In a virtual meeting, the Budget Committee was briefed by the Western Cape Provincial Treasury on the Third Adjustments Appropriation Bill for the 2020/21 financial year, the third quarter financial and non-financial performance, and on the Western Cape Appropriation Bill for 2021.
The Provincial Treasury stated that the third quarter financial performance included the November 2020 adjusted budget, which had seen a R118.931 million net reduction, with a cut in the compensation of employees (CoE) and a response to the Western Cape (WC) recovery plan. The province had recorded spending amounting to R51.461 billion, or 72% of the R71.545 billion adjusted budget. At the end of December 2020, the province reflected a net projected over-spending amounting to R135.465 million for the 2020/21 financial year. Overspending by the Health Department amounted to R136m, with Provincial Treasury projecting under-spending of R818 000. To alleviate pressures faced by Health, a third adjusted budget was needed.
The Committee was told that during November, provincial institutions had been allowed the opportunity to change performance indicators for 2020/21, based on the impact the COVID-19 pandemic on the achievement of planned performance targets. All change requests were reviewed by the Provincial IY Change Committee. From the total of 784 performance indicators for departments, change requests to 141 had been submitted. From the total of 132 performance indicators for public entities, change requests to 19 had been submitted.
The Department provided an overview of the world economy, and its impact on the country and the province. The Western Cape’s growth was expected to recover at 4.6% in 2021 and 3.1% in 2022. The Western Cape gross domestic product was expected to surpass 2019 levels in 2022.
The Member wanted to know whether there had been any engagements with departments as to how the “missing middle, or new poor” could be assisted and if so, if any guidelines or considerations had been issued by the Provincial Treasury to the departments.
A Member said that not knowing created anxiety and panic, and therefore wanted to understand what had informed the comments made regarding the vaccine rollout and the third wave in the Minister’s speech. An update was sought as to whether engagements had begun on the provincial vaccine procurement process, and what had been discussed thus far. Given that an estimate of R75 million had been allocated to towards the actual vaccine costs to meet a possible shortfall of 500 000 elderly people, the actual cost per vaccine was also requested.
Regarding the compensation of employees, the Department was asked whether most of the deductions would be linked to a wage freeze, or to not filling vacant posts. A Member also wanted to know how the budget would be administered to address the issues of inequality and inclusive economic growth in the province.
The Chairperson welcomed Committee Members and the delegation to the meeting. The rules of engagement were explained, and apologies were tabled.
Third quarter performance
Mr David Savage, Head: Western Cape Provincial Treasury, said that the third quarter financial performance included November 2020 adjusted budget’s R118.931 million net reduction to the main budget, with a reduction in the compensation of employees (CoE) and responding to the Western Cape (WC) recovery plan.
The province had recorded spending amounting to R51.461 billion, or 72% of the R71.545 billion adjusted budget. At the end of December 2020, the province reflected a net projected over-spending amounting to R135.465 million for the 2020/21 financial year. Overspending by the Health Department amounted to R136m, with Provincial Treasury projecting under-spending of R818 000. To alleviate pressures faced by Health, a third adjusted budget was needed.
The Western Cape public entities reported a total spending as at 31 December of R522.177, million or
66.4% in relation to the R786.759 million adjusted budget. The projected under-spending amounting to R53.761 million, which was mainly related to the following entities:
Western Cape Nature Conservation Board: Expenditure of R258.631 million, or 70.6% of the R366.574 million adjusted budget, with a net projected under spending of R28.805 million.
Western Cape Gambling and Racing Board: Expenditure of R43.871 million, or 62.7% of the R69.971 million adjusted budget. The projected under spending of R9.523 million was mainly attributed to goods and services, due to the COVID-19 pandemic as well as under-spending recorded on CoE, related to vacant posts not filled as planned; and
Western Cape Tourism, Trade and Investment Promotion Agency: The entity reported spending amounting to R97.666 million, or 62.3% of the R156.768 million budget. Under-spending of R7.771 million was projected, impacted by the COVID-19 pandemic and lockdown regulations, which resulted in planned spending not materialising due to the postponement of planned events.
