2021 Division of Revenue Bill: public hearings

Standing Committee on Appropriations

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

Video: Standing Committee on Appropriations

The Standing Committee on Appropriations met virtually to conduct public hearings on the 2021 Division of Revenue (DOR) Bill as tabled by the Minister of Finance. Submissions were made by Amandla.mobi, South African Institute of Chartered Accountants (SAICA), and Congress of South African Trade Unions (COSATU).

Amandla.mobi played a video on the austerity budget. Their submission presented the voices of everyday people in South Africa on their call to extend and increase the R350 Social Relief of Distress (SRD) grant beyond April 2021 until it is converted into permanent basic income support. Amandla.mobi played voice notes from those who would be most impacted by cuts to social spending, the majority of whom were low income Black women.

SAICA presented its budget analysis and commentary. It aimed at refuelling the economic tank, focusing on three core areas: restore trust and credibility; prioritise and implement; and expenditure analysis. The submission dealt with prioritising needs; Generally Recognised Accounting Practice (GRAP): delayed adoption implications; employment relations; infrastructure revitalisation; water and sanitation; electricity; logistics; and expenditure analysis.

COSATU presented its concerns on the DOR Bill and raised some contextual issues. The submission considered: austerity vs stimulus; fiscal crises; COSATU proposals on corruption; public service and municipal wage bill; Auditor-General’s reports; key worrying austerity cuts and questions in the DOR Bill; items that were welcomed; economic reconstruction and recovery plan; and social relief measures.

The ensuing discussion by Members included the need to strengthen the safety net for the most vulnerable; social grants not keeping pace with inflation; extension of the SRD grant and social relief measures being made permanent; fast tracking the Basic Income Grant. They said that the submissions needed to identify solutions on from where the money would be sourced for their requests for increasing social relief and its impact on the fiscal framework. Topics also included wasteful expenditure; underspending; non-payment of service providers; ensuring accountability and oversight; visible and proper consequence management; if budget reduction as a measure for ensuring compliance is punitive; implications of freezing posts; funded positions that remain unfilled; outsourcing; local municipalities failing; top-slicing appropriations to get rid of inter-department debt; introducing GRAP to prevent unauthorised expenditure; wealth tax; austerity budget; regaining both public and private sector credibility; and centralisation of procurement.

The Committee said that these submissions were worthy of deeper consideration outside of the budget public hearings which had strict time constraints.

Meeting report

Amandla.mobi submission
Mr Paul Mason, Partnerships and Tech Manager, Amandla.mobi, played a video on the austerity budget. Amandla.mobi’s submission presented the voices of everyday people in South Africa in their call to extend and increase the Social Relief of Distress (SRD) grant of R350 beyond April 2021 until it is converted into permanent basic income support. This was to reverse cuts to the Commission for Conciliation, Mediation, and Arbitration, increase social grants, and extend the child support grant to start at pregnancy. Amandla.mobi played voice notes and clips from those who would be most impacted by cuts to social spending, majority of which were low income Black women.

Members of Parliament had said that that gogos must be grateful that committees had listened to them and that the old age grant was increased. However, the gogos were still angry because they went to bed hungry every night. The marginalised majority, especially low income Black women, were ignored by National Treasury. In 2019, half a million people signed the campaign for the child support grants to be increased by R500 per child. There was a public call not to cut the top ups that were made in the lead up to the Medium-Term Budget Policy Statement in October 2020.

The President said that a Basic Income Grant must be looked into. The Minister of Finance said that full research was needed and that it was recommended that a Basic Income Grant should be implemented. However, Amandla.mobi is worried because this conversation was had six finance minister’s ago with Mr Trevor Manuel. In 2002 government appointed a Committee of Inquiry. The Taylor Committee got experts, submissions, and commissioned research, and recommended that a basic income grant be phased in. It is 20 years later and Amandla.mobi is tired of the delays and inaction. Parliament and government needed a reminder of what could happen when reports were commissioned and ignored because they are pro-poor. Members in the Standing Committee on Finance recommended that the SRD grant be extended.

Looking at the austerity budget, National Treasury and the Minister of Finance were clearly concerned about the welfare of the rich and corporations as the budget was designed to provide them relief. This was done at the expense of the majority of households who survive on social grants and use public schools and hospitals. National Treasury’s failure to tax the rich is part of the reason why the pie is so small. Austerity must fall. Members should engage the Standing Committee on Finance and National Treasury and demand that the austerity is reversed.

Over half a million people have joined Amandla.mobi’s various campaigns asking to take the plight of the poor seriously. Parliament, National Treasury, the Minister of Finance, and the President have the power and resources to extend the SRD grant beyond April 2021 until it is converted into a permanent basic income support.

South African Institute of Chartered Accountants (SAICA) submission
Dr Sharon Smulders, Project Director: Tax Advocacy, SAICA, presented a budget analysis and commentary with Mr Pieter Faber, Senior Executive: Tax Law and Practitioners, SAICA. The submission contents, aimed at refuelling the economic tank, focused on three core areas: restore trust and credibility; prioritise and implement; and expenditure analysis. The submission outlined the credibility and accountability crisis; role of parliament; role of the committee; New Zealand example; prioritising needs; Generally Recognised Accounting Practice (GRAP): delayed adoption implications; employment relations; infrastructure revitalisation; water and sanitation; electricity; logistics; and expenditure analysis.

Government is sitting with a credibility and accountability crisis. To address this, the President introduced the Economic Reconstruction and Recovery Plan. When reading the discussion document by the Thabo Mbeki Foundation in response to the Plan released in February 2021, it seemed as though there was no agreed consensus on all topics. Urgent consensus is needed on the way in which the Plan is going to be implemented and proper steps are needed to ensure that it happens. SAICA’s second concern is failing service delivery and infrastructure. In the example of Kgetleng River local municipality, it was clear that government is becoming irrelevant if it did not render the services it promised to render. The third concern is that there is an oversight failure and vacuum at all three levels of government. Looking at the Auditor-General reports for both national and local government, it was a horror story. Critical programmes were going unfunded or underfunded.

Parliament has the role of monitoring and overseeing government action. Oversight areas include: implementation of law; application of budgets; strict observance of laws; and effective management of government departments. One of the oversight mechanisms available is the budget votes. This requires Parliament to approve the budget. After the submission of budget votes, each committee has hearings with the respective government department over which it exercises oversight. This serves to determine if the Department has kept its undertakings of the previous year and spent taxpayers’ money appropriately.

