Provincial Treasury briefings: Western Cape Appropriations Bill; Western Cape Additional Adjustment Appropriations Bill & 2019/20 Quarter 3 performance

Meeting report

2020 Budget and 2019/20 Additional Adjustments Appropriation

Mr David Savage, Head of Department: Provincial Treasury, and Ms Julinda Gantana, Chief Director: Public Finance, made the presentation on the 2020 Budget and 2019/20 Additional Adjustments Appropriation to the Committee.

Describing the South African economic and fiscal context, they said a mild recovery in global growth was projected in 2020 and 2021, driven by a relatively stronger recovery in emerging and developing economies. SA’s economic growth had eased further in 2019, weighed by slow growth in consumer spending and low business confidence, and was expected to rebound moderately in 2020, despite expected rating agency downgrades. The full impact of COVID-19 on the SA economy was yet unknown. The risks to outlook included the impact of the COVID-19 outbreak, continued strained global trade dynamics, and continued load-shedding in South Africa.

From a provincial perspective, the Western Cape economic growth was expected to exceed that of SA over the forecast horizon. There were the beginnings of aa recovery in the agriculture and agri–processing sectors, but it was unlikely that the agriculture, forestry and fishing sectors would return to pre-drought levels. The tertiary sector would remain the biggest driver of growth

Gross national debt was continuing to rise. Debt stabilisation required continued spending restraint, faster economic growth and measures to contain extra budgetary pressures, including the reform of state-owned companies.

There was a weak economic outlook for the fiscal environment. 2019 consolidated government spending had reached a historic high of 36 per cent of gross domestic product (GDP) as a result of:

• Downward revisions to the size of the economy;
• Spending plans based on economic growth projections that had not materialized;
• Increased demands from distressed state-owned companies.

Government expected to collect R63.3 billion less revenue than projected at the time of the 2019 budget, and had reduced the main budget expenditure baseline by R156.1 billion over the medium term expenditure framework (MTEF) in comparison with 2019 budget projections. Net reductions were due to reductions to baselines of R261 billion:

• R160.2 billion reduction to the wage bill of national and provincial departments and national public entities;

• Reallocations and additions totaling R111.1 billion, of which R60.1 billion was set aside for Eskom and South African Airways (SAA).

Government to discuss with unions options for achieving the required reduction. Target can be achieved through modifications to cost-of-living adjustments, pay progression and other benefits. Continued uncertainty related to the budget process as informed the WCG’s approach response and 2020 principles.

Key provincial transversal delivery risks included:

• Weak economic and fiscal environment;
• Water and energy crisis with widespread impact;
• Broader impact of climate change;
• Service load pressures and ability to respond to increasing demand;
• Potential impact on staff health and morale;
• Safety and security;
• Transversal governance risks, and the need for further collaboration with National Treasury and the Auditor General

Service delivery highlights giving effect to the 2019 – 20124 provincial strategic plan included the personnel budget, which constituted 54 per cent of the province’s total budget for the 2020/21 financial year. This was to fund 33 431 Educators and related professionals; 13 652 professional nurses; 5 426 medical and related professionals; 1 920 social workers and 680 traffic officers and related staff.

Partnership with the City of Cape Town had seen the recruitment of the first 1 000 law enforcement officers over the 2020 MTEF. An amount of R102 million was allocated towards up-scaling ease of doing business initiatives, and an additional R20 million per year was allocated over the 2020 MTEF towards green economy initiatives to support municipalities in accessing energy from independent power producers (IPPs).

The Department of Social Development would fund 2 110 Non-Profit Institutions (NPIs) with an amount of R1.383 billion in 2020/21. The Department of Education’s norms and standards allocation would be R2.464 billion for operational expenditure procurement of textbooks, day-to-day maintenance and settlement of municipal service accounts.

With regard to the 2019/20 Additional Adjustments Appropriation, the National Department of Human Settlements had stopped tranche payments of the Human Settlements Development Grant (HSDG) to certain provinces and reallocated the funds to other provinces. The Western Cape had received R98.5 million. The Provincial Department of Human Settlements would allocate the funds to municipalities for the construction of top structures in the Breede Valley (R3.5 million), Witzenberg (R10 million) and Cape Agulhas (R5 million). Departmental projects would receive R50 million, and individual subsidies R30 million.

