Pre-2020 budget workshop with National Treasury on budget instruments to be tabled by Minister of Finance

Meeting report

Meeting Report

The Committee and National Treasury officials held a pre-2020 budget workshop on the budget instruments to be tabled by the Minister of Finance the following day.

Ms Julia de Bruyn, Chief Director: Public Finance, National Treasury, said the workshop would cover the documents tabled by the Minister of Finance, in particular the Division of Revenue Bill (DORB) and the Appropriation Bill. After the Budget was tabled, the Finance Committees had to table a report on the fiscal framework and revenue proposals within 16 days, and the DORB had to be passed within 35 days after the fiscal framework was adopted. The Appropriation Bill had to be passed within four months after the start of the financial year (31 July). Any proposed additions to a vote in the Appropriations Bill had to come from reductions in another vote.

Mr Steven Kenyon, Director: Local Government and Budget, National Treasury, said the allocations to provinces and municipalities were contained in the DORB, and the bill was preceded by extensive consultation. He described what was contained in the DORB, including which parts remained to become the Act, highlighting clauses that might be of relevance for the Committee:

• Clauses 9-10 on the duties of transferring officers of national departments;
• Clauses 11-12 on the duties of receiving officers of provinces and municipalities; and
• Clauses 18-20 on the withholding, stopping and reallocation of funds.

He referred to the Schedules of the Bill and the Explanatory Memorandum to the Bill. He presented on a sample Medium Term Expenditure Framework (MTEF) Division of Revenue of the previous year, and said that the document contained valuable data, as the detail took into account the demographics of the country. He addressed how the equitable shares were determined and how the provincial equitable share (PES) formula worked. There were annual data updates to the PES. He did the same for the local government equitable share (LGES). After describing the provincial and local government allocations and conditional grants and its frameworks, he spoke about the annexures and appendices to the Bill. He said the DORB bill and other more detailed information was available on the Treasury’s website.

Ms De Bruyn then spoke to the Appropriation Bill. The bill provided for the appropriation of money from the Revenue Fund in terms of the Constitution and in terms of the Public Finance Management Act (PFMA). The bill appropriated money, authorised additional spending and regulated spending. She described the layout of the Schedule of the Appropriation Bill, and gave an example from an extract from a vote from the Schedule of the 2019 Appropriations Bill. She also gave an example of the Treasury’s quarterly Standing Committee on Appropriations (SCOA) report and the Appropriations Bill, using the Department of Basic Education (DBE). She covered the Estimates of National Expenditure (ENE) and the Bill, and addressed the power of the Committee to make amendments to the Bill. However, making amendments to the Bill did have conditions attached.

Discussion

Mr A Shaik-Emam (NFP) said the presentation was a ‘top down’ presentation, in which he found weaknesses. He asked what Treasury’s understanding of the response of the Committee should be, because how could one ensure that there was public participation in the budget process if it was a ‘top down’ approach? He asked how the Committee could apply the conditions attached to bailouts of state- owned entities. He said the timeframe to make amendments to the bills was very restrictive.

Mr O Mathafa (ANC) referred to Clauses 11-12, and linked to Clauses 18-20 of the Division of Revenue Bill (DORB), and asked what role the Department could play in capacity building in the area of the spending conditional grants. Clauses 18-20 provided penalties, but for him the issue was more about the fact that the lack of service delivery in areas would continue. On Schedule 7 of the bill regarding access to disaster funds, he asked Treasury’s views on the process to access these funds. On the PES distribution data update, he said many Ministers in Cabinet spoke of undocumented migrants, so how could the update be accurate? He felt there would be a distortion in the figures.  

Mr D Josephs (DA) said he wanted clarity on where stakeholders, like Members of Parliament (MPs), fitted in to give input to the bill. He wanted to know what the amount allocated for school infrastructure was.

Mr Z Mlenzana (ANC) asked how Treasury kept up to date regarding data upgrades. Were Stats SA figures related to the current budget, or was there a gap? He asked how the DORB took into account the district model, because it appeared that the bill had the same arrangement or structure as previous bills. 

