2021 Division of Revenue Bill: FFC & PBO briefing

Standing Committee on Appropriations

09 March 2021
Chairperson: Mr S Buthelezi (ANC)
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Meeting Summary

Video: Standing Committee on Appropriations, 09 March 2021

In presenting on the 2021 Division of Revenue Bill, the Financial and Fiscal Commission (FFC) presentation revealed that the total national appropriation was reduced by R2.3 billion and provincial equitable share and conditional grants were adjusted downwards by R50.3 billion and R2.2 billion respectively.

The budget made provision for a total of R1.5 trillion and R356 billion in provincial equity share and provincial conditional grant allocations for the 2020/21 Medium Term Expenditure Framework (MTEF) period. The total provincial conditional grants allocation amount of R115 billion was an increase from R110 billion for the 2020/21 financial year. During the 2021 MTEF, municipalities are set to receive R143 billion as direct conditional grants and R24 billion as indirect conditional grants.

COVID-19 interventions were mainly implemented by national government and R10 billion was allocated for the interventions. The COVID-19 pandemic adversely affected the viability of many municipalities and exacerbated the inherent challenges related to fiscal, governance and service delivery. There are challenges to citizens’ access to basic services such as water and sanitation yet total transfers to local government decline by 2%.

A steady decline was recorded in basic serviced infrastructure and capacity building transfers.

The Parliamentary Budget Office (PBO) presentation made the following highlights; South Africa was ranked 114 out of 189 countries on the Human Development Index (HDI) and 93 out of 162 countries on the Gender Development Index (GDI). The pandemic worsened the already high levels of poverty in South Africa through loss of employment and income.

According to the MTEF estimates represented by a pi-chart, showed that 49.5% of allocations will go to national departments, 41.5% to provinces and 9% to local government.  For provinces, 81% of the share will be in conditional grants both direct and indirect and the 22% will be in equitable share. With local government, 56.5% will be in equitable share, 38% in conditional grants and 10.6% as general fuel levy.

There was improvement in provincial and local governments’ social and economic development indicators over the last decade up to 2019. However, there was a regression in certain indicators such as the number of households with access to piped water.

It was also presented that concerns have been raised on the fact that the current fiscal framework for local government makes it difficult for municipalities to balance their revenues with expenditure responsibilities. A proposal is on the table to review the framework.

Members were interested in knowing the extent to which the 2021 budget would contribute to achieving the National Development Plan (NDP) and Sustainable Development Goals (SDG) targets.

Members were concerned about the state of the infrastructure especially for water and sanitation. It was stated that the infrastructure in the country has deteriorated and there has not been any emphasis on the maintenance of the infrastructure. The Committee recommended putting in place measures to maintain the existing infrastructure as opposed to setting aside a budget for new infrastructure.

The Committee was concerned about the fact that local government continuously relies on National Treasury for funding yet it is supposed to be attracting investment and moving towards self-sufficiency.

Members were concerned about the under spending that was happening at all levels of government in spite of budget allocations. The Committee regarded under spending as a crime against the people of South Africa which needed to be addressed. The concerns were largely based on the fact that money was not being spent yet there was no performance in terms of service delivery.

The Committee emphasised the need for departments to be held accountable to ensure there is effective delivery once the budget is released.

Meeting report

The Chairperson welcomed Committee Members to the meeting. He indicated that the Financial and Fiscal Commission (FFC) and the Parliamentary Budget Office (PBO) were going to present on the 2021 Division of Revenue Bill.

He invited the FFC team to brief the Committee on the 2021 Division of Revenue Bill.

Presentation by the Financial and Fiscal Commission

The FFC team was led by Prof Michael Sachs, FFC Deputy Chairperson.

It was presented that the 2021 budget is purposed to strike a balance between economic recovery and restoring public finances.

The total national appropriation was reduced by R2.3 billion. Provincial equitable share and conditional grants were adjusted downwards by R50.3 billion and R2.2 billion respectively. COVID-19 interventions were mainly implemented by national government and R10 billion was allocated for the interventions.

The budget makes provision for a total of R1.5 trillion and R356 billion in provincial equity share and provincial conditional grant allocations for the 2020/21 MTEF period. The total provincial conditional grant allocations amounted to R115 billion which was an increase from R110 billion for the 2020/21 financial year.

The COVID-19 pandemic has adversely affected the viability of many municipalities and has exacerbated the inherent challenges related to fiscal, governance and service delivery. There are challenges to citizens’ access to basic services such as water and sanitation. Total transfers to local government will decline by 2%.

During the 2021 MTEF, municipalities are set to receive R143 billion as direct conditional grants and R24 billion as indirect conditional grants.

A steady decline was recorded in basic serviced infrastructure and capacity building transfers.

The Commission concluded by calling for active engagement to ensure the alignment of economic policies and planning towards achieving the National economic reconstruction and recovery plan.

The Chairperson thanked the FFC team for the presentation and opened the floor for discussions.


Ms D Peters (ANC) thanked the FFC for the presentation and also for raising some important issues. She reiterated that from the presentation, it had been stated that a study done in Gauteng by the FFC revealed that national and provincial governments are not giving local governments the necessary support. She recalled that when the South African Local Government Association (SALGA) briefed the Committee, it was stated that there is a lot of political interference in the local sphere of government. She asked if national and provincial governments are to support municipalities, will that not be regarded as some big brother attitude and also confirm that there is too much political interference in local government?

She said considering the fact that the bulk of workers’ income is spent on transportation, was it good and fair for there to be Integrated Public Transport Network (IPTN) delays? She asked if it was fair on workers for the projects on the Provincial Transport Network (PTN) to be delayed. The delays were happening despite the issue of under spending that was raised by National Treasury. It was therefore important for relevant stakeholders and Departments such as the Department of Cooperative Governance and Traditional Affairs (CoGTA), the Department of Transport and the Presidency to intervene in the situation.

Ms Peters raised the following questions; after having analysed this year’s budget, does the FFC think that the country is gravitating closer or away from meeting the National Development Plan (NDP) vision of 2030, or the Sustainable Development Goal (SDG) targets? Do you think that in the time frame stipulated, the National Health Insurance (NHI) and the District Development Model (DDM) are achievable based on the budgets that have been analysed? She said it was important to raise those questions as they are related to the support that FFC had presented on.

She noted that most municipalities in the country have serious water related challenges. On the news, it had been stated that the Nelson Mandela Bay Municipality was facing water and sanitation related challenges. Concerns have been raised on infrastructure related challenges yet water is a human right essential for living. She asked if the provincial and local government equitable shares were adding to the challenges and the deterioration of key infrastructure in water, sanitation and electricity in municipalities.

