Adjustments Appropriation Bill: briefing, with Deputy Minister

Meeting report

Chairperson Buthelezi said that the Committees would be hearing a presentation from National Treasury on the Adjustments Appropriation Bill. The content presented was in line with the stipulations of the Money Bills Act and the Public Finance Management Act (PFMA).

Adjustments Appropriation Bill [B10 – 2020]

Dr David Masondo, Deputy Minister of Finance, said the 2020 Appropriation Bill had been necessitated by the outbreak of COVID-19, and thanked the Committees and Parliament for moving rapidly to make sure that National Treasury (NT) tabled the budget. He appreciated the opportunity to present the Bill, particularly the distribution of funds across national votes. Treasury had already presented the fiscal framework and the Division of Revenue Bill, and had come back to the Committees to present the distribution of funds across votes.

Dr Mampho Modise, Deputy Director General (DDG): Public Finance and Acting: Economic Policy, National Treasury, presented.

Ÿ Section 12(1) of the  Money Bills & Related Matters Act (Money Bills Act), read with section 30(1) of Public Finance Management Act (PFMA), enabled the Minister of Finance to table an adjustments budget in the National Assembly when necessary. The adjustments budget was usually tabled in October. This was the first time that Treasury had to do an adjustments budget a few months after doing the budget review, but it was allowed, according to the Money Bills Act.

Ÿ The fiscal and economic impact of the national state of disaster declared as a result of the COVID-19 pandemic, had made it necessary for the Minister to table a special adjustments budget to revise government’s spending priorities for 2020/21. Treasury was looking at trying to specify the type of spending that was allowed under the adjustments. It was looking at adjusting spending due to significant and unforeseeable economic and financial reasons. Treasury had to shift money from some votes to other votes that were financially under pressure.

Ÿ Section 30(2) of the PFMA specified the type of spending that the adjustments budget may provide for, such as:

- Adjustments due to significant and unforeseeable economic and financial events;

- Shifts between and within the votes.

Ÿ All other adjustments not included in this adjustments budget would be included in the

October 2020 adjustments budget, with the details outlined in the Adjusted Estimates of National Expenditure.

Once the fiscal framework had been adopted by the National Assembly (NA), Treasury would look at the adoption of  the Revenue Bill. Once that was adopted, then Treasury was in the process of the appropriations legislation. The appropriation legislation distributed the allocations of the national sphere across the 41 national votes.

Ÿ Parliament first considered the revised Fiscal Framework, then the Division of Revenue Amendment Bill, and then the Adjustments Appropriation Bill.

Ÿ Any amendment to the Adjustments Appropriation Bill must be consistent with the revised Fiscal Framework and Division of Revenue Amendment Bill as passed by Parliament.

These instruments entail the following:

Ÿ The fiscal framework total resource envelope for government across the three spheres of government;

Ÿ The Division of Revenue legislation distribution of the provincial equitable share to the nine provinces, and distribution of the local government equitable share to the 257 municipalities.

Ÿ Appropriation legislation distribution of the national share across the 41 national votes.

Ÿ For the Adjustments Appropriation Bill, this implied that any proposed additions to one vote must come from reductions to another vote.

The Standing Committee on Appropriations (SCOA) had the power to change the appropriations of departments. However, the bottom line had to remain the same. For every proposal to increase an allocation for one vote, there would be the same amount of decline in another vote. After the division of revenue is passed, SCOA makes sure that the split that is allocated to the national departments is allocated fairly across all the departments. Therefore, SCOA had the power to move money within votes, but the bottom line had to be the same.

The Structure of Government Spending

Dr Modise said that when Treasury started with this process, the President announced that it had to find R130 billion from within existing budgets. Treasury had to look at the amount available for reductions from its R1.7 trillion expenditure budget, and had come up with an amount of R235 billion. When one took out expenses that were considered non-discretionary, one would see that the compensation of employees (CoE) was semi-discretionary. Interest on land was a direct charge from the National Revenue Fund. Transfers to provinces and municipalities were also a direct charge; this included the equitable share for provinces and local government, and also conditional grants towards provinces and municipalities. Other expenses taken out of the R1.7 trillion were the subsidies that Government paid for higher education institutions, and Treasury also had to pay membership for foreign governments and international organisations. Other expenses included public corporations and private enterprises; households; operating leases (which were paid regardless of whether or not one occupied a building); and payments for financial assets.

Treasury would also be assisting some of the state-owned entities (SOEs), such as Eskom, that were having liquidity challenges. What was left was about R235 billion. If one had to find R130 billion out of the R235 billion, then one had to take away 43% of that money. This was not the end point; one still had to give some money to departmental agencies and accounts. The biggest amounts would go to entities such as the South African Revenue Services (SARS), the National Student Financial Aid Scheme (NSFAS), the SA National Roads Agency Limited (SANRAL), and the Independent Electoral Commission (IEC). It would not be possible to “blind-foldedly remove money from these entities.” Items still to be included were departmental agencies and accounts; payments for capital assets; the rest of goods and services (e.g. consultants); and non-profit institutions.

When Treasury was given the task of finding R130 billion, what became clear was that the nature of this budget did not allow Treasury to just take away R130 billion.

What was needed to achieve the R100 billion cuts?

What Treasury also did was to analyse what happened when it protected other departments. When it got the message from the President, it was told to find R130 billion, but also to make sure to protect the Department of Health (DoH), the departments in the security cluster (police and defence force), and the Department of Social Development (DSD). If Treasury had to find R100 billion across the board, then one was looking at a 10% budget reduction, if all departments were included. If one excluded the Departments of Health, Social Development, Police, Defence, and Correctional Services, it meant that a 20% reduction in the other departments’ budgets was needed. If the Departments of Human Settlements, Transport, and Water and Sanitation were excluded, then a 25% reduction was needed. The budgets were labour-intensive, so if Treasury took out the DoH and the other four departments, the share of the non-compensation budget that one would need to come to the R100 billion, would be 32%. If one excluded those eight departments (up to DWS), then one had to find about 42% of what was left, when one included CoE for the other departments, which became very difficult to justify. When Treasury was doing this assessment, it had to balance what was announced by the President with other factors. What it also had to look at was, if it found this money, what happened to the rest of the departments that were classified as not providing frontline COVID-19-related services?

Explanatory memo to the Bill

Treasury had also looked at possible programmes that could be suspended, and whether suspending certain programmes would have a minimal or significant impact.

The explanatory memo to the Bill provided details of adjustments to departmental budgets proposed in the Adjustments Appropriation Bill and included:

Ÿ The 2020/21 main budget, which represented the main budget proposal tabled in February 2020;

Ÿ Downward revisions, including the suspension of funds and virements to finance the COVID-19 interventions, as well as other virements proposed by departments;

Ÿ Reallocations, which included allocations and virements towards spending on COVID-19 interventions, as well as other virements proposed by departments;

Ÿ The 2020/21 total net change proposed represented the net change in the allocation to a department as presented in the Adjustments Appropriation Bill;

Ÿ The 2020/21 total allocation proposed represented the total budget allocation for the department for the 2020/21 financial year.

Proposed allocations to departments were presented by programme and economic classification. Explanations of budget adjustments were provided for large changes in programme allocations, economic spending items, large projects or conditional grant allocations, depending on relevance.

Special Appropriation Bill

Of the R130 billion that needed to be found, R100 billion was supposed to come from the national departments. Allocations in the Adjustments Appropriation Bill reflected the proposals included in the initial COVID-19 fiscal relief package announced in April. The Bill provided for R145 billion in allocations, mainly targeted at COVID-19 interventions. Government was allocating R3 billion as an equity investment to recapitalise the Land Bank.

