The Western Cape Provincial Treasury appeared before the Committee to discuss the 2019/20 Provincial Treasury budget. Three focus areas had been identified, that was making sure that internal governance issues were addressed in relation to processes and people management, there was a continued focus on the Public Finance Management Act monitoring and implementation, and on local government oversight monitoring and implementation.
The budget appropriated for the 2019/20 financial year was just over R357 million, which equated to an increase of 17.4 per cent. Key pressures on the budget were the salary increases based on the 2018 Wage Agreement, inflation on goods and services estimated at 5.4% in the 2019/20 financial year and additional earmarked priority allocations for infrastructure development, improvement and support to municipalities. Provincial Treasury had allocated R8 million for the implementation of the good governance incentive grant and had agreed to further once-off support to the Western Cape Gambling and Racing Board in 2019/20.
An amount of R1.8 million was budgeted for the relocation of the Western Cape Gambling and Racing Board to new premises and would fund removal of personal items of staff and any other requirements during the move. Any funds remaining after the move, would be returned to the provincial revenue fund. In relation to the sale of goods and services, it was pointed out that the Western Cape Gambling and Racing Board could actually charge some fees, other than the investigation fees and fees for licensing that actually accrued to the governing board. The board had a total revenue budget of R77 million, of which R37 million was funded from its own revenue.
A cause for concern for the Department of Finance was that, in relation to other Provincial Treasuries, the Western Cape Provincial Treasury had the smallest budget amount allocated to the Department.
The Minister of the Executive Council for Finance said the Department was under-resourced even though the work done was enormous in terms of scale and scope. However, there was a need for South Africa to manage its wage bill down. The Department was doing well in that regard, given that it had the lowest Compensation of Employees level in the country at 54%.
Committee Members asked for clarity on the criteria to be used to allocate the initial R8 million and subsequent R10 million per annum to municipalities. Members had questions about the maintenance of the wage bill, the Economic Procurement Policy and the Preferential Procurement Policy, the Good Governance Grant, and employment equity and transformation. Members queried the distinction between gender-based budgeting and gender responsive budgeting.
The Chairperson welcomed the Minister of Finance in the Western Cape, the Western Cape Gambling and Racing Board and the Director-General of the Department of Finance.
Comments by the Minister of the Executive Council
The Minister welcomed the Finance Department, the Western Cape Gambling and Racing Board and other stakeholders.
Presentation by the Provincial Treasury
Mr Zakariya Hoosain, HOD: Provincial Treasury, thanked the Committee for the opportunity to talk about the Department's plans for the coming year. The Budget appropriated for the Vote 3 was about R357.353 million for the 2019/20 financial year. That was an increase of 17.4 per cent.
The current (2018/19) budget had been used as a basis, after which the following was taken into account:
-salary increases based on the 2018 Wage Agreement,
- inflation on goods and services estimated at 5.4% in the 2019/20 financial year,
- additional earmarked priority allocations for infrastructure development, improvement and support to municipalities,
- the development and implementation of the good governance incentive grant, and
- further once-off support in 2019/20 to the Western Cape Gambling and Racing Board.
In 2018/19, inroads had been made on asset management where, the Provincial Treasury Supply Chain Management (SCM) unit had joined the Municipal Asset Management forum, to bring together accountants and engineers to address asset management issues. Procurement efficiencies and prudent procurement spending would continue to be supported by strategic sourcing methodologies via procurement planning and transversal contracts, where appropriate. The linking of the budget to procurement planning had been a key project for the unit and the model would be developed further to address gaps and make improvements to the existing model. Capacity development for both SCM practitioners and suppliers would be a pivotal focus. Critical was the re-embedding of governance control mechanisms and support in response to the high cyclic turnovers and eroding of technical skills sets within the SCM cadre in the province.
The Department would address the maintenance of effective user account management to improve security of the systems and ensure further development of integrated training interventions to promote the correct and optimal use of financial systems in accordance with system user profiles.
The Department was in the last year of the strategic plan. The key issue for the Department was to consolidate and to reflect on the progress, and to take the appropriate decisions in terms of those matters that the Department needed to take up in the Annual Performance Plan (APP).
