In a virtual meeting, the Committees were briefed by the Financial and Fiscal Commission (FFC) and the Parliamentary Budget Office (PBO) on the Division of Revenue Second Amendment Bill and the Second Adjustments Appropriation Bill. Both presentations covered the reductions to the conditional grants, local equitable share and the provincial equitable share, the various budget allocations and budget cuts in different departments as well as budgetary adjustments that have been made.
Members questioned the strategy of shifting funds to financially risky spheres of government and proposed that provincial government is removed from the equation and for more resources to be allocated to local government since it fulfils the mandate of government. The budget reductions in potential economy boosters, such as Agriculture and in key service delivery departments, was concerning for most Members who asked for the criteria used in performing the budget cuts.
Members heard that that possible resolutions to the local government fiscal crisis included providing local government with more resources by increasing taxation to shift resources from national and provincial government to local government and by reducing the public service obligations on local government. The Committees were concerned about the reduced R14 million from the Letsema farmers who experience drought, and asked if there were considerations about the economic recovery plan when making the reductions; and whether the Ministers work with traditional leaders to assist communities. Members felt that the reductions in various departments call for urgent consultations with the departments by Parliament to ensure that roles and responsibilities are well understood. Concerns were raised on reductions in key service delivery departments to avoid poor people being negatively affected.
Since the announcement by the Minister of Finance on the money allocated for SAA, Members requested the definition of a bailout for clarity and expressed concern about the future of SOEs that face continuous financial challenges. On the bad condition of school infrastructure, Members asked the FFC for an overview on the announcement by the President on the economic recovery plan which includes teacher assistance job opportunities. Members felt that that there has not been enough commitment to resolving the issues and appealed to the FFC on how it can assist Parliament in addressing the issues to prevent them from resurfacing. Out of grave concern Members asked about the criteria for the budget cuts especially since the budget cut will affect vulnerable groups such as women, youth, children and people with disabilities.
Members expressed that the presentations did not provide clear solutions to the challenges that have been identified especially considering the impact of the budget cuts on service delivery and economic growth which was concerning.
Financial and Fiscal Commission (FFC) Submission on the MTBPS
Professor (Prof) Michael Sachs, Deputy Chairperson, FFC, said national government will be affected most in terms of budget allocations and it will decrease over the next three years. The mandate of national government can be seen in the decreased budgets in the criminal justice system and in the provincial governments. He said that provincial government budgets will only grow by 1% in the next three years and is below inflation because it places a burden on public consumption for services. Local government has seen fewer budget cuts and receives more allocations from the local equitable share and local conditional grants than any other sphere but it experiences more fiscal issues through unauthorized wasteful expenditure as stated by the Auditor-General. He outlined the possible resolutions to the local government fiscal crisis which include providing local government with more resources by increasing taxation, to shift resources from national and provincial government to local government and by reducing the public service obligations on local government.
Mr Chen Tseng, Research Specialist, FFC, outlined the macro-economic performance from 2001-2020, unemployment and economically inactive population change from Quarter 1- Quarter 2 in 2020 and the fiscal performance analysis from 2010-2020 and the provincial. He also presented the Economic Reconstruction and Recovery Plan.
Ms Sasha Peters, Programme Manager: National Budget Analysis Unit, FFC, presented the Fiscal Framework Special Adjustments Budget relative to the MTBPS 2020 and the analysis growth rates. She also outlined the Provincial Fiscal Framework Overview and she noted that the information on the provincial conditional grants is invalid because the commission does not yet have data on conditional grants.
Dr Mkhululi Ncube, Programme Manager: Local Government Unit, FFC, presented on the local government issues, the local government allocations and growth rates as well as the local government equitable share and conditional grant allocations and growth rates. He also provided a summary overview on the local government allocations and growth rates.
Mr Eddie Rakabe, Programme Manager: Fiscal Policy, FFC, presented the national and provincial wage bill reductions and the economic relief package as well as the health budget. The local government Covid-19 relief was outlined, the alignment of the budget to economic policy interventions and the feasibility of implementing the zero-based budget. See presentation attached for details
Parliamentary Budget Office (PBO): 2020 Adjusted Budget
Ms Nelia Orlandi, Deputy Director: Public Policy, PBO, provided the purpose of the presentation and the adjusted national budget as well as the adjustments per vote to fund the SAA. The Adjusted Compensation Budget and the declared unspent funds and projected underspending were outlined. She also highlighted the unforeseen and unavoidable expenditure and the virements and shifts within votes as well as the division of revenue, the changes to provincial equitable share, the changes to provincial government conditional grants and the changes to local government conditional grants.