The Department concluded its presentation by stating that in summary:

• National government’s fiscal position had been eroded by reduced revenue collection expenditure pressures arising from state-owned company bail-outs; and the size of the public sector wage bill, which could affect future transfers to provinces
• The 2020 Budget gave effect to the priorities included in the 2019-2024 Provincial strategic plan
• The 2020 budget responds to and mitigates service delivery and budgetary risks, but pressures still remain
• An adverse economic environment, coupled with the uncertain fiscal position, may require an in-year response
• The province would be operating in an integrated manner through its joint district and metro approach, together with local municipalities and the City of Cape Town

Discussion

Mr C Dugmore (ANC) said that when the Premier of the Western Cape announced the safety plan in regard to crime last year, ten communities in the Western Cape were highlighted and the latest legislation was promised to dedicate and focus spending across departments in order to deal with those ten highlighted areas. It was disappointing that no actual detailed information regarding the budget was given with regard to those ten communities. One would expect that where a safety plan spoke specifically about ten communities, one could expect a budget that reflected the actual spending in those ten areas with regard to infrastructure, etc. There did not seem to be any alignment between the over-arching vision of the key announcements by the Premier and the practical spending.

Secondly, the Head of Department (HOD) had taken them through a useful account of the budget process, but a constant issue raised by Members was regarding to what extent Members and civil society had been consulted. He wanted to know if any plans had been made in order to draw public participation and get input from civil society.

He also wanted to know if the HOD could indicate where the process of possibly being able to amend the money bills was, stating that Members were always presented with voluminous documents which were essentially a fait accompli, and both the provincial and national constitution spoke about the need for the legislature -- which had oversight -- to actually amend the money bill.

Lastly, on the issue of new schools, he wanted an indication as to how many schools would actually be delivered within the current financial year, as schools were in different stages of the construction process.

The Chairperson responded to Mr Dugmore with regard to the public participation question, stating that the Procedural Officer would be welcome to explain the process as to how the legislation came through. She made reference to the rules regarding the amendment of the money bills, and explained that in 2019 there was a unanimous decision by the Budget Committee to undergo the research for the amendment which currently lay with the Rules Committee.

Mr R Mackenzie (DA) said he wanted to know why the Provincial Treasury did not allow for allocations to be transferred directly to municipalities, and services to be centrally purchased. He said the Minister’s speech had spoken about implementing compensation savings and terminating performance bonuses, and he asked if discussions had started on that yet, as he knew that it related to the R160 billion in additional savings that the government wanted to achieve. Knowing that exporting and importing was of vital importance to South Africa, he wanted to know where everything stood with regard to the Coronavirus (COVID-19).

Ms N Nkondlo (ANC) wanted to know to what extent the Department had received public input for the budget, and to what it had provided output for the overall budget. What means had been used to achieve the public participation, in what she deemed to be possibly a mandatory requirement? She also wanted to know if there had been an effort to use the same approach to integrate the thinking of the context of budgeting with the provincial level to that of the municipal budgeting processes, and the issues that had emanated from that. She clarified that she was interested in the extent and depth to which the particular inter-reaction between vertical and horizontal would influence each other, as engagements with departments at both the municipal and provincial levels would help create a provincial budget that was more inclusive to the issues at municipal levels.

She sought guidance as to how the 2020 projection numbers affected the infrastructure spending, and how that investment contributed to the growth projections. She was interested in the optimal partnership with other social partners and private sector participation, and acknowledged that it was articulated in most of the province’s budget, including the State of the Province. However, she wanted to know at what point there was a framework which gave guidance on how to work with communities and other social partners that could leverage government resources.

Department’s response

Mr Savage said that Treasury would very much like to be able to take the data issues down to the neighbourhood level, and be able to present more of the budget at that level, but they did not have the data systems for that. While the safety plan’s initial emphasis was dealt with in the 2019 adjustments estimates, the subsequent emphasis had been a lot broader than that, and was not just on the immediate symptomatic issues but more on the underlying drivers of instability in communities. Therefore, a lot of emphasis was placed on youth development and youth assistance which targeted youth involved in the vulnerable communities. That kind of data-joining always presented a data challenge, so the allocation from the data perspective was from a financial data perspective and was therefore constrained because they could not dig far enough down into the system. Regarding the safety plan with the municipality and the City of Cape Town, he believed that it was simply too early in the rollout programme to be able to capture data with any accuracy.