The role of this Committee is found in its mandate and includes: spending issues; amendments to the DOR Bill, Appropriation Bill, Supplementary Appropriation Bill, and Adjusted Appropriation Bill; recommendations of the Financial and Fiscus Commission; reports on actual expenditure published by the National Treasury; and any related matters. The concerns raised by the Committee on 6 October 2020 were noted. The powers of the Committee include adjusting appropriations to reflect inefficiencies in spending and lack of compliance. A further recommendation was to have a joint sitting of all relevant committees to prevent oversight vacuums or matters falling through the cracks.

In the news today, National Treasury blocked R384 million funding for Alfred Nzo municipality due to poor performance in terms of section 18 and 19 of the DOR Act. The residents would now be left without water and some were saying that this would be until 2024. SAICA questioned how they got to this situation and asked if all councillors salaries and benefits should be frozen until service is delivered. Things need to change. SAICA thus asked the Committee to:
• Be courageous to implement drastic changes as seen in other countries;
• Ensure that budgeted spending is equal to actual funding;
• Learn from other who were courageous like New Zealand and Ireland in changing budgeting practices especially as to the inclusion of efficiency criteria;
• National Treasury delegations to provincial treasuries of oversight of municipal budgets is not working and needs drastic intervention.

In prioritising and implementing needs, SAICA proposed that focus be placed on three areas:
1. Proper Accounting – the credibility of information provided to National Treasury is being questioned. The problem with GRAP and its delayed adoption was that spending for future years are reliant on proper accounting in prior years. GRAP was still not being implemented as the Modified Cash Basis (MCB) of Accounting was still being worked with. Concern lay with unauthorised expenditure and where the expenditure rollovers are reported, which is addressed by section 34 of the Public Finance Management Act (PFMA). Section 34 says that it will result in either a charge against the National Revenue Fund, which must be approved by Parliament, or go to the next year’s budget of that department. The accountability measure is to disclose that in the budget vote of the following year. The next concern was the facilitating of the hiding of unauthorised expenditure, as is laid out in the Auditor-General’s report. This means that expenses are being recognised but creditors are not being paid or that budget has run out, creditors remain on the books, and the amount is rolled over for payment to the following year. The accountability measure is that appropriations should be matched to compliance and GRAP should be introduced within 18 months.

2. Employment Relations – a change in approach is needed.
There is a lack of skills and accountability. Despite this, compensation to employees is increasing regardless of the promises to reduce compensation. If jobs and salaries are not going to be cut then something else has to change. Where the concern is costs increasing, the accountability measure to prevent job losses is for productivity to increase. Where the concern is high wages for some and low wages for others, such as nurses, the accountability measure is that the structural mix has to be addressed. Where the concern is wilful non-performance and corruption at different levels, the accountability measure is consequence management enforcement. The Committee should ask entities to draft and implement corrective measures before receiving further allocations. 63.2% of municipalities who had Chief Financial Officers appointed as at 30 August 2018 were not complying with section 83(1) of the Local Government: Municipal Finance Management Act (MFMA) in terms of required competency. Where the concern is no job losses, the accountability measure is individual performance management. Where the concern is lack of required skills, SAICA referred the Committee to its submission: “Framework for Professionalising the Public Sector”.
3. Infrastructure revitalisation.
The main point is oversight is needed per strategic project as one needed to know, at the different levels, who was responsible for what. Performance management is also necessary.

SAICA’s fourth concern lay with water and sanitation. The Department of Water and Sanitation said that it had a funding gap. However, when looking at it, DWS spent nearly all its budget but has not even achieved 50% of its targets. The Committee is urged to ensure that Treasury enforces its constitutional obligation in section 216 to ensure financial discipline and stop the transfers before it is too late. The same applied to the prioritisation and implementation of electricity. Accountability, transparency on budgeting and funding, and consequence management is needed.

In prioritising and implementing logistics, crime was a main concern and the accountability measure is for an integrated movement plan.

Going onto expenditure analysis, eight expenses were analysed: compensation; consultants; contractors; catering; agency costs; legal; fleet; and travel and subsistence. Over the last 12 years there had been an increase in these expenses. SAICA requested the Committee look at the departments where compensation was high but output or service delivery was low. Outsourcing across the board was increasing at a rapid pace and it questioned why there was so much outsourcing if such high salaries were already being paid. The main concern was why government departments were spending so much on consultants, contractors, catering, agency costs, legal, fleet, and travel and subsistence. SAICA hoped that the Committee would look at these items and analyse them before approving any appropriations.

COSATU submission
Mr Matthew Parks, COSATU Parliamentary Coordinator, presented COSATU’s concerns on the DOR Bill and raised a few contextual issues. The submission considered: austerity vs stimulus; fiscal crises; COSATU proposals on corruption; public service and municipal wage bill; Auditor-General’s reports; key worrying austerity cuts in the DOR Bill; items that were welcomed; the economic reconstruction and recovery plan; and social relief measures.

COSATU differed from National Treasury in its response and approach to the economic and governance crisis. Government is going for the austerity approach whereas COSATU is going for the stimulus approach. South Africa is in an economic recession and unemployment has pushed past 40%. There is thus a need to balance tackling the recession, job losses, and debt trajectory. The budget and DOR Bill focused on prioritising debt reduction and not stimulating economic growth. COSATU had hoped to see a budget that saved jobs and companies and stimulated the economy. The fundamental cause of the fiscal crisis was not the wage bill but state leakages. State leakages must be fixed as money was being lost every year to corruption, wasteful expenditure, distressed state-owned enterprises (SOEs), and the South African Revenue Service (SARS). A sustainable approach to debt reduction is therefore needed.

The DOR Bill is silent on the key causes of the fiscal crises, such as 10% of the budget being lost to corruption and wasteful expenditure, the impact of State Capture on SARS, and the stagnant economy and declining tax revenue. There is an unhelpful and lazy fixation on the wage bill that was simply going to outsource the bill to workers. COSATU proposed: banning politically exposed persons, spouses and children of political officers bearers from state tenders, as well as extending it to national and provincial party leadership; rapid response to anti-corruption courts; utilising the Public Audit Amendment Act to hold offending politicians and management financially liable for corruption and wasteful expenditure; removal of compromised politicians and managers; capacitating SARS and customs enforcement; opening online procurement systems for the entire state; and centralising public procurement of large-scale items.