In total, R100.9 billion was temporarily suspended from baselines, with R80.9 billion suspended from national departments, consisting of:

• R54.4 billion in national departmental allocations;
• R13.8 billion in provincial conditional grants;
• R12.6 billion in local conditional grants.

Provincial suspensions included R20 billion funded from the provincial equitable share.

Additions to spending for COVID-19 fiscal relief package

Dr Modise said the main budget non-interest expenditure increases included support to vulnerable households for six months, which was about R40.8 billion. Health (provincial and national) cost R21.5 billion. Support to municipalities ended up at about R20 billion. Other frontline services expenses were mainly funds that went to the defence force and police services. Basic and higher education received about R12.5 billion, mainly to make sure that schools were ready for reopening. Small and informal businesses (mainly the support provided for different departments, such as the Department of Tourism and the Department of Trade and Industry), got an extra R6 billion, as did public entities. Other COVID-19 interventions received about R1.7 billion. Treasury was also proposing an allocation to the Land Bank of about R3 billion. There were also provisional allocations for COVID-19 fiscal relief. This money would be available for the employment programme that was announced by the President. The reason why this money was not yet allocated to any Department was because Treasury was still working with the Presidency and the departments that would be involved in providing the service. It looked at whether there was a possibility to use the mechanisms that already existed in the departments, so that the departments could enhance those and implement what the President announced. Treasury was finalising the paperwork, and finalising the targets with the different departments. This money would be allocated in October 2020 in the medium-term budget framework.

Major revisions to non-interest spending plans

Dr Modise explained the main revisions to non-interest spending plans, showing what was budgeted for according to function classification. For most of these functions, there were increases in allocations. Those where there would be a decline would be departments that fell within the economic development function group, where about R7 billion had been reduced. The learning and culture function group saw a R13 billion reduction. Most of the latter reduction consisted of an amount of R8 billion, which was because of a four-month skills development levy holiday.

Departments with the largest downward revisions (above R1 billion):

Higher Education and Training

R14.9 billion had been taken from the main budget of R116.9 billion, but with a R5 billion reallocation, there was a net change of R9.8 billion. Reductions were in the following categories:

Ÿ Skills development levy, due mainly due to the four-month holiday for contributions (R8.1 billion);

Ÿ Postponements of infrastructure programmes (R875 million);

Ÿ Delays in the historically disadvantaged institutions (HDI) development programmes and Generation of Academic Programme (R383 million);

Ÿ Non-essential goods and services and savings due to the delays in filling vacant posts (R316 million). These revisions were only for 2020, and these did not affect the 2021 baselines;

Ÿ Technical and Vocational Education and Training (TVET) colleges -- delaying the operationalisation of new colleges and deferring the intake of the Centres of Specialisation Programme to the 2021 academic year (R155 million).

Transport

R11.3 billion had been taken from the main budget of R62 billion, but with a R6.7 billion reallocation, there was a net change of R4.6 billion. Reductions were in the following categories:

Ÿ Reducing the number of taxis to be scrapped this year (R250 million). This would affect the number of taxis scrapped in 2020;

Ÿ Delayed construction projects through different grants (R3.7 billion). Treasury thought that the impact of this would not be as significant because in June, South Africa was still on Level 3 of lockdown, so economic activity was still a bit slow;

Ÿ Underspending in capital projects at the Passenger Rail Agency of SA (PRASA) (R1 billion);

Ÿ Delays in planned construction projects in SANRAL (R1.1 billion);

New allocations:

Ÿ Taxi relief fund (R1.135 billion). This fund’s purpose was to assist the taxi industry given that taxis could not operate at full capacity, and that the industry was impacted by COVID-19.

Financial support to public entities:

Ÿ Railway Safety Regulator (R15.8 million);

Ÿ PRASA (R1.3 billion) -- these funds were moved from Capax to Opex;

Ÿ SANRAL (R2.8 billion) -- funds were moved from non-toll;

Ÿ Road Traffic Infringement Agency (R200 million);

Ÿ Cross Border Road Transport Agency (R104 million)

Agriculture, Land Reform and Rural Development

R3.3 billion had been taken from the main budget of R16.8 billion, but with a R914 million reallocation, there was a net change of R2.4 billion. Reductions were in the following categories:

Ÿ Suspending filling of vacancies (R300 million);

Ÿ Projects suspended due to restricted economic activity:

- Rural social infrastructure coordination (R189 million);

- Restitution (R336 million);

- Comprehensive agricultural support programme grant (R317 million) infrastructure projects;

- Letsema project grant (R121 million);

- Land acquisition and redistribution (R444 million);

- Food security (R611 million).

New allocations:

Ÿ Deeds Trading Account (R150 million);

Human Settlements

R5.5 billion had been taken from the main budget of R31.3 billion, but with a R3.2 billion reallocation, there was a net change of R2.3 billion. Reductions were in the following categories:

 Ÿ Delays in planned projects:

- Human settlement development grant (R1.7 billion);

- Urban settlement development grant (R1.1 billion);

- Title deeds restoration grant (R377 million).

New allocations:

Ÿ Rental relief for social housing (R300 million)

Ÿ Debt relief for affordable housing (R300 million)

Ÿ Emergency housing grant (R377 million)

Basic Education

R7.2 billion had been taken from the main budget of R25.3 billion, but with a R5.2 billion reallocation, there was a net change of R2.1 billion. Reductions were in the following categories:

Ÿ Delays in planned projects – the education infrastructure grant (R2.2 billion) included the reimbursement of R600m to the School Infrastructure Backlog Grant for the provision of water at over 3 200 schools in six provinces;

Ÿ Non-essential goods and services (R282 million);

Ÿ Scaling back of teacher training in maths, science and technology, as well as life skills education conditional grants (R128 million).

Additional allocations:

Ÿ School infrastructure backlog grant (R540 million) -- R600m reimbursement less

R60 million downward revision

Trade and Industry and Competition

R2.3 billion had been taken from the main budget of R11.1 billion, but with a R500 million reallocation, there was a net change of R1.8 billion. Reductions were in the following categories:

Ÿ Suspension of allocations for incentives to the next financial year (R1.6 billion);

Ÿ Non-essential goods and services in the department and its entities (R184 million)

New allocations:

Ÿ Distressed firms loan (R500 million).

Mineral Resources and Energy

R1.6 billion had been taken from the main budget of R9.3 billion. A reduction was made in the following category:

Ÿ Reduction in bulk infrastructure and household connections (INEP) (R1.5 billion)

Science and Innovation

R1.8 billion had been taken from the main budget of R8.82 billion, but with a R359 million billion reallocation, there was a net change of R1.4 billion. Reductions were in the following categories:

Ÿ Rescheduling the construction of the:

- Square Kilometre Array (R359 million);

- National Integrated Cyber Infrastructure System (R200 million).

Ÿ Non-essential goods and services in the department and its public entities (R783

million)

Tourism

R1 billion had been taken from the main budget of R2.5 billion, with a R7 million reallocation. A reduction was made in the following category:

Ÿ Reprioritisation from international and local marketing activities (973 million)

Departments with upward revisions (above R1 billion)

The following departments had upward revisions of over R1 billion: Government Communication and Information Systems; Defence; Health; Police; National Treasury; Cooperative Governance; and Social Development. The rest of the departments were presented as an annexure within the presentation. It was not that Treasury thought that those departments were insignificant; it focused on the abovementioned departments because of time pressure in the meeting.

Government Communication and Information Systems

An upward revision of R30 million was reprioritised mainly towards COVID-19 interventions.

Defence

An upward revision of R2.9 billion was reprioritised mainly towards the deployment of troops to fight COVID-19.

