The Provincial Treasury briefed the Budget Committee on the 2019 budget and 2018/19 additional adjustment appropriations. The 2019 Budget demonstrated the province’s commitment to policy priorities and focused on “maximum citizen impact”. The aim of the Department was to enhance governance through innovation, partnerships and technology, and to apply the principles of integrated management.
The Department highlighted that climate change was a global reality, and that it was imperative to be prepared before disaster strikes. The Department would therefore put together a climate change budget going forward. The Committee was asked to help the Department in thinking through how to put a climate change budget together.
The Department also pointed out that the government would commit to the use of virtual infrastructure. Instead of the government using its limited budget to put in an infrastructure network all over the Western Cape without having the skills to do that type of infrastructure, it would rather leave it to the professional people and simply purchase the service of that virtual infrastructure.
Members asked for further understanding on a number of matters. These included issues relating to population growth and the increased demand for government services, the planned capacity in relation to drought support, the R30 million set aside to reward municipalities, and the strategy to ensure that public procurement was directed to support small businesses.
2019 Budget and 2018/19 Additional Appropriations
Mr Harry Malila, Deputy Director-General: Fiscal and Economic Services, and Ms Ronel Slinger, Director: Provincial Budget, briefed the Committee on the 2019 Budget and 2018 /19 Additional Adjustments appropriations.
The 2019 Budget demonstrated commitment to policy priorities and a focus on “Maximum Citizen Impact.”
The Department aimed to maintain fiscal sustainability, while managing key national and provincial fiscal and services delivery risks.
The Budget included:
- Opportunities for the youth;
- Support for the creation of a safe and secure province;
- Provision of an enabling environment for job creation and skills development;
- Building and maintaining economic and social infrastructure;
- Applying good governance standards to maximise service delivery and citizen impact;
- Responsiveness to climate change and building the required resilience; and
- Maximising service delivery impact.
The Department also aimed to enhance governance through innovation, partnerships and technology, and to apply the principles of integrated management.
The Chairperson asked the members to concentrate on the bigger picture as the Budget Committee, as the finer details of the budget would be dealt with in the committees.
He said that pages five, seven and nine of the presentation have very important information about the growth and the risk forecast, as well as the gross domestic product (GDP) outlook going forward. Also important was page 15, which referred to population growth and the increase in demand for services. As public representatives, it was important to be prepared for that, as it was a big challenge.
Mr M Mnqasela (DA) appreciated the increase of 19.8 % in local government, as well as the emphasis on water and good governance interventions. That was something that the Committee had been looking at. All the details would be dealt with in the Department's presentation.
Mr C Dugmore (ANC) noted that in the presentation, regarding digital government, there was reference to R3.2 billion over the medium term expenditure framework (MTEF). There was also reference to R1.3 billion towards the broadband strategy. He asked if it was possible for the officials to give the Committee an indication of how much of the R1.358 billion was administered directly by the WCD and how much was also administered by the Centre for Innovation within the Department of the Premier.
Mr R Dyantyi (ANC) asked if it was the Department's understanding that the state-owned enterprises (SOE) reform process constituted a risk in relation to tax buoyancy and the SA Revenue Service (SARS) reorganisation. The thinking was that those two should be an opportunity towards getting a better economy, rather than their being a risk. Saying that they constituted a risk meant that nothing must be done. Why were they classified as a risk?
He asked the Department to unpack the issue relating to population growth and increasing demand for government services. There was a need to quantify this. What were the numbers associated with the province? He asked for an understanding of the percentage of migration that had overturned the Department's projection of population growth.
Mr Dyantyi said that the presentation had classified "increasing demand for resource to respond to the implications of the 4th industrial Revolution," as a risk. What was the planning around this that it had now become a risk?
On page 36, the presentation refered to capacity regarding drought support. He asked for an explanation of what this planned capacity was. The province had been through a serious drought and the Committee had been engaging with the responsible Department about their own failures, including the things they could not do with the capacity that they had. There was money allocated to the appointment of this capacity. What was this capacity?