On the public service and municipal wage bill, government and parliament were undermining and collapsing collective bargaining. The wage bill has been stable at 35% of the budget since 2009 and the head count per population ratio is plummeting. Freezing posts has an impact in on state capacity to deliver quality education, health, policing etc. When a four year wage freeze is imposed, this will increase the flight of skilled public servants. There is incomparability with the private sector and the composition of public service. Lastly, the DOR Bill increased the allocation for councillors. COSATU proposed that government must engage with bargaining councils in good faith and respect collective bargaining; honour and fast-track the agreements, such as a single collective agreement for the entire state; reduce office bearers’ exorbitant packages by 30%; scrap the Ministerial Handbook and travel allowances; reduce management packages in public service and municipalities; put salary caps on SOE and government entity managers; and provide home loans for struggling public servants.

The DOR Bill is silent on the Auditor-General’s reports. The Auditor-General provides yearly, damning reports on the state of provincial and local government yet little is done to hold political office bearers, management, officials, and colluding citizens to account for corruption and wasteful expenditure. The DOR Bill provides no new interventions and says nothing about what government is going to do to deal with the 10% budget lost to corruption and wasteful expenditure.

With the austerity cuts, COSATU appreciated the need for budget shifts to allocate massive resources to fight Covid-19, provide economic and social relief, and support the economy’s reconstruction and recovery. They were worried about possible negative impacts of expenditure cuts to municipal grants in particular, and similarly to provincial grants. Other key concerns were provincial funding cuts on the back of wage freezes and social grant cuts. Cuts were also being seen to water infrastructure allocations, transport, human resources and training, and disaster management reserves.

COSATU’s key concerns for local government include: R19 billion cuts to local government weakening a dysfunctional arm of the state; budget not providing plans on what is being done to rebuild many municipalities that cannot pay their workers; and DOR Bill silent on the near collapse of Amathole District Municipality. Its concerns for the 2021 local government elections include: Whether the elections were happening in 2021 as no reference is made to them and there is no sign of preparations from the Independent Electoral Commission (IEC) or municipal electoral offices; and if the intention is to postpone elections, the IEC and government needed to apply for condonation to the Constitutional Court and not create a constitutional crisis.

On school infrastructure, COSATU welcomed investments in 1000 schools to address infrastructure backlogs, however, the DOR Bill is silent on when government will have eradicated mud schools, sanitation and infrastructure backlogs. The DOR Bill is silent on the R40 billion owed to Eskom in the form of municipal and provincial government debt. This threatens to collapse Eskom, which is forced to increase electricity tariffs, thus suffocating the economy, and squeezing cash strapped consumers. However, the Minister of Finance committed to dealing with this in 2020.

The DOR Bill is still silent on the three-year intervention in the North West provincial government. It does not reflect if the intervention is successful or remains unresolved.

The DOR Bill noted underspending in various municipalities and provinces but is silent on why and what action is being undertaken to address its negative impact. Government committed to paying suppliers within 30 days yet this was frequently not happening; the DOR Bill is silent on what is being done about this and these delays result in many SMME businesses closing and workers being retrenched or unpaid.

COSATU welcomed the increased allocations and additional jobs proposed for: Early Childhood Education; School Sanitation; Health Facility Revitalisation Grant; National Health Insurance Conditional Grants; and Municipal electrification Investments. COSATU participated extensively around the Economic Reconstruction and Recovery Plan where immediate interventions were looked for that could kickstart the economy. The DOR Bill is silent on many key commitments of the Economic Reconstruction and Recovery Plan which are critical to growing the economy, which includes: job creation, economic reforms, combating crime and corruption, and capacitating the state. The DOR Bill does refer to infrastructure investments but even this was reduced and cut at local government level. On the social relief measures, COSATU welcomed the extension of the R350 long-term unemployment grant to April, as it needed to be extended for the duration of 2021/22. It is the sole source of relief for the long-term unemployed and it is affordable.

In conclusion, the budget and DOR Bill fail to address key challenges facing South Africa such as the stagnant economy, corruption and wasteful expenditure, collapse of municipalities and SOEs, and tax and customs evasion. There is thus a need to address fundamental causes of economic and fiscal crises by rebuilding the state, creating jobs, tackling crime and corruption, and alleviating poverty.

Mr O Mathafa (ANC) said that he just wanted to underscore some issues raised by the presenters, and welcomed the submissions. He thought that the spirit of all three submissions was in line with what the Committee had been raising in interactions with stakeholders – particularly national departments and entities. What came up strongly was the need to strengthen safety nets for the most vulnerable of society, accountability, prudent usage of limited resources, and, most importantly, the role that the Committee played in ensuring accountability and oversight through the budget instrument. The submission by Amandla.mobi for the extension of the R350 was a fair request because, indeed, any Covid-19 wave that hit South Africa was likely to cause hardship to those affected by lockdowns. COSATU raised the need for strong oversight by parliamentary committees that play an oversight role. Effective consequence management needed to be strengthened as well. He explained that committees perform oversight and make recommendations but recommendations are not implemented, leakages are experienced, and those that cause these leakages walk away scot free. Thus it was important for there to be visible consequence management to restore the confidence of South Africans and ensure there is proper compliance with the regulations and laws.

In the same vein, the concern from the South African Institute of Professional Accountants (SAIPA) which was raised by SAICA on using budget reduction as a punitive measure to ensure compliance with the laws and regulations. The worry he had was that if one indeed cut the budget, the people likely to suffer the brunt of this would be those expecting to receive service delivery and who were the constituencies the Committee represented in Parliament. Instead of cutting the budget, the Committee needed to argue for the strengthening of oversight to ensure there is compliance. Where there is no compliance, the Committee needed to ensure that those that caused this are held to account. The unfortunate part is that one cannot cut from the wasteful expenditure but has to cut from the budget vote.