She referred to slide five of the presentation which stated that the equitable share and additional grants were adjusted downwards by R50.3 million and R2.3 billion respectively from the 2020/21 Division of Revenue Bill. She asked for the implications of the downward adjustments and possible actions that government has to take to minimise any adverse impacts on service delivery and livelihood. She asked if the FFC could cite key service delivery areas that could be affected by the adjustments that had been presented to the Committee.

Ms Peters raised the following questions; what are some of the programmes and projects that should be postponed over and above the indications by National Treasury on the IPTN? Which projects and programmes are likely to suffer as a result of the downward variation to the three spheres of government?

Mr A M Shaik Emam (NFP) indicated that a lot of emphasis has been made by the President and the Government on the role of infrastructure development in boosting the economy. However, there has always been a serious challenge with implementation. He reiterated that the water infrastructure in the whole country is crumbling. The infrastructure is so bad that the country is losing 45% to 50% of water at any given time and over a period of time, it will become progressively worse because no emphasis is being placed on maintenance of the existing infrastructure. He stated that there seems to be a lot of problems regarding the maintenance of existing infrastructure.

He said most people rely on public transport and yet the quality of services provided leaves a lot to be desired. The problem emanates from the fact that the different structures responsible for these problem areas are not coming to the party. They are not efficient enough. So, while National Government has the plan, the implementation at other spheres of Government seems to be a serious problem and there has to be some kind of intervention.

He raised concerns with the NHI and its impact. He said no one seemed to be paying attention to the NHI yet there is a crisis that is looming that no one is talking about that will result from the budget cuts and it will be in higher education particularly nurses.  Prospective students have not received any monies and it looks like the Department has no money and is still talking to Treasury. It becomes a looming crisis because the deadline for registration is closing in albeit the two weeks extension recently announced. He emphasised that Government needed to be cautious when making grant undertakings given that, already the country has a lot of people that are socially dependent on grants. He reiterated that there shall come a time in which Government will not be able to pay the staff unless jobs are created rather than making more people dependent on social grants. He said the situation was becoming unsustainable.

Mr Shaik Emam also added that he liked the idea of zero-based budgeting because that is where the crux of the problems comes from. The people of South Africa are not part and parcel of the process because the Government makes those decisions for them. He asked if there was capacity because the people that are supposed to be budgeting have not planned anything and this is the reason why they are always caught off-guard when resources are made available. He raised the following question, do the people budgeting suddenly have the capacity to change the zero based budgeting given how long it is going to take to capacitate them?

He highlighted that the NFP has been one of the parties that have been pushing for the District Model but from a different perspective. He said that the NFP suggested that government should do away with provinces and have a two tier government system made up of the national and district levels of government. The two tier system would save a lot of money and enhance effectiveness. However, it seemed as if the country was moving into a four- tier system of government which will have greater impact on the fiscal. The four-tier system will create more expenditure yet there is constant talk on cutting down expenditure. He asked if FFC was not concerned about that, given that it seemed as if the FFC was actually heading towards the four-tier system.

Mr Shaik Emam indicated that he had problems with local government which he previously indicated to SALGA. He said not enough is being done by local authorities to try and make themselves self-sufficient and independent. Local authorities cannot continuously be relying on National Treasury and the revenue of the people they are not even providing services for. Given the high levels of unemployment, municipalities need to be self-sufficient by attracting investment in businesses. Also, rural municipalities should be transformed into semi-urban municipalities. However, the local authorities need to take the initiative. He stated that FFC was going to run into trouble as long as there is reliance on other spheres of government to support local authorities. For that reason, a federal system would be better.

He raised concerned with the impact of the budget cuts in security and defence especially given that the levels of crime are increasing in the country. He reminded FFC of the protest actions taking place. SAPS already has a major problem and the budget cuts are going to adversely impact the Department. He said the public service and unions were not going to allow FFC to tamper with the public sector. The plans presented are great but unless everybody comes together they will not be achievable. Therefore, the Committee should be briefed on how FFC is going to be able to achieve the set plans in the public sector.

Mr O Mathafa (ANC) thanked the presenters for a sterling job in presenting their views to the Committee. He asked if FFC considered the budget and the Division of Revenue Bill to be aligned to the Presidential goals and objectives as articulated in the SONA particularly as it relates to the sphere of local government. His questions were, do you as the FFC also think that the that the Division of Revenue Bill has fully considered the impact of COVID-19 on the revenue generation capacity at local government and that it is assisting in mitigating whatever effects felt as a result of the pandemic? How can we as Parliament and maybe by extension the National Treasury assist municipalities to ensure that their revenue generation measures are extra-ordinary given the tight fiscal space that we find ourselves in as a country?

He referred to slide nine that highlighted fluctuations on the annual Medium Term Expenditure Framework (MTEF) forward estimates and how that might create uncertainty and undermine the integrity of the MTEF. He asked if these fluctuations were justified. He asked the following questions, what factors could have been responsible for the fluctuations? Having looked at the Division of Revenue Bill particularly the allocation to municipalities, are these likely to reduce or intensify the challenges of unfunded mandates that are prevalent especially at municipal levels?

Mr Mathafa noted that on slide 15, FFC suggested that municipalities should strengthen their revenue collection. He asked what would happen to those municipalities that lack resources to invest in basic systems of accountability and reporting, perhaps smart technologies as well that will assist and enable Municipalities to collect those amounts due to them as part of their revenue collection strategies.

Mr X Qayiso (ANC) raised questions on the wage bill. His questions were how does the FFC foresee any eventuality that could arise with a matter that is being handled at the level of the court? Would that have an impact on the division of revenue?

He noted that there was an issue of the steady decline in the basic service infrastructure yet FFC also talks about economic recovery. He said there is a budget that is set aside for infrastructure but he was not sure of how it relates to the decline in the basic service infrastructure. FFC had to brief the Committee on that issue as it is important for economic recovery.

The Chairperson thanked the FFC team for the presentation. He said there is so much reliance that was put on the R500 billion COVID-19 scheme and he wanted to hear from FFC if the scheme worked. He asked if FFC could do a critical evaluation of the scheme on what can be done better to try and deal with the impact of COVID-19 for which it was initially intended.

He noted that FFC had made the point that the provincial equity share formula does not respond to the challenges on the ground. The Chairperson asked the following questions, what must be done to make it responsive? Have you shared that with National Treasury and what has been the response? The Committee could conclude that the formula is not responsive, a conclusion that could be valid but there was need to highlight on what needs to be done to make it more responsive and also the actions taken by National Treasury.

The Chairperson indicated that there is an argument that says that the division of revenue among the three spheres of government is very mechanical because whether it is at national, provincial or local, the money must be spent on some locality. As a result, the emphasis on the percentages that go to different levels of government is criticised for being overemphasised or being mechanical because at the end of the day, there is no province or national that is hanging somewhere. All the money must be spent at a certain local government. He then raised the following question, what do you as FFC say about that and where exactly is the problem when it comes to that?