Provincial own revenue collections amounted to R1.931 billion, translating to 79.7% of the 2020/21 adjusted budget of R2.423 billion.
The provincial revenue fund included income from the following sources:
Tax receipts, consisting of gambling taxes and liquor licence fees. Total gambling taxes (casino and horse racing taxes) collected amounted to R300.526 million, or 50.1% of the R599.444 million adjusted budget; and
Liquor licence fees registered zero collections, as the budgeted revenue was anticipated to be collected during the final quarter of the 2020/21 financial year.
Departmental revenue included the following:
Own revenue collected amounted to R316.197 million, which was lower than the R536.217 million collected at the end of December 2019. Lower collections were attributed to the national lockdown conditions, resulting in lower hospital patient fees collected from the Road Accident Fund, and a decrease in submissions of medical scheme claims. The Department reduced its own revenue target as part of the second adjusted budget process by R113.067 million, due to the impact of the COVID-19 pandemic.
Transport and Public Works:
The Department recorded own revenue collections of R1.446 billion, or 76.2% of the adjusted budget. This was derived mainly from motor vehicle license (MVL) fees, which recorded collections of R1.345 billion, compared to R1.335 billion collected over the same period in 2019/20.
Own revenue collections amounted to R102.910 million, or 154% of the 2020/21 adjusted budget, consisting mainly of returned subsidies from municipalities remitted to the Department, as well as the sale of property assets.
Ms Zeenat Ishmail, Chief Director: Strategic Management Information, Department of the Premier, said that during November 2020, provincial institutions were allowed the opportunity to change the performance indicators for 2020/21, based on the impact of the COVID-19 pandemic on the achievement of planned performance targets. All change requests were reviewed by the Provincial IY change committee. From the total of 784 performance indicators for departments, change requests to 141 (18%) were submitted. From the total of 132 performance indicators for public entities, change requests to 19 (14%) were submitted. The majority of changes were towards the adjustment of indicator targets for quarters three and four, as no changes were allowed for quarters one and two. All IY changes were formally tabled, and the Electronic Quarterly Performance Reporting System (eQPRS) was updated accordingly to share the correct performance data.
A survey confirmed a total of 11 new Covid-19 interventions were implemented across the Western Cape government by departments and public entities.
Mr Savage said that the global economy had contracted by 3.5% in 2020, but would rebound by 5.5% in 2021 and 4.2% in 2022. South Africa’s gross domestic product (GDP) had declined by 7% in 2020, but would rebound by 3.3% in 2021 and 2.3% in 2022. South Africa’s unemployment rate had increased to 32.5% in the third quarter of 2020.
In the Western Cape:
The economy was expected to contract by 6.4% in 2020.
The provincial growth was expected to recover at 4.6% in 2021 and 3.1% in 2022. The Western Cape GDP was expected to surpass 2019 levels in 2022.
The 2021 recovery would be led by the trade and finance sectors, each with an expected contribution of 1.7 percentage points to provincial growth.
More specifically, there would be a rebound in the tourism sector, the impact of drought recovery and implementation of the vaccination programme on economic activity.
Mr Savage said there was a sharply weakened fiscal outlook for South Africa. The national medium term budget policy statement (MTBPS) had highlighted a rising public debt overhang, and servicing costs were generating powerful negative fiscal dynamics. There were significant cuts to provincial transfers from 2020 and over the 2021 medium term expenditure framework (MTEF), including R18 billion for CoE, and R3.2 billion for non-compensation fiscal consolidation.
An overview of the national budget indicated:
R2.02 trillion in total consolidated spending in 2021/22, of which 56.8% would go to education and culture, health and social development.
Rising debt-servicing costs would consume R269.7 billion, or 13.4% of the budget.
48.7% of the budget would be allocated to national, 41.9% to provinces and 9.4% to local government over the MTEF after debt-servicing costs, contingency and provisional allocations.
What did the national budget mean for the Western Province?
Its share of spending on the provincial equitable share had been falling since 2010/11.