COSATU raised the implications of freezing posts and he wanted to underscore that it was unacceptable that there were funded positions that remained unfilled. Officials in the public sector were made to act endlessly and this can mean they are too energetic and commit a lot of errors or too timid and afraid to make decisions. It was very important that where funded posts remained vacant, they be filled as soon as possible. There could not be money for certain positions lying dormant and not being used. Unfilled posts were was denying entry to those that required employment, and denying access to much needed service delivery. The Committee normally worked with a spirit of accountability and a harmonious working relationship between the legislature and the executive. This was to ensure that all of the needs, as contained in the submissions, are met as much as possible.

Mr X Qayiso (ANC) noted Amandla.mobi request that the temprary social relief be made permanent. He agreed with Mr Mathafa that the rate of unemployment in the country was very high and had, in fact, reached an alarming crisis. He agreed that it was a fair request and that it had to be looked into and considered in order to intervene during this crisis. The economic crisis started in 2008 and was complicated by the Covid-19 pandemic. The crisis had been complicated in such a way that the lives of poor people had become worse. Therefore, the social relief had been a good intervention. It was not known when Covid-19 was going to pass but it was clear that it was going to be present for quite some time. It was thus important to consider that measures of social relief remain available while the crises of employment and Covid-19 are being dealt with. In the absence of an exit strategy from the R350 social relief measure, he did not see another route than to consider the relief fund remain available whilst Covid-19 is being dealt with.

He did not clearly understand the letter to the President; perhaps the Committee needed to look into this. If there was no response, the Committee would have to ask the Office of the Presidency or National Treasury to assist with a response. The Taylor Committee had good recommendations and this Committee should actually look into it and consider the report. He made reference to not only social relie but to fast tracking the Basic Income Grant. Some of the Taylor Committee recommendations were very important to consider and could no longer be avoided. The Committee had to bring in the question of the Basic Income Grant being fast tracked for implementation because it was one measure of intervention. This included the living wage, which he knew COSATU had raised several times. These were interventions of assistance to the poor.

On Alfred Nzo municipality, the Committee should receive proper information from National Treasury on the R384 million being withheld by Treasury due to poor performance as the poor were being disadvantaged because of poor performance by other people. Those people who were accountable should be held to account. On outsourcing, this had not been measured as compared to contracting, he had thought that it could reduce costs to the state. The Committee had to slowly recommend insourcing as a way of saving. Services by the state itself was cheaper than through contractors or agents. This was something that the Committee needed to consider.

Ms D Peters (ANC) thanked the presenters and said that Amandla.mobi and COSATU were very consistent in making submissions to this Committee. The Committee needed to interact with their submissions outside of public hearings that are constrained by the tight budget process. This information was worthy of deeper consideration. The research would be very helpful for the Committee to get from Amandla.mobi – this included their search processes, from where they drew their information, and how widespread the coverage of the research was. The information was very convincing. The only problem was they did not provide the Committee with information on where to get the resources or funds they were speaking about. Whatever the presenters were recommending and whatever inputs they were making had a bearing on the budget. It had to be remembered that for the budget to be amended – there had be indications of from where that money would be sourced. This would take the Committee back to the same cuts that were being discouraged especially in departments and organs of state that were not spending their money. This was also something that SAICA should probably also addresss.

It had to be remembered that around 2004 to 2009, an intervention done by the then-Department of Provincial and Local Government, now the Department of Cooperative Governance and Traditional Affairs (COGTA), with engineering support services that was seconded through a programme called Siyenza Manje to municipalities. The unfortunate thing was that COSATU members and workers at local government level were actually against that intervention because it was skilled, technical capacity that was seconded to the municipalities. This was to address operation and maintenance of the infrastructure that, today, was dilapidated, decayed, and not properly funded to either renew or repair.

She believed that the capacity of SAICA members showed that there was a capacity for financial skills in the local and provincial spheres of government to tackle serious underspending and non-payment of service providers. She believed that, through National Treasury, SAICA could offer the type of Siyenza Manje interventions to avoid the Alfred Nzo municipality challenges. She was not throwing the problem back but was just saying that, despite the these time-constrained public hearings, the submissions told the Committee that there was more they could get in engaging structures like Amandla.mobi, SAICA and COSATU.

These structures were making very good proposals and the Committee knew quite well that some of the suggested interventions were important and worthy of consideration. However, the problem would be: from where to draw the resources? She was happy that today, as the Committee spoke, there was a mini plenary debate on why South Africa can no longer afford to delay implementing the Basic Income Grant. She also included COSATU and SAICA, because of the research they had done. It was about time that South Africa shared the notion that they do not want to be a welfare state. In essence, the proposals were truly an indication of how to deal with the challenges of poverty, unemployment, and inequality in South Africa for once and for all – which she thanked the presenters for. The reality was that the pie was smaller as the revenue generated was getting smaller. The pool to draw resources from was getting smaller as the need for more interventions such as grants was growing. The problem that she had was that the Committee’s hands were tied because they were thinking deeply and appreciating the inputs but the question was from where the money was to come.

At the same time, the Committee was presiding over a lack of spending. This created the impression that there was money but this was earmarked money that officials were failing to spend. COSATU was correct in saying that small businesses were not paid within the requisite time. At the end of the financial year, the Committee would be given an indication of the lack of expenditure. However, the Committee had not had an opportunity to analyse where within the under-expenditure the money meant payment of small businesses or service providers was. At the same time, there were problems of corruption and malfeasance. In the meeting today, being disturbed by the passing of King Zwelithini, she asked herself many questions on the many things happening in society, and listening to the well thought out submissions, she asked if the officials who were not spending, not implementing decisions of government and not delivering were listening to the discussions. And are the parliamentary committees also listening?

She recommended that when the Committee had time, it should invite Amandla.mobi, SAICA and COSATU for a deeper discussion on their proposals and how the Committee could, as part of the the next financial cycle, filter in these types of proposals. She really appreciated the inputs and research findings.

She gave her opinion that the grant that the old and disabled get did not necessarily cover their needs. The grant was not enough. Amandla.mobi, COSATU and SAICA should know that they were speaking to the converted when coming to the Committee. The three also needed to go and make submissions to the portfolio committees that had done oversight over the municipalities, the Department of Social Development and Department of Basic Education (DBE). It was heart breaking that in the rural areas there were still mud schools built many years ago by the communities themselves, yet every year money was given. Even with the Accelerated School Infrastructure Delivery Initiative programme, there were instances where the Minister told the Committee that communities were saying that they did not want a Rolls Royce type of classroom or toilet but rather wanted actual infrastructure. They needed Amandla.mobi, SAICA, and COSATU to return. SAICA should inform the Committee on the serious financial or accounting challenges. She was sure that SAICA read the Auditor-General reports. What was SAICA saying about those who were implementing at SOEs and government departments who were some of their members?