Health

Upward revisions of R2.9 billion would be spent on:

Ÿ COVID-19 lab tests;

Ÿ Cuban doctors;

Ÿ Contracting with private hospitals;

Ÿ Personal protective equipment (PPE) and thermometers;

Ÿ Communication campaigns and occupational health interventions

Police

The upward revision of R3.7 billion was an additional allocation towards PPEs and other COVID 19 related spending.

National Treasury

An additional R9.3 billion would go towards higher debt service costs (R7.2 billion) and recapitalisation of the Land Bank (R3 billion).

Cooperative Governance

The upward revision of R11 billion was to provide support to municipalities.

Social Development

There was an upward revision of R25.5 billion to give support to vulnerable households.

Dr Modise said the abovementioned departments had done a lot of work in trying to identify some of the money within their baselines that they could reprioritise. Most of them had managed to reprioritise some of the money, but at some point Treasury had realised that the reprioritisation within their baselines would not be sufficient for the work that they had to do. There was no department that had not been asked to find resources within their baselines to try and deal with the current situation. If one looked at some of these departments, the initial amount that they had requested was less than what Treasury was proposing the Committees should consider. That was mainly because Treasury had worked with the departments to find some reprioritisation that reduced the money the departments requested. Examples were the Departments of Police and Defence.

The relatively high upward revisions for Treasury were due mainly to the higher debt servicing cost of R 7.2 billion, which was in turn due to the fall in revenue and the cost of borrowing.

The President had originally announced that R50 billion would go to the Department of Social Development. When the lockdown was announced at the end of March, the President had stated that to deal with congestion, the social grants for April would be paid earlier. In March, Treasury had paid out half of the money for social grants, so that meant that the DSD would overspend in the 2019/2020 financial year, but it had received about R15 billion in money that it should not have had in the 2020/2021 financial year. Treasury had left the R15 billion with the DSD. The current amount was an addition to the R15 billion, but Treasury also had to look at the number of intakes, applications, and where Treasury was at the current moment. When Treasury looked at the numbers, it had realised that the DSD would be able to continue disbursing the funds as announced by the President. Because of the lower than expected uptake, it meant that it could still deliver the same amounts for qualifying people, but it would not cost Treasury the R50 billion it had initially estimated, but only about R40 billion. Treasury continuously worked with the DSD, and if by October it realised that it needed to revise the numbers upwards, it would definitely revise them upwards. If there was a push in the October budget adjustments to increase the budget for the DSD, then Treasury would increase the budget.

Appropriation Act – contingencies

Section 6 of the Appropriation Act 2020 enabled the Minister of Finance to approve expenditure which could not reasonably be delayed without negatively affecting service delivery and was unforeseen and unavoidable; or was announced by the Minister during the tabling of the budget in February; or was appropriated in 2019/20 to be rolled over. The Act also states that expenditure may not exceed contingencies for 2020/21 financial year. The provision for contingencies in 2020 Budget Review included the contingency reserve of R5 billion, and provisional allocations of R7 billion. The reason why one would have amounts that were provisionally allocated, was that one may find that departments were still working on costing the expenditure, so such expenditure was not finalised. In the system, one would put it as provisional allocation. Any expenditure that qualified must be approved by the Minister before the introduction of an Adjustments Appropriation Bill.

Most of the time, when Treasury put in these provisional funds, the Minister had until October to distribute the funds. What Treasury saw this time around was that the Appropriations Act was enacted on 23 June, and this new adjustments budget was tabled on 24 June. Once Treasury tabled this new Adjustments Appropriation Bill to the National Assembly, it meant that it superseded the previous Act, so the Minister could not use section 6 anymore. Treasury was asking the Committees to help it adjust the Adjustments Appropriation Bill in such a way that it enabled the Minister to still use section 6, so that Treasury could still allocate the contingency reserve and also the provisionally-allocated funds. Treasury was not asking for something that would change the fiscal framework or the Division of Revenue Bill, and it would not change the Adjustments Appropriation Bill. It was just a clause in the Adjustments Appropriation Bill that would enable the Minister to use some of the funds that were provisionally allocated. The change to the clause did not change the content of the abovementioned Bills.

The Appropriation Act, 2020, was assented to by the President on 22 June 2020, and published in the Gazette on 23 June, which was the date it took effect. On 24 June, the Minister of Finance had introduced the Adjustments Appropriation Bill in the National Assembly. Following this tabling, the approval of expenditure under section 6 of the Appropriation Act, meeting the requirements, was not permissible. When the Appropriation Bill had been tabled in February, it was not anticipated that an Adjustments Appropriation Bill would be tabled in Parliament much earlier than October 2020. The wording of section 6(1) of the Appropriation Act was based on the date of tabling in October 2020.

The inability to use section 6 of the Appropriation Act would impact negatively on affected institutions where they qualified for such funding. To enable the use of section 6 up to the introduction of the second Adjustments Appropriation Bill in October 2020, it was proposed that the Standing Committee on Appropriations (SCOA) amend section 6(1) of the Appropriation Act as follows:

“Despite any provision in any other legislation to the contrary, and before [an] the second Adjustments Appropriation Bill is introduced in Parliament, the Minister may approve expenditure, if it cannot reasonably be delayed without negatively affecting service delivery and such expenditure-“

This proposed amendment did not affect the adopted revised fiscal framework, the Division of Revenue Act, 2020, and the Division of Revenue Amendment Bill, currently before Parliament.

Credit Guarantee Scheme: Treasury update

Dr Roy Havemann, Chief Director: Financial Markets and Stability, National Treasury, gave an update on the credit guarantee scheme. This scheme was launched as part of the President’s initiative to provide R500 billion in support to the economy. The take-up was initially quite slow. In the first week, the cumulative applications that had been approved were 1 832, with about R1.4 billion in loans approved.

However, take-up had been rising. By week seven, 35 772 applications had been received, and 8 542 had been approved, totalling R11.7 billion. A further 13 710 were still being considered, but 9 956 did not meet the banks’ risk criteria, and 3 662 were not eligible

Treasury had had a lot of engagement with different stakeholders to identify what the reasons for the slow take-up were, and to see if Treasury could make changes to the scheme. It had also had a look at whether the scheme was being successful in reaching smaller businesses. There was a lot of concern that larger businesses would take up the scheme, and that smaller emerging businesses were not able to access the scheme because there was a lot of paperwork involved, and there were a lot of issues.

The majority of loans (54%) were to companies with a turnover of between R1 million and R20 million, and the average loan size was R1.4 million. This suggested that the scheme was reaching the target market of small, emerging companies. If one looked at the value of loans, about 34% had gone to companies in Band 2, which was a turnover of between R1 million and R20 million. A further 22% of loans had gone to firms with a turnover of between R20 million and R50 million (Band 3). Treasury was still concerned that a lot of the loans were rejected as a result of banks’ credit criteria, and was also concerned about the low demand for the scheme.

Dr Havemann suggested that the low demand for loans was because most companies had preferred to restructure existing debt, as the SA Reserve Bank (SARB) provided regulatory relief, rather than take on more debt. Companies were allowed to delay interest payments, and banks allowed companies to pay smaller amounts of interest. Companies were also waiting for further guidance on the lockdown before taking on more debt, which was why there were only 35 000 applications. At Level 3 of the lockdown, there had been more applications, and that was one of the reasons that Treasury had changed the design to allow for a business restart option.

Referring to design issues, he said banks often imposed ‘normal’ credit practices, despite the country being in emergency times. This had been the case, particularly at the start of the scheme, where banks’ systems were not ready. Small firms often paid salaries as ‘drawings.’ If one ran a small company, one did not pay oneself a salary, but pay oneself what was called ‘drawings.’ Initially, drawings were not allowed to be used, so a lot of people did not want to apply for the scheme.

Other factors were the slow turnaround times for approvals, and the fact that this was a new product, and initially all applications had to be approved manually.