Debt servicing costs had risen over the same period.
Spending on state-owned enterprises (SOEs) had also risen
Similarly, the provincial equitable share as a percentage of the GDP was projected to decline, after peaking in 2020/21 as a result of additional spending on COVID-19
Priority Spending Areas
The vaccine rollout would follow the three-phased approach.
National government had allocated R156.690 million in conditional grants for rolling out the COVID-19 vaccination programme, and R832.085 million in the provincial equitable share (PES) to respond to the pandemic within the heath sector.
Due to extensive uncertainties related to a potential third and fourth wave, the Eastern Cape government (WCG) had allocated an additional R150 million towards the COVID-19 vaccination programme.
R75 million had immediately been provided for possible vaccine acquisition should there be delays with the national acquisition, for whatever reason.
This would be enough to acquire vaccines for approximately 500 000 people, or all of those in the Western Cape over 65 years old.
There was a need to maintain fiscal flexibility for the health platform to ensure an agile response: R800 million had also been ringfenced in a COVID-19 reserve.
Responding to localised social distress in 21/22
Vulnerable communities in targeted local areas may face periods of elevated distress during 2021/22.
R100 million was proposed to support targeted intervention programmes that would provide food relief and immediate, short-term work opportunities.
Western Cape Recovery Plan
The 2019–2024 provincial strategic plan (PSP) remained the guiding document for the growth and development of the Western Cape.
The recovery plan outlines the priorities of the WCG, which were in line with the five vision-inspired priorities (VIPs).
The recovery plan provides a clear plan for COVID-19 recovery. It was built on four themes -- the COVID-19 response, jobs, safety and wellbeing
At the centre of these four was dignity. This placed the residents of the Western Cape at the centre of everything that the WCG does.
Referring to the remaining risks and pressures, Mr Savage said there were significant downside risks over the 2021 MTEF:
Rising debt levels may result in further budget reductions by the national government, requiring the WCG to have a medium to long term fiscal and policy approach in place.
COVID-19 uncertainties would remain over the medium term, requiring containment costs, vaccination roll-out timeframes and socio-economic implications.
Ageing infrastructure and infrastructure backlogs impacting on service delivery, with exponential cost implications for future budgets and growth prospects.
Human resources risks: i) Compensation risks related to the final outcome of the wage agreement. Ii) Personnel risks: loss of skills, fatigue and well-being, diminishing productivity.
Vote-specific pressures: Department of Human Settlements (DHS), Department of Health (DOH) and information communication technology (ICT) infrastructure.
Pressures on the fiscus would persist, emphasising the need to:
Implement alternative service delivery models -- streamlining the functions and structure of government (new way of work, intergovernmental re-alignment).
Implement an integrated compensation and staff productivity strategy
Ensure mitigation of governance and sustainability risks in local government and public entities
Implement non-fiscal measures.
Mr R Mackenzie (DA) said that unfortunately, the Committee knew the constraints which had forced some of the decision-making regarding the budget. It was crucial for government to provide hope, which according to him the budget had succeeded in doing. While he appreciated the allocation to humanitarian relief, the “missing middle, or new poor” was something which needed to be considered. He wanted to know whether there had been any engagements with departments as to how these people could be assisted. If so, had there been any guidelines or considerations given from Provincial Treasury to departments?
Secondly, he asked whether any discussions had taken place as to how the Western Cape would be procuring the vaccine, and whether the Ministry of Health would be responsible for it. More information was requested regarding the previous infrastructure announcement and whether it would be solely under the Department of Public Works and Transport. With the announcement by Eskom that load-shedding would become a frequent reality for the next five years, a perspective from the Department of Economic Development was sought. Strategies by the various departments on how they would be dealing with load-shedding should be shared with the Committee. Lastly, he wanted to know if any meeting had been held to understand how to improve the equitable share.
Ms N Nkondlo (ANC) wanted to know what had informed the comments made regarding the vaccine rollout and third wave in the Minister’s speech. Stating that they did not know created anxiety, especially regarding the third wave, which left people in a sense of panic. The Premier had previously spoken about a comprehensive plan. Clarity and expansion on the matter was sought, as she failed to understand how a strategy could be in place when they supposedly did not know things.