He highlighted that FFC had not said much about the District Development Model (DDM) yet it was important to talk about since there is so much emphasis on how the DDM can be a solution to the problems currently being faced at local government level. He asked if it was because FFC has no faith in its outcome. The Chairperson invited FFC to comment on the DDM even if the comment would be in the form of a critic. The Committee needed to hear what should be done better to make sure that there is maximum impact.

The Chairperson stated that the FFC had made a proviso that the company decreased income tax to be revenue neutral. How is that possible? Can you please elaborate more on that? When tax decreases in the private sector, there is always an assumption that the money that SARS is not receiving should be reinvested in the economy so do we have faith in that actually happening?

He highlighted that so much time is always spent on the allocation of money when dealing with the Division of Revenue Bill among the three spheres of government but year in year out, quarter in and quarter out, one thing that the Committee is confronted with is the inability of departments to spend money with obvious consequences to the economy. He asked what the problem is and the solution to the identified problem. He said Government can allocate money which might be necessary but not sufficient condition to make sure that at the end of the day the citizens receive the service delivery they are entitled to. Whenever the Committee deliberates on the quarterly expenditure, the findings are always that at the end of the year, money is being allocated but unspent. That is a big concern for the Committee and the FFC needed to brief the Committee on what the problem is and the solutions thereof.

He asked if local governments have been able to localise the economic reconstruction recovery plan and if so, how and if not, how can the Committee intervene to ensure that the plan is localised. He said the problems currently being faced are supposed to be temporary interventions. The medium to long term solution is an economy that is growing. An economy can grow if all levels of government and economic agents participate in the growth of the economy. His question was do you think local government has been able to localise the economic reconstruction recovery plan as pronounced by the President?


Mr Cheng Tseng, Research Specialist, FFC, thanked the Committee for the questions. He indicated that the traditional approach to tax revenue neutral adjustment has always been to observe the tax buoyancy which is about how the Gross Domestic Product (GDP) changes or how growth affects tax revenue collection. However, there was a shift in thinking from tax buoyancy to tax elasticity of revenue due to the declining economy. What that means is that the tax rate is changed looking at how that might decrease or increase the tax revenue in total. This is so because there might be a situation where even if the tax rate is decreased, the tax base will increase through growth. The elasticity between the tax rate and the tax revenue is in such a way that one might be able to tease out more revenue than by the traditional way which says in order to get more revenue, there must be an increase in tax rates.

He highlighted that apart from data update, there was also the issue of the quality of the update which was essential for making the provincial equitable share more responsive. The most recent data update was done around the 2017/18 financial year and implemented in the 2018/19 financial year. During the update, there was a move from student enrolment numbers to unit tracking where one combines data set with the Home Affairs system for ID number tracking. The tracking system makes it possible to locate students rather than doing a survey with the Principal of the school. That quality update will make the provincial equitable sharing more responsive because the quality update helps FFC move away from potential duplication and migration issues often involved when dealing with students.

Ms Elizabeth Rockman, Commissioner, FFC, recalled that last year, the FFC had indicated that it would suggest that the Committee looks specifically at the way provinces are prioritising budgets and also the impact of projects and programmes. She said the impact will be noticed when regard is given to accruals and payables that the provinces will be disclosing at the end of the financial year. The FFC suspects a significant increase in accruals and payables as a result of reprioritisation decisions. The decisions were not necessarily bad but the impact of the Covid-19 pandemic has been significant on some provinces. She recalled that a report on the outcomes in the Eastern Cape province that had been circulated the previous week indicated quite an increase that the province expects in accruals and payables as well as the impact on the thirty day payment. The thirty day payment period does have a substantial impact on small businesses and the impact was worsened by the pandemic.

She highlighted that it was safe to assume that there may be delays in achieving some of the NDP and SDG goals, however, there is a need to look at the remedial actions or strategies to be put in place to make up for the lost time.

Ms Rockman said the issue of local government and oversight is an interesting one but there historically has been a challenge and any action taken by the national or provincial government can be seen as big brother interference. She stated that there have been many court cases even in the Free State province in which the local council is at war with itself and does not take advice from the MEC of Cooperative Governance. That resulted in a court battle. The local council lost the case and now there is the issue of costs hence there is need to draw the line. She indicated that the role that political parties play in supporting the caucuses is a factor that needs to be taken into consideration.

She noted that there were problems with the Public Transport Network Grant but the problems were not limited to the grant only. The problems might be related to the broader transport sector because provinces also experience the same challenges with regards to the Provincial Roads Maintenance Grant. There is need to look into the transport sector broadly to ascertain whether the issue is of capacity when it comes to implementation or that of conceptualising the projects and programmes to be implemented. She agreed with the Committee that people are spending so much money on transport and the transport issue needed to be prioritised. However, it was not an issue that could be isolated to local government level only as it involved the whole sector.

She indicated that there was need to look at the efficiency ofgovernment’s spending regarding infrastructure for water and sanitation. Government has invested in new infrastructure and maintenance of existing infrastructure; and the same problems as in the transport sector are encountered. She said there was need to investigate the challenges to infrastructure investment to ascertain whether it is a capacity issue at implementation level or not. She emphasised that quite a substantial amount of money had been spent on water and sanitation with very little results as the challenges are still ongoing. As a result, there was need for a broader focus.

She pointed out that the relationship and engagement between the water boards and local governments seem to leave quite a room for improvement, be it on inter-governmental fiscal relation or practical issues such as project management. It therefore is something that deserves to be looked into.

Prof Trevor Fowler, Commissioner, FFC, thanked the Committee for its engagement. He stated that the key issue on infrastructure that needs to be looked at is that there is always a balance between new expenditure and maintenance of the infrastructure. Historically, since 1994, given the imbalance in investment in infrastructure in the townships, there has been effort to try and put new infrastructure in place. Now, 25 years on, there is a need to ensure that the infrastructure that has been put on the ground is maintained. However, that balance has not yet been reached at many levels of government and that is one of the key areas where focus is required to ensure that there is maintenance. Cost effectiveness has to be looked into by both provincial and local government.

On the R500 billion COVID-19 relief package, Prof Fowler said studies have shown that the impact of the R350 has been significant in addressing the impact of COVID-19. The concern has been that once the government provides the R350, how does it ensure that the packages are maintained in the long term. The problem emanates from the fact that the pandemic is likely to be there for some time and beyond the money set aside, how is government going to provide for the packages given the impact the money has on communities.

He noted that the DDM was presented by the President and both SALGA and CoGTA have managed to look into it. The changes that were discussed in the initial model require both legislative changes and implementation. The conceptual understanding is that all spheres of government would provide to the district the investments they are making at local level and the impact of those investments. However, that process is not happening currently. It is a requirement for the local municipality to provide in its Integrated Development Plan (IDP) the type of investments that are required and if the municipalities are diligent, they will speak to the other spheres of government to find out what is being invested in those areas so as to ascertain the impact of such investments.