Mr A Sarupen (DA) said that both SAICA and COSATU raised the concern about local municipalities failing and then "tax" non-compliant municipalities as well in the DOR Bill. Where municipalities were failing, the Committee had a responsibility to summon the Provincial Treasuries – particularly in a province like the Free State where every municipality had negative audit outcome. The Committee needed to ask those Provincial Treasuries why they were failing to fulfil their constitutional duties. The time had come for the Committee to summon all nine Provincial Treasuries and find out why the Eskom debt has not being settled. Even in Gauteng, which was supposed to be well run, recent reports indicated that Rand West municipality and other local municipalities had now fallen further behind on their debt to Eskom.

The Committee needed to start making serious recommendations to National Treasury. The Committee had to start considering budget adjustments very seriously such as top slicing the DOR to settle the Eskom bill rather than allow municipalities to fall further and further behind.

Amandla.mobi had made some very good points. This was the first financial year in which the social grants increase did not keep pace with inflation. It was a matter of prioritisation. There was a lot of demand on the state with a lot of interest groups demanding a slice of the pie in a smaller economy than South Africa had a year ago and where demands on the state were even bigger. However, rationally this was a social net for the poorest of the poor and one had to ask how to ensure that these measures happened. It meant that the Committee might need to take a deep look at where the budget had not been cut properly. If it meant cutting VIP protection, politicians could do with fewer bodyguards this year in favour of ensuring that gogos do get the full inflation increase.

Mr Z Mlenzana (ANC) said he had seen the manner in which COSATU was trying to define what austerity was. He asked COSATU to talk more on its understanding of the austerity bias in the budget. Would COSATU still say that there was austerity regardless of the funding pumped into broadening the social network?

The Chairperson thanked the presenters and noted that his colleagues had said a mouthful.
He asked National Treasury to talk about the R384 million funding to Alfred Nzo municipality which it had blocked.

Ms Wendy Fanoe, Chief Director: Intergovernmental Policy and Planning, National Treasury, explained that where funds got withheld was when there was persistent noncompliance with the conditions of either a conditional grant or the equitable share. In the instance of Alfred Nzo, there had been substantial non-performance and the funds were withheld. Treasury could give a detailed written response to the Committee on the exact details and would do so today.

The Chairperson thanked Ms Fanoe. He noted that Amandla.mobi had spoken about the need to increase the grant from R350 to R500 and that it should not stop in April but rather continue. He wanted to check if Amandla.mobi had calculated how much that would cost and where they saw that money coming from. It had to be remembered that everyone was complaining about debt explosion in South Africa. This was a question for Amandla.mobi because the gogo in their submission was talking about their grant being increased to R2500. Again, what would the impact of this be on the budget and fiscal framework?

SAICA had spoken about the restoration of trust in the credibility of the state. What would SAICA say if he said that this responsibility also extended to the credibility of the private sector? The private sector was very important for the economy. When big companies like Steinhoff concoct their annual financial statements, investors relied on these to make financial and investment decisions. The question arose if the world can put any reliance on the annual financial statements and statements emanating from these companies who have supposedly been audited. He wanted SAICA to comment on the credibility crisis as it was not a government crisis only, but became even worse when such challenges were coming from the private sector. SAICA has noted a concern about labour, which he had not understood well. Can SAICA provide more meat? SAICA had said that the introduction of GRAP would help to prevent unauthorised expenditure. How so?

COSATU pushed for the centralisation of procurement. It was based on a number of assumptions but did it see a possibility of centralising corruption when that happened. What was COSATU doing about the productivity of its members, especially within the civil service, customer services, attitudes etc.? A lot of people had been arrested such as at the Department of Home Affairs. It was not the politicians or top officials within Home Affairs but rather ordinary staff members who had stolen identity documents. What was the problem COSATU was having in dealing with this challenge? He wanted to hear COSATU’s view on a carbon tax decrease. What would COSATU like to see emanating from that additional money going into the pockets of the private sector? Or has COSATU involved the private sector on this? He agreed that a lot had come out of the interaction. There were obviously always other views when it came to these things. However, with the time constraint the Committee had, they were not in a position to explore. Members were correct that the Committee needed more time outside of the budget process to deal with these issues of national importance.

Amandla.mobi response
Ms Dineo Rabaholo, Amandla.mobi Junior Campaigner, said that Amandla.mobi was very encouraged that there was a unanimous decision that the SRD grant should be extended. Amandla.mobi hoped to see this explicitly stated in the recommendations and report that comes out of this Committee meeting. Mr Qayiso had spoken about the Basic Income Grant. Amandla.mobi’s proposal was that the SRD grant be implemented into a basic income support as it provided the obvious administrative platform for that. Extending the SRD grant and seeing the huge role that it played in society was a way to show commitment to the Basic Income Grant. This would be a direct way in which the Basic Income Grant could be implemented easily.

The question of money was always intriguing but Amandla.mobi had an answer. In the current year, Amandla.mobi had campaigned for a wealth tax. Amandla.mobi had done the research and had even calculated how much could be received out of taxing a certain sector of the population which held a huge chunk of resources in the country. Amandla.mobi thus had suggestions and she knew that there were other suggestions that organisations had presented. Amandla.mobi had these answers and welcomed a chance to sit and engage robustly. They did not just shout out about problems but also did the work of engaging solutions. The solution that Amandla.mobi was proposing this year and asking government to take seriously was to introduce a wealth tax. Wealth tax as a way to provide the money that would be needed for social spending.

She agreed with Mr Mathafa that safety nets needed to be strengthened. If households were left in hunger then it just created a bigger problem. Leaving people starving created a bigger problem than what was currently faced with. The SRD grant was a way to strengthen not just people’s ability to afford food, to eat, and not starve, but also to mitigate the problems that government kept saying they had and why they could not afford it. Giving people cash allowed them to be active in the economy.