Mr R Mackenzie (DA) asked how large a budget of R357 million was, as compared with other Provincial Treasuries in other provinces. He asked what the direct impact of fuel price increases and carbon taxes would be on the Department. Had the Department been thinking of costing it? Was there a Ministers’ Committee on the Budget Technical Committee (MTEC) forum or a Technical forum, with the Head of Department and his team, where the Department would be planning how to combat the increases for the coming financial year?
Mr P Uys (ANC) asked the Department to explain the allocation of R10 million per year for three years to implement the financial good governance grant. There was a lack of clarity on how the funds were going to be allocated. If all Municipalities complied with the standards set, how would the R10 million be split?
Mr Uys asked for an explanation of how the Department was going to maintain the wage bill in the light of the implementation of the Wage Bill Agreement and the ceiling attached to it. According to the supply chain management program, the Department was going to give support to the development and implementation of an Economic Procurement Policy. What was the Economic Procurement Policy? He noted that, according to re-prioritization, the Department was going to be a people-centred organization. Also the Department was going to strive for at least 50% women in senior management. Where did the Department stand in relation to that target and how was the Department going to achieve the target?
Mr Uys asked what the Department was going to do about retention, given that the vacancy rate stood at 22%. The Department planned to commit to the implementation of employment equity. What was the commitment saying about employment equity? How would equity happen?
Ms C Beerwinkle (ANC) asked for an explanation of how the Department promoted accountability and financial governance within Municipalities when the basis of Integrated Development Planning (IDP) and a Municipality budget depended on the functionality of the ward committees. Communities had to have input into the IDP and the IDP had an input in the budget. There was one municipality that had not had one ward Committee meeting in six months. How did the municipality get to the budget and how was it monitored?
Ms Beerwinkel said that the formula for the allocation of equitable share had been changed to take into account the movement of people. How did that affect the increase in the budget? What about the budget of the Department of Environmental Affairs and Development Planning (DEADP)? What did that Department have to do to convince Provincial Treasury to increase the budget so that staffing could be increased in that Department? She appealed to Provincial Treasury to show the Committee how the funds were being allocated towards a dedicated gender budget. Was it across different departments or was it a specific program? She asked if Provincial Treasury was monitoring other departments to ensure that they were taking gender budgeting into account.
Mr Hoosain said that, compared to other Provincial Treasuries, the Western Cape Provincial Treasury was at the bottom in terms of budget size. The Department wanted to be people-centred, but there were challenges. In the public service, it was difficult to retain people. The Department was competing with other provinces and people were quite mobile and able to move from place to place. Dealing with employment equity, and transformation in general, was one of the three strategic thrust areas that had been identified by the Department. The aim was to be very specific in promoting equity as one of the top three areas from the Human Resources perspective. He assured the Committee that the Department was driving the process consciously and actively as part of the recruitment selection processes. Recruitment had to be more representative.
Mr Harry Malila, Deputy Director-General: Fiscal and Economic Services, stated that the Department acknowledged that the greatest impact of fuel price increases would be on the poorest of the poor. All Departments, including the Provincial Treasury, had received increases to provide for inflation in 2019/20. It was estimated that the fuel increase and the carbon taxes would remain in the Reserve Bank range for inflation of two to three percent. The increase in fuel and the carbon taxes would have an impact, particularly on travelling expenditure. The proportion of the household budget spent on travelling-related expenditure was much higher for the poorest of the poor, so the Department was looking at other mechanisms to contain the problem. On the expenditure side, the Department was looking at different models of engagement with municipalities. The Department was trying to address the issues of municipalities from a regional perspective that would save on internal costs relating to travelling, accommodation etc.
Mr Malila agreed that provinces had been compensated for the movement of people, but that compensation was phased in over a period of three years. That impacted on the budget. The Western Cape would be compensated by about R183 million in the 2019/20 for the shifts on the equitable share, mainly as a result of population growth. In the last year of the current MTEF, 2021/22, that number would jump up to R900 million because of the phasing. He said that provinces were compensated, the formula was responsive, and the budget council had agreed to deal with the shocks, positive or negative.