The Minister would be formally announcing the changes to the scheme in the budget speech that day (Thursday 23 July).

Business restart loans would now be available, to assist businesses that were able to begin operating as the economy opened up. Banks’ credit assessment criteria had been aligned with the emergency spirit and object of the scheme. They would still use reasonable lending practices, but may use their discretion on financial information requirements, such as bank statements or financial statements where audited statements were not available. People who had not borrowed money from the banks before for their business – for example, cash businesses that also had a good cash flow -- were also applying for loans.

Clients could now access the loan over a longer period. The draw down period had been extended from three months to a maximum of six months. This meant a R6 million loan could be drawn down over six months, at R1 million a month.

The interest and capital repayment holiday had now been extended from three months to a maximum of six months after the final draw down. For example, in the case of the same R6 million loan drawn down at R1 million a month for six months, repayments would be required only from month 13.

The turnover cap had been replaced with a maximum loan amount of R100 million, as some companies were struggling to calculate their turnover. Banks may also provide syndicated loans for loans larger than R50 million.

The test for good standing had been made easier. This had now moved back to 31 December 2019 instead of 29 February 2020, which would accommodate firms which were already experiencing cash flow problems in February.

Sole proprietorships were now explicitly included. For sole proprietorships and small companies, salary-like payments to the owners (‘drawings’) were included in the use of proceeds. Security, suretyships or guarantees were not explicitly required.

Discussion

Mr D Ryder (DA, Gauteng) commented that between 32% and 46% of departments’ non-compensation budget was going to be reduced. What was the cost of that temporary suspension? A lot of projects would have to be put on hold, contracts would have to be extended, and there might be legal issues around contracts where they were not adhered to. What would be the cost of that?

Zero-based budgeting was now imperative. Departments were having to put about 50% of their projects on hold. This should make zero-based budgeting easier, because the Committees could have a look at what was essential and what was not. Could Treasury give an update on zero-based budgeting, what the timeframes were that it was looking at, and what the expectations were in terms of zero-based budgeting?

Regarding the COVID-19 fiscal relief, an amount of R19.5 billion had been indicated in the presentation -- could more information be given on that? Was the R3 billion for the Land Bank coming out of the R19.5 billion? Was this where the Minister would be “tapping in” to assist South African Airways (SAA)? Were there other priorities that were being looked at in terms of this fiscal relief?

Referring to section 6, which was related to giving the Minister more powers, Mr Ryder said “if there wasn’t such a trust deficit with Cabinet at the moment, I think we would be more open to this, but the reality is that the Minister is on record as saying that economic principles are secondary (even tertiary) if things are taken into account at the moment for the prioritisation of funds and so on.” He would be “most reluctant” to give the Minister powers to be able to do things without referring first to Parliament, specifically because “the wrong guiding forces are currently guiding spending patterns.”

On the 10 000 applications that did not meet the risk criteria initially, he asked if these would be re-evaluated now that the criteria were being relaxed slightly? Dr Havemann had spoken about there being a lot of people who had never borrowed money before who were now looking to borrow money, such as people with good cash flows, etc. Those people would have been able to access loan funding from the banks anyway. Now the banks were getting government guarantees to assist people further. It seemed to him that the banks were being “extremely favoured” in this regard. He was wondering if there was pricing for risk, and if the pricing for those advances had been adjusted downwards because of the much-reduced risk, not only for those that people qualified for already, but also across the board, where Government was providing guarantees.

Mr X Qayiso (ANC) asked about the section 6 request made by the Minister. He thought that it was “very proper” that the Committees accede to the adjustments in the Adjustments Appropriation Bill. He understood it to be a matter which was actually included from the onset, but due to technicalities had not been included, and he did not think it should be a problem. The request should be something that the Committees allowed to happen, because as the Committees moved forward, their main concern was to provide service delivery to all.

He referred to the postponement of infrastructure programmes raised by Dr Modise. He asked which programmes were being referred to, because infrastructure development was at the centre of the development of the economy. On the issue of food security, his understanding was that a large proportion of the South African population was living in poverty, according to Statistics South Africa (Stats SA). When Treasury talked about food security, he would ask that it look into that matter very sensitively, because it was an issue that affected a sizeable portion of the population.

Mr A Sarupen (DA) asked about the amendment to section 6. According to the correspondence received by the Standing Committee, the Minister was asking the Committee to amend the Bill. It was not a technical amendment, but a substantive amendment that the Committee needed to make. It was fine that the Committee was being asked to make this amendment, but, the presentation indicated that Treasury was adding an additional R7 billion to the R5 billion for the contingency reserve. That R12 billion looked like the amount that SAA needed. He thought that the Committees had to get some clarity as to what exactly the intention of this amount was. Were the ministers committed to not using any emergency funding for SAA? He thought that it would be morally questionable in the middle of a pandemic to use that money for SAA. In the letter to the SCOA Chairperson, the Minister of Finance had said that this was used in the past for funding the South African Broadcasting Corporation (SABC) and Denel. There was a legal opinion that using the contingency reserve for bailouts was not legal, but it had been a problem. What was the intention of these amounts, and why was it being increased to R12 billion?

With regard to the business credit guarantee schemes and loans, what attempt was Treasury making to help small business and sole proprietors, and small black-owned businesses? Many of these firms could not afford all of the regulatory compliance that South Africa had around auditing and accounting. Such things hurt small businesses. Most small businesses’ tax affairs were not in order. As a consequence of tax affairs not always being in order, such businesses probably did not meet the turnover requirements to have a significant tax burden, so they would not be able to access any funding, and that became a problem for such small businesses. What was Treasury doing with SARS to ensure that these businesses could become tax compliant to access these loans?

Mr D Joseph (DA) asked whether the Committee had the power to change the budget of the Department. At the end of February or March, it had been briefed on the process. What were the requirements for the Committee to change the budget? He was not sure if SCOA had ever changed the budget as proposed by National Treasury, but Sit would deal with that in preparation for the October adjustments. Treasury had said that it needed to follow the President’s announcements on the relief fund. Had the President consulted with National Treasury? He was sure that the President had consulted with Treasury, and that it was a standard procedure.

On the Cuban doctors, he wanted to know about an amount under Health that had had an upward adjustment, because the provinces had received doctors, but he understood from the previous presentation that doctors’ accommodation, meals and transport were not covered. With this amount that Treasury referred to now for the Cuban doctors, he wanted to know if that money would go to the provinces to cover the additional costs for the doctors.

He wanted to know about the R3 billion recapitalisation of the Land Bank. The Land Bank was a state-owned entity -- was that money going straight to the Land Bank, or did it go to the Department first and then get channelled to the Land Bank? He asked if Treasury had the capacity to monitor the R11 billion going to municipalities, or if it would call in for assistance from, for example, the Auditor General (AG) to follow that COVID-19 money specifically, so that it would go to the right places and give value for money.

He asked about the contingency reserve fund, with the R7 billion provision allocation. Did the Minister have in mind to fund SAA between now and October 2020?

He referred to the sectors that were still closed, such as tourism and hospitality, and wanted to know what percentage of the market these closed sectors represented. Although the economy was opening up and there was progress, he asked if there was interest to be paid on those repayments where companies went to banks for guarantees or loans. Did companies have to pay interest on that money?

Mr Z Mlenzana (ANC) asked about the amendment to section 6. He was interested in two issues in particular. Would the amendment have financial implications? Dr Modise had said that it would not have financial implications. Did the amendment tamper in any way with the Rands and cents of the Division of Revenue Bill? Dr Modise had also touched on that by saying it did not, so he had no reason to refuse the amendment request. However, there was the question of individuals or political parties that wanted to co-run the state, together with the ruling party. He welcomed the upward revision for Cooperative Governance of R11 billion. His question to the DG and Treasury team was whether this R11 billion covered the special COVID-19 audit. He doubted if the Auditor-General of South Africa (AGSA) was financially ready to take care of that. He whether the compensation of employees was covered in the budget. Was the R1.135 billion for taxi relief still relevant in light of the current regulations regarding the taxi industry?