Ms D Peters (ANC) referred to the documents that would be tabled the following day for the budget, and asked if the speech the Minister would give would be the same speech he would give in the lockdown meeting to be held with the Committee. She said the standing rules had to make provision for input, and asked if the Committee could initiate a process to invite input. Who was held responsible for erroneous transfers? Did Treasury or a department determine the conditions for a conditional grant?

The Chairperson referred to the layout of the bill, and asked what the payment for financial assets were. He asked what the roles of the Standing Committee on Finance (SCOF) and the Standing Committee on Appropriations were. When would Treasury decide to borrow, because borrowing had attendant borrowing costs and lost opportunity costs? The conditions and timeframe in which the Committee had to make amendments meant that it was impossible to amend the bill. He asked Treasury what its understanding of the powers of the Committee was.

Department’s response

Ms De Bruyn let the Committee know that the presenters were technicians, and that they could not answer some of the questions which were political.

Mr Kenyon said that Parliament ran the public consultation process, and public consultation was most expressed in municipal budgets. The Municipal Finance Management Act (MFMA) required that municipalities had to table a detailed municipal budget and there had to be a three- month consultation period where, if required, the budget could be revised. Municipalities held community meetings and the consultation process was strongest in the area that it was most needed. At the national level, accountability and transparency was more important.

On the duties of receiving officers, he said it was important that receiving was accounted for. The Municipal Infrastructure Grants (MIGs) carried a 5% provision for projects.

On the stopping of conditional grants, he said it was about helping municipalities for the following year.

Regarding the accuracy of updated data, he said the updated data included undocumented migrants. All data was taken from Stats SA, which tried to incorporate undocumented migrants through statistical adjustments. Every year Stats SA included documented and undocumented people.

Ms Wendy Fanoe, Chief Director: Intergovernmental Relations, National Treasury, said the data sets for the Provincial Equitable Share distribution came not only from Stats SA, but also from the Department of Basic Education and included not only SA citizens, but all school children, not only South African children.

Mr Kenyon said there were lags in the data. If the population of a province grew by 1.5%, it would be reflected in the Provincial Equitable Share of that province.

He said the school information would be found in the Backlog Grant and the Educational Infrastructure Grant.

On the district development model, he said the district model was in pilot mode, and was not applicable to all areas. The Bill included district allocations and the regulation of transfers between districts.

On the recovery of erroneous transfers, he said there were occasions where transfers payments were done incorrectly. The Bill was a public document, and contained the correct allocations.

Regarding who determined the conditions for conditional grants, he said it was regulated by section 27 of the Act. The provisions said the transferring officer must make a draft proposal in October and a final proposal in December. Treasury would go through the draft with the Department and collaborate with them. The Department’s accounting officer and the Minister of Finance would then sign off on the document.

Ms De Bruyn said the Minister’s Budget speech was always checked against the speech he actually delivered, because things might have been added or deleted between the time it went and returned from the printers. She said Treasury also had a speech document that was printed.

On Mr Joseph’s question on school infrastructure, she said that the transfer was R20b, of which R10b was for the educational infrastructure grant, R7b for the school nutrition grant, R1.2b for the National Student Financial Aid Scheme (NSFAS) funds for teacher bursaries, and R1.8b for the Schools Backlog Grant was in the capital fund of the national vote. 

Responding to Ms Peters’ question on conditional grants, she said there had to be an administrative portion to do support and oversight of the grants, as national departments had to account for oversight of the grant, so there was always a portion on the national vote for the support of these grants.

Regarding whether the Committee could initiate a process to invite input, she said the Committee had its own law and the Committee could set up its own procedure on how to initiate dealing with the two bills. The Committee had invited input from the public, and the Committee needed to work out how to interact with the chairpersons of the other portfolio committees to identify where there were spending lags or overspending, and whether the Committee had the power to call other departments if these departments were under or over budget.

Further discussion

The Chairperson said the Committee was doing that, and there had been joint committee meetings -- for example, with the Standing Committee on Finance and with the Committee on Public Enterprises. The constraint was the availability of time.

Mr Josephs said he was unsure what the role of the chair of chairs of Parliament was, but wanted to know if the Committee had the mandate to call in the chairpersons of other committees if their portfolios had over or under-expenditure, for example.

The Chairperson replied that it did have that power.