The old age grant had been raised and it was important to know that the old age grant indeed carried communities. Amandla.mobi has ensured that many gogos could give testimony on how their old age grants sustained communities and took care of kids. If Amandla.mobi burdened existing social grants by ignoring the need for the SRD grant extension or Basic Income Grant, they were burdening the ability to care for what the grant was intended for. There was an intersectionality of all these grants that could not be ignored.

The Chairperson said that Amandla.mobi had made some calculations and modelled what their proposals would cost, for example, the increase of SRD grants from R350 to R500 and the old age pension to R2500 etc. Did Amandla.mobi have these calculations?

Ms Rabaholo confirmed that Amandla.mobi had the calculations. Amandla.mobi could give the Committee a written breakdown of all their research. However, for now, they would rather not get stuck in the numbers in saying they had solutions such as taxing the rich and increasing personal income tax for other people. The calculations and solutions could be provided to the Committee in writing as to go into numbers now was quite extensive.

The Chairperson asked if Amandla.mobi had the numbers, so the answer was either yes or no.

Ms Rabaholo confirmed that Amandla.mobi definitely had the numbers.

The Chairperson said that the Committee could not deal with items that had budgetary implications without numbers. He was asking for written calculations as that was what he had expected. The Committee had suggested that they needed to have more engagement on this so he just wanted to get confirmation that Amandla.mobi already had the numbers. He was sure that when Amandla.mobi talked about wealth tax that they knew how much they would get from it.

SAICA response
Dr Smulder replied to Mr Mathafa’s first concern on oversight and consequence management, as well as how it was not being implemented and that it would be costly to discipline. Not to discipline would be even more costly when thinking about the consequence. At the moment, services were being paid for but were not being received. If one kept paying for something that was not being delivered, this was costly and the economy would go down. In contrast, she appreciated his views on outsourcing as it was definitely something that needed to be looked into. The wage bill was high, and it was higher compared even to the private sector, yet value for money was not being received. SAICA was asking why so much was paid to staff, well above what the private sector was getting, yet departments were still having to use consultants and outsourcing.

In certain departments this was necessary and SAICA understood this, but there were certain departments where it just did not make sense. SAICA would thus really appreciate a further look or research into this to see where money was being spent. All of these things, as was the same for unauthorised, fruitless and wasteful expenditure, was the question where the money should be coming from. She mentioned the wealth tax. South Africa’s revenue was not a problem as the country had almost 2 to 5 times more revenue now than at the start of democracy. Thus, the problem was not the money as South Africa had the money. The problem was that the money was being spent incorrectly, which was the problem that needed to be addressed. Everyone needed to stop asking where the social grants would be found as it would come from solving these problems. They therefore needed to stop wrongful expenditure from being incurred and it needed to be stopped before it has actually been paid.

Mr Faber said that Members had asked if it was actually a good mechanism to withhold money as one heard the concern about service delivery. This was not a SAICA proposal as it was actually a mandate inserted into the Constitution that money should not be given to those who cannot spend it properly. This was why the mechanism was already in the PFMA and MFMA which said National Treasury must withhold the money if people are not compliant. It was thus as easy as that and it was a good mechanism. He agreed that it did not solve the lack of accountability but motivated those who were accountable to start doing something.

The other important thing was that National Treasury had been heard saying they would give a report back on Alfred Nzo municipality, the problem was that this mechanism could not used once things had already failed. This was supposed to be a mechanism that acted as a threat that municipalities or departments will not get the money they need for the next month unless they fix what needed to be fixed. Once a municipality or provincial department has imploded, if one gave money or not was neither here nor there. The big problem was that everyone was not seeing that giving more money did not correlate to service delivery improvements. This could be seen in the both Basic Education and Water and Sanitation. South Africa was probably spending the highest percentage in the world on education, yet we had one of the lowest percentages for Grade 4s reading with understanding. More and more money has been given to DBE and no improvements have been seen, so giving more money did not solve the problem.

Ms Tlou Seopa, Amandla.mobi Social Activist, posted a link to the Tax the Rich campaign (https://act.amandla.mobi/campaigns/tax-the-rich). Amandla.mobi’s problem was that they were being told that there is no money and asked from where the money will come. Amandla.mobi was bringing a solution to that – being to tax the rich.

Dr Smulders thanked Ms Peters for her suggestions and for asking what SAICA was doing about this as she was 100% correct. SAICA was only one role player and, as she had said in her submission, if there were more of them it could only be imagined what could be achieved. Ms Peters had asked what interventions SAICA was offering at this level. SAICA had a public sector division and had started working with schools. They had started on the schools’ financial side by looking at granting a set of financials for schools. National Treasury could not tell SAICA anything about the overall state of capital expenditure because every school was reporting on it differently. SAICA had come up with a template and they were working on it. She thinks it had been expanded to almost 200 schools now. SAICA had seen a notable improvement in the finances and participation of the School Governing Body (SGB), leaving the SGB more informed on what decisions were being taken by the school so that their children got a better education. SAICA was doing this at the Technical and Vocational Education and Training (TVET) colleges as well as some hospitals. In looking at the financial management SAICA had people shadowing the financial managers to assist them with the accounting. SAICA was not doing nothing and they had started. She reiterated that if more people could get involved then this was definitely something that could help government improve the financial dilemma it was sitting in. It was known that a lack of skills was a problem and SAICA had extended their hand to assist. She explained that SAICA had been doing this for years, it had been successful, and they would be continuing.

Mr Pieter Faber, Senior Executive: Tax Law and Practitioners, SAICA, said that SAICA had probably learned from collaborating with government that there seemed to be a reluctance to collaborate. He clarified that he was talking about collaboration in general. The initial fear that people would hold them accountable needed to be overcome in order to collaborate. Collaboration was there so that things could be made better. To some extent, finger pointing did provide accountability but at some stage everyone needed to stop pointing fingers and start working. Part of the problem was if everyone could actually meet each other in the middle and accept the collaboration. This was where the Committee and other parliamentary committees were quite important in that they could be a starting point to getting that collaboration going. SAICA was quite happy to extend that collaboration.

He noted Mr Sarupen's very good suggestion about top-slicing the budget to get rid of the mountain of inter-departmental debt and this should be done at the appropriations level to equalise the books. The Committee was in exactly the right position to say that these interventions needed to be done if those people who were supposed to be accountable were not.