She asked whether engagements had begun on the provincial procurement process, and what had been discussed thus far. Information was sought as to the entailment and work being done regarding the fiscal future. Whilst the Premier had spoken of an infrastructure agency, the Minister had spoken about broadening or expanding private sector participation and involvement in infrastructure. An explanation was sought as to the relationship between those two processes, including whether it formed part of the preparatory infrastructure projects.
Mr A van der Westhuizen (DA), in reference to slide 52 of the presentation, said that it seemed to him as though quite a number of public entities’ budgets had not been adjusted during the course of the year. He sought confirmation as to whether any of those entities had been requested to not spend the money which had been allocated to them in their budgets. Referring to the infrastructure spending as of 31 December, he wanted to know whether it did not constitute a problem that some entities had spent their full allocation. Was it not a problem that some entities had no money to spend over the last three months of the financial year?
Mr C Dugmore (ANC) said that in the HOD’s input, reference had been made to the demographic shift in the Western Cape. It was clear that the increase in the population of the Western Cape had also resulted in a positive shift regarding the equitable share allocation to the province. However, it had not been identified as a risk by the Provincial Treasury. Despite there being an indication as to what would be spent on education infrastructure, over 6 000 learners continued not to have accommodation. He wondered whether Treasury had conceded that it had been an oversight, or whether education infrastructure was not seen as a priority. Given that the situation impacted mainly on the historically disadvantaged, he asked why the issue of space in schools had not been raised in any of the recovery plans.
He argued that if the Western Cape was seeing more favourable allocations in terms of demographic shifts, then the province ought to see the actual prioritisation of spending to deal with the critical component for the success of the province – the education of its children! There were no details as to how to address the education accommodation crisis for learners in the Western Cape. However, there were former model C schools, such as Milnerton High School, which were prepared to accept additional learners, if additional accommodation was given to them.
He wanted to know exactly what had been meant by the reference to public participation leading up to the local government elections. Regarding the compensation of employees, he inquired whether most of the deductions would be linked to a wage freeze, and not the filling vacant posts. More information on the R5 million being spent on a Covid-19 was requested. Given that an estimate of R75 million had been allocated towards actual vaccine costs to meet a possible shortfall of 500 000 elderly people, the actual cost per vaccine was requested. Lastly, given the allocations which had been made to meet the various shortfalls, what was the current status of the provincial reserves?
Mr L Mvimbi (ANC) asked whether the recovery plan also dealt with the issue of restructuring the economy of the Western Cape. Addressing the plight and challenges of small, medium and micro enterprises (SMMEs) was key to the reconstruction of the economy. Regarding infrastructure, the presentation seemed to talk more to the maintenance aspect of infrastructure. He asked for more information around infrastructure development, rather than just infrastructure maintenance. The Minister’s speech had mentioned the fighting of corruption, but the focus remained at the local government level. He asked if that meant that there was no corruption at the provincial level. Lastly, what were the plans or strategies to deal with corruption?
Finance Department’s response
Mr David Maynier, Minister of Finance and Economic Opportunities, Western Cape, responded that the Provincial Treasury, as indicated in his speech, had emphasised the need to protect the baseline budget of the Department of Education with an additional the amount of R4.33 billion over the medium term. An additional R192.5 million for infrastructure had been announced during the medium-term budget policy statement.
Regarding the third Covid wave, the statement from the speech was drawn from the viewpoint of the Department of Health. From a modelling point of view, there were significant uncertainties in the environment, which made it difficult for the DOH to forecast or predict exactly where, how and when the third wave would strike. The vaccine procurement was being led by the DOH.
Regarding load-shedding, in his speech he had showcased and pointed to their new municipal energy resilience programme and how it would be funded over the next three years. The programme built on work already being done as part of the energy game changer in various departments, which included looking at alternative sources of energy.