He stated that a collective effort by all spheres of government to address the issue of the DDM is required with particular focus on how the infrastructure will be rolled out and the timing of that. The efforts should be aligned to the overall plan and perhaps, the provincial and municipal government have to avoid spending by one Department. He gave an example of the Department of Communications. The Department put in place legislation that said local government does not need to be consulted when putting in fibre cables. During the process of putting down cables, roads are torn up and local government is then expected to go and try to fix the damage. The Department chooses to follow that route when there may be other methods to achieve the same objective but with lesser impact on infrastructure such as putting the fibre cables through the sewerage lines.

Prof Aubrey Mokadi, Commissioner, FFC, agreed with the point raised by Members that under spending on infrastructure is a recurring question. He said FFC identified under spending as a big issue and a study was launched to look into the issues of leadership which are believed to be critical in unlocking the problem. The FFC found that lack of leadership was part of the reason why there has not been efficiency and capacity with regards to spending on infrastructure projects. It for that reason that certain projects have been identified as samples to show how leadership has undermined performance. The hope is that after leadership strategies are changed, FFC should be able to resolve the problem of under spending which is critical to service delivery.

He indicated that the National Student Financial Aid Scheme (NSFAS) issue is quite difficult. Free higher education was introduced recently and that led to an influx of students who normally would not have thought of going to university. That led to an increased number of intakes thus putting pressure on NSFAS funding. Also, the economic meltdown as a result of the pandemic led to a change in the economic conditions of many families. Some families or students who normally would not qualify for NSFAS ended up qualifying as a result of the economic meltdown thus putting a strain on the funding system.  Thirdly, universities ended up having to extend their academic years and introduce online learning due to the dysfunctions caused by the pandemic. All these factors had not been planned for as they could not have been reasonably anticipated. He agreed that the situation had become very unsustainable although it serves as a learning curve for the future.  

Prof Sachs highlighted that he wanted to use the budget for defence as an illustration of what needs to be factored when processing budgets. He said the biggest part of the defence budget is for what is called the landward defence which is presumably for the army. The landward defence budget in 2020 was R16.6 billion and in 2017 it was R16.7 billion. The landward defence has had the same budget in three to four years meaning whatever increases in salaries, petrol costs and consumables were not accommodated for in the budget for four years. As a result, the Department had to squeeze the budget for that period.

He stated that the budget for landward defence for 2021 was reduced to R14.5 billion. The questions therefore become, given the conditions that the country is facing, is it appropriate for the Defence Forces or the army’s budget to be reduced significantly like that? How is Defence going to accommodate that reduction? Is the Department going to stop recruitment or retire some of the older officers? What really is the plan? He indicated that if there is no plan to accommodate the downward adjustment by R1.5 billion, then that would have consequences for government and the society. The assumption is that the budget is not from the Department of Finance or National Treasury only, rather it is the budget approved by the whole of Cabinet. He stated that if Defence decides to suspend the recruitment of new soldiers that would close the avenue through which the unemployed youth of South Africa were able to get jobs. That would put pressure on the other parts of the system such as technical colleges and social grants. So, however the Defence Forces responds to the issue will have consequences and this is just as example since most budgets were cut.

Prof Sachs highlighted that all budgets are being reduced with few exceptions such as the presidential unemployment stimulus. Capital budgets and capital spending are the least cut, so is the equitable share for local government. The really big cuts are for the large core areas of provision for government that employ lots of people and that is Defence, the Criminal Justice System, Basic Education and the Health systems. So, Local Government and capital expenditures have been cut but are the least cut when compared to other areas mentioned. The point therefore made in respect of the army applies to all the other core areas that were significantly reduced. Therefore, there is a need for an interrogation on how these systems will adjust to the adjustments.  

He noted that according to estimates by National Treasury, the 2021 budget for learner educator support materials such as textbooks and stationery is lower than it was in 2019. In 2019, the consolidated budget for all provinces was R5.3 billion and in 2021 the estimate is R5 billion, which is R3 million short. This year, the school system will be facing enormous challenges as it tries to reconvene in a Covid world and it will be doing so with a lower budget than it had two years ago. He emphasised that such a situation had grave consequences for the system. 

Ms Rockman highlighted that in 2020, apart from the annual submissions, the FFC did look at the NHI and highlighted the benefits of using a demand based approach to pricing and costing of healthcare services. The findings were that if an appropriate demand based approach is used, the extent of coverage and benefits will create more efficient packages. The FFC also highlighted the lack of reliable data for work to continue in that regard and also that certain aspects of the NHI Bill required further strengthening and elaboration. Clarity on the tax structure reforms is required to support the implementation of the NHI and the alignment with the National and Provincial legislative framework and inter-governmental arrangements.

She indicated that the NHI was one of the areas that the FFC should take further based on the budget as tabled this year because it impacts on the recommendations that were made last year. However, with Covid and its impact on the health system, the NHI was placed on the back bench and now it might be appropriate to bring it forward and carry on work in that regard.

Mr Tseng recalled that he had already emphasised the need for data to be available to drive the demand-based package. He said recently because of Covid-19, the issue that FFC first identified in terms of the budget allocation is that part of the performance of the NHI requirements as a programme of the National Department of Health (NDOH) is the registry. Despite the existence of the registry, there is a need to have yet another data system. The question becomes, why is a need for reorganisation and reallocation of funds for something that is supposedly there?

He said the issue of the registry is closely linked to the department’s inability to spend very quickly. There is a lot of emphasis on the fact that planning is important and that is what the budget is for as a policy and planning document. However, there is need to be more focused on the execution of the plan and that is something currently lacking.

He indicated that FFC had previously announced its concerns with the zero-based budgeting particularly with where the zero is. He said the zero could be at fiscal level where one talks about rights revenue equals expenditure. But, when it is in respect to the division of revenue or the appropriation level, then it will be the budget figure and the budget figure does not break the budget baseline. The baseline is related to other right parts, organs and services of government. So, the zero is really is not identifying where and how government can come to that figure and where the problem is. It is difficult to achieve anything given the budgeting process, the cycle and environment the country is currently in economically.

Dr Mkhululi Ncube, Programme Manager: Local Government Unit, FFC, said the FFC is raising the issue of the public transport network grant for oversight purposes. There are some cities that are lagging behind and losing from the grant and the challenge is for the committees such as the special committee on appropriations to ask the Department to explain what is being done and the particular reasons why those identified cities are lagging behind.

He indicated that the FFC had similar concerns with the decline of the local government equitable share. If there are reductions in the equitable share, maintenance will suffer the most and the issue has been raised for oversight purposes. The Committee should look at some of these municipalities or sectors to check whether they are adequately maintaining the infrastructure.

