In this virtual meeting, the Committee was briefed by the Parliamentary Budget Office (PBO) on the 2021 Appropriation and Special Appropriation Bills. The PBO elaborated on the policy priorities to be implemented with the 2021 Appropriation Bills, the Economic Reconstruction and Recovery Plan (ERRP), the composition of spending over the Medium Term Expenditure Framework, and the key risks in realising the fiscal policy objectives over the medium term. The PBO also highlighted key governance failures that could affect the implementation of the appropriation bills. The fiscal strategy in the 2021 Budget is to reduce non-interest expenditure whilst also increasing funding to health for COVID-19 response, maintaining capital investment and continuing support for low-income households for part of 2021. The reduction of programme baselines and adjustment to the wage bill allocations were implemented to provide additional funding for health and social needs, as well as the contingency reserve.
The PBO’s analysis of real per capita expenditure identifies risks in relation to the medium term decline in expenditure on local government services, security and healthcare. The reductions may negatively impact aggregate demand and gross domestic product growth, thus negatively impacting future revenue collection. Other fiscal risks include the reduction of the wage bill, public finance strategies and management as well as the global economic performance are likely to delay the realization of government’s fiscal and strategic objectives over the medium term. Lastly, the 2019/20 audit outcomes show signs of improvement, however the financial health of many departments remain alarming. The Auditor-General of South Africa calls for accountability on the use of public finances.
During the discussion, Members raised concerns around the efforts of departments and banks in achieving the Presidential targets for economic recovery, and initiatives like the youth unemployment initiative and the credit guarantee scheme. Members also raised concerns around the impact of the baseline reductions on education services, health and the fight against gender-based violence and crime. PBO explained that the negative effects of the budget cuts will only be seen in the performance figures. Given the PBO’s small capacity, it can do an analysis of Annual Performance Plans based on the Committee’s selection of departments. An analysis of the impact on GBV and crime has not been done as yet, however there are indicators the Committee can monitor at such as statistics from the departments of Justice, Police and Women. The credit guarantee scheme did not generate the desired impact. It raises questions on why the money was not directly infused in government’s budget in order to stimulate the economy.
Members questioned the sustainability of a basic income grant (BIG), and if the economic growth projections given by National Treasury in February still hold. PBO replied that the sustainability of the BIG is not clear from economic theory, however, direct stimulation of the economy at the micro-level has large multiplier effects. PBO has not yet done a research project on BIGs, and is currently developing a research agenda for the year.
The Committee requested that the PBO proactively brief portfolio committees, other than the finance committees, on matters that affect their portfolios. The PBO said it would discuss the proposal with its director and report back to the Committee.
The Chairperson welcomed everyone in attendance and noted an apology from Ms D Peters (ANC)
The Committee Secretariat noted apologies from Mr N Kwankwa (UDM), Ms N Ntlangwini (EFF), and Mr A Emam (NFP), who will be in and out as he is attending other meetings.
Briefing by the Parliamentary Budget Office (PBO)
Dr Dumisani Jantjies, Director, PBO, presented the PBO’s comments on the Appropriations Bill and Special Appropriations Bill. The fiscal strategy for the 2021 appropriations bills is a continued restrain on government expenditure to lower the level of debt. The 2021 Budget does this by reducing non-interest expenditure growth and providing temporary support for social relief and health.
Dr Nelia Orlandi, Deputy Director: Public Policy, PBO, elaborated on the implementation of the Economic Reconstruction Recovery Plan (ERRP), highlighting each of the policy interventions and the public funding being appropriated for each priority. There has been declining support for the ERRP and a reprioritisation of interventions is required. She presented the adjustments to the budget non-interest expenditure, which included additional funding being appropriated for the vaccine rollout and the extension of the COVID-19 social relief grant. She pointed out the composition of spending in the 2021 Appropriations for each vote. The outliers are the composition of spending in the health, cooperative governance, and human settlements votes with over 90% of budget spending being transfers to provincial and local government. Social development only transfers 0.5% of the budget to other spheres of government.
Dr Orlandi shared the PBO’s recommendations for improving the composition of spending within votes, programmes and departments. For instance, addressing the duplication of functions within and between departments and reviewing the composition of spending on Administration in each department for potential efficiency gains. In the Special Appropriation Bill, an additional R1.25 billion has been allocated towards procuring COVID-19 vaccines, R2.8 billion towards the extension of the COVID-19 relief grant and R2,7 billion has been reprioritised for South African Airways (SAA) to implement the business rescue plan.