The Chairperson had asked SAICA to explain their comments on labour. SAICA’s position was that they accepted COSATU’s statement that running a country was not like running a company as one could not simply retrench people out of the economy because they needed to work somewhere and earn a salary. However, other realities were present as well in that the public sector was not giving the productivity they had been paid for. There needed to be a quid pro quo. If it was said that jobs and salaries were going to be maintained in the public sector, measures needed to be looked at. The budget then needed to appropriate money to implement that. How was it going to roll out individual performance management and oversight on productivity? Where is the budget for this? Are these implementations actually being budgeted for? When talking about skills, was money actually being budgeted to skill and train people?

The difference between Modified Cash Basis (MCB) of accounting and GRAP is that GRAP is internationally adopted. Hence, the Accounting Standards Board had adopted GRAP back in 2012. GRAP was an accrual basis of accounting. The MCB had some accrual elements but it was a cash basis of accounting and a very crude type of accounting. The problem that SAICA was seeing, especially on unauthorised expenditure, was if one did not pay somebody, one did not incur unauthorised expenditure because expenses are recorded when the cash is paid. One could get a service provider to do services but if they are not paid then it would not be unauthorised. What the Auditor-General had reported was a lot of municipal departments were incurring costs by getting a small business to deliver the service and then the small business is just not paid. These departments were then rolling forward the non-payment until the following cycle when they have the cash available, because then it is no longer unauthorised expenditure. If it had been accrual accounting, departments would not be able to hide the unauthorised expenditure as they have to accrue that amount in the current year and show the money spent whether they had paid the creditor or not.

In SAICA’s view, this had a knock-on effect on non-payment of small business within 30 days. It cannot believe that government is unable to pay people and process an invoice in 30 days. This seemed to add to the concern that the problem was perhaps not the inability to process payments but rather there is something else preventing payment within 30 days.

SAICA agreed with the Chairperson’s statement on credibility. On this point, within the previous three years SAICA had redone its own governance structure, redone their board to ensure independence, they were busy with a trust reform project, there was audit reform, and the Minister of Finance himself had taken quite severe steps on the Audit Regulator as well. SAICA had also totally redone their disciplinary functions to make it a lot easier to go after members and they had spent a lot more time and money in achieving this. Globally, since 2017, SAICA had included non-compliance rules and regulations where members were compelled to disclose non-compliance with legislation – including in the public sector where they were to document and escalate this, so they could no longer ignore it and walk away. SAICA was cognisant that this was not just a public sector but a private sector problem as well. SAICA committed to both assisting the private sector in rolling out better oversight and ethics, with ethics being a structural pillar the SAICA Board had introduced, as well as its role in advocating and fixing things on the other side by determining how to show what was going wrong, hold people accountable, and then take hands once they knew what was wrong and jointly help fix these things.

COSATU response
Mr Parks responded to Ms Peters’ suggestion of a longer discussion. COSATU would always be available and welcomed the discussion especially since nowadays one did not have to be physically at Parliament as the discussion could be held virtually.

He agreed with Mr Mathafa in that a culture of consequence management needed to be introduced, which had sadly collapsed over the previous decade or more. Additional green shoots and progress had been seen in restoring that culture at Eskom, where Eskom was seen pursuing corrupt contracts, and even in the private sector – recovering some of the money to the value of R4 billion. Some of these officials were now being dealt with, which was what needed to happen. There was a choice as to whether to protect the poor, protect the public service, or dump the consequences of corruption on them, and it seemed as though the latter was being chosen. Government was choosing to abandon the poor and the public service and were not dealing with the fundamental causes of the fiscal crisis, corruption, etc. Not all vacancies needed to be filled. There were certain fundamental roles that had to be filled in the Department of Health (DOH) and amongst teachers, police officers, etc. They could afford to reduce the management posts and policy posts as they should be shifting people to the frontline service delivery departments.

He said that there was widespread consensus about the need for some sort of Basic Income Grant across political party lines and within COSATU. For COSATU, the question was when this was to be done. Is it done when the country is in the worst economic crisis in 100 years and the poor are absolutely destitute? Or is it kicked down the road, as government was proposing, to when times are better? This did not make sense as there needed to be maximum social relief when times were the worst. As times got better and people moved to jobs, there would be fewer people dependent on the state to survive – which is what government wanted. COSATU thought that the R350 grant, with all of its issues, was a Basic Income Grant in essence, it was affordable at about R2 billion a month, and that it should be retained. There were other ways where expenditure could be cut.

The Committee had asked the fundamental point of where government was to get the money from. COSATU understood why government was going for the wage bill because it was easy, low-hanging fruit – one could just go to PERSAL, type in the numbers, and implement. Nurses would continue to report to duty because they had chosen that profession as a call of duty. SAICA’s response on where to get the money from, was by reducing corruption and wasteful expenditure and holding officials to account. Government invested in SARS because SARS was going to regenerate a return on investment. There were huge amounts of money lost to tax evasion by the rich and customs evasion in imports. The terrible state-owned enterprises needed to be fixed because the country could not afford to bail them out every year for billions of rands. If the economy were stimulated and companies grew, they could pay income tax, keep workers, and pay their income and value added tax.

On the wage bill, what politicians and management earned should be reduced – especially within the SOEs and public entities. There should be a single wage bill for the entire state that would save significant funds to the fiscus. However, workers like nurses, teachers, and police officers needed to be protected. While these frontline workers are paid a pittance, the question was how they were going to be productive and not be open to abuse and corruption. One could not compare the public service, which does not employ farm workers, to the private sector which employed farm workers. It would be useful to have a discussion about the wage gap. The public service wage gap was about 1:13 between the cleaner and the Director-General. In the private sector the wage gap was about 1:35, as there were seniors in mining industries earning R50 million to R100 million per year and cashiers who were largely African and Coloured women and who were lucky to earn high enough to pay income tax. There should be a discussion but that they should be principled about it.

On taxes, they would get more out of capacitating SARS to tackle tax evasion. Some taxes on the rich could be increased, as had been proposed, such as that around inheritance, duties and personal income tax on the rich. However, again, SARS would need to be capacitated. The issue was around where to get the money from. He suggested that the Public Audit Amendment Act be implemented and that the property that people had stolen from the state should be confiscated. COSATU welcomed the Treasury proposed amendment to Regulation 28 of the Pension Funds Act with the view that it would help inject investment into infrastructure. COSATU thought that the South African Reserve Bank could do more to provide relief with more affordable lending to the state, as well as to consumers and the economy by reducing the repo rate.