Mr W Aucamp (DA, Northern Cape) asked about the comprehensive agricultural support programme grant, where R317 million worth of infrastructure projects had been suspended. The food security programme of R600 million had also been suspended. The Committees needed to look at why that had happened, as South Africa was experiencing a time where 50% of the people in South Africa would suffer some kind of food shortage. It may be wise to look into enabling people in South Africa to provide food for themselves. People needed to be able to provide food for themselves, especially if one looks at the comprehensive agricultural support programme, and the issue surrounding food security. He agreed with Mr Qayiso on the issue of food security. People needed to be able to provide food for themselves, and at this stage it was a “real concern”, especially when looking at the fact that one did not know when the pandemic would end.

It was a “big concern” that Defence’s budget was up by R2.9 billion, which was exactly the same as Health. The Committees knew that Defence’s budget was up due to the deployment of several thousand soldiers on to South Africa’s streets. Was that not distrust in the people of South Africa, when there needed to be police or soldiers out there to see that people were adhering to the COVID-19 regulations? Those funds could be better applied at the Health level to ensure that South Africa saved lives, and started to trust its people.

If one looked at the R7.2 billion for additional debt service costs, one could see that the cost was higher. That brought one to the issue of why South Africa could not have money injected into serious matters such as food security and health. Because South Africa had done things wrongly in the past, it was now paying the price for additional costs on its debt, and it needed to look into that.

He agreed with Mr Sarupen on the SAA bailout -- it did look very suspicious, and the Committees needed to get direct answers so that they knew what was going on. He did not believe that contingency reserves could be used for bailouts, and “as a government and as a Committee, we must make that clear to everybody out there.”

Mr Y Carrim (ANC, KwaZulu-Natal) said the Select Committee’s research unit had done a report, and there were three versions of it. He thought that Treasury should respond the following week, not just to what the public had said, but also to what the SC’s researchers had said. The report highlighted numerous issues that the SC should raise with Treasury, and it did not often get the time to do that. The former editor of the Financial Mail had said that infrastructure was the key to South Africa’s economic recovery. Members understood the difficulties -- who could tell what was right in this age of uncertainty and volatility? Mr Carrim said he was not trying to act “holier than thou” -- he did not fully know the answers -- but surely Treasury should give a better explanation for why key aspects of infrastructure had been foregone when these aspects were so crucial to economic recovery and job creation?

What organising principle or value did Treasury use when deciding on the difficult trade-offs.

Regarding the economic stimulus, he understood it had to give money to health, basic education, defence, police, etc. It had taken away money from agriculture, for example. It was not just a question of service delivery, but also of economic stimulation and job creation. In the fiscal framework, taking into account budget constraints, Treasury should consider making the basic income grant (BIG) permanent. He thought that the public benefit organisations (PBOs) should look into this, in preparation for the adjustments budget in October. Was it feasible from the side of Parliament?

There seemed to be some progress with the loan guarantee scheme, though the Congress of South African Trade Unions (COSATU) and the DA had written to the SC to ask for a fuller account of this. He was not sure at this stage how much progress had been made. Perhaps COSATU would respond to that tomorrow (Friday 24 July), and then those who responded could come back to the SC on Tuesday. He was not very clear on what progress had been made.

He said that if the legislation allowed for it, then section 6 had to be accepted. If the legislation did not allow for it, then the Legal Services Unit would say that section 6 could not be introduced in this form. He understood Mr Aucamp’s reservations about money going to the SANDF. While nobody supported abuses by the SANDF and police, he cautioned against saying that people were not to be trusted. It was a class issue, which mostly took a racial form. It was easier for the middle classes, whoever they were, to manage a lockdown, but if one was living in an informal settlement, or there were ten people in a house, how did one observe the lockdown? Managing the process was the role that SANDF was meant to play, not the role that some of them were playing. No-one endorsed that.

All over the world, in the established democracies, ministers argued about the budgets allocated to each other. The divisions were inevitable in a democracy, and there was nothing wrong with it. Perhaps there were too many divisions, but it was not as if the government did not operate with some degree of cohesion. It was not as if ministers had their own say. Ultimately, the President accounted for the budget, and maybe Members needed to be reminded of this process so that the same questions did not get repeated. Despite the divisions, there was one Minister of the Treasury, and one President, who ultimately accounted for the budget. He thought that the Committees needed a discussion on how budgets were handled all over the world, not least within the Republican Party of the USA with its myriad divisions.

Mr Ryder agreed with Mr Carrim about Treasury responding to the research document.

Mr Qayiso wanted to stress the issue of small, medium and micro enterprises (SMMEs). The call was for the Committees to make sure that there was complete support for the development of small businesses, which needed a lot of assistance during this difficult time. He wanted to believe that Treasury would make sure those people were covered. Small businesses were very important, because they were the backbone of the “poor people’s economy that would suffer during this period.” Government must make sure that during this adjustment process, such businesses were well-covered.

Mr Joseph wanted clarity on the short-term relief grants. Minister Lindiwe Zulu had announced on TV that the ANC was considering such grants. He wanted to know if Treasury had been approached officially, and what its view on that proposal was at the moment.

Mr Mlenzana wanted to know how far this budget was going. The Committees were now dealing with a budget that was in an emergency arrangement. Then, in October, there would be a medium-term budget statement.

Mr Aucamp asked what communication channels there were between Treasury and the provinces. He was asking because when the Select Committee had dealt with the appropriation budget -- which had just been discussed the previous day -- it was clear from the negotiating mandates that came from numerous provinces, that the issue with regard to the drought was an extreme problem for the provinces, and was high on the agenda. However, if one looked at what was going on in the budget, it did not seem like it had been addressed by Treasury and by government, to alleviate the problem that the provinces had. Did Treasury think that there was enough communication on all levels with regard to this issue? This came back to the point that he had made earlier on food security. If the provinces could provide more help for their farmers, the farming community and upcoming farmers, then there would be better food security in the country.

The Chairperson said Co-Chairperson Njadu was experiencing problems with connectivity.

Mr Njadu said he understood that the Chairperson would give him time if he needed it. He was fine in terms of questions.

The Chairperson said the Appropriations Committees were always looking at the expenditure side of the budget. The problem that South Africa was facing was economic growth, which would translate to a number of other things, including better revenue, employment opportunities, etc. In the Select Committee’s (SC) interactions with the Department, it had made observations that a lot of money was being spent in departments. However, the problem was that the departments did not look at themselves as having the responsibility to grow the economy, only certain other departments. From where the SC stood, every department had that responsibility. For example, an issue raised with the Minister of Health was that South Africa was importing many things. Everything that was imported impacted the gross domestic product (GDP) negatively. It impacted on South Africa’s foreign reserves. Why was South Africa still importing so much from countries such as China and India, which was “building other economies?” The SC had made a point with regard to the Department of Basic Education (DBE) that so much of the stationery used was imported. Such things did not help the South African economy.

One of the issues that had come up was that some of South Africa’s legislation made it difficult for certain sectors to create an environment where South Africa could localise its production. The SC had responded by saying that it was this Parliament that made the laws. The Chairperson thought that the challenge to Treasury was to identify those laws that made it difficult for others to stimulate the economy. South Africa could not always be importing things, as it had a negative impact on a number of things that the country was trying to do. The conversation on how to deal with growth had been “thin”, and the SC would like the Executive to deal with that, and if there were things that legislators needed to do, then let those things be brought to the SC. The Chairperson thought that if there was one thing everyone was in agreement on, it was that South Africa needed economic growth, and that resources needed to be kept in the country as much as possible. If there was legislation that impeded such actions, then the SC should know about such legislation, and the issues should be brought to Parliament.

