Pre-Budget briefing by Parliamentary Budget Office

Meeting report

The Chairperson welcomed everyone in attendance and noted an apology from Mr E Buthelezi (ANC).

The Committee Secretariat noted an apology from Mr E Njadu (ANC, Western Cape) who will be arriving.

Briefing by the Parliamentary Budget Office (PBO)

Dr Dumisani Jantjies,  Director, PBO, said the pre-budget briefing provides information on the progress in the implementation of specific policies, the presidential priorities to be considered for future funding, an update on the socio- and macroeconomic situation in the country, and progress on the implementation of the 2020 Budget.

Dr Mmapula Sekatane, Policy Analyst, PBO, presented the policy progress and outlook, elaborating on progress on the 2020 priorities and the strategic direction for planning and budgeting. The Social and Economic Relief Package (SERP) ensured that 18 million people received grant payments and more than R57 billion has been paid to over 4.5 million workers through the special Unemployment Insurance Fund (UIF) scheme. Over R70 billion in tax relief was extended to businesses in distress and R18.9 billion in loans have been approved for 13 000 businesses through the loan guarantee scheme.

As a result of the Economic Reconstruction and Recovery Plan (ERRP), the R100 billion infrastructure fund is now in full operation and two major human settlement projects to provide homes for 68 000 households in Gauteng, has been launched. To increase local production, the poultry and sugar master plans were implemented and saw a rise in local production. The presidential employment stimulus has supported 430 000 job opportunities so far.  For the fifth priority of expanding energy generation capacity, the Eskom Social Compact was signed, and necessary regulations have been amended, and the requirements clarified for municipalities to buy power from independent power producers.

Dr Nelia Orlandi, Deputy Director: Public Policy, (slide 8 – 19), PBO, elaborated on government’s progress in improving health services. She pointed out that there was underspending with the national tertiary service grant due to delays in the delivery of equipment. However, all of the outputs for this project exceeded the targets. There was also underspending and target underperformance for the following grants: the HIV, TB, Malaria & Community Outreach Grant (which covers Covid-19); the Health Facility Revitalisation Grant; the National Health Insurance (NHI) Grant, specifically for the health facility revitalisation component; and the Health Professional Training and Development (HPTD) Grant. The HPTD grant was almost fully spent, however, there was underperformance due to slow recruitment and unachieved employment targets. There was also underspending in the Personal Services and Non-personal services components of the NHI grant. However, the department over-performed on its planned outputs in the non-personal services component.

Government’s immediate interventions towards economic growth & job creation include the implementation of the ERRP in three phases. It is difficult to report on the progress of the ERRP as monthly reports on its implementation to the Presidential Coordination Committee (PCC) are not available to Parliament. For the goal of energy security, the planned output for the development of an integrated energy plan and others have been postponed due to lack of resources. For the goal of increasing industrialisation, it is unclear whether the Department of Trade & Industry’s (DTI) interventions addressed the needs of the ERRP. For the goal of employment protection and economic stimulation, several departments are leading interventions to protect & stimulate employment. For the infrastructure development targets, 8 out of 15 new trains have been provisionally accepted for delivery under the Passenger Rail Agency of South Africa’s (PRASA) Modernisation Programme. The Department of Communication and Digital Technologies is responsible for implementing the Broadcasting Digital Migration Programme. A monitoring report on its implementation was developed; however, the quarterly performance report contained no figures. The Department of Water and Sanitation is responsible for bulk water infrastructure, which it has indicated is underfunded. The construction tender evaluations for bulk raw water projects were not ready by the planned date, resulting in a delay in awarding construction contracts. The Department of Justice and Constitutional Development recovered R2.6 million, out of the R350 million target, and R500 000, out of the R600 million target, worth of freezing orders obtained for corruption/offences relating to corruption. The Department of Employment and Labour registered 405 523 work-seekers, out of the 187 500 target, on its Employment Services of South Africa database. The Department of Human Settlements is responsible for gap housing interventions; however outputs in this intervention could not be detected in the quarterly performance report (QPR), as it does not reflect any progress on service delivery performance. The Department of Small Business Development disbursed R316 million of the R513 million for the support and maintenance of 23 254 jobs in the economy. Most of the financial support to Small Micro & Medium Enterprises (SMMEs), informal businesses and cooperatives was reprioritized to newly-developed Covid-19 relief programmes. Dr Orlandi elaborated on the outputs of respective departments responsible for the green economy, agriculture & food security, and reviving the tourism sector, as well as progress on the District Development Model (DDM).

