National Treasury briefed the Committee on the 2019 Appropriation Bill. The 2019 Budget outlined the economic and fiscal measures to move the economy into a new trajectory and reduce long-term risks. Government’s central economic policy goal was to accelerate inclusive growth and create jobs. The main fiscal objective was to ensure sustainable finances by containing the budget deficit and stabilising public debt. The budget confronted a tough environment which included weak economic growth, accelerated debt service costs, and governance concerns. Weak economic performance and tax administration challenges resulted in large revenue shortfalls. The deteriorating financial situation of State Owned Companies (SOCs) placed added pressure on public finances.
The Committee was briefed on the unexpected government financial support to Eskom in April. On 20 February, the 2019 Budget announced R23 billion would be made available to Eskom for the next three years from October 2019 to support Eskom during its reconfiguration, to enable it to service its debts and meet redemption requirements. But by the end of March 2019, Eskom suddenly needed emergency funding to be kept functioning. On 2 April the Minister of Finance invoked section 16 of the Public Finance Management Act to avert a default by Eskom on its obligations. A default by Eskom may have triggered a call on the R281 billion. Treasury had not submitted a Special Appropriation Bill before the Fifth Parliament rose as there was no indication that Eskom would experience difficulty in raising the required borrowing.
In discussion, the additional funding to the state owned companies and conditions attached to this financial support, received the lion’s share of attention. The DA urged that the Committee’s role not be confined to rubber-stamping. The Committee had to make recommendations. The country had to be protected against huge sums of money being given out to Eskom, SANRAL and SAA. The budget was finite – what was given to one would be taken from elsewhere. The requirement to pass the Appropriation Bill by 31 July was unfair to Parliament. The Chairperson agreed that the oversight role of the Select Committee had to be defined.
The adoption of the Committee Report on the Appropriation Bill provoked lively discussion, as the DA proposed ten added recommendations to the existing two, with the ANC agreeing with their substance, but to avoid duplication with the National Assembly report, only two recommendations were added: the Minister must put measures in place to regulate the shifting of money from service delivery to ailing public entities, and that the local government funding model be reviewed. A further recommendation was added: in future election years, Parliament be granted more time to process the Appropriation Bill.
The Chairperson welcomed all, including Cosatu. She said the briefing on the Appropriation Bill was a replication, being the same as made to in the National Assembly to a joint meeting of the Standing and Select Appropriations Committees, but the correct procedure had to be followed. She was not expecting any new debate on it. She wished to praise the Director General for his commitment to be willing to present the briefing again to the NCOP.
2019 Appropriation Bill
Mr Dondo Mogajane, National Treasury Director General, said the 2019 Budget outlined a series of economic and fiscal measures to move the economy into a new trajectory and reduce long-term risks. Government’s central economic policy goal was to accelerate inclusive growth and create jobs. The main fiscal objective was to ensure sustainable finances by containing the budget deficit and stabilising public debt. The budget confronted a tough environment which included weak economic growth, accelerated debt service costs, and governance concerns. Weak economic performance and tax administration challenges resulted in large revenue shortfalls. The deteriorating financial position of SOCs placed added pressure on public finances. The 2019 budget priorities were to narrow the budget deficit and stabilise the debt-to-GDP ratio; to support restructuring of the electricity sector, and to renew economic growth by strengthening private sector investment, infrastructure development, and the rebuilding of state institutions.
Financial support to Eskom in terms of section 16 of PFMA
On 20 February 2019, the Budget announced R23 billion would be made available to Eskom for the next three years from October 2019 to support Eskom during its reconfiguration, to enable it to service its debts and meet redemption requirements. But by the end of March 2019, Eskom suddenly needed emergency funding to be kept functioning. On 2 April the Minister of Finance invoked section 16 of the Public Finance Management Act to avert a default by Eskom on its obligations. A default by Eskom may have triggered a call on the R281 billion which the fiscus does not have. Treasury did not submit a Special Appropriation Bill, before the Fifth Parliament rose as there was no indication that Eskom would experience difficulty in raising the required borrowing. [The Special Appropriation Bill was tabled on 23 July 2019].
Mr Z Mkiva (ANC, Eastern Cape) thanked Treasury for explaining the challenges and how they were mitigated. Treasury could count on the support of Parliament, going ahead. Transformation had to be emphasised. With an economy that was not growing, transformation was bound to be hard. Creative leadership was needed for future change.
Mr D Ryder (DA, Gauteng) suggested that it would be better to have the discussion after the Committee Report on the Appropriation Bill had been tabled, as there were overlaps between that and the presentation.
The Chairperson responded that the Committee Report was in its final stages, but the Bill had to be adopted today. It was necessary to conclude discussion on the Bill first.
Mr Ryder said that the Appropriation Bill was a fait accompli, as it was part of the legacy of the Fifth Parliament. He was uncomfortable about reallocation and funding additions. The Committee was not supposed to do the bidding of the Executive by rubber stamping Bills. The Committee had a measure of control. It had to make recommendations. The country had to be protected against huge sums of money being given out to Eskom, SANRAL and SAA. When the government entities were in trouble, money was given to them without conditions. The budget was finite – what was given to one would be taken from another. The Select Committee could ask for specific conditions. The NCOP role was to focus on the provincial aspect, but it also had a senate-type oversight role. The role of the NCOP was distinct and different.