Section 6 was in the Appropriations Bill, and “nobody had a problem with it.” When it was brought to his attention, he had asked a few questions. Firstly, how did it impact on the fiscal framework? It did not, the numbers were already there. Secondly, how did it impact on the Division of Revenue Amendment Bill? It did not, the numbers were still there. Thirdly, how did it impact on the Bill that that the Committees were busy with, as far as the Rands and cents were concerned? It did not, the numbers were already there. Dr Modise had said that Treasury was still working with departments on a number of things to decide exactly where that money would go to. What COVID-19 had done was to bring to light a lot of unforeseen things. Nobody knew that the government would have to make such big adjustments soon after the Appropriations Bill had been passed.

The Chairperson asked whether the taxi scrapping programme was still there. How successful was it?

He wanted to join the Members who spoke about the R2.4 billion reduction in the Department of Agriculture, Land Reform and Rural Development (DALRRD) allocation. Recent statistics showed that levels of hunger were increasing in South Africa. This reduction was working against the reduction of hunger. He would be challenging Government and Treasury to work on this when they came back with the medium-term budget framework. South Africa could not be a country where people were complaining of hunger, and the budget for DALRRD had been decreased. There had been both commercial and emerging farmers talking about the support that they needed from Government. South Africa could not afford to be a country that could not feed itself. Treasury needed to re-look at that reduction.

He asked if Mr Havemann could share with the Committees the salient features of the credit guarantee scheme. He had spoken about how the scheme worked, what it had done, etc., but not the salient features. It was clear that the uptake on the credit guarantee scheme had been very slow. The Committee had argued before about using other agencies. The Chairperson spoke about some of the DFIs and provincial development institutions being given a portion of the credit guarantee scheme so that these bodies were also able to assist. For instance, there were numerous repayment holidays, but one would find that people were getting money from the development finance institutions (DFIs), and from the development agencies which were owned by Government, and did not have the facility of a credit guarantee scheme. Since the Committee started with the process of appropriations, the Chairperson had seen figures of R100 billion, R200 billion, and the possibility of R300 billion -- could Treasury clarify how much the credit guarantee scheme consisted of?

Treasury’s response

Mr Dondo Mogajane, Director-General: National Treasury, started with the question on where the budget was going. This was a supplementary budget -- Treasury was supplementing the budget it mentioned in February, mainly because of the impact of COVID-19. It said in the budget documentation that it was a bridge that it was creating to the October budget, which was the medium-term budget policy statement (MTBPS). The budget should be seen in that context -- it was simply just adding on, subtracting and reprioritising some of the things that Treasury had said in February

On the channels of communication, there was one intergovernmental system that was functioning effectively in the Treasury space in the country, and it was a whole-team finance arrangement. Treasury engaged with provinces on an ongoing basis. It had structured discussions and structured meetings at the technical committee of finance level, the nine provincial heads of treasuries, and also an effective budget council that was functioning. The budget council and budget forum were bodies that had been established in terms of the Intergovernmental Fiscal Relations Act of 1997. Treasury was obliged to talk on an ongoing basis on intergovernmental fiscal matters. It shared many issues with provinces.

In budgeting, there was a natural contradiction that would always be there. On the one hand, there was ability to spend by spending agencies, and on the other hand, the allocations that were, or that should be, made towards some spending items. There was always a contradiction, in that Treasury would allocate, but one would find that the ability to spend effectively was not there. As a result, Treasury was forced to “look the other way” when departments or agencies requested to spend more. However, Treasury reduced in some cases where spending had not been finalised or spending programmes had not been finalised. He was not defending the reduction of R2.4 billion for DALRRD, but was saying that at a given point in time, one would find that irrespective of the need that all were aware of, there may be a need where the capacity to spend was not there. As a result, Treasury was able to take from one spending agency, and give to another spending agency, but it was not always a clear-cut process, because the “natural contradiction” in budgeting was always there.

Mr Mogojane responded on the SAA issue, saying that at the time of the budget, Treasury had indicated that it was putting aside R16.4 billion to pay lenders and for guaranteed debt, etc. That was the only allocation that Treasury had made available in this current financial year, including what it said in the supplementary budget. There was no other funding set aside, apart from the R16.4 billion. In the 2020 budget review, Treasury had said that provisional allocations were confirmed only once certain requirements had been met. In addition to provisional allocations to Eskom, the 2020 budget included provisional allocations of R7 billion in 2021, R1.9 billion in 2021/2022, and R3.6 billion in 2022/2023. These allocations were mainly for financial support to SAA and the Road Asset Management System for secondary and strategic road networks. It does not mean that these were over and above, as the Chairperson had indicated earlier.

On the fiscal framework, with the section 6 request, the fiscal framework had not increased -- the deficit did not increase. It was the same deficit that Treasury had outlined at the time of the supplementary budgets. The allocations mentioned were to ensure that Treasury paid part of the R16.4 billion that was applicable to the 2021 financial year. There was a time in December when Treasury had requested allocations towards SAA, and it had gone to the Development Bank of Southern Africa (DBSA) and got R3.5 billion. Treasury had also gone to lenders, and requested R2 billion at the time. Over and above that, there was, and always had been, a R3.8 billion amount in year 1 (2021) to repay debt. If one combined all of that, those were the allocations and resources that Treasury needed to pay towards the guaranteed debt, not to bail out SAA in any way. He confirmed that the R16.4 billion was the allocation that had been made available at the time of the budget, and was the same amount. The request was to change the Appropriations Act of 2020 that had already been passed. That was why Treasury was requesting that it be changed to make provision for the requests it had presented.

Dr Modise referred to the zero-based budgeting and the timeframe, and said what Treasury was currently working on was a framework that it would present to the Minister and Cabinet. This was a framework of what Treasury did, what zero-based budgeting was, how long it would take to implement, and how Treasury saw it being implemented. It had been announced by the Minister and approved by Cabinet, but in the conversations that Treasury had been having with Parliament, it was very clear that Parliament would like to see this proposal before it was implemented. Treasury was looking at how it implemented zero-based budgeting -- if it was possible for it to consider looking at spending reviews, and what the cost implications were. Treasury was working on how it could design a concept note to be used as a guideline to implement this. It had asked [for assistance in putting this concept note together, but this was still something that it would present to Cabinet for endorsement, and the Minister would guide it on that.

In the supplementary budget, what Treasury said was that precisely because it did not know how long this pandemic would last, and did not know the cost pressures yet, it would be unwise for it not to have a buffer that it could use to deal with COVID-19. The R19 billion had been set aside because there would be additional pressures, whether in terms of spending, job creation and preservation, and Treasury would still use that money for that.

When she had mentioned that the President had announced that Treasury was going to reprioritise R130 billion, she was saying that everything Treasury had done, it had presented to Cabinet. There were amendments that it had been asked to look at, but what it had presented was not a Treasury budget, but rather a budget that had been approved by the Executive. This budget was endorsed by the Cabinet. Treasury ran a process with the departments -- it presented to Cabinet, and then Cabinet endorsed it. This was a Cabinet budget that Treasury was presenting. It was just that the Minister of Finance had the responsibility to present the budget to Parliament and to the country.