See presentation attached for details
Mr M Moletsane (EFF, Free State) said on the shifting of funds from national and provincial to local government, the process will work better if the funds are directly allocated to local government from national government instead of shifting funds from provincial government. He raised concerns about the reduced R14 million from the Letsema farmers who experience drought.
Mr E Njandu (ANC, Western Cape) asked for clarity from the FFC and the PBO on the definition of bailouts for State Owned Entities and how they can be correctly classified. On the budget cuts and reductions, he asked about the criteria that were used to reduce and transfer funds.
Ms M Latchminarain (ANC, Mpumalanga Legislature) shared sentiments with Mr Njandu on the reductions and asked if there were considerations about the economic recovery plan when making the reductions. She said that Mpumalanga is disappointed with the work by the Department of Public Works in the province.
Ms M Dikgale (ANC) asked about the reconstruction and recovery plan that includes engagements with the Minister of Finance, the Minister of Economic Development, the Minister of Labour and the Minister of International Relations, and whether the Ministers work with traditional leaders to assist communities. She said that the plan must include arrangements with the people that will be affected by the plans. On the adjustments of the vote, she raised concerns on the primary school toilets that have been removed by the appointed contractors because they have not been paid by the Department of Basic Education.
The Chairperson said that every question is important and said that the issue with the school toilets in Limpopo was discussed with the Minister of Basic Education in a previous meeting. She said that the relevant MEC in the area must be contacted on the issues raised by Members.
Mr X Qayiso (ANC) thanked the presenters for the presentations and said that the reductions in various Departments call for urgent consultations with the departments by Parliament to ensure that roles and responsibilities are well understood. He raised concerns on reductions in key service delivery departments, and to the FFC, he noted that the presentation raised concerns on reductions that affect service delivery and said that poor people should not be negatively affected and that the matter needs to be closely evaluated. On the infrastructure grant, he said that infrastructure development will assist with the development of the economy and asked for clarity on why the National Treasury cannot provide performance data on the R500 billion. On the bad condition of school infrastructure, he asked the FFC for an overview on the announcement by the President on the economic recovery plan which includes teacher assistance job opportunities.
Mr D Joseph (DA) said that the local equitable share should be revisited because local government is facing more issues now than before with the current economic crisis. On the proposal raised by Prof. Sachs to allocate resources to unfunded mandates, he asked if shifting money to a specific sphere of government, given the unauthorised expenditure reports from the Auditor-General, will not be risky instead of addressing the issues of accountability, management, leader and good governance on local government first before implementing the proposal. He supported the proposal of shifting funds from national and provincial government to local government and said that the provincial structure cannot be excluded in the transfer of funds because there are people employed in provincial governments. He asked if the money is not fully used by local government would it be returned to provincial government or to National Treasury.
Mr Y Carrim (ANC, KwaZulu-Natal) said that local governments have the most NCOP Members and noted that the FFC highlighted that unfunded mandates are a fiscal problem not a financial management problem. He said that Prof Sachs is aware that the issues are not new and that there has not been enough commitment to resolving the issues. He asked the FFC how it can assist Parliament in addressing the issue to prevent them from resurfacing.
Ms N Nkondlo (ANC, Western Cape Legislature) said that work needs to be done in supporting the economic recovery plan to address the issues that have been raised by Mr Carrim and said that structural reforms need to be outlined to support the plan. On the fiscal health of municipalities and the decrease in the local equitable share, she asked what must be considered in addressing the issues and ensuring balance in municipalities. She also asked the FFC on the localised product value chain approach and said that the localisation policy is a critical problem and needs to be clarified. She asked if the regulatory and monitoring capabilities are effective. On the budget cuts to fund SAA from the Women, Youth and People living with disabilities budget, she asked about the criteria for the budget cuts especially since the budget cut will affect vulnerable groups such as women, youth, children and people with disabilities.
Chairperson Buthelezi thanked the presenters for the presentations and said that the budget cuts have a negative impact and that the presentations have not highlighted what should be done amidst the issues of budget cuts, fiscal issues and economic challenges. He also said that issues have been centered on money instead of delivering services and said that the challenges that are faced should not be money focused as well as the solutions that are provided by both the FFC and PBO. The presentations have also not highlighted what will happen to the SOEs that are constantly being bailed out with money transferred from departments. He asked for comments from the FFC and the PBO on these bailouts. To the FFC, he said that three solutions were provided for the fiscal challenges by Prof. Sachs and said that the problems are the root of an economy that is not growing. Economic growth should be the main solution to the problems for each sphere of government. He said that money that has been allocated to local government needs to be properly accounted for instead of allocating more resources as a solution. On the credit guarantee scheme, he said that less than 10% of the scheme has been distributed and that the money was supposed to assist businesses, preserve jobs and saving the revenue. He asked about what should be done differently to ensure that the scheme is effective and asked why the FFC proposed that the burden of debt is moved to provincial government. To the PBO, he asked about the impact of the savings from unfilled posts such as school infrastructure and asked about the capacity of the infrastructure for the money being shifted from departments to the Presidency. On the local government conditional grants, he asked about the impact of the reduction in the grants on service delivery, economic growth and job creation.