Mr Malila said that the challenge with DEADP was that the fees had taken a dip, partly because it was difficult for the Department to actually project for penalties. What Provincial Treasury was advocating for all Departments was that, in their planning processes, they had to prioritize the posts in their departments. The Accounting Officer had to prioritize which posts he/she wanted to fill given the strategy that the Department employed.
Ms Beerwinkel said that response was not the answer to the DEADP issue. It was not about the Department prioritizing which posts were more important. It was about the Department not having enough money to even prioritize. The Department could not even appoint people into important posts as it did not have the money to do it. The request was that the Provincial Treasury should consider upping the allocation to the departments. One could not expect a Department to function optimally with two people across the province. People were taking chances, especially with violations on environmental issues. If more people were out there to pinpoint the violations and the people involved, those funds would increase. But that could not happen because it did not have the money to appoint a person.
Mr Malila replied that every year, the Department went through two MTEC processes. The Department was not convinced that the DEADP had a shortage of money to appoint people. The issue was that of prioritization and making the appropriate choices in filling certain positions. There was no department that could fill its entire structure. That was the reality. DEADP had to prioritize.
Ms Analies Pick, Director Provincial Government Finance, explained that as part of the 2019/20 budget process, the Department had done an analysis of the past performance of departments in terms of their COE. Provincial Treasury had looked at the credibility of the budget, the implementation strategy, and what kind of strategies had been put in place to contain the wage bill. Provincial Treasury then took it up with the departments. Calculations were based on actual head count. Assumptions were put together in terms of what a department wanted to achieve, its objectives and how that would impact on the wage bill. Provincial Treasury had had a one-on-one with each department about the assumptions so that both parties could agree on how to take care of the mandate and contain the wage bill. The wage bill had been 54% in 2018/19 and would increase in 2019/20 to a projected 55%.
Ms Pick added that the Department also worked according to the 80/20 principle. Every year, if departments had not spent their COE funding according to plan, 80% of the underspend would be transferred back to the fiscus. The Department was implementing the strategy for the third year. What that process had told the Department was that when a one percent increase was projected, it meant that in the adjusted estimates, the Department would be taking money away from Votes and that would contain the wage bill even further.
She stated that another way of containing the wage bill was to get the Accounting Officer to manage posts. All departments employed the same strategy. If a post became available, it did not mean that that same post would be filled. The Accounting Officer had to put procedures in place to determine, based on the mandate, objectives and current performance, whether that post had to be filled or if another post should be filled. Year on year, the Department has increased the wage bill by about a thousand people, but the Department still had the lowest COE percentage in the country.
Mr Ronald Slinger, Economist at the Western Cape Provincial Treasury, said that gender responsive budgeting had replaced gender-based budgeting because it was very difficult to base one’s budget on what portion of a budget should go to men and what portion should go to women. At a national level, the Department of Women did provide a draft framework on gender responsive budgeting for planning, budgeting, monitoring, evaluating and auditing at a national level and it was being filtered through to all of the provinces. The Department first had to research gender-based budgeting versus gender responsive budgeting and how it could take that into the integrated planning and budgeting process. As an initial response, the Department had requested all departments to provide Provincial Treasury with the gender responsive projects and programs in their departments with a description of the project or programme. The provincial budget office would monitor gender responsive budgeting as part of the integrated processes.
Mr Isaac Smith, Acting DDG, Provincial Treasury, said that Provincial Treasury, together with the Department of Local Government, had an oversight role in assisting the departments and municipalities to improve financial governance. One of the issues the Department had concentrated on over the last couple of years was looking at improving the audit outcomes. However, it was not only about the audit outcomes, but about service delivery on the ground and the province was driving a more integrated approach between municipalities. The new incentive grant should entice municipalities to do better, but the criteria still had to be decided upon. Part of the process was to work with municipalities to identify the correct criteria. In the next couple of months, those criteria would be finalised, following which municipalities would be rewarded for excellence in financial governance.
Mr Smith said the issue of the Economic Procurement Policy was linked to the Preferential Procurement Policy in which there were numerous targets for empowerment. One of the issues was that the Department could not focus on all the targets. As a province, there was need to decide on the way forward as far as economic development was concerned. Currently, the preferential procurement policy allowed each department to set targets on its own. There was a concern that, without having a comprehensive policy in terms of the way forward, the objectives of the preferential procurement policy might not be met.