Mr Mlenzana asked Treasury in what month the actual start of the budget cycle was, as the Committee was only now engaging with the documents. Why had Treasury not engaged with the Committee from the start of its budget process?

Ms Peters replied that there was a separation of powers.

Ms De Bruyn said Treasury interacted with departments through their Budget Review & Recommendations Reports (BRRRs), and Treasury responded either as the Treasury or the Department of Finance to recommendations from those committees, and this formed part of the Budgetary Review Annex. It was in the nature of things that committees always asked for funding increases. There had never been a case where a budget reduction was requested. The deadlock-breaking mechanism was the Committee. The Committee oversaw how spending was progressing in the course of the year, but sometimes the problem was not a question of not having the money, but rather because there were other issues and Treasury would point this out in its responses to the BRRRs.

She said the budget process started in earnest in July. She was not sure how Treasury started the process with the Committee, because Treasury was part of the executive.

Mr Shaik-Emam asked if the Committee should not play a more pivotal role in the budget process and have some say in the proposed budget.

Ms L Arries (EFF) said that R100m of the R300m from the equitable share of a municipality had been invested. What was the role of the Committee to ensure that the equitable share money was spent on rendering services to the people, because that portfolio of councillors who did the investment were still in place?

Ms Peters said the conditions for making amendments paralysed the Committee, given all the conditions that had to be met. She gave the example of a person who had been given land but could not farm because of the lack of a support programme, like the provision of tractors, for example. There were many such people in the country, and the Committee had failed such people. The time for amendments was also limited. 

Mr X Qayiso (ANC) said he got the impression that the budget process was deep, and the Committee came in only at the tail end. There was a need for this Committee to look at the best approach to deal with these challenges. 

The Chairperson said the Committee needed to propose where amendments to the Money Bills Act, which governed how the Budget was dealt with, needed to be made.

Ms Ulrike Britton, Chief Director Urban Development and Infrastructure, National Treasury, referred to Parliament’s interaction with the Budget, said that Ms Peters had correctly pointed out the issue of separation of powers. The Committee should think of how it could use the Parliamentary Budget Office (PBO) better. Two important points were the tabling of the Medium-Term Budget Policy Statement (MTBPS) and the period after that, to the tabling of the Budget. The Money Bills Act required portfolio committees to table BRRR reports, which then fed into the budget process. The role and work of the PBO in this period after the MTBPS was critical for supporting the work of the Committee. This might assist in the separation of powers between the legislative and executive branches of government.

On the Chairperson’s question on what the payment for financial assets were, she said the definition for economic reporting of this was defined as being when government lent money to a public corporation or when government capitalised an institution. The two methods had significant tax implications. A bailout would be a recapitalisation.

On the roles of the SCOF and the SCOA, she said the Money Bills Act was clear that the Committee dealt with money bills, while SCOF dealt with finance bills, like tax legislation. The finance bills dealt with legislation for raising the money, while the Appropriations Committee dealt with bills involving the spending of the money.

The Chairperson said the Finance Committee had areas of oversight and responsibility for institutions such as the Land Bank and the South African Revenue Service (SARS).

Ms Britton said the Finance Committee had oversight over the Ministry of Finance.

Mr Shaik-Emam asked if he was correct to say that the Standing Committee on Finance had to report to the Committee as well, for purposes of oversight.

The Chairperson said that the Committee could interact with the Standing Committee on Finance, as had been done before, and there was no doubt that there were areas of overlap.

Regarding the question of when Treasury decided to borrow money, Ms Britton said that one of Treasury’s responsibilities was to ensure that there was sufficient money in the system so that delivery mandates could be executed. At the beginning of the financial year, Treasury asked departments when they needed their money, which allowed Treasury to do some tax forecasting to see if there was enough money in the system, and how much money needed to be borrowed. The concern was when a department requested money for a payment which then did not occur, resulting in borrowed money lying idly in Treasury’s accounts incurring interest costs.

Mr Shaik-Emam said his concern was the ability of the country to pay for its borrowings, because the country was running into a fiscal cliff. Was the debt level also taken into consideration before deciding to borrow, as the country was sitting at a debt level of 70%?