Mr Y Carrim (ANC, KZN) agreed that it was not just a DA concern that Mr Ryder had alluded to. He agreed about rubber stamping. It was a very austere Bill. It should be noted that it was not proper to process the Bill at the speed required. The budget had to be approved by the end of July, which was not fair to Parliament. The ANC had taken three weeks to decide on a Committee Chairperson. After the 2014 election the ANC had moved more swiftly, and there had been more time to process the Appropriation Bill. He thought that Mr Ryder was being unfair to the Finance Minister about conditions. It was clear from what he saw the previous night on TV, and in the press that morning, that the Minister was indeed setting conditions. He knew that the Minister was not one who disbursed money easily. There was tardiness in the naming of the Chief Restructuring Officer for Eskom. The quality of the restructuring officer was of crucial importance. Setting conditions enhanced credibility. He told the Director General Mogajane that the Committee understood the difficulty of being at the head of Treasury. He had been thrown in at the deep end, yet he was doing well, and he was young. The technical quality of Treasury’s work was world class.
The Chairperson told Mr Ryder that she understood why he was anxious. Some of the points he touched on, were included in the Committee Report as resolutions. However, the Committee did not have the luxury of time. The oversight role of the NCOP had to be looked into, along with the legislation and processes pertaining to it. She was happy that the DG had dealt with the section 16 process. The Special Appropriation Bill had to focus on the outer year. If the Bill was adopted, a balance of R23 billion had to be dealt with. She asked if there would be enough time to discuss conditions related to the funding, if the Committee was not happy. Conditions had to be dealt with. Money was being moved around, from non-toll roads to e-toll roads, for instance, and the impact on the rural, most disadvantaged and vulnerable populations had to be clarified.
Mr Mogajane responded that R17 billion of the R23 billion had been paid out already to Eskom. The remaining R5 billion could only be paid out when the Bill was passed. The Special Appropriation Bill required that Eskom receive R59 billion in addition to what was requested in the Appropriation Bill. R26 billion would be received in 2019/20, and R33 billion in 2020/21.
Mr Mogajane said it was not the intention to report on the conditions at the current moment. Treasury would report on funding conditions for SAA, Denel and the SABC. He had written to the SABC Chairperson and the Communications Director General to set out 11 conditions which had to be met, for a guarantee to be considered. Reports in the press about a war between the SABC and the Department of Communications were wrong. The business case was not strong enough and did not meet conditions. SABC, Denel and SAA could be funded through the contingency reserve. Allocations had to be announced by the Minister of Finance. Entities had to get rid of non-core elements that were not functioning. Treasury would make the conditions available over time. Responsibilities, terms of reference and targets for the Eskom Chief Restructuring Officer had been set. Names of Chief Restructuring Officers (CROs) for Eskom, Denel, SABC and SAA would be disclosed. He welcomed the accolades received. Tax revenues were not coming through, and there was an unlimited demand on the fiscus. There would be no reckless bailouts.
Mr Mogajane disagreed with Mr Ryder, saying Treasury was not powerless. SOCs could be closed, reorganised or sold. There was an obligation to support ailing companies, and an impact if it was not done. The SOCs had a legal right to call on the guarantee. There could be default across contingent liability portfolios. There were clauses in the Bill that spoke to the health of the economy. That was why there was a focus on what rating agencies were saying. But SA was not a failing state; all the fundamentals were in place. Government had to move fast on growth challenges, and igniting the economy was paramount. Economic growth could be improved. 25 years of democracy was still too short a time to equal the settled democracies of Sweden, Norway or the USA. Sustainable institutions had to be built. There were capable Directors General who could manage the State. There had been excellent public servants 20 years before, and five years before, but they had left public service, and capacity had to be continually rebuilt.
The Chairperson told the DG that the Committee would have more questions moving forward.
Committee Report on Appropriation Bill: discussion and adoption
The Chairperson mentioned that the report had been sent to MPs with a request to comment. No comments were received. Members could speak to the report, to establish the view of the committee as a whole.
Mr Ryder pointed out that three weeks were spent on preparing the report but there were only two recommendations. He proposed that a further ten recommendations be added. These dealt with money shifted from service delivery areas to fund state capture and ailing public entities; money moved from PRASA to SANRAL; underspending by Police, Health and Education as departments had to spend money received; the possibility of bringing the Department of Planning, Monitoring and Evaluation (DPME) into Treasury had to be considered. There had to be budgeting for training and equipment to support land reform. Local government was not adequately funded. The funding model had to be reviewed. A focus on infrastructure development had to include catalytic development events. The economy was contracting in the areas of agriculture, mining and manufacturing. There was a dip in the GDP in the first quarter. Collections through SARS were under pressure, but SARS had to deliver from its side. The budget did not talk to the State of the Nation Address (SONA). He endorsed the Cosatu point that there had to be funding to Social Development to boost capacity for drug rehabilitation and victims of wife and child abuse. The Standard Charter of Accounting (SCOA) had to be implemented at all levels. Costs of implementing the Municipal Standard Charter of Accounting (MSCOA) could be substantial, and had to be budgeted for.