He agreed with the Committee’s suggestion that there is a need to make local government self-sufficient. He said there is a need to push more municipalities to be self-sufficient, independent and financially viable. However, it is important to be cognisant of the fact that there are minority municipalities that will never be self-sufficient in the short-medium term because their revenue bases are very thin and they encounter other challenges. The purpose of the division of revenue and transfers is to assist those particular municipalities that cannot be self-sufficient. Also, it is important to recognise that municipalities have other purposes besides being financially viable. Municipalities are instruments of bringing government to the people and those aspects also need to come out rather than just pushing the municipalities to be self-sufficient.

The Chairperson thanked the FFC team for the responses. He indicated that it was obvious that the issues being dealt with are not easy and there was not enough time to exhaust all of them.

He reiterated that the solution to the problems is inclusive economic growth and had asked if local governments had taken into consideration that one of their responsibilities is to contribute to economic growth. He said localising the economic reconstruction recovery plan was something to really look into.

The Chairperson asked FFC to carry out research on the following questions, what are the bottlenecks at local government level? What can be done not only to make them viable but also to ensure that they contribute to economic growth? He said economic growth is a national responsibility meaning that it is not just for national and provincial government but also for local government. He gave an example of water licences. The processes are done at all other levels of government but at the end of the day, local government is where it matters the most. There is therefore a need to assist local government to deal with the challenge and not just look at equity share. He asked how local government can participate in economic growth so that government achieves the set objectives.

Prof Sachs said FFC will carry out the research and revert to the Committee in the coming weeks.

Mr N Kwankwa (UDM) expressed that when Prof Plaatjies was still alive, he used to complain that the recommendations of the FFC were either not adopted or taken seriously by government. He asked if it was still the case or not. He also asked FFC to give the Committee indications of the recommendations that were made to government and a breakdown of those that were either adopted, implemented or ignored. He said it was a matter that the Committee needed to raise with government because there have been discussions over the years concerning the same issues yet there seems to be little or no progress on the part of the entities of government involved.

Prof Sachs promised to provide information to the Committee on those recommendations.

The Chairperson thanked the FFC team for the presentation and invited the PBO to present on the 2021 Division of Revenue Bill.

Presentation by the Parliamentary Budget Office on the 2021 Division of Revenue Bill

The presentation was led by Dr Dumiso Jantjies, Director: PBO, and Dr Nelia Orlandi, Policy Analyst: PBO. It was stated that the presentation was to provide an analysis of the Division of Revenue Bill so as to assist Members with discussions on the Bill before its adoption.

The 2021/22 financial year reimburses departments, provinces and local government for adjustments made towards the Covid-19 pandemic. The outer years of the 2021 MTEF were adjusted to achieve fiscal consolidation and reduce the deficit. For each year of the 2021 MTEF, provincial equitable shares amount to 523.7 billion; R524.1 billion and R525.3 billion. The provincial equitable share is allocated through a formula using objective data to reflect demand for services across all nine provinces. Over the 2021 MTEF period, R432.6 billion will be transferred directly to local government with a further r23.7 billion being allocated to indirect grants.

South Africa ranked 114 out of 189 countries on the Human Development Index (HDI) and 93 out of 162 countries on the Gender Development Index (GDI). The pandemic worsened the already high levels of poverty in South Africa through loss of employment and income.

According to MTEF estimates represented by a pi-chart, 49.5% of allocations will go to national departments, 41.5% to provinces and 9% to local government.  For provinces, 81% of the share will be in conditional grants both direct and indirect, the 22% will be in equitable share. With local government, 56.5% will be in equitable share, 38% in conditional grants and 10.6% as general fuel levy.

There was improvement in provincial and local government social and economic development indicators over the last decade up to 2019. However, there was a regression in certain indicators such the number of households with access to piped water.

It was also presented that concerns have been raised on the fact that the current fiscal framework for local government makes it difficult for municipalities to balance their revenues with expenditure responsibilities. A proposal is on the table to review the framework.


Ms Peters referred to slide eight of the presentation on the division of revenue that stated that allocation before the pandemic did not significantly reduce poverty. She also referred to part of the concluding statement in which the Director said the pandemic worsened the high levels of poverty. She asked, in PBO’s view, if the 2021 budget allocation sufficiently responds to the challenges of poverty, unemployment and inequality? She highlighted that it was important for the Committee to hear from PBO what it should do to help Departments that are best suited to deal with the identified challenges.

She highlighted that SALGA and other key role players consistently raised concerns on whether the budget allocations are pro poor or not and during the presentation, PBO indicated that the budget allocations are pro-poor. She said she was worried about those indications especially when regard is given to under spending in some departments and programmes. The early childhood development grant for instance is under spent. She asked if the under spending was a result of Covid-19 or may be that the Department over budgeted. She indicated that she was asking those questions because in the communities Members work and live in, there are children that are not in Early Childhood Development (ECD) centres and who are struggling in school as a result of the lack of adequate support at ECD level.  She said it is important to ensure that the money invested in ECD is actually deployed in the areas that ensure that children are trained so that they become catalysts of change in their families.

Ms Peters agreed with PBO that there is a decline in households with access to water and added that for  households that have access to water, the quality of that water leaves much to be desired. She said the Minister of Water and Sanitation established a Rapid Response Team but there have been no visible interventions. The Rapid Response Team has only engaged with municipalities and relevant stakeholders whenever communities get into the streets and the media speaks out. She stated that there should not be a Rapid Response Team that monitors media reactions as opposed to responding to the actual water and sanitation challenges. She said there are water and sanitation challenges in Kimberly, which she knows from her office and house that are in the constituency. She suggested that the Committee invites again the Ministry of Water and Sanitation so that it briefs the Committee on the issues raised in the meeting and also those that were raised by SALGA.

Ms Peters asked PBO to brief the Committee on how the 2021 Division of Revenue Bill will assist in achieving the NDP Vision 2030 targets as well as the SDGs. She said it was important for the Committee to get a briefing on that given the shrinking fiscal envelop and pressures from the pandemic. The Committee would also welcome a response on how whether or not the budget allows for the implementation of the NHI as well as the DDM. Her last question was, which programmes should be postponed or abandoned and how should the gap be closed?

Mr Shaik Emam asked if PBO made a mistake when during the presentation, presenters said Local Government allocation was R456 billion and R23.7 billion for direct grants. He asked PBO to clarify on that aspect.

He stated that in order to build capacity, government needs to start from the grant. He asked if the Department of Basic Education is doing enough to prepare learners to go to tertiary institutions and also if the curriculum speaks to the skills needs of the country. He asked if the quality and standard of education up to Grade 12 is helping improve the country develop capacity or whether there is more that needs to be done to improve the quality of education. He said there was a need to consider that there are drop outs during the first year of tertiary education. The lack of skills at national and provincial level affects the quality of services, implementation, strategic plans and budgeting processes. Therefore, there is need for the problem to be tackled from the level of capacity building.