Ms Lebogang Madiba, Chief Director: Public Finance, National Treasury, explained why the debt of the country had escalated in 2000, saying it was because the country had decided to take a countercyclical view. In 2012, the principle was changed because the debt was for current expenditure, and not for infrastructure expenditure. Now the cost of borrowing had also increased. The largest percentage of the debt was in rands, and not dollars. The focus of government was to make use of what it had.

Regarding the R43m on interest and land which the Chairperson had asked about, which appeared in the sample Appropriation Bill of 2019, Ms De Bruyn said it was part of the Public-Private Partnerships (PPP) unitary fee that the Department of Basic Education had paid for its building.

She said the other organisation meant to help the Committee was the Financial and Fiscal Commission (FFC) which, together with the PBO, could help the Committee in the time between the MTBPS and the tabling of the Budget.

The final thing to say was that the budget process was an iterative one between the technicians and the politicians in the executive. Treasury allocated nothing. The Appropriations Bill and the DORB were discussed at various forums where politicians gave their input. The technicians were not privy as to how politicians came to a decision. All departments and Ministers pleaded their cases, and Treasury was faced with making trade-offs and hard choices, but ran a fair, transparent and open process. The Committee was represented in the Budget Council, so the Committee was there at the early part of the decision-making points to hear what was being suggested, but not at the level of detail that the Committee needed.

Ms Peters asked if the grant for learners with profound intellectual disabilities was a conditional grant given to provinces. She said it was important to follow up on this grant. There were a number of such learners roaming the streets. There were some schools with remedial educators and there were some special schools for people with learning disabilities. She knew that not all schools had all the books. There were challenges, because there were instances where learners’ materials had been found to have been dumped. She asked the presenters to talk to the Congress of South African Trade Union’s (COSATU’s) recommendation that government should be able to borrow from pension funds. Would this be the first time South Africa borrowed from its pension funds?

Mr Shaik-Emam said he had not had a response to his question on the guidelines for repayments of bailout funds by state-owned entities like ESKOM. On the Committee’s ability to follow the money, based on the strategic plans of the departments, the Committee did not get the figures it needed on what happened at provincial or local levels, and therefore did not know if money was spent as it should be. What were Treasury’s recommendations on what the Committee could do on this matter? South Africa’s population was increasing by a million people per year. Was this sustainable? If not, what did Treasury recommend be done differently?

The Chairperson referred to the debt to gross domestic product (GDP) ratio, and said there was always a focus on the debt, but an increase in the GDP would also affect the ratio positively. Government could apply austerity measures only up to a certain point.

Ms Gillian Wilson, Chief Director: Public Finance, National Treasury, commented on the conditions attached to bailouts for state owned entities, and said that with the South African Broadcasting Company (SABC) for example, preliminary allocations were made and Treasury could assist the Committee by providing quarterly reports, and the Committee could ask the department to report on it too.

Ms De Bruyn also referred to the special appropriation, and said that they worked for Treasury but they were not the Treasury Department. They had oversight over the 41 national votes, including the Treasury Department.

There were items in the budget that were standard items, like debt costs and the wage bill, so the space for change was marginal. The requirements for making changes were onerous, as there were serious consequences for reductions. The budget process was not a willy-nilly process. The PBO, as well as the FFC, had to concentrate on helping the Committee. All Treasury information was available.

She added that as technicians in the Treasury, they were not disinterested parties. They argued their case for their area of responsibility. Similarly, technicians representing departments argued against others, and there was debate between technicians around allocations between the three spheres of government. It was a contested terrain.

The Chairperson said the Public Investment Corporation (PIC) funded Development Bank of Southern Africa (DBSA) and the Land Bank. The PIC would suffer if the SA economy suffered, as it was the biggest investor on the Johannesburg Stock Exchange (JSE). The money was not in the form of a loan, but would be taking a share in the equity of ESKOM. He acknowledged that even in Cabinet, there were fights over the distribution of funds.

The meeting with Treasury ended.

The Chairperson informed the Committee he had received a letter that day from the Minister of Finance, dated November 2019, on the ESKOM conditions. He asked the Committee to look at it and see if it addressed the concerns the Committee had raised.

The meeting was adjourned.