The Chairperson said that the specific responses to questions that have been asked to the FFC and PBO cannot be expected because the entities are present to advise the Committee on engagements with the National Treasury. The FFC and the PBO are strategic institutions which should provide analysis and advice. The Chairperson asked if studies and impact assessments for service delivery have been conducted by both the FFC and PBO and if the budget reductions have affected the assessments from happening. If assessments have been conducted, the Chairperson requested for the information to be shared with the Committee. On the R25, 3 billion budget reduction from the provincial equitable share, she asked about the impact the reduction has on the fight against COVID-19, especially in the rural areas. On the legality of the double budget adjustment, the Chairperson said that Section 43 of the Public Finance Management Act (PFMA) states that 8% of the appropriated amount may not be exceeded and asked about the total impact of the adjustments according to the PMFA and other legislative requirements. On the R42 million budget reduction from the National Health Insurance (NHI) programme, she asked how this will impact the purpose of the NHI in the lives of people and said that the reduction has affected provincial conditional grants and equitable share. The Chairperson asked if these reductions consider the rising inflation. To the PBO, the Chairperson asked for a definition of a bailout and said that 1 million people in Gauteng and KwaZulu-Natal have lost their jobs and asked for recommendations from FFC and PBO on measures that can be used to recover job losses.
Financial and Fiscal Commission (FFC)
On the definition of a bailout, Prof Lourens Erasmus, Commissioner: FFC, said that a bailout is an allocation from the annual budget to assist SOE’s that are in financial stress. On the issue of allocating more resources to local government, he said that there is a mandate to deliver services to the poor although there are issues of good governance and mismanagement of funds, it does not mean that services cannot be delivered. Governance, efficiency and effectiveness need to be ensured and money needs to be made available to ensure that services are delivered to communities. On the FFC addressing issues that have been raised by Members, he assured Members that the FFC is doing its best to find solutions to the problems.
On the removal of provinces as the middleman between national and local government, Dr Mncube said that there is a need to reorganise the state machinery to become efficient, responsive and capacitated to deliver services. The issue is beyond the removal of provincial government. On the closure of dysfunctional SOEs, he said that it is important to consider whether the state machinery is responsive and capable. On the concerns raised about the reduction of the conditional grants, local equitable share and the provincial equitable share, he said that the FFC shares the concerns raised by Members especially since the budget cuts have a big effect on vulnerable groups in society. Some of the money shifts also affect these vulnerable groups. On the criteria for the budget cuts, he explained that there is a shift to capital spending but the criteria is not clear in other areas of the budgets. If the criteria are less principled then it could affect service delivery and economic growth, so it needs to be principled. He also said that the FFC has not assessed the impact of the budget cuts on service delivery, but the budget cuts will have a long-lasting effect on service delivery and the economic recovery plan. On the economic recovery plan that will be discussed with the Ministers, he said that when the plans are drafted they must be consulted on with the affected people. Some of the plans still need to be consulted on to ensure buy-in, ownership and efficient implementation. On the impact of the budget cuts on service delivery, he added that the cuts are repetitive especially in local government because they were not expected. The Local Government Fiscal Framework and all the assumptions in the White Paper need to be re-evaluated. He said that a Parliament led process can be enforced to assist with the re-evaluation of the Fiscal Framework. On the debt burden that has been pushed to provincial and local government; he said that the budget cuts are more severe on the provincial and local sphere of government. On the reductions against inflation, he said that most figures were compiled in real-time while taking into consideration inflation because the budget cuts are deep.
On the Credit Guarantee Scheme, Mr Rakabe said that the programme design was the focus point because there was little emphasis on it when the scheme started. The credit worthiness of many businesses was assumed as high, but it turned out that many businesses have a low credit worthiness which meant that businesses could not qualify for credit. He said that there are plans in place to adjust the requirements to qualify for credit and make the process easier. A developmental approach is being drafted to ensure businesses qualify and conditions are relaxed. On the data availability, he said that the issue is not the National Treasury but the absence of an information management system. When a new programme is introduced, it should have an information management system to enable the monitoring and evaluation of performance. He said that information is not readily available for the FFC to measure the impact of the relief package and that when the FFC presented on the supplementary budget, there were various principles presented.