Government’s strategic direction for planning and budgeting includes defeating the coronavirus pandemic, implementing the ERRP, fighting corruption and strengthening the state.

Dr Seeraj Mohammed, Deputy Director: Economics, PBO, presented an overview of the economic context for the development of the budget. Data on economic performance to date shows an unprecedented contraction of the South African and global economy. The South African economy has performed below the averages of the world economy, emerging markets and developing economies. While government has attempted to address the economic impact of the pandemic, global macroeconomic experience is that more stimulus is needed to support the large impact of the pandemic on South Africa’s GDP growth. The global economy may face a lower growth phase unless there is continued support for household incomes, jobs and investment. The risks of financial market stress and crises have increased. The World Bank’s 2021 World Economic Outlook report identifies key immediate policy priorities as:

• Limiting the spread of the virus,
• providing relief for vulnerable populations, and 
• overcoming vaccine-related challenges.

Ms Fatsani Banda, Economic Analyst, PBO, elaborated on the South African economy under COVID-19, the trends in household income, consumption and indebtedness, and the overall growth outlook. The South African economy has experienced major disruption to economic activity, with some of it being permanent. There has been a significant number of job losses and increase in hunger and dependence on grants. There have been large decreases key drivers of Gross Domestic Product (GDP). In the third quarter (Q3) of last year, there were some improvements in household consumption, income and debt, however, the impact of the pandemic will have long-lasting effects on household finances. The continued extra fiscal support to poor households will be essential to support wellbeing of households and grow aggregate demand for more jobs, investment & growth.

Mr Rashaad Amra, Economic Analyst, PBO, presented the fiscal framework over the medium term, elaborating on the change to the current fiscal framework, the fiscal slippage and the higher debt outlook and credit rating. Revenue collection fell significantly, and the largest contraction coincides with the strictest levels of the lockdown. The revised budget estimates are more on par with actual collection rates, which indicates a lower risk of further fiscal slippage. The overall fiscal performance to date is close to what was estimated in the Medium Term Budget Policy Statement (MTBPS). Debt performance shows a substantial increase in the borrowing requirement due to Covid-19-induced recession. South Africa’s yield curve indicates that short-term borrowing costs are likely to have decreased, which government has taken advantage of. The 2020 Supplementary Budget and MTBPS projected significant deterioration in the country’s fiscal situation, however, the budget deficit performance so far is ‘less worse’ than what was projected. Further waves, the efficacy of vaccines, the outcome of the public wage litigation and support to State Owned Entities (SOEs) presents risks to the fiscal outlook.

Dr Orlandi presented the expenditure trends for all 3 spheres of government. As at the end of quarter three, total appropriation by vote is R732 billion out of the budgeted R1 trillion. The national benchmark of spending for the first 9 months of the year is 75%. Against this benchmark, there has been slow spending in vote 1 – the Presidency, vote 29 – Agriculture, Land Reform and Rural Development, vote 38 – Tourism, vote 39 – Trade, Industry & Competition, and vote 41- Water and Sanitation. Spending above 80% has been found in vote 17 – Higher Education & Training, and vote 36 – Small Business Development.

She elaborated on the expenditure of departments at the frontline of government’s response Covid-19 response. The R124.4 million underspending by the Department of Health on consultants and advisory services will be reprioritised for the procurement of Covid-19 vaccines. The Department of Social Development’s budget was readjusted to cater for the R350 special Covid-19 social relief of distress grant. No reporting on the performance management systems of government on grant beneficiaries is available.