Ms Nadia Ebrahim, Director: Provincial Government Supply Chain Management, said that the preferential procurement policy emanated from a Cabinet decision and the Department was using procurement as a lever for social and economic empowerment. Preferential procurement was one of the aspects that the Department was dealing with, but it was a little bit broader in terms of how the Department focused it in the overall policy, part of which would be a more realistic research-based approach to how the Department approached the market and what targets were set. The principle was largely economic development, but Provincial Treasury played a significant role in terms of the procurement aspects which added to whatever else Treasury was doing within the Accounting Officer system, and how Treasury applied procurement in the province, inclusive of strategic sourcing and other mechanisms.
Mr Uys was concerned about the allocation of R10 million per year. He asked why it was R8 million in the first year? Did Provincial Treasury have criteria for rewarding Municipalities? What were the outputs to be obtained from the Economic Procurement Policy and the outputs from the Preferential Economic Policy?
Mr Mackenzie asked if Provincial Treasury had plans to fill the five senior management posts that year. What was the difference between gender-based budgeting and gender responsive budgeting?
Ms Beerwinkle asked for a response to the question of accountability and financial governance with municipalities. How did a municipality slip through the cracks? There had to be a financial implication in it if a municipality did not function correctly at the level of ward committee system. Then everything else after that could not be right.
Ms Estianne Pretorius, Senior Manager; Local Government Supply Chain, responded. The Department ensured that the short-lists were representative in terms of a department’s Employment Equity (EE) needs. If EE was applied to the shortlist, it fed into the interview process and ensured that the Department appointed its much-needed EE candidates.
Ms Pretorius said that, in terms of the 50% women in management, the Department was in the process of researching methods and was giving attention to the roll-out of a Senior Management Service (SMS) competency assessment of all Deputy Directors (DDs). The roll-out would begin with women DDs within Provincial Treasury. The SMS competence assessment was intended to determine any short-comings and then the Department would have developmental plans drawn up and the officials would be optimally trained and coached to be competitive in the market for the SMS posts.
Mr Malila said that accountability started with the community. The Department of Local Government was monitoring the functionality of ward committees as part of their own indicators. Provincial Treasury took responsibility around most of the financial issues. Municipalities needed to report some of the indicators annually. It was something that would be taken up with Local Government and that Department would be asked to intervene.
Regarding the good governance grant, Mr Smith said that the Department had identified criteria. However, the process of consultation with the municipalities had to be followed, before the criteria were finalised, to ensure consensus. R8 million would be offered in the first year because it was the implementation phase, and Treasury needed to ensure that there was the necessary capability.
Mr Smith said that the Economic Procurement Policy was intended, partly, to implement the Preferential Procurement Policy more effectively. It should be looked at from that perspective. The Preferential Procurement Policy focused on small business. However, it did not indicate how to go about developing those small businesses and how to focus on them. It simply indicated that small business should be a target. The Department was doing the market research, draw up a list of all small businesses, the commodity areas in which they operated and also in which regions they were located. The Economic Procurement Policy was a much broader policy than the Preferential Procurement Policy. The Department had learned from past experience that, if there was not a proper implementation policy aligned to the Preferential Procurement Policy, the particular targets would not be reached. The economic procurement policy also spoke about supplier development and how the Department should go about supplier development.
Ms Slinger explained that when a budget is based on gender-based budgeting, it meant a certain proportion went to men and a certain proportion to women. Gender responsive budgeting, on the other hand, considered the gender issues. It did not matter whether one was male or female. Gender responsive budgeting aimed to promote gender equality and to look at all of the areas that impacted on either males or females.
Mr Uys noted that there had been an increase of 35% for sustainable resources management. He asked for an explanation of that increase.
Mr Malila replied that the 35% increase was mainly because of tourism. Firstly, it was the increase from the revised estimates of R123 million to R166 million. The main appropriation had been R159 million.
Mr Uys asked if the Western Cape Gambling and Racing Board had already moved to the new premises. What would it cost Treasury to do that?