Regarding public participation, he cautioned the Committee, as he did not think that public participation in the planning process was the end of public participation and public oversight over the work of government. He believed that it was three-dimensional -- it was in the strategy planning phase, the budget planning phase and in the co-execution and commencement phase. He also believed that it was in the actual delivering and continuance of services phases as well. He explained that interestingly, there was no formal specific legislative mandate requiring public participation in provincial budgeting processes, which was very much unlike the municipal sphere. However, it was ultimately quite frustrating to communities.

Regarding the budget process, he explained that they were certainly going to get into the design of the process for the next year, and would take into account points raised on the amendment of the money bills. He believed that it was a matter for the national and provincial Parliaments to ultimately deal with.

Regarding the effect of infrastructure on the economy, he would be happy to discuss this with the Committee in more depth. He said that the general lack of confidence in the government by private investors was really holding the sectors back.

Referring to the transfer of money directly to municipalities for poor housing, he explained that the problem with South Africa’s housing programme was that the outcome was not always integrated with other services that municipalities needed to provide. What needed to be done was to integrate the services at the municipal level, and municipalities needed to play a much larger role.

It was too early to say what the effects of the current Coronavirus (COVID-19) which was currently sweeping the world, would be on exporting and importing. There was uncertainty as to how large a disruption it would cause. He gave the example of Foxconn factories, which closed for a period, and which brought the delivery of iPhones to a halt. South Africa did not want to switch its attention away from China as an import export market, but needed to remain very vigilant and monitor those changes in the global market.

Ms Gantana, referring to the total fiscal framework, said it showed what Treasury had spent in relation to what their transfers were. She explained that Treasury needed to reserve some funding to cater for some of the spending for the MTEF, and the other part was added to fiscal stabilization. This was why they also saw growth in terms of fiscal stabilisation reserves over time, and why they were saying that should there be any further destabilisation in terms of the economic outlook which would affect provinces, they would first go there as opposed to going to departments. Overall, this had been done to ensure sustainability in terms of government being able to deliver services over time, regardless of what happened at the macroeconomic level in terms of funding.

The R772 million was the allocation to provide for testing sets by the National Health Laboratories Service, which was to ensure more or less what would be required for the financial year. It was budgeted according to the latest data, and the allocation was largely driven by the increase in terms of the tariff.

Regarding the very important priorities (VIPs), in VIP5 they had a focus area that dealt specifically with integrated service delivery, which was also found in Chapter 4 of the overview. It basically took the themes of their interactions with local government. Referring to page 79 of the Appropriation Bill, she explained that this provision had come out of the five districts in response to the issues that the provincial department needed to focus on in terms of the kind of budget around citizen interface, climate change and water security, urbanisation and population growth, infrastructure and waste management. All of these were linked to one or two of the VIPs.

Slide 9 dealt with the Central Bargaining Council issue, which was currently in discussion with the unions. This also dealt with the issue around the performance bonuses and the savings of approximately R150 billion if no performance bonuses were to be paid out. Regarding value for money in terms of the non-profit organizations (NPOs), this was something that was happening with the Auditor-General (AG), and the report would be released.

Regarding the new schools, pages 139 to 141 gave the list of new assets. Page 139 gave the new and replacement assets of schools, the source of funding and the status of the individual projects and its location. She apologised that she could not give a concise answer as to how many would be delivered within the current financial year.

The Chairperson wanted to know if it was possible for the questions around the school’s issue to be kept for the relevant occasion and portfolio.

Mr L Mvimbi (ANC) said that in the Provincial Minister of Finance’s speech there had been mention of an expenditure to five districts within the province, but the Garden Route was not included in that and he wanted to know if that was deliberate or a mistaken omission.  He wanted clarity regarding the deployment of more law enforcement officers, which did not make sense to him as it was in the budget as part of the safety plan originally, and the budget had been significantly reduced. Lastly, he asked where the Western Cape stood when compared to the rest of the country in terms of economic outlook.