She described how money flowed to the Land Bank: Because the Land Bank presented to Treasury, the amount of R3 billion would be in the vote of the Treasury, and then it would transfer those funds when the Appropriations Bill had been approved. Only then could the funds be transferred. The Land Bank did not get its own line item from the national revenue. It was the same with all entities -- even the money that was allocated to Eskom through the Special Bill was allocated to the Department, because the Minister and the DG of the Department remained the accountable officers for the money that had been allocated. Treasury would respond in detail to the report that had been prepared by the SCOA researchers, and it would submit that response with the rest of the documentation.

Ms Ulrike Britton, Chief Director: Urban Development and Infrastructure, National Treasury, answered questions on infrastructure, and the R11 billion allocated to local government. In relation to goods and services, a large part of the suspension was as a result of the lockdown. There was expenditure that had been planned but did not happen. Similarly, that would apply in the infrastructure space. At lockdown level 5, there was no construction activity taking place, and the Capex programmes would have started later, which meant that everything got pushed back a month or two later. Given the nature of the accounting in the national and provincial level budgets, it had enabled Treasury to predict under-expenditure on the budgets, given the delay on the start of construction at the beginning of the year. The cost of those temporary suspensions in the short-term was negligible. Where temporary suspensions did have an impact would be if these delays were shifted into the medium-term, and then one would have to push infrastructure to a later stage, and the cost of those suspensions would then impact on contracts that ran over time. The long-term economic impacts were that when one delayed maintenance or Capex programmes, such suspensions became expensive later, and that was the trade-off being made here.

The programmes Treasury was referring to when it talked about infrastructure being delayed were specifically the Provincial Roads Maintenance Grant and the Public Transport Network Grant. Treasury also had some suspensions for PRASA. This was partly related to PRASA sitting on large cash balances in its capital budget. SCOA Members would remember that when Treasury came to report on the fourth quarter expenditure of departments, and the third quarter expenditure of public entities, it had shown that PRASA was still sitting on significantly large cash balances as a result of its failure to execute its capital programme as planned. Treasury did not think that a reduction in the PRASA budget would reduce any of the outcomes or the planned Capex programmes it had going forward. What was happening on national and provincial roads was a delay in construction programmes due to economic activity that was limited.

She said the R11 billion to local government flowed through the local government equitable share, which was an unconditional grant allocation to local municipalities. These grants did have to be audited, and the AG had full capacity to audit these in the normal line of sight. This was all appropriated money, and it was within the mandate of the AG to audit that.

The taxi recapitalisation programme was a relatively small programme in the transport budget. Before the proposed adjustments, it was a R450 million programme that was largely underspent and underperformed. That was partly because the programme was demand-based, so one needed to get applications in from taxi operators, and also because the adjustments on the scrapping allowance had not necessarily changed to meet market expectations that would justify taxi operators coming into the programme. The Department of Transport had reviewed the taxi recapitalisation programme, and as a result of that had made some proposals on adjustments to the scrapping allowance that would make it more market-related, and bring more industry players into the programme.

Dr Mark Blecher, Chief Director: Health and Social Development, National Treasury, responded to the question as to whether the R283 million for Cuban doctors was going to the provinces, and said the entire amount went to the provinces as part of the new COVID-19 conditional grant. The full R2.9 billion additional allocation to the DoH went to the provinces through that grant. The new grant was created at a value of R3.5 billion, which was for boosting COVID-19-related healthcare in the provinces across a range of interventions. The DSD had not approached Treasury yet on what might happen after the short-term relief grants in October.

Dr Rendani Randela, Chief Director: Justice and Protection Services Unit, National Treasury responded to a question on an allocation made to the SANDF. The COVID-19 regulations provided for the mobilisation or release of all resources within the SANDF, some of which were medical services. In addition to that, there were engineers within the SANDF. The support to the police, to ensure that members of the public were complying with the regulations, was going to be far less. But there were other capabilities within the SANDF. For example, there were currently water purification projects, and the deployment of doctors and nurses in the provinces. Doctors and nurses had already started to be deployed in the Eastern Cape, and such personnel were ready to be deployed all over the country. He agreed that if Treasury was complying with lockdown regulations, the allocation for SANDF would have been far less. SANDF was also stepping up border guarding. At the moment, it was expected to be at all the borders.

Ms Lebogang Madiba, Chief Director: Public Finance, National Treasury, responded to a question about tourism’s contributions to the GDP. Prior to COVID-19, tourism’s contribution to the GDP was about 8%. Treasury was anticipating that that percentage would come down when the next set of numbers was released, mainly because the restrictions imposed by the lockdown meant that there were no activities.

Treasury understood that the reduction of R2.4 billion for agriculture it was a “huge” reduction, but its thinking was that given the lockdown, there was likely to be limited economic activity. If one looked at some of the cuts in the programmes, these were related mainly to the infrastructure components, such as the maintenance of agricultural colleges, etc. During lockdown, no maintenance would be done, hence the large number in terms of the reduction. Going forward, Treasury acknowledged the Committees’ request to prioritise food security. In the next round of discussions, with agriculture being key to economic growth and recovery, it would be prioritised. Small business, through the guarantee scheme, needed to be prioritised. Treasury had taken note of the Minister of Small Business Development’s statement yesterday that that Department was short of R52 billion, and it could use the guarantee system to get the funds that were needed to assist small and medium-sized businesses.

Mr Mogajane said that the BIG remained a discussion. It had not formally come through Treasury’s processes and systems. It was currently in discussions, as were many other policy discussions taking place in the country. This issue would go through the various medium-term expenditure committees, and finally those formal processes would come in, where various intergovernmental structures applied, including consultations that were necessary, before this could become something that would find its way into the budget. Currently, the BIG was not in this budget framework.

Mr Havemann responded on the loan guarantee scheme. People could reapply to the scheme.

On whether or not banks were pricing for risks, he said it was in the banks’ best interest to rather use their high interest rate products to lend, than for the loan guarantee scheme. The loan guarantee scheme had a fixed preferential interest rate, which was the prime rate. These small businesses were getting the same rate as the best customers of the banks.

Regarding the requirements of small businesses whose tax affairs were not in order, there was a turnover tax system, which made it easier for businesses to meet their tax requirements. He thought it was important that businesses were up-to-date with their taxes, or had at least filled in their taxes before they could get support from Government. Treasury had worked closely with the Presidency in all parts of the scheme.

Regarding the salient features of the scheme, there was a questions and answers (Q&A) document on the Treasury website. It would be putting out an updated Q&A either this afternoon or tomorrow morning after the Minister’s speech, which would go a long way towards explaining the scheme in a straightforward way. Treasury wanted to ask Members to encourage their constituents to know about the scheme, and apply to it; Treasury wanted to receive lots of applications.

Mr Havemann noted Mr Carrim’s point that there had been quite a lot of discussion about the scheme, and that progress had been made. Treasury had been listening to the inputs from various stakeholders across the spectrum to try and make the scheme better. This update on the scheme was an interim update, and he expected they would be able to improve it as it went along.

On interest on repayments, he said the interest capitalised, but only the interest component. One did not have “interest on interest.” When one started repaying, one would have to start paying at the interest rate, but that was linked to the repo rate. The repo rate had come down a huge amount over the last few months, and it was making it a lot cheaper for the loan guarantee scheme to be realised.

The Chairperson asked what the current salient details of the scheme were, and how much had been allocated to it.

Mr Havemann referred to a document titled: Answering your questions about the COVID-19 Loan Guarantee Scheme. The first portion of the scheme would be R100 billion, and then Treasury would see how that worked out. If there was capacity to increase the scheme by more than R100 billion, then Treasury would do that, and look at trying to prove how the scheme was designed. There was a question that had come up on the role of the DFIs. Treasury had had engagement with some of the DFIs on how they could potentially come into the scheme. The scheme was a “back-to-back guarantee” with the South African Reserve Bank (SARB), which managed the scheme and worked with the banks. Previously, only the “big six” banks were participating, but now the scheme had been extended to another three much smaller banks, which Treasury thought would help a lot in terms of trying to get more businesses signed up. Some of the small banks lent quite a lot to small businesses. The big banks lent to bigger businesses, and the small banks tended to have a larger share at the small business end of the spectrum, so it was important to extend the scheme.