He asked if the country was spending too much on consumption. He said if considerations are taken, it seems little money goes to the delivery of goods and services rather than to compensation of employees and other areas.

Mr Shaik Emam raised the following questions in respect of the DDM; based on the resources that the government is making available to all spheres of government and based on their responsibilities, what is the responsibility of the provinces in terms of local government now that the district level will be in between as well? How do you interpret what is going on? Is it not to some extent duplication of processes? He said the issue of the DDM was the same as oversight. The Committee does oversight, the provincial department is supposed to do that oversight and so is the district and internal auditors yet there is still no value for money.

He said the procurement system was not being taken seriously. An estimated R300 billion is lost annually through all spheres of government yet there is no value for money. There are people who are looking at the state as a cash cow and the procurement process is being seen as an opportunity to make money to enrich themselves. He asked what government needed to do differently in relation to the procurement system.

He recalled that PBO had mentioned levels of poverty in the society during the presentation and asked for the team to brief the Committee on the impact of BEE on the levels of poverty in the country. The system has created 17.5 millionaires in South Africa but it has not done anything in changing the lives of the poorest of the poor. As a result, a middle class has seemingly emerged that is enriching itself at the expense of the poor. He asked for pointers on what needed to be done differently to ensure that money can go towards the poorest of the poor so that they are uplifted rather than creating another group of elite millionaires.

Mr Shaik Emam concurred with the other Members that water is a serious challenge all over the country. He said PBO had also alluded to the fact that attention should be paid to maintenance and asked how government should balance the need to maintain the infrastructure that is in a very poor state and collapsing and the emphasis on the need for new structures. On top of the quality of water, and the amount that is lost, the people of South Africa have not been educated on the value of water. People still open a tap and let the water run yet water is scarce in the country. He asked how the Government needed to deal with the situation.

He asked for PBO’s opinion on the fact that Departments do not spend money timeously through the different quarters, rather they try to do so in the last quarter which is known as the fiscal dumping quarter. His question was what is the root cause for that?

He noted that municipalities or local government dependent largely on National Treasury for resources. He asked the following; what should government change to try and make local government take investments and make them into semi-urban in which they become self-sufficient rather than having to constantly beg for resources from National Treasury? What should be done to help develop municipalities to help develop them so that they can stand on their own?

Mr Mathafa said PBO spoke of reprioritisation of the budget on slide four in which it said the allocation will be based among other things on the expenditure performance in the previous year. He asked the following questions, does this mean that those Municipalities with good expenditure performance in the previous year did not experience a budget downward adjustment on the baseline? Is there an observation to that effect?

He highlighted that in the Committee’s meetings, Members stated that under expenditure should be declared as a crime against humanity particularly on the citizens of South Africa. He asked if PBO considered that the budget allocations such as the Division of Revenue Bill catered for capacity building in areas of procurement. He said he was concerned with budget allocations so that they are used to build capacity in both the systems and the people in the system.

He noted that on several occasions, SALGA has raised the view that the equitable share formula is not adequately catering for the disparities in different provinces and municipalities. He asked for the PBO’s view particularly whether on it shared the same sentiments as SALGA. He asked if there were other areas that PBO considered relevant when looking at equitable share as it affects different provinces.

He indicated that the issue of unfunded mandates is a persistent topic as the Committee constantly has to deal with a lot of unfunded mandate and asked these questions, what is the PBO’s view as far as unfunded mandates are concerned? Would the Bill intensify or reduce unfunded mandates at municipal level? Does PBO hold the view that the Division of Revenue Bill has done enough to ensure that allocations are in line with the trends particularly as it speaks to the achievements by various municipalities and provinces as impacted by the pandemic and in relation with key indicators that deal with development?

Mr Mathafa asked if the budget process at planning phase and the committees put in place together by the Ministry of Finance were sufficient to ensure that the final product is inclusive of everyone. He asked if the committees are helping in ensuring that Treasury manages to achieve the needs of the country as well as aligning their mandate with the President’s pronouncements. He indicated that he was raising that issue because when committees are being set up, people who are likely to plead for the committees should not to be ignored in certain processes, but also invited. However, more often than not, these people might be the ones that are also complicit in the spending process and where they spend there is wastage. His question was how do you balance inclusivity with ensuring that resources are allocated where there is performance and a real need so that we are able to address the needs of the society?

Mr Qayiso said he was drawn by some interesting points that had been raised in the presentation by PBO. PBO had presented that South Africa was ranked at 114 out of 189 countries on the HDI. He asked what PBO was expecting as an average to define the ranking as either an improvement or non-improvement. PBO presented that there was a 34% inequality HDI which was a decline from the human inequality index and Mr Qayiso asked for clarity on that point. He said his understanding was that during the period in question, the country was already in a crisis with regards to inequality and poverty. The economy also declined which affected ordinary poor people. As a result, he wanted clarity on what the 34% decline was about. On the GDI, Mr Qayiso asked for clarity on the period which PBO was referring to in the presentation that the country had been ranked number 93 out of 162 on the index.

He noted from the pandemic that departments were reimbursed after their budgets had been adjusted during the pandemic. He asked if the Division of Revenue Bill as it is now would make a difference or the status quo will remain.

Mr Kwankwa indicated that fiscal dumping is a perennial problem that has been going on in the department for a long time. As a result, there might be a need for a renewed focus on fiscal dumping especially during the time of Covid-19 in which the departments are expected to spend money in the agreed programmes in order to try and stimulate demand and the economy. He suggested that there should be a discussion around the performance of the people that are leading different entities of the state so that fiscal dumping is linked and viewed in a similar light as wasteful expenditure and corruption.

He noted that in some instances, fiscal dumping refers to when funds are shifted to other programmes to keep the money from National Treasury yet the money is not being used for the intended purpose. He urged the Committee to pay particular attention to the issue of fiscal dumping, identify the people responsible and ensure that they are held accountable. He emphasised that the issue of under expenditure needed to be addressed before the year end when entities engage in fiscal dumping. He agreed with the other Members that under spending qualified to be a crime against the people of South Africa especially during this period where expenditure is important for the delivery of services.

Mr Kwankwa highlighted that the Committee needed to have a discussion on fundamental issues that should be addressed at local level government before the equitable share formula is reviewed. He said he was worried about the Committee making the same mistake of throwing money at the problem rather than addressing the underlying challenges that exist.

He asked if it was possible for the Committee to keep an eye on the reports that come from the departments and track the percentage of expenditure. This is so because departments are expected to spend a specific amount of money each quarter and that will help the Committee track the departments’ quarterly expenditure. Once the tracking is done, if the reasons for under expenditure are valid, then that would be acceptable but if not, then departments will have to go back to the drawing board to ensure that they focus on priorities to avoid fiscal dumping at the end of the year.