Regarding fire, Overstrand was a B Municipality. Overberg district was operating at the same level as Eden. Those were the two best districts when it came to issues of fire and floods in this province as they could intervene on behalf of the B Municipality. However, in the presentation, there was no district being assisted. It would have been understandable if the Department were helping a district play its role better. He asked for an explanation on why a municipality had been chosen instead.
Ms C Beerwinkel (ANC) wondered why the compensation of employees (CoE) was 71.6% of the total budget. The assumption was that it was not going to increase because the upper limits were capped. 71.6% of the total budget was a lot. She asked if the upper limit was really capped or not.
The MEC had mentioned that R30 million had been set aside to reward municipalities for good governance. Municipalities were supposed to govern well. Why were they being rewarded for doing what they were supposed to be doing? More importantly, was that money taken from a vault somewhere, or had it been taken from the equitable share? Where had a surplus been found to be able to allocate that money and find a need to reward municipalities?
Mr Malila said that, regarding the issue raised around population growth and the demand for services, there were a couple of factors that impacted on that statement. There were two risks -- population growth, and the implication of an increase in demand for services. There were two reasons why that happened. On the one hand, the increase in demand for government services was not only a function of population growth, but was also a function of the economy not being ready, people being unemployed, and people without funding who went the public sector to receive government services. Those services required money.
There were also the fiscal implications. Whenever the equitable share got amended, the biggest reason for that amendment was because of a movement in population. However, there was a natural lag. Most of the time, the equitable share only got implemented and phased in for a period of three years. So, whether there was an increase in population or a downward adjustment in population, no province gets the immediate benefit of that movement. Over the last couple of years, it had been institutionalised and the Department had accepted the principle that it is very difficult for any government to respond to either increased demand for services or not. From a fiscal perspective, it was a risk because the budget needed to respond to the increased demand for services.
Regarding the issue of planning, it was not that the Department has not planned for it. It had seen it happening over the last couple of years. However, the point was that the fiscus did not keep track with those movements in the demand for services in government. That was why one of the principles in the budget was fiscal sustainability.
Ms Beerwinkel asked for the Department's opinion on the formula that had been changed by National Treasury so that the allocation could increase, especially with equitable share and conditional grants. There was a changed formula considering the movement of people, hence increasing the budget.
Mr Dyantyi said that the very important point being made was that the risk was not just population growth. It had to do with economic growth. The province of the Western Cape was performing better than other provinces in the country. However, the Department was not able to demonstrate to the Committee that the better performance would have helped in planning and projections.
Dr Ivan Meyer, Member of the Executive Committee (MEC): Finance, said that according to the community survey of 2016, there had been an increase in the population of most provinces. There had also been negative growth in other provinces, particularly in the Eastern Cape, and that was why there was a huge reduction specifically in the equitable share for education in the Eastern Cape. At the Budget Council, provinces losing population were considered in terms of finding the best fiscal instrument for them to accommodate this reduction in population and its implication for year on year budget reduction. A decision had been taken to phase it in over three years. Over a period, there had been the implementation of the Luddites Model in education, which was a different model in terms of measuring more accurately the number of learners in a school system. That had increased the number of school-attending learners. It was a much more accurate reflection of the number of learners in the school system.
He said that the community survey of 2016 had had an impact on the budget for municipalities in terms of the local government equitable share, and had had positive implications for the budget of the Education Department. The Department had tabled that in the adjustment budget, during the medium term budget statement (MTBS) last year.
When the Minister tabled the budget in the National Parliament, National Treasury had identified a number of risks in those documents. The two risks mentioned by Mr Dyantyi had been raised. When there was a mitigation strategy, they were an opportunity. However, in the absence of a strategy, they were not opportunities. When a budget is put together, the risk is identified so that it can be managed. In this budget, three risks had been identified, and the budget had responded to these risks.