Mr A van der Westhuizen (DA) said that in terms of the existing three-year agreement that had been signed by the public service in the public service bargaining council, they were bound by the agreement. However, it was public knowledge that the Finance Minister was trying to renegotiate it, in order to get some relief from that agreement. He wanted to know on what assumption Treasury had worked when the budget was drafted, as it was stated that Saturdays made up 54% of the expenditure, which seemed to him to have a huge influence on the budget for the current financial year and the medium term. He wanted to know what the implications were ultimately, as well as what was worked on when drafting the budget.

Mr David Maynier, Provincial Minister of Finance, explained that after looking at his speech, the leaving out of the Garden Route was an accidental omission. He assured Mr Mvimbi that it was not deliberate, and the situation would be remedied when he introduced the debate on Friday. He assured the Committee that the Garden Route would be appropriately mentioned.

Mr Savage responded on the comparison of the GDP growth rates at the provincial level. He said there were two sets of data available -- one was for the other provinces, and the other looked at metros and the large city growth rates. Most of the growth in the economy was driven from by the cities. One would expect the provincial growth rate for the Western Cape, which was significantly urban, to be outstripping the more rural provinces.

Ms Gantana explained that Treasury had worked on a consumer price index (CPI) of 4.8% for compensation of employees, but it was also staggered -- CPI of 4.8%, plus 1% for levels one to seven; CPI plus 0.54% for levels 8 to 10; and  CPI plus 1.4% for levels 11 and 12, inclusive of the 1.5%. If there were any changes above that level, there would be a problem.

Mr Dugmore wanted to know how much of the 1.1% allocated to community safety was for boots on the ground, and how much was for the so-called integrated strategy which the safety plan promised. 

Ms Gantana responded that on page 50 of the overview, it indicated that it was R4 billion over the MTEF, which was inclusive of the R858 billion for 2020/21.

The Chairperson commented on the safety plan and the geographical areas, and said there should be a resolution to show how the money was spread over the geographical areas. While every other department had indicated what their priorities were, more detail would be appreciated with regard to the funding.

Quarter 3 Financial and Non-Financial Performance

The Department presented the following key provincial expenditure performance statistics as at 31 December 2019:

• The third quarter spending amounted to R49.971 billion, or 73.6 per cent of the R67.910 billion adjusted budget.
• There had been a net adjustment of R718.580 million to the main budget, as appropriated in November 2019, in order to maintain fiscal stability, while simultaneously responding to service delivery challenges and reprioritisation towards provincial priorities.
• The Province reflected a net projected over-expenditure of R102.098 million for the 2019/20 financial year.

The over-expenditure had occurred mainly in the Department of Health. Projected net over spending amounted to R105.371 million, and was largely attributed to the shortfall on the Human Resources Capacitation Grant (HRCG) to address the filling of critical posts, the expansion of the Grabouw Community Health Centre, as well as the usage of agency and support services to mitigate service pressures for mainly nursing and medical staff. The Department had, however, indicated their intention to manage the projected over-expenditure within their budget baseline.

Provincial Treasury had projected under-spending amounting to R1.953 million. This was related to compensation of employees due to the lag-time in the filling of vacant posts.

Local Government had also projected net under-spending amounting to R1.320 million, mainly due to delays in the recruitment process in appointing drought capacity personnel.

Provincial public entities’ expenditure as at 31 December 2019:

• The third quarter performance reflected spending of R559.653 million, or 68.6 per cent of the R815.887 million adjusted budget
• Provincial public entities projected a net under-spending of R7.588 million, which was mainly related to the Western Cape Nature Conservation Board 
• The Cape Agency for Sustainable Integrated Development in Rural Areas (Casidra) projects a net over-spending of R3.020 million, and was due to the salary payments for interns, which would be recouped from programmes managed on behalf of the Department of Agriculture
• The Western Cape Nature Conservation Board projects a net under spending of R11.134 million, which mainly relates to the following projects:
• Kogelberg Phase 2 (Kleinmond in Overberg): This project had reached its final stage with all exterior and structural work completed. It was anticipated that R2 million, as part of the projected spending, would be undertaken in order to complete the project
• The additional funding requirements were related to the upgrading and improvement of the water reticulation system and improvements to the visitor access facilities, to enhance service delivery
• Grootvadersbosch Nature Reserve Campsite Upgrade (Hessequa Municipal District): The total anticipated cost for this project amounts to R6.6 million, where all the respective procurement processes have been undertaken and completed.  Final approval was awaited from the Board of CapeNature, whereupon construction would commence in quarter four
• Vrolijkheid Nature Reserve (Robertson in Cape Winelands District): The work on this project relates to a Sustainable Organic (SOG) water filtration system, where work had commenced later than planned, subsequent to lengthy procurement processes. The project cost amounts to R4.7 million, and expenditure was projected to accelerate during the last quarter of the financial year