The Chairperson commented that Mr Ryder had “rewritten” the report. She appreciated that he did not politicise it. Members could speak to the matters raised. Recommendations had to be broad, and had to focus on going forward, not on what had already been discussed. Solutions had to be provided. Some of the issues covered by Mr Ryder were covered in the meeting minutes, and could not go into the report.
Mr Carrim remarked that he agreed with Mr Ryder, but would formulate it differently. The National Assembly had done a report of its own, and some of the issues were covered there. The Committee had a deadline to meet. The Secretary, Content Adviser and Researcher could be mandated to deal with the proposed recommendations by Mr Ryder. There would be value in saying that the Committee wished to express reservation that the Bill had to be processed under onerous circumstances as the Bill had to be passed by 30 July, after the elections. He could draft that. It could mention that the Select Committee deliberated together with the Standing Appropriations Committee. Some of the matters alluded to by Mr Ryder were covered under the Fiscal Framework, and ought not to be duplicated. The report of the Standing Committee could be referred to.
The Select Committee had to define its role. It had to focus on the quality of spending. When money was moved, there had to be a clear explanation. Parliament could not instruct government as to where to place a department. The first Speaker Frene Ginwala always stressed that. To place the DPME in Treasury was a governance matter, not a finance one. Governance problems were fundamental. If governance were better, there would be better spending. The ANC could not agree to moving DPME. It was properly placed in the Presidency, as that gave it leverage and the ability to look at government as a whole. He agreed that there could be better coordination between DPME and Treasury. It was important how infrastructure projects were managed.
Mr Carrim pointed out that the SONA in July came after the Appropriation Bill. Revenue-raising was a finance issue; the contracting economy was a fiscal framework issue, it was not the domain of appropriations. Matters could have been discussed at length if there was time, but the report had to be adopted today. He advised that Mr Ryder’s comments be captured in the Committee minutes, and Mr Ryder could write it out as well, to be included when adjustments to the Appropriation Bill would be made in the Medium Term Budget Policy Statement (MTBPS). A compromise could be reached, with four or five of Mr Ryder’s points included as recommendations.
The Chairperson asked the DG how soon he could inform the Committee about the funding conditions.
Mr Mogajane replied that he would confer with the Minister and then liaise with the Committee. The letter to the SABC about conditions could be made available immediately. It was linked to the Chief Restructuring Officer (CRO) processes, as part of broader terms of reference.
The Chairperson asked the Committee Secretary about the recommendations proposed by Mr Ryder.
Mr Lubabalo Nododa, Committee Secretary, suggested that the one about the shifting of funds was the major one. The others were covered by Mr Carrim. It could be added that regulations on the movement of monies be strengthened.
Mr Ryder asked that underfunding of local municipalities also be included.
Mr Nododa replied that it could be added but wished to inform Mr Ryder that the Financial and Fiscal Commission (FFC) would address that. The FFC appeared before the Committee annually. The focus area for the current year would be local government.
Mr Carrim undertook to draft something about the Committee’s reservations about the onerous circumstances under which the Appropriation Bill had to be processed.
Mr Phelelani Dlomo, Committee Researcher, advised that the Municipal Standard Charter of Accounting funding be referred to under local government allocation. The interests of the Select Committee were the provinces. Mr Ryder’s other issues were dealt with by the National Assembly. Duplication had to be prevented.
The Chairperson asked the Committee support staff to amend the Committee Report whilst the committee minutes were adopted.
Minutes of 24 June, 3 July, 9 July, 16 July and 17 July were adopted without amendment.
Thereafter, the Committee Secretary read out the amendments to the Committee Report. Mr Carrim’s concern about the lack of time to process the Bill was included in the recommendations: Elections eroded proper time and space for the Committee to process the Bill. It had to be borne in mind when future election dates were set, that it is a legal requirement for the Appropriation Bill to be adopted by 30 July, so that more time should be granted. The Select Committee had considered submissions, and jointly deliberated with the Appropriations Standing Committee. Other recommendations added were that the Minister put measures in place to regulate the shifting of money from service delivery to ailing public entities, and that the local government funding model be reviewed.
The Chairperson asked if all were satisfied.
Mr Ryder responded that he appreciated that his concerns were attended to.
The Chairperson declared that the report had been discussed, and that amendments were agreed to. She asked for a motion for adoption, which was received and seconded. The report was adopted.
The Chairperson adjourned the meeting.
- Use of Funds in Terms of Section 16 of PFMA 1 of 1999: Treasury presentation
- 2019 Appropriation Bill: National Treasury presentation
- Committee Report on Appropriation Bill [B6B-2019]
- Appropriation Bill [B6A-2019]
- Appropriation Bill [B6B-2019]
- Minister of Finance Letter: Eskom’s Section 16 of PFMA financial support
- DA notes on recommendations