He said there are departments that are not part of government but get funding from government that even decide to sponsor conferences or silly programmes. For them, money has to be spent and not returned to Treasury yet there are other entities that could use the money well if returned to Treasury. In some instances, under expenditure is caused by over budgeting and there was a need to establish what the real problem is.

The Chairperson asked if PBO could take the Committee through the variables which go to the equitable share formula. He said the Committee has always said that the formula is not taking all variables into consideration and therefore wanted to hear from PBO on the other variables that should be added into the formula.

He agreed with Committee Members that most of the presentations that have been made seem to emphasise on the question of lack of money at all levels of government without dealing with the underlying problems such as the ability to manage the money, projects and the contracts. He said the presentations are too thin as they do not provide for what is being done. There are indicators to show that there are problems and money can be allocated but at the end of the day, there should be some impact that is noticeable. His question was is the money being spent properly? He said the question arises on irregular and wasteful expenditure which are real issues that require interventions. The Department is always hearing about money being needed but at the end of the year has to deal with cases of under expenditure.  

He noted that most of the interventions on fiscal dumping have been post facto. The Committee only deals with the third quarter and the same applies with National Treasury and by the time interventions are made, the horse will have already bolted. He stated that there was need for the Committee and the people who advise government to apply minds to the matter so as to ensure that there are real time interventions.

He highlighted that the Minister announced the decrease in income tax and asked the following questions, what is the hypothesis of this decrease? What do you want to see coming? From my understanding, when we are dealing with these things, we should be having a hypothesis of what we expect. Are we expecting that these companies invest the money? What is our expectation especially when the fiscal is struggling with the revenue? What is the likely outcome as far as PBO is concerned?

The Chairperson said the presenters needed to take note of the fact that more often than not, they are not presenting to Members of Parliament only but also the general public who are not quite conversant with a number of terminologies that are used in Parliament. Therefore, there was a need to always try and define some of the terms. He asked if PBO could differentiate between the conditional and unconditional grant. His questions were what is the difference? What is the purpose of those grants? What do we aim to achieve with those grants? His last question was what is the positive thing that we can note from the Division of Revenue Bill and the ultimate impact on the people of South Africa?


Dr Jantjies said the presentation was trying to show that there was already a backlog in service delivery even before the pandemic. The pandemic managed to worsen the inequalities and some of the challenges raised by the Committee. Therefore, the response to the budget should be how much government provided cushion for and the extent of the needs of society. The budget reduced allocations which in a way will worsen the ability of local government and provinces to deal with the ever increasing needs of the people and the escalating levels of inequality.

He indicated that there is a decline in the allocation of equitable share and conditional grants. Equitable share is what allows local government to meet its commitments. On the other hand, local government has to be able to raise revenue so as to meet its commitment. He stated that now because of the decline in the equitable share, there is likely to be a decline in the ability to provide services to the indigent thus creating more need within the society. He said that was the problem that PBO was trying to emphasise on that the allocation cuts were worsening service delivery. It then boils down to the issue of the fiscal objective for the budget and that is what PBO should be dealing with. He indicated that PBO has been trying to deal with the decline in service delivery and also with some of the inefficiencies insofar as trying to address the main issue.

He noted that the issue of oversight has been on the mind of PBO. He said there has to be a point in which the Committee will request the Minister of Finance to provide information on development indicators and improvements that have been brought about by the budget allocations as opposed to the department providing information on how many outputs were realised.

He highlighted that the budget released by the department has worsened the situation regarding meeting NDP and SDG targets. He said the situation will likely get worse setting the country back to fiscal dumping and also from realising the social indicators set out. There is an overall expectation that the number of people in poverty should decrease but evidence shows that a lot of people have been laid off meaning the social grants will be catering for more citizens than they were previously.

Dr Jantjies recalled that when PBO presented on fiscal adjustment, it was indicated that reforms on company income tax are long overdue for many reasons including profit shifting and decentralisations that are happening. He said evidence shows that South Africa’s company tax compares well as it appears globally and that the country relies more on income tax as opposed to consumption tax. South Africa is a developing country because it has a stronger tax base and also income tax is likely to be less regressive than consumption tax.

He highlighted that recent studies have shown that lowered tax does not necessarily lead to more investments or create jobs as would be expected in most instance. Therefore, there was need for the country to be more objective and targeted. He reminded Members that government is currently taking away venture capitalist incentive because it does not realise the objective of creating jobs. He emphasised that government’s source of revenue is largely from income tax so if there are reforms to be done, it would be very important to take that into consideration.

Dr Orlandi wished she could provide the Committee with an evidence based answer regarding the NDP targets. She indicated that an evidence based response was not possible because since the end of the previous medium-term strategic framework, there has not been any reporting on progress or action on the NDP database. PBO occasionally checks the website for updates but the information has not yet been updated. She noted that since the implementation of the new medium-term strategic framework that is the 2019-2025, there also has not been any reporting on the medium strategic framework which is the five year implementation plan for the NDP.

Dr Orlandi stated that she looked at the first priority of the new medium strategic framework. One of the indicators is the need to provide the annual performance score card reports which Ministers and their Deputies submitted to the President and also have to report to Parliament. When she checked for the reports on the database, Dr Orlandi said she could not find it.

She highlighted that it was Stats SA’s responsibility to report on the SDGs. However, when she visited the website in search of the information, she could not find it because the reports have not been updated since 2016. As a result, PBO could not give an evidence based response on whether the budget is meeting the NDP and SDG targets.

She indicated that reviews were important in identifying programmes that need to stop and those that need to continue. She said reviews are so important in informing the budget process because they take into account not only expenditure but performance. Treasury has been reporting to the Committee on just expenditure even on conditional grants which form a huge part of provincial and local government expenditure. Information on quarterly performance is always missing and that is the reason why PBO suggested in the budget analysis report that a system of reporting even on the short list of indicators be implemented. The system will ensure that when Treasury reports back, they also report on specific groups of indicators that reflect the main budget expenditure.

She said she was not familiar with the DDM. Regardless, she assured Members that for more than ten years, the structures in government budgets have been changed to try and reflect how spending is done in different districts. She indicated that when she was analysing provincial government, she picked up one problem. For instance, the education and health districts are not the same district and do not have the same borders and that poses challenges.

Dr Orlandi stated that a lot of money in some instances was taken away during the adjustment budget and had to be reprioritised that is why there are reimbursements under the Division of Revenue Bill. For instance, there was a reduction in the funding for the network transport grant during the adjustments because some provinces indicated that they were not able to spend that money in 2020 and that money has been reallocated in 2021. She said that was not the only change that was made, the other criteria used to develop the budget was also changed for the year 2021 over the medium term. One of the criteria changed as already indicated relates to the needs in provincial and local governments as well as expenditure trends.  