On the local product value chain, Mr Tseng said that instead of thinking of growth as difficult, it should be thought of as a production process with interdependencies that bring the product to market. The product value chain of the production process must be localised. He highlighted that terms have been flagged by the FFC but they have not been clearly defined such as the Export Led Growth where the value chain process was not clearly identified which led to a lot of raw materials being exported and manufacturing resources being imported in bulk, dependency as a result was created. He said that the FFC observes trends through the Auditor General reports and by understanding how the public sector works. He also said that the government has created a dependency relationship when it comes to procuring skills.
On the education infrastructure, Ms Peters said that a recent analysis was conducted on access to education infrastructure and although there have been improvements in access, it is not enough. Most schools have improved access to electricity but still experience poor sanitation especially since 16% of schools in South Africa still use pit toilets. She said that quality and safe school infrastructure needs to eb ensured and not just access to it.
On the unfunded mandates, Ms Elzabe Rockman, Commissioner: FFC, said that the matter is part of a research topic for the next submission to the Division of Revenue. The capitalisation of the Land Bank must be further unpacked on the impact to promote and broaden capital and financing for emerging farmers. She said that it is concerning that the Agriculture budget was cut during a drought especially since the sector has potential economic benefits. On the budget cuts that affect women, youth and people living with disabilities, she said that the matter is concerning because it affects vulnerable groups. She also highlighted the budget cuts to the Arts and Culture sector which impact economic growth. She said that ongoing engagements in the different spheres of government will assist in the progress of addressing issues.
Prof Sachs said that provinces should be thought of as three functions; Health, Basic Education and Housing which make up 80% of the provincial budgets. If the provinces are removed then a new delivery system for the functions must be drafted. He said that there is a political challenge in trying to resolve issues and Parliament has the responsibility of fast tracking the process of resolving the issues. He also said that the political environment has not changed but the economic and fiscal conditions have. The failure to address the issues in a timely manner will greatly affect the vulnerable and the poor in the future.
The Chairperson highlighted that some questions that were raised by Members were not responded to and that the request for the research that was conducted to be shared with the Committee was not addressed. The Chairperson noted that there was confusion with the R10.5 million and its purpose and asked for classification of the amount.
Prof Sachs said that the unanswered questions will be responded to in writing. On the R10.5 million, he said the amount is classified as a purchase to financial assets in SAA and the bigger question should be what the money is financing.
Parliamentary Budget Office (PBO)
Ms Orlandi said that for year efficiency, effectiveness and value for money have been a goal for government. The problems are not within the economy or the SOE’s but in how the business of government should operate. She also said that the problems of SOE’s should be closely evaluated to determine whether the issues involve a lack of monitoring and general management. On the compensation of employees, she said that the structure is big and has grown over the years. Government is trying to reduce the money spent on procuring external institutions to provide services. On the job procurement bill, she said that there are tenders that take years to finalize and even when they are finalized, the wrong machinery is bought and it has to be stored. She raised concerns on the budget reductions on the compensation of employees in provincial departments and said that only one department had used its savings on goods and services to cover the reductions while other departments still have vacancies. On the conditional grants, she said that only expenditure information for the first quarter was gathered especially with the Agriculture conditional grants.
Dr Dumisani Jantjies, Deputy Director: Finance, PBO, said that the two-sphere system outperforms the three-sphere system on service delivery and said that local government has a big responsibility of ensuring that policies are implemented effectively. On the issue of the bailouts, he said that there are SOE’s that have commercial and developmental mandates and that the two mandates need to be separated. On the budget reductions, he said that the question should be on what informs the budget and the allocations to various departments. On the issue of the proposal impact, he said that the proposals need to be identified.
On the presidential initiative, Ms Orlandi said that the funds have already been allocated to the various departments to create employment opportunities.
Chairperson Mahlangu said that responses that could not be provided as advice can be forwarded to the Standing Committee Secretary.
Chairperson Buthelezi said that the Committee is aware that the FFC and PBO may not have responses to some of the questions that were asked as a provision for the entities. He highlighted that some commissioners at FFC are non-executive and said that he hoped that the organogram of FFC would be shared as well as the human capital capacity of the commission. The leadership of PBO and FFC has worked well with the committee and he thanked the commissions.
Chairperson Mahlangu requested the organogram of FFC to be shared with the Committee and said that unfunded posts are not vacant. The organogram will be careful analysed, and inputs will be shared. The Chairperson sent well wishes to political parties that are running in the by-elections and thanked everyone for attending the meeting.
Download as PDF
You can download this page as a PDF using your browser's print functionality. Click on the "Print" button below and select the "PDF" option under destinations/printers.
See detailed instructions for your browser here.