Provincial own revenue collections at the end of the third quarter had amounted to R2.185 billion, or 90.8 per cent of the R2.407 billion adjusted budget. Key revenue drivers had been:

• Transport and Public Works: Revenue collections amounted to R1.457 billion, projecting an over collection of R109.456 million at the end of the 2019/20 financial year, mainly derived from motor vehicle licence (MVL) fees.
• Health: Revenue collected amounted to R536.217 million, and projected an over collection of R42.617 million. The higher collections for the current financial year were due to the higher than anticipated collection of hospital patient fees.
• Human Settlements: Revenue collections amounted to R116.141 million, projecting an over collection of R72.241 million. The revenue collections were largely comprised of receipts from the City of Cape Town amounting to R88.419 million, in respect of the Urban Settlements Development Grant. Furthermore, the revenue for this Vote included receipts from the Housing Development Agency (HDA) amounting to R10.934 million, due to savings realised for the purchase of land.

Discussion

Ms Nkondlo commented that considering only 48.9% of the community safety budget was spent while still achieving 95% of the targets, she wondered how they had achieved so much having used less than half the budget, It meant that they did not need the budget which they had been allocated.

Mr Mackenzie said that the last time he served on that cluster, there were issues with Casidra in terms of the transfer payments, and he wanted to know whether or not those issues had been resolved.

The Chairperson said she wanted clarity regarding the Saldanha Bay performance target, where it was said that there was only one target. Referring to page 15, she wanted to know to why the Committee was looking at the preliminary and validated performance information for Quarter 2 compared to Quarter 3 on some of the other pages -- was it for comparison, or for other specific reasons?

Mr Savage explained that it would always be hard to draw a direct correlation between the spending level and the performance targets, because not every target would have the same or equal value, so straight line correlations between the two was not possible. What should be pointed out was the connection between the overall progress on the financial side and general progress on the non-financial side. If the targets were defined in a partial way, or designed in a way that was substantially relatively easy to achieve without generating much expenditure, then one would make it to 100% for the second quarter. He used the example of having four workshops in accordance with the targets in the first quarter, and achieving the target for the rest of the year. However, it was rather in the annual performance plan where one needed to drill into the indicators of the targets so that they would be aligned appropriately to the budget.

Ms Zeenat Ishmail, Chief Director: Strategic Management Information (CD-SMI), Western Cape Premier’s office, told the Committee that in terms of the indicators, they were embarking on a new financial year, which brought with it a new annual performance plan as well as new strategic plans. The new plans were result-based approaches and a response to the income state. The output approaches, in terms of developing reintegrated systems, were more robust and better than the previous strategic orientated goals. The plans were also now supported with the results framework, and would actually refer to the outcome indicators in the Peoples Housing Process (PHP) and Structured Query Language (SQL) – a sort of secondary outcome indicator.

Referring to Casidra, she said that a number of reasons were given as to why they had not performed. It had been due to the postponing and rescheduling of a meeting to another quarter due to operational requirements and training that had been rescheduled due to the low attendance of delegates by service providers, and money that was transferred towards the end of the quarter. 

The reason for the one indicator for Saldanha Bay was the number of beneficiaries participating in the school’s development programme for animals, the inactivity of the system, and the closure of the plant.

Mr Mackenzie, referring to Casidra, wanted to know if the issues had been resolved, or what was yet to be dealt with.

Mr Savage responded that the matter was currently being dealt with in court, and would continue towards the end of March. However, he could not provide further details.

The Chairperson thanked the delegation for the explanations, and stated she just thought that the Committee should at some point in time address the fact that it took roughly three to six months to employ someone within government. This was unacceptable, considering that in other countries they were building hospitals in a matter of five days. The situation of the employment turnaround time was shocking and vacant positions led to productivity decreasing.

Adoption of minutes

The Chairperson asked for the adoption of the minutes for 28 November 2019.

Mr Mackenzie moved their adoption, and Ms W Philander (DA) seconded.

The minutes were adopted.

The meeting was adjourned.