic forces were against VAT from the outset. It had to be clarified why it was thought necessary to maintain it.

The Chairperson commented that the Committee acknowledged progress and excellence in the province. Provinces had to learn from one another. It had to be known how to accomplish increased collection of patient fees. However, the accruals caused concern and underspending of R12.3 million on learner/teacher support materials.

Responses
Dr Ivan Meyer, Western Cape Finance MEC, responded about maintenance and repairs, that it was prioritised. He chaired the ministerial committee, which had met the previous Monday, to monitor this through National Treasury benchmarking. Not only municipalities would be held accountable. He would personally visit the desalination plant to monitor maintenance and repairs.

On the medical legal claims, it had become evident that there were lawyers who went to hospitals and took the files of deceased persons in order to sue the state. The Western Cape had the lowest claim rate, but it was increasing. It had met with the City of Cape Town about long term water planning. He himself monitored the top 10 infrastructure projects, and in eight out of the ten municipalities, water infrastructure was prioritised. An update would be submitted. He suggested that the City and its water planning unit be invited to present to the Committee. He noted the main underspending in Cape Town was on public transport.

A R422 million provincial budget was tabled for water and drought, also for floods. R500 million was made available for contingent liabilities, for drought and water infrastructure, boreholes and reticulation. It was essential that quality drinking water be available in the drought areas. Boreholes were drilled to help with reticulation. Hospitals had to have water. If people died as a result of water running out, there could be claims against the state. Schools, clinics, hospitals and libraries had to be supplied with water.

Fiscal obligations were monitored to be in line with constitutionalism. There was end of the year monitoring and quarterly reports. He reported to Cabinet about service delivery. Auditor General and SCOPA reports were considered.

On the effect of reduced budgets on the Annual Performance Plans, Dr Meyer replied that when budgets were reduced, targets had to be reduced. Annual Performance Plan performance of the was monitored.

On the commitment to wellness, the focus was on lifestyle diseases in its Health 2030 Plan. Half of the people suffering from lifestyle diseases like cholestrol and diabetes were unaware of it. People would say that they had medical aid, there was no need to attend to their lifestyle choices. There were health clubs and awareness sessions. The Provincial Health Minister led the awareness campaign. Wellness clubs and gyms were opened. He would assume personal responsibility. Provinces and departments had to be encouraged to pay their debts to municipalities. On heart transplants, innovation was incorporated as a budget principle. Ambassadors were appointed. A plastic valve for use in heart transplants was recognised as a global innovation. It was recognised by the Germans. Innovations of that kind were rewarded.

Before the third adjustment of the budget, he had asked the Provincial Minister if the R100 million Human Settlements Development Grant (HSDG) could be spent, and was assured that it would be done. On contractual problems with hospitals, he had visited community health centres at Prince Alfred Hamlet and Wolseley, which were built to exactly the same plan. At Prince Alfred Hamlet it was done perfectly and delivered on time, whereas at Wolsely there was bad contract management, with cost implications and construction delays.

He answered Mr Essack that the impact of underspending on CoE would be considered, also in relation to the APP. Unauthorised expenditure was simply not allowed. It could land people in jail. There was cooperation with the Department of Trade and Industry (DTI) to speed up the process of making Atlantis a special economic zone (SEZ). There had been meetings with the Ministers of Small Business Development, Communications and Trade and Industry. It would be cleared by Cabinet. There were five director vacancies in the Local Government unit. Salary levels in Cape Town were much higher than elsewhere. People migrated to higher salary levels.

Mr Zakariya Hoosain, Western Cape Provincial Treasury HOD, replied that medical legal claims were planned for three years in advance. The financial team dealt with it, with guidance from the Budget Council. It was important to get the governance right. The official responsible had both medical and legal qualifications. Medical-legal units in the province would be capacitated. Mediation policies had to be developed to settle claims. There had to be legal reform to prevent unauthorised access of lawyers to patient records. National Treasury would put a team together to address legal capacity in the provinces.