They were actually reducing the role of the state in the economy due to dealing with the serious constraints to economic growth. SMMEs were of vital significance to the economic recovery of the Western Cape. The Covid-19 relief fund had been able to assist many small businesses to stay afloat. Due to the significant uncertainties in the environment, R800 million had been ring-fenced and made available in order to absorb the various cross-pressures in dealing with the fight against Covid-19.
Corruption remained a concern across all spheres of government, so they had implemented their procurement disclosure report. Forensic investigation services would deal with allegations in relation to the provincial government. He assured the Committee that they all allegations of corruption, as they related to municipal and provincial government in the Western Cape, would be taken seriously and dealt with appropriately.
Mr Savage responded that there were no specific guidelines to address the ‘missing middle’ from Treasury’s side. As the provincial government, there had been an integrated work group with the Department of Social Development (DSD), the Department of the Premier and the Centre for Innovation, in order to try and better understand the location, the nature of the vulnerability which families were facing, and the extent to which they were being missed by social safety nets which were available across government. An enormous amount of work was being done in the non-governmental sector as well.
Regarding infrastructure, there was a clear value change relationship between the preparation of infrastructure projects, the financing of those projects or the portfolio of projects, depending on the financing instruments which were being used and the delivery of those projects. That was then wrapped up with the ownership of the asset and what one did with the asset over the long term. It was a full lifecycle value chain which needed to be considered with infrastructure management. The budget was dedicated to the project preparation financing, because that was often underinvested in, leading to delays in the project preparation readiness for implementation. Regarding the nature of the infrastructure agency, they would be drawing on external expertise to advise on those issues in order to get the best outcome for the province.
The compensation of employees had been included in the Provincial Revenue and Expenditure Overview booklet. Page 80 would be valuable to the Committee in terms of providing some of the data on compensation. Under-spending tended to be a temporary factor. It was the saving which was generated from the time between an employee leaving and a replacement being hired. It was a function of the churn rate, which was inherent to any organisation structurally.
Dr Roy Havemann, Deputy Director-General: Fiscal and Economic Services, Western Cape Provincial Treasury, said that page 45 of the Provincial Revenue and Expenditure Overview tried to explain in more detail some of the matters referred in the presentation. The bottom of page 45 spoke to the risks associated with the vaccination programme. Firstly, while the national government had allocated R156 million to the Western Cape, they believed that the costs associated with the programme would be significantly more. Secondly, the risk was that there would be insufficient vaccines to meet the demand.
There were regulatory framework issues, both in South Africa and abroad, which needed to be looked at and taken into account when determining the amount which needed to be allocated. The estimates were very much preliminary, and would be looked at continuously.
Regarding the compensation issue, the national government’s strategy was to freeze wages for all employees, which included provincial employees. The strategy included implicitly freezing the number of employees, which remained a concern, as some departments naturally needed to increase employees for particular reasons.
Mr Klaas Langenhoven, Director: Infrastructure, Western Cape Provincial Treasury, said that the additional funding formed part of the economic recovery plan, and gave scope for assistance to departments. The overall budget varied between R1.8 and R1.9 billion for infrastructure, which would never be enough.
Ms Julinda Gantana, Deputy Director-General: Governance and Asset Management, Western Cape Provincial Treasury, responded that the Treasury and the Department of the Premier were working together to eliminate corruption.
In terms of the internal control units, a couple of years ago the Provincial Treasury had provided specific funding in order to ensure that provincial departments were adequately resourced to deal with corruption. It supported departments when it came to the assurance function’s independence. Their internal audit unit was located within the Department of the Premier. The access given provided them with a combination of factors to comfortably state that they had sufficient room to ensure that they provided and ran a clean government.
Regarding the procurement strategy, their broader strategy was not to change their strategy but rather to focus on governance capacitation and development, as well as on teaching, procurement and technology within the broader strategy. Regarding SMMEs, the reduction of red tape was one of the initiatives which was part of their e-procurement solution.
Mr G Brinkhuis (Al Jama-ah) thanked the Department for the amount allocated to the greater Cape Town area which, according to him, was the area with the greatest inequality in not only the Western Cape, but South Africa as a whole. He posed the question as to whether the Minister could guarantee that the budget received in the current year, would be received in the future once again in order to deal with the existing inequalities.