He agreed with Ms Peters in that the submissions had to come with proposals and solutions, which was what COSATU had tried to emphasise. In the previous year COSATU had pushed to release money further into the economy. To date, COSATU had managed to push almost R60 billion into saving jobs and businesses. COSATU had drafted the Eskom Social Compact which spoke to reducing the debt burden to Eskom, as well as the economic recovery plan. However, COSATU was not always sure to what extent government or National Treasury listened. COSATU’s experience was that in money instances there was real lethargy by National Treasury to listen to proposals. However, they appreciated that National Treasury did not have all of the power themselves and were dependent on other departments and provinces to behave.

He thought that these issues could be dealt with in a political way by government and with a sense of patriotism by the private sector, especially the banks. He responded to Mr Sarupen that COSATU had drafted the Eskom Social Compact to provide its contribution as a trade union movement to assist in the most critical national company which everyone depended on. However, this could only work once-off. Eskom could be assisted to reduce the debt burden once-off but this could not be done if government, at a provincial and municipal level, did not pay its bills. It was worse when municipalities had collected payments from consumers but then held on to these and had not paid it over to Eskom. Everyone needed to move to a single account where Eskom could be paid directly so that Eskom had constant cash flow. However, this meant that the municipal model would have to be revisited because the 259 municipalities were not sustainable at this rate.

He responded to Mr Mlenzana on austerity. The expenditure allocations to departments were not being increased to keep up with inflation. The allocations were below inflation and there were actual cuts in provincial allocations, and the social grants are not keeping up with inflation. The R350 Covid-19 grant was also being stopped from April and even though government did not contribute to the Unemployment Insurance Fund (UIF), government was not keen to extend the UIF relief grant beyond March. The loan guarantee scheme, despite the President in the State of the Nation Address stating its revamp, National Treasury and the banks have announced that they were stopping it in April.

The message to workers was that these benefits were being cut and the wage bill was being frozen for four years but company tax was still going to be reduced, which was a contradiction to the point raised by the Chairperson. Thus, workers were being squeezed but relief was going to be provided to company tax. The difficulty with company tax was that COSATU understood Treasury's argument that company tax could not be increased due to international competition and attracting investment. However, company tax had been reduced before and it did not result in increased investment or increased jobs. There should rather have been a linkage so that company tax would be reduced if jobs were saved and created. The fundamental concern was to create jobs because if a person had a job then they were not dependent on the state.

On centralised public procurement, there were always pros and cons to any argument. During 2020 on Protective Performance Equipment (PPE), the clothing workers’ union, South African Congress of Trade Unions (SACTU), had monitored the PPE tenders going out at provincial, national and municipal level. It was very difficult to chase a myriad of departments. What SACTU had found during their chase, and COSATU had tried to assist them at times, was that the costs were far above National Treasury regulations. Suppliers were bleeding the state. The quality of the PPE did not meet the specifications set by DOH. Often the PPE was from China of course and not locally produced. It was easy to procure the PPE centrally in the National DOH and then distribute it. This would allow DOH to ensure that the quality, prices, and local procurement elements are adhered to. What was seen with the PPE was a Wild West, where companies that did not exist the day before were registered overnight, often linked to powerful people, who got tenders immediately. A similar trend was currently being seen for vaccine supply equipment as companies were being registered overnight.

On corruption by public servants, just because one had a COSATU T-shirt did not mean that one was exempt from the law. The law was the law and where workers had stolen money the law had to be implemented without fear or favour. There were engagements within the trade unions with Eskom and Passenger Rail Agency of South Africa (PRASA) management about what workers could do to combat corruption. This included looking at a code of ethics for workers to sign, and COSATU had also made proposals to the Department of Public Enterprises about needing to institute independent audits and proposals about Eskom because the supply chain budgets were so huge and the pilferage there was massive. There would be instances where Cosatu members would be implicated and the law had to be applied. However, the Department of Police and National Prosecuting Authority also needed to play a role. Additionally, cleaning up was seen in Eskom, which was positive and gave COSATU hope.

On productivity, the first question was why management was not doing what it was being paid to do, which was to manage the public service. If directors-general, deputy directors-general and chief directors could not do the job, then they had to be let go. At Home Affairs there were huge vacancies, so where there should be six staff on duty there might only be two on duty due to vacancies. Long ago Home Affairs had wanted to leave the services of the State Information Technology Agency (SITA) because its IT system crashed half the time. People who had queued from early in the morning then had to return the following day. It was difficult to motivate staff who were working excessive hours, where their overtime had been cancelled, and were told they would receive no wage increases for four years. In effect, this meant that wages were in fact cut due to inflation. The same thing was happening with teaching, where the teacher to learner ratio was increasing. This was worse in township schools where there were broken windows and roofs, where more than 1000 schools did not have decent sanitation and kids had to go to the toilet in the bush, where textbooks were delayed, and where there was violence in Cape Flats schools. It was very difficult to motivate a teacher when they were scared to reprimand a learner because parents would threaten them with violence. In the DOH, nurses and doctors were working 48 hour shifts. The Covid-19 infection rate amongst nurses and doctors, and even police and prison officers, was about six times the national infection rate. These officials were doing their level best despite feeling they had been abandoned on the wage front.

Mr Mathafa said he wanted to correct Dr Smulders on her response as both their network connections were not good and perhaps she had not caught his input properly on discipline. However, he was comfortable that Mr Parks had heard it and captured it correctly in that he agreed with SAICA. His view was that they needed to be aggressive with disciplining, which had to be felt, known, and act as an instrument to discourage those who might want to put their hands in the cookie jar. Alternatively, where there was no commitment to discharging their duties. He fully agreed with Dr Smulders’ inputs that it was very costly not to discipline – as could be seen in the leakages and wastages experienced.

Dr Smulders agreed with Mr Mathafa.

The Chairperson thanked the presenters. The Committee took the presenters’ inputs seriously and they informed the Committee’s view on a number of issues. The Committee might not have agreed with everything that the presenters were saying but it was certain that they helped the Committee to widen their horizons on a number of matters and this was appreciated.

The meeting was adjourned.


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