Originally, it had been businesses with a turnover of less than R300 million and in good standing that had qualified. Treasury had now taken away that turnover component. Treasury had since extended the conditions that were attached to the loan, but at the time, the loan was there only for operational expenditures, particularly salaries, rent, etc. What Treasury would like people to do was to use the loan to allow them to keep paying their staff, their rent, and their municipalities. Treasury had now also configured the loan to be a business restart loan, which meant that businesses could now also use the loan to restart themselves, and to make it easier for them to operate.

All the profits came to the government, because the government was the guarantor of the scheme. The government also took the losses. The banks had numerous conditions that they had to meet in terms of their criteria. If a business that had taken out a loan closed down, the loan was treated as equity

Ms Julia de Bruyn, Chief Director: Education and Related Matters, Public Finance Division, National Treasury, said Mr Joseph asked Treasury to remind the Members of what the criteria were that the Committee must use if it wanted to make amendments to what had been proposed. The Money Bills Amendment Act said for every amendment that the Committee would like to make, it had to provide a report that indicated the reason for such a proposed amendment:

• One must demonstrate how the amendment took into account the broad strategic priorities and allocations of the relevant budget.
• One must demonstrate the implications of each proposed amendment for an affected vote, and the main divisions within that vote.
• One had to demonstrate the impact of any proposed amendment on the balance between transfer payments, capital and recurrent spending in the affected vote.
• One had to set out the impact of any proposed amendment on service delivery.
• One had to set out the manner in which the amendment related to the prevailing departmental strategic plan, the reports of the AG, the Committee reports adopted by a House, the reports in terms of section 32 of the PFMA, annual reports, and any other information submitted to a House or a Committee in terms of the standing rules or on request.
• Finally, for every amendment, one had to include the responses of the Minister or affected Member of the Cabinet to any proposed amendment.

For example, if one said that one did not wish to have the reduction to the Comprehensive Agricultural Support Programme (CASP), one would have to answer all of those questions in relation to that programme.

Mr Edgar Sishi, Acting Head: Budget Office, National Treasury, responded to questions on compensation. Members would have noted that in this supplementary budget, while there had been fairly minimal changes to the compensation numbers compared to the main budget, they must be reminded of the fact that this budget and the allocations were still based on the presumptions that the savings in the wage bill that were announced in February applied -- R160 billion over the medium-term economic framework (MTEF), of which R37.8 billion came out of the current year’s baselines. Treasury considered that that saving was “absolutely critical” to the credibility of the fiscal framework, given what it had said in the Labour Court. When it talked about the wage bill saving that was built into the framework, there was sometimes a misconception that this meant that there was a cut in the salaries of civil servants. The wage bill saving of R162 billion was not a cut in the salaries of civil servants, it was a slow-down in the rate of growth. Civil servants were still being remunerated fairly, and the past year’s remuneration had been “more than fair”; in that regard. The savings were built in, and Treasury considered the savings “absolutely essential”. Public servants were still receiving their full salaries, and were still receiving pay progression on those salaries.

Mr Mlenzana asked if there was agreement on the court arrangement regarding compensation of employees at any time soon, would there not be a need for the Committee to reconvene and reconsider whatever arrangements Treasury had adopted?

Mr Sishi answered: “Not necessarily.” He presumed that Mr Mlenzana was asking about what would happen if Treasury lost the fight with the unions. It would have a “very bad” impact on the budgets of departments. For example, the discussion earlier about infrastructure was important in this regard. Treasury considered that an important way to redirect funds to infrastructure, and make that infrastructure investment possible for economic growth, was if one was able to prevent funds from going more towards salaries. If one had to pay higher salaries, unfortunately that money had to come from somewhere. If one kept the overall ceiling the same, then one would find that money would be grabbed from other areas in order to feed those compensation budgets in departments. It was Treasury’s view that it had to do everything in its power to make sure that that did not happen, because that would affect Treasury’s ability to make those investments, which would be very bad for the economy, and for Government finances. One did not necessarily need to have an increase in the ceiling and therefore a change in the framework, but it would have a significant impact on the composition of expenditure, which Treasury did not want to see happen.

Mr Joseph wanted clarity on the accusation that the Congress of South African Trade Unions (COSATU) was making that the Minister/National Treasury was walking away from an agreement that existed. He understood that inflation was low, and that it should also, in a way, open up the economy.

Mr Sishi responded that the bottom line was that the fiscal and economic situation had been in deterioration for some time, and had accelerated now. “We were seeing a bloodbath in jobs; tragic situations in people’s earnings; people taking a pay cut of 10, 20, 30, 40% off of their incomes.” Public servants had full employment and wage protections; they had pay progressions built in. He wanted to lay out a reasonable approach to managing this -- managing public finances on the one hand, and the remuneration of public servants on the other.  Managing the issue of public service pay was especially important when South Africa needed nurses, teachers and other frontline services to be there, and it did not want to find itself in a situation where it had to reduce the numbers because it could not afford the salaries. This was something that Treasury thought was absolutely critical, and it felt it was reasonable for labour unions and stakeholders at large to recognise the dire economic situation that South Africa was in, and to recognise that with people losing their jobs, the issue of moderation in public service salaries was “absolutely critical.”

Dr Modise responded to a question on economic growth, and how to fast-track the pace of growth in the economy. Treasury had published a growth paper, and it considered the reforms in that paper were critical for moving the economy. It had done studies to try to figure out how best it could boost the economy, and it thought that what it had highlighted in the growth paper that was published with the budget review was enough for Treasury to kick-start the economy. The paper focused on “low-hanging fruit” such as regulations and other policy directions that did not necessarily need additional funding, but could be done to the departments to reduce the cost of doing business and enable the economy to grow.

The Chairperson said that the Committee was familiar with that document. He had been talking about the “things that we consume as a country, and the big-budget items -- why were we not producing them in the country?” In interactions with some of the departments, they had said that there were laws that would prevent them from producing such goods. His argument had been that they made the laws, and he did not think there was a single political party that would say they should not localise. He asked Dr Modise to comment on that.

Dr Modise responded that most of the issues that the Chairperson was raising would be dealt with in the Procurement Bill that was up for public comment. She hoped that it would incorporate some of these issues to make sure that localisation became a greater feature in how South Africa did things. Most of it could be resolved through the Procurement Bill.

Mr Mogajane said that the Procurement Bill was a good start. The sector master plans that the economic cluster was busy working on, specifically answered the Chairperson’s questions such as why South Africa could not produce ventilators, or masks in bulk. These were things that South Africa needed on a daily basis. The challenge was there for industry, and was there for various sectors. Colleagues in the Department of Trade and Industry were working flat out on this. COVID-19 had showed South Africa what was possible for it to itself, and also what was possible for it to be able to boost the economy. Where Treasury could not answer the questions in full, it was prepared to provide written responses to answer those questions.

The Chairperson asked Mr Havemann to email the document he had shared to the Committee secretaries, so that it could be distributed to the Members. He also asked that once the amendments had been made, the amendments could also be shared with the Members.

Co-Chairperson Njadu thanked the Chairperson for the opportunity to co-chair the meeting, and also thanked the Chairperson for making sure that the Committees of the two Houses were operating and working very closely, with a good relationship between them. The very detailed briefing from Treasury had been appreciated, as it had shown “sound calculations” and provided clear reasons for why funds were moved. He appreciated the Committees’ engagement to ensure proper oversight and accountability.

The meeting was adjourned.