Mr Malila replied that the construction work on the building had started. There were constraints because the contractors could only work during normal working hours. An entire floor had to be reconstructed. The Department had been involved in that entire process. The initial costing had come to about R2.5 million. The total estimated expenditure for about five years’ rental came to about R20 million. The move should take place by May 2019.
Mr Uys was worried about the 50% of the money not being allocated to local government. He asked for an explanation as to why that was the case.
Mr Malila responded that, over the period, the Department had really tried to confirm some of the allocations. Funding support for capacity-building for municipalities was in the budget. The remaining portion of that money was required to deal with some of the outcomes of the annual processes in terms of the integrated management process. Every year, the requirement for municipalities far exceeded the amount of money available. There was a need to carefully match what Provincial Treasury wanted to achieve given the Department’s aim of good overall financial governance and other objectives to make municipalities sustainable. The money was usually given to municipalities before the adjusted estimates. If the Department not paid over by that time, it would be taken up in the adjusted estimate and dealt with in that process. It allowed the Department to be responsive to its processes.
Mr Uys asked for an explanation of what was meant by ‘maintenance of supplier database’.
Ms Ebrahim responded that for the additional maintenance, a service provider was helping the Department to upload information that became a regulatory requirement, as well as any announcements. The Department had managed the compliance issues as well as the evidence-based issues within the Western Cape context. When the Department linked to the Central Supplier Database (CSD), which was the National Treasury national database, all of the governance requirements for the additional number of suppliers had to be pulled in. That year, given the implementation of the CSD, there had been a larger number of suppliers, resulting in additional maintenance costs and upkeep of the supplier profiles, as well as the evidence documentation that the Department needed to keep for reducing red tape within the province
Mr Uys referred to the revenue of the board, under sale of goods and services, that showed that the R37 million increase was quite a substantial increase. He asked for an explanation of that increase. There was R1.8 million under other transfers. What was going on there?
Mr Malila explained that the R1.8 million in the budget was for the retention of surplus funds for the relocation of the Western Cape Gambling and Racing Board to the new premises. People had to move all their personal items to the new building. The R1.8 million would also fund any other requirements during the move. If there were any funds remaining from the R1.8 million after the move, those funds would be returned to the provincial revenue fund.
Mr Malila said that, in relation to the sale of goods and services, there were some fees that the Western Cape Gambling and Racing Board could charge, other than the investigation fees and fees for licensing that accrued to the governing board. That was the board’s own revenue. The board had a total revenue budget of R77 million, of which R37 million was funded from its own revenue.
Comments by the Minister of Finance in the Western Cape Government
Dr Ivan Meyer, Minister of Finance in the Western Cape Government, said that it was a fact the Western Cape Provincial Treasury had the lowest budget in terms of the scale and scope of work in the Department. The officials published a lot of evidence-based research. Not every province did a medium-term budget policy statement, which was an enormous amount of work, but it created the platform for all the architecture of government. It was fundamentally what was in the medium-term budget policy statement.
Dr Meyer said that the Department was under-resourced and there was currently an organizational development study underway to look into those particular matters. He said that the Department was the smallest Treasury, hugely under pressure, but there was hope of some future developments in that regard.
He had instructed the HOD to establish a separate Municipal Finance Management Act (MFMA) branch. That work was currently under way.
In the past ten years, rating agencies, the Financial Fiscal Commission, the National Treasury, and even the World Bank and the International Monetary Fund, in its technical assessment, had made the point about the wage bill very clear. Dr Meyer said that South Africa needed to manage the wage bill down. That conversation had been happening for ten years and consequently, the Department had been implementing those particular strategies to manage the COE levels. The Western Cape had the lowest COE level in South Africa at 54%. The highest was in Limpopo at 72%.
Dr Meyer said that the Department had given thought to the incentive grant as it could not carry on rewarding failure. The Department would be rewarding excellence. The focus would not only be on audit outcomes, but also on service delivery, financial performance, the facilitation of economic growth, support of SMMEs, the capital budget, maintenance and repairs, and innovation.
The Chairperson stated that the report would be compiled and presented to the Committee the following day for adoption.
The meeting was adjourned