He said that climate change was a global reality. The Department could not continue waiting for a disaster to happen before they asked for money for the droughts, fires etc. The Department would now put together a climate change budget going forward. As the legislature, the Committee must help the Department in thinking through how to put a climate change budget together. He had already instructed the head of the budget office to attend some international training on climate change budgeting. The Overstrand and Overberg were the highest risk areas for fires. The Department knew that up front, and from a budget perspective, it had to plan for that area.
He said that the winter season was almost here. The Department had the past evidence and could make projections. There was a lot of global international climate change budgeting. As government, it was important to step into that international climate budgeting, because it was a global problem and there were sources of funding that wanted to help in dealing this. It was impressive that the Department had started on this journey. This was the beginning of budgeting for climate change as it went forward.
Ms Analiese Pick, Director: Provincial Government Finance, said that the capacity for local government was the capacity in terms of drought and what that entailed for the next three years. The Department had funded for geo-hydrologist specialists as well as infrastructure engineers. That was the capacity being referred to as far as the drought was concerned. The Minister, for example, had indicated the R25 million that had been allocated for new well points in the central Karoo area. Those geo-hydrologists were leading those projects. That was the capacity that was being referred to in the speech.
Regarding the Overstrand versus the Overberg, it was about timing as well. Timing involved when the Department was putting the budget together and when the municipalities were applying to the Department of Local Government for funding. When the stage when Department was putting the budget together, it had the application only for the Overstrand, and not the Overberg.
Referring to the compensation of employees, the sentence being referred to was in terms of the 71% of the current payments, so it was not of the total budget. The current payments consisted of the COE and goods and services, and the COE made up 71% of those current payments. Overall, the budget the COE for 2019 was projected at 55% of the budget.
Ms Pick said that ceilings had been set in collaboration with the various departments. If they wanted to increase or decrease those ceilings, they required the approval of the Provincial Treasury.
Mr Zakariya Hoosain, Head of Department (HOD): Western Cape Provincial Treasury, said that regarding the planning around the fourth Industrial Revolution, there had been various degrees of success. The Department of Agriculture and the Department of Transport and Public Works would be able to provide the Committee with specific examples.
Mr Malila explained makeup of the R1.358 billion requested by Mr Dugmore. There were two parts to it. R306 million was related to Vote 5, and about R1 million was related to the Department of the Premier.
Regarding the R30 million announced by the Minister, this was R10 million per annum. The Department was rewarding good governance practices. By that, the Department was not saying that that was what Municipalities must do. The Department was looking at mechanisms for rewarding good governance. There would be criteria. The money had not been allocated to municipalities yet. The Department was currently finalising the criteria, which did not only involve finances. The Department would not only look at the outcomes of the audits. It was going to be a combination, and all it was aimed at was demonstrating how an impact had been made on the citizens. The audit outcome was an indicator of good governance, but it did not mean that if one had a clean audit that service delivery was happening.
Dr Meyer said that in the Overview of the Provincial Revenue and Expenditure (OPRE), there were some references to the fourth Industrial Revolution in respect of digital government on page 55 of the book.
He said that all the Departments had been asked to come to the medium term expenditure committee (MTEC), not only to just ask for money, but to show their innovation so that the innovation could be rewarded. For example, Groote Schuur Hospital in the past had had a massive telephone bill. Now they had switched over to voice over internet protocol, and there had been massive savings.
Dr Meyer said that the incentives had been used to the benefit of the province. According to the figures, there was more than R100 million in one department and another R100 million in another department, through receiving the infrastructure incentive grant. If one did proper planning for health, proper planning for education and for future infrastructure, National Treasury was prepared to reward one through an infrastructure incentive grant. According the budget, more than R200 million had been received by this government because of that incentive, so the incentive grant had been used to the benefit of the province.
Ms N Nkondlo (ANC) asked the Department to explain the extent to which there was a strategy or plan to ensure how this public procurement was directed to support and give opportunities to small, medium and micro enterprises (SMMEs). Did the Department have a custodian for procurement in the province? Did it have a policy on Halaal certification when it came to catering-related orders in its Department, as well as other departments that were in the province?