Mr Hoosain replied that fruitless and wasteful and irregular expenditure had to be dealt with through a consequence management process. Annual Reports had to report each incident. There had to be transparency in reporting. National and local government departments were charged with water reticulation. Water sustainability had to be dealt with through the local government process. Initiatives like boreholes to augment water supplies were looked into. Infrastructure of hospitals and schools were dealt with through the provincial budget. There were meetings with the City of Cape Town, which had prioritised water sustainability, and had plans in place.

Ms Julinda Gantana, Western Cape Chief Director: Provincial Government Public Finance, replied that issues of infrastructure, property rates and property payment all boiled down to maintenance and repair. Three budgets had to be passed as responses to fire, floods and drought. Reprioritisation implied a shift to maintenance, as there had been a lot of damage to schools and roofs. In spite of these unforeseen events, the figures still looked good. Underexpenditure on infrastructure was 1.6%. The framework for contractual agreements could be improved to speed up processes. There had to be improved contractor performance, especially in Health and Education.

She replied that National Treasury had raised the matter of the Housing Development Agency. Money received for land purchase was given to the legislature in March, as it was received in February. Some of the funds would go towards Phillipi and Gugulethu for housing developments. The bulk of transport matters lay with the City of Cape Town while Provincial Treasury dealt with national and regional roads as part of the transport network. After completion of a process, the City of Cape Town's Integrated Public Transport Network was adopted. Five MyCiti corridors were developed, connecting Wynberg with Khayelitsha; Mitchells Plain with Claremont; Khayelitsha with Century City; Mitchells Plain with the CBD, and Mitchells Plain with Durbanville. The Blue Downs 9km rail corridor would connect Khayelitsha with Kuilsrivier, and three new stations would be established.

Mr Malcolm Booysen, Western Cape Acting Chief Director: Budget Management Local Government, responded about accruals. Accruals amounted to R800 million, and were mostly infrastructure related, and due to time lapses between service delivery and invoicing. The time limit for invoicing was 30 days.

Dr Ndodana Nleya, Western Cape Senior Manager: Fiscal Policy, explained how it was possible for local government to collect 2000% of the adjusted budget. Local government was not a major revenue department. From the low base of R53 000 for the adjusted budget, any small change would be reflected as large. The movement to R1.06 million was the result of finance transactions related to assets and liabilities, and could not be described as a reeling in of revenue.

Mr Marumo Maake, National Treasury Director: Provincial Budgets, responded that a series of bursaries had been awarded by National Treasury for medical specialists to study. The problem was that medical specialists tended to go where there was specialised equipment, and it was not possible to tie bursary students down. The trend was for medical specialists to leave the public service. It was especially difficult to retain specialists in the rural areas, even if incentives were provided. There were places were the nearest urban centre, like Upington, could be 250 kilometres away. Specialists who wanted to open a private practice wanted clients who were on medical aid. Interventions from national departments and sectors were needed. He noted that in KZN the medical infrastructure was poor, and it discouraged specialists from performing operations.

The Chairperson thanked the National and Provincial Treasuries for their presentations and replies. He reminded all that on 29 January 2017 Cape Town Metro was before the Committee, and then the Committee visited Saldanha. Cape Town Metro was then called back about water and transport. It had to consider how the next 30 year plan was going to deal with the influx of people into Cape Town. If one flew over False Bay and looked down, one could see how the informal settlement area known as Blikkiesdorp was expanding. Atlantis was becoming a city, and informal settlements would expand there also. It would eventually link up with Bloubergstrand. The problem of informal settlements had to be addressed.

Gauteng and Mpumalanga Provincial Treasuries would present the following week. The last meeting of the Select Committee for the term would be 26 June 2018.

Minutes were adopted for 29 November and 1 December 2017; 13, 20, 22, 27, 28 February; 2, 6, and 7 March; 25 April; and 15 and 29 May 2018. Minutes of 24 May had to stand over, as Members had not yet received copies.

The Chairperson adjourned the meeting.