Mr Dugmore asked what the increase in the provincial equitable share (PES) had been from the previous year, based on the point raised in the HOD’s presentation on demographic shifts within the Western Cape. He believed that it required a look at the prioritisation of the provincial budget itself. Secondly, he asked what the nature of the public employment mentioned was. Later in the year, the MEC would be receiving the provincial and municipal economic reviews and outlooks (PEROs and MEROs), but the presentations had avoided looking at issues of broad based black economic empowerment (BBBEE) regarding procurement issues of ownership. The MEC was asked to request those two important documents, and to focus on the racial composition of ownership of the different aggregate economic sectors of the Western Cape.
Ms Nkondlo wanted to know how the budget would be administered in addressing the issues of inequality and inclusive economic growth. Secondly, she sought to understand the formula which had been used to decide which performance indicators could be changed, and to what extent this had affected personnel and service delivery issues. Lastly, clarity was sought regarding the notion of ‘partially achieved’ and ‘not achieved’. She said it became confusing and allowed the Department to create a better image for themselves having achieved something when in actual fact, partially achieved meant not achieved.
Minister Maynier responded that he believed that the budget would make a significant dent in the inequality aspect. The commitment to mobilising R100 million, particularly for short-term employment programmes and humanitarian relief for communities in distress, at least signaled that the government was concerned and cared about people struggling in the Western Cape. The R50 million had been allocated to 14 departments of local government. The intention was to intervene where required and allow municipalities to implement short-term programmes which would bring relief to distressed communities. The MERO and PERO dealt with the whole question of inequality – the Gini-coefficients and the human development index. The proposals made would be taken under consideration.
Mr Savage responded that there were exogenous and external variables which would influence whether or not inequality reduced. The result of Covid-19 and the broader impacts of the pandemic had led to an increase in inequality levels. It would be inappropriate for the government to guarantee something which was not within their realm to deliver, but they could guarantee that no stone would remain unturned in making sure that funds were spent properly and according to the purpose for which they had been allocated.
Whether education in South Africa was under-funded was something which he believed needed a deeper discussion. In terms of the global perspective and according to ‘per capita,’ that did not seem to be the case. Page 69 of the booklet dealt with some of the issues around prioritisation and fiscal transitions within the provincial budget. The MERO and PERO would try to improve on the quality and coverage of the publications and the data mentioned. They would continue to look at all the dynamics of inequality growth in the local economies.
Ms Ishmail said that Treasury had evaluated the 2020 annual performance plan with a five-year plan, and had realised that some of those targets would not be achieved. Within that context, guidelines had been given as to how they could actually change targets. In relation to the Covid-19 pandemic, if the pandemic actually affected a particular target, it could be changed only as it related to the Covid-19 impact. Guidelines had been put in place and communicated to all Departments.
It was a rigorous and quite detailed process, so much so that it was not just any indicator that had been changed and a full report had also been submitted to the Director-General. Partially achieved indicators meant that there was the possibility of actually achieving the target in the next quarter. If an annual target was between 50%-100% then the target was considered partially achieved.
Adoption of Committee Minutes: dated 1 December 2020.
The minutes were adopted.
The Chairperson proposed that a workshop be held where all the relevant entities and stakeholders would be invited to address the Committee on the underlying values and principles embodied in the Constitution nationally and provincially, which should be taken into account when writing a bill. After the workshop, the Committee could then decide on the process it wished to follow for the drafting and research of the bill.
The Committee agreed.
The Chairperson thanked Members for their attendance and robust engagement.
The meeting was adjourned.
- Department of Premier: Combined Assurance presentation GA Cluster
- Request for Information Budget Committee of 16 March 2021
- Provincial Treasury & Department of the Premier: Budget Committee Q3 Departmental Performance WCG
- WC Treasury: 2021 Budget, 2020 3rd Adjusted Budget & 3rd Quarter 2020 Performance (Financial and Non-financial)
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