Regarding the catalytic projects, she said the presentation highlighted that virtual and catalytic infrastructures amounted to R1.348 billion. Other categories, such as transport and public works and some of the human settlement’s projects, were infrastructure-related. How were these non-catalytic? The presentation seemed to be separating them in terms of definition. She asked for an explanation of what was meant by virtual and catalytic infrastructure.
Ms Nkondlo said that one of the key elements about a catalytic project was to ensure local participation. She asked if the Provincial Treasury had a framework on how to define local participation and local beneficiation of these catalytic projects.
Mr Isaac Smith, Acting Deputy Director General (DDG): Provincial Treasury, said that as far as the procurement was concerned, the Department had a quarterly analysis in terms of the procurement spend of the Department. It was an analysis of the preferential procurement policy that the Department had introduced in line with the preferential procurement regulations, and included the target areas in terms of the designated groups, like the small businesses. The Department also gave feedback to the Cabinet on a six-month basis, on how the Department was doing as far as procurement was concerned. That information was available. It was basically tracking how the province was doing in terms of the implementation of the preferential procurement regulations that had been issued by National Treasury.
As far as small businesses were concerned, the target from National Treasury was about 30%. The Department was in the vicinity of about 37% for the province. That detail was available because the Department had made a concerted effort to track the performance of the Western Cape departments against that policy.
Regarding the catering, that the Department had met with all the catering companies. There was a study that had been implemented as far as catering was concerned. The Department also differentiated between small catering projects and large catering projects. Part of the Department's strategy was to look at the specifications required by the Departments. The Department did not have a specific focus on having Halaal certificates. Provincial Treasury left that to the departments.
As far as local participation was concerned, the Department had also engaged with the municipalities as far as their procurement was concerned. As the provincial government was looking at developing further economic procurement policies, some of the municipalities had also developed policies that focused on the participation of small businesses. The Department was still busy looking at the information and the extent to which the province had reached some of the objectives as far as local participation was concerned. It was also part of the Department's strategy that the Western Cape government would embark upon this, together with the municipalities. It was also working with the local economic development units within municipalities to ensure that when some of the bigger contracts were being offered, they included participation goals.
Ms Nkondlo said that the Department was not definite as far as the Halaal certification was concerned. One of the concerns that had been raised, and which had been presented to Provincial Treasury, was the fact that even in the non-Halaal areas, there had been a request which said ‘strictly Halaal.’ She asked if it was a policy, as a general rule.
She said that according to the response, local participation was something that the Department was considering. This gave the impression that it was something that was futuristic that the Department was still working on with the municipalities. If that was so, how had the Department been complying with all the other infrastructure-related projects, in relation to ensuring local beneficiation?
Mr Smith responded that with the departments and municipalities, the Provincial Treasury could be more instructive. As far as those participation goals and empowerment assessments were concerned, that was in the Department’s policy. As far as municipalities were concerned, the Provincial Treasury could not instruct them. Municipalities were in a better position to target businesses at a local level. They had not been instructed because, as a Provincial Treasury, the Department did not have the power do that, but it could work with the municipalities to ensure that smaller businesses were being targeted.
Mr Smith said that as far as Halaal was concerned, the Provincial Treasury had not made a policy because it could not make that policy. The Provincial Treasury left this to the departments. It depended on the needs of the specific departments.
Ms Pick said that infrastructure was defined as fixed assets. In the case of human settlements, it would be part of the traditional fixed assets. So, within human settlements, they had a special category that they referred to as catalytic, but in this publication, it would be part of the normal fixed assets. The Department also referred to virtual infrastructure. That referred to infrastructure in terms of information and communication technologies.
Dr Meyer said that regarding the virtual infrastructure, the Department had specifically decided not to own the optic fibre. This was because virtual infrastructure could also be those optic fibre cables that were lying all over the province. The Department had decided to use the virtual infrastructure -- in other words, the service and not the infrastructure. Instead of the government using its limited budget to put in an infrastructure network all over the Western Cape without having the skills to do that type of infrastructure, the government would rather leave it to the professional people and simply purchase the service of that virtual infrastructure.
The meeting was adjourned.
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