Less than half of provincial expenditure has been appropriated as at the end of September 2020. The slowest spending province is the North West at 43%, and the fastest spending province is the Eastern Cape at 47.2%. Provincial expenditure per sector shows that the fastest spending has been in the Health sector, and the slowest in Social development.

The operating budget spending trends for local government (LG) indicate underspending on repairs & maintenance and spending on non-priorities such as excessive catering for meetings and other events.  Municipalities rely on two main sources of revenue: own revenue and government grant and subsidies which amount to 27% of total local government revenue. The main source of local government operating revenue is property rates, and government transfers are the third largest source. Lastly, LG’s capital revenue for 2019/20 is made up of government grant & subsidies, internally generated revenue and external loans.  

Dr Jantjies highlighted that government has made progress in implementing the SERP introduced in April 2020, however, strong signs show that more support is still required to support households, SMMEs and the economy at large. It is difficult to determine the progress made in ERRP, given that interventions are capital in nature and requires more time to measure. Among the key takeaways, the District Development Model has been piloted in 3 districts (Waterberg, OR Tambo and EThekwini), there has been underspending in some of the health conditional grants for the 2019/20 year, and the role of the fiscus in stimulating the economies remains important over the medium term. There have been large declines in South African real household consumption & investment, which were key drivers of the drop in GDP during 2020. It will take more than 4-years for the economy to recover to pre- Coronavirus levels. Tax revenue collection fell; however 9 months of revenue collection outperformed expectation. Even though Government’s spending has been on average with prior year patterns, spending has been slow in Tourism, Trade, Industry and Competition, Water and Sanitation. Spending has accelerated in Parliament, Higher Education, Social Development, Women Youth and Persons with Disabilities, and Small Business Development. Spending was reprioritised for Healthcare and social services. Lastly, Covid-19 and the lockdown affected local government’s performance, with low revenue collection and further slow spending in infrastructure and capacity building.

 (See presentation)

Discussion

Mr D Ryder (DA, Gauteng) said that section 220 of the Constitution gives the Financial and Fiscal Commission’s (FFC) mandate, and subparagraph 2 states that the Commission is independent and impartial.  He expressed disappointment in the presentation and described it as one-sided. It seemed to praise the last year with very little reflection on the negatives. There was bland commentary on what has happened in the past year. There was no comment on the bond issuance and what it is costing government. There were no comments on what we can expect to see ahead of the budget.  No predictions or comments on where we are going ahead of the budget or what might be seen. There was no comment on what the sugar tax has brought in. He said there is not much to engage with, as it was an underwhelming presentation.

The Chairperson said that in a discussion with Mr Buthelezi, it was suggested that the Committees receive a post-tabling budget briefing, after the Minister has tabled the budget, instead of a pre-budget analysis. This would enable the Committees to receive more information on what the implications of the budget are.  

The Committees will have to reach a collective agreement on the proposal, as it rearranges the current format of the Finance portfolios’ approach. This will first be discussed with all 4 chairpersons responsible for Finance matters in Parliament.  

He added that Economics is a social science and it depends on one’s viewpoint of society, unlike factual sciences like the natural sciences. He requested that in as much as Members criticize, they should acknowledge the work and efforts of the PBO and its qualified staff members. He stated that an evidence-based presentation was given.

Dr Jantjies replied that Members’ concerns have been noted by the team. He explained that the purpose of the pre-brief is to give the socio-economic and fiscal context for the budget. It is not about the normative economic analysis with estimations. However, if Members feel as though commentary on budget predictions will add value to the Committee performing its oversight duty, then PBO can try and include this in future pre-budget briefings. The PBO appreciates the Committee’s guidance as it exists to support the Committee. Members can elaborate on the areas of focus it would like the PBO to analyse.

Mr Ryder said the presentation has not empowered anyone to comment on the budget the next day. There was no comment on the funding for vaccines, if more funding for South African Airways (SAA) was needed, and whether the recent 15% increase by Eskom has made it self-funded or if it would still need assistance.

Closing remarks

The Chairperson, in closing, thanked everyone in attendance.

The meeting was adjourned.