She noted that in some instances, Ministers indicate that they are not ready to implement projects and that money is then moved forward and reprioritised for something else.

She indicated that fiscal dumping is easy when money is transferred to another institution to provide the services. For quite some time, PBO has been indicating to Members that in terms of the structure to develop the budget, it is easy for institutions to transfer the money and check 100% expenditure. But if the same institution is expected to implement the project and produce output, then fiscal dumping becomes very difficult. The issue of transfers is why local government cannot spend in a certain period because provincial government will have dumped the money on local government.

She urged the Committee to also keep a close eye on the implementation of policies and the producing of outputs. She stated that in one of the briefs on health that were distributed to committees, one of the findings was that on the one hand, some of the grants spent the entire budget but with no performance. On the other hand, some grants were underspent but with performance. Therefore, there is need to take into consideration not just expenditure but also the outcomes when making budget decisions.

Dr Orlandi indicated that on variables, the education variable is about 48% and the health variable is about 27%. The health variable is based on a risk prolife and case load and it is important to note that there are a number of components within the health variable. The data that pertains to these variables can be found on page 75 of the Division of Revenue Bill. She said the information could be put in a brief and then circulated to the Members of the Committee. .

She agreed with Members that departments always ask for more money and emphasised that the solution to dealing with the issue was to conduct reviews. She said if national and provincial treasuries properly review programmes by departments, they then can provide evidence to the effect that there should be no spending without output. That evidence will then be used as justification for not allocating money to departments even if they cry for it.

She noted that PBO looked at the infrastructure section of the budget review document and realised that there are a lot of projects whose progress is up to the implementation stage. Some of them have been developing tenders, waiting for approvals and it has been a continuous process for years before the projects are fully implemented.

Dr Orlandi indicated that conditional grants are all listed in the schedules of the Bill and they have specific criteria that they have to use and specific outputs that they need to produce. She stated that at local government level, they refer to the equitable share of local government as unconditional grants and it is the same thing.

Dr Seeraj Mohamed, Deputy Director: Economics, PBO, indicated that there was a mistake in slide eight which he needed to rectify as a lot of questions had come from that slide particularly on the HDI. He apologised for the errors that had resulted from the editing process. He said the 4% decline that is reflected in the presentation was incorrectly captured.

He highlighted that the indexes came from the United Nations (UN) and were developed by the United Nations Developmental Programme (UNDP). It was after the realisation that by merely looking at GDP or GDP per capita income, it was difficult to ascertain the problems that countries face in dealing with poverty and inequality. UNDP then started with the development index that takes into account the estimated lives people will live, mortality rates, access to knowledge, levels of literacy, standards of living such as housing, access to services and levels of employment. Large variables of data taken are then converted into an index and in terms of that index, South Africa, as a medium income economy is sitting at 114 out of 189 countries. He indicated that over the years, with antiretroviral drugs being rolled out and the rate of HIV/AIDS infections significantly reduced, the life expectancy rate will be seen on the index as having improved over time.

He stated that in 2010, the UNDP came up with the inequality HDI as the other indexes were not taking into account the issues of inequality.  The UNDP looks at the distribution of inequality in the country and then how the HDI itself is distributed across the country and adjusts the HDI index taking into account the data on inequality. So in societies like South Africa where inequality is exponentially high, the 2019 inequality HDI figure is 34% lower than the HDI. He emphasised that the information had been incorrectly captured in the table and Members needed to take note of the clarification. Inequality in South Africa did not decline, rather the situation has become much worse and that alone can put the country off the medium income economy classification.

Dr Mohamed indicated that there is also a gender development index. He said the UN talks about the gender development index and puts South Africa at point four. Over the last five years, South Africa has been ranging between point four and point 4.1 and overall, South Africa is ranked at 93 out of 162 countries. This is taking into account that in many countries the levels of patriarchy and gender inequality are much higher especially in some parts of Africa, Asia and Latin America. So, 93 out of 162 might not look so bad to some people but it is low for South Africa.

He stated that there is also the multi-dimensional poverty index which is made up of a number of variables. The UN does not have the latest update and the last report was published in 2016. According to that report, in 2016, 3.6 million people in South Africa were seen to be multi dimensionally poor and an additional 7 million being vulnerable. The situation has actually worsened. Even before the pandemic, the country was witnessing drops in income and employment and one can only assume that it was further exacerbated by the pandemic. He highlighted that PBO could redo the table and circulate it to the Members with a detailed note.

Dr Mohamed noted that too often, the issue of maintenance comes up pointing to the importance of the issue. He said maintenance is to some extent linked to the question of efficiency and fiscal dumping which are fairly structural but are also linked to incentives, performance indicators and how budgets are allocated in terms of performance. He stated that the important point that had been made by PBO was that there was not enough reporting to understand performance and the problems that arise.

He noted that there is much emphasis on capital spending but if regard is given to the life cycle of infrastructure in energy and water, the amount of money that will be spent in terms of people, time and replacing parts is basically one third the upfront capital expenditure. Often, maintenance is labour intensive so if one is looking at reducing costs of employment, goods and services, then focus should be on capital which was emphasised in the last budget that was presented by Treasury. He reiterated that there is a problem and it is sending the wrong signal. The situation introduces the notion that if there is a deficit, an entity needs to borrow, the borrowing should be used to pay for capital expenditure rather than goods, services and employment.

He emphasised that it was a false dichotomy in government for entities to think of government as a private business enterprise. He said there is a need to look at the source costs benefits of the spending. Government is focusing on capital only to the detriment of social expenditures such as education.

Dr Jantjies, noted that some questions that had been raised by Members had not been responded to and PBO was going to respond to them in writing. He indicated that the Money Bills Act required PBO to respond to the question on the unfunded mandate which was raised quite a number of times. He stated that the indigent policy provides that a certain level of service delivery has to be provided to a certain number of citizens in an area. However, the budget policy proposal does not necessarily provide for the indigent policy. That certainly gives government the argument that there will be an unfunded mandate because local government will be expected to provide services to the citizens even though such is not covered by the budget policy.

Mr Qayiso thanked the PBO team for the responses and indicated that the team had mentioned something that was very important and needed the attention of the Committee which is the issue of data. He reiterated that the data that is necessary for Members to be able to read and analyse reports properly is not available. He said failure to receive information from the departments makes it difficult for the Committee to analyse the impact on HDI and other relevant areas.

Mr Qayiso suggested that the Committee engages with StatsSA and other relevant institutions so that they give an update on the information that is missing. This will help Members apply their minds properly to the reports. He emphasised that there was a need to ensure that Stats SA updates the four year backlog on relevant data.

The Chairperson indicated that PBO was to submit to the Committee an updated slide on the poverty and inequality index and also a proper explanation on what is actually happening with the HDI. He thanked the Members for attending the meeting and the entities for the presentations.

The meeting was adjourned.

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