Lastly, Dr Orlandi presented the programmes in the budget that respond to COVID-19.
Dr Seeraj Mohamed, Deputy Director: Economics, PBO, presented the real per capita spending declines across departments. He laborated on the fiscal and global risks. The reductions to real expenditure in key budget areas will probably not achieve fiscal consolidation, but may negatively impact future revenue collection by negatively affecting aggregate demand and GDP growth. The credibility of government’s MTEF and budgetary goals are in question because government may be forced to compromise on reducing COE. There is also the risk of a new wave of COVID, and the risk of government being liable for contingent liabilities and guaranteed debt, given the continual poor management of State Owned Entities (SOEs) and its distressed financial situations. Global risks include the increasing political instability and conflict, as well as the private and public debt accumulation and risks of financial crises.
Dr Jantjies informed the Committee of the office of the AGSA calls for accountability on the use of public finances. Oversight, executive authorities and coordinating departments should pay specific attention to SOEs, struggling public entities and key service delivery departments such as health and education, as financial management discipline is required. AGSA finds that the financial health of departments continued to be alarming, with unauthorised expenditure having increase to R18.2 billion in 2019/20 from R1.65 billion in 2018/19. He elaborated on the nature of the irregularities around procurement, expenditure management, revenue management and resource management. The PBO’s analysis of real per capita expenditure identifies risks in relation to the medium term decline in expenditure on local government services, safety and security and healthcare.
Lastly, Dr Jantjies pointed out that PBO will be presenting on the implementation of ERRP as requested by the Finance Committee. The PBO will share its findings on this with the Committee sometime next week.
Mr O Mathafa (ANC) asked if departments have shown any effort in achieving the targets set by the President. One of the President’s priorities was the youth employment initiative. Is this initiative being protected against the budget cut? Across departments, there is an issue with filling vacancies as a result of the budget. Has the PBO identified if key personnel needed to fight gender based violence (GBV) and general crime, are affected by this?
He stated that the transport network is a key driver of economic growth and government needs to make a commitment to aid its development. Have the departments of Transport and Public Enterprises shown any effort in addressing vandalism in trains? How large is the gap between debt and gross domestic product (GDP)? Does the current fiscal situation exacerbate this gap? What is the current situation with South African (SA) Express, as there are conflicting media reports on this?
Dr Orlandi explained that the Department of Women, Youth and Persons with Disabilities (DWYP) transfers 77% of its budget to the Commission for Gender Equality (CGE) and the National Youth Development Agency (NYDA). It is easier to monitor the performance and actions of the DWYP than monitoring the outputs of the entities it makes transfers to. This is because PBO has access to the DWYP’s performance reports. However, the DWYP does not report on the performance of the entities, which are also not on the database. The Committee can call on the Department to report on these entities.
There are indicators that can be followed in the Departments of Justice and of Police to monitor the impact on the fight against GBV. An analysis has not yet been done. However, the Committee can call on DPME to report on the Quarterly Performance Reports to gauge the impact.
Mr X Qayiso (ANC) asked if the Department of Cooperative Governance & Traditional Affairs (COGTA) spending 0.3% of the budget on compensation of employees (COE) is accurate? It differs from the spending trends of other departments and the numbers don’t make sense.
He proposed that the Committee give the Department of Public Service and Administration (DPSA) a recommendation to address the duplication of functions in its next engagement. What are the PBO’s view of dealing with high levels of corruption, such as those seen in entities like Eskom? The issue of corruption should have been highlighted as a risk in the presentation.
Is it not recommendable to implement the basic income grant (BIG)? Are the projections made by Treasury still applicable, considering the negative responses to the freezing of salaries?
Dr Orlandi replied that even though COGTA spends 0.3% on COE and 4.6% on goods and services, it transfers 95.1% of its budget to local government. When analysing the spending of transfers in local government, the spending on COE shows a different picture. All other departments show higher spending on goods and services, except the Department of Police which spends 78.1% on COE and 16.9% on goods and services. An analysis on underlying reasons for this is yet to be done.
Mr Z Mlenzana (ANC) asked for the PBO’s analysis of the negative impact of the budget cuts on departments like education and health? Will the President’s interventions be realised if there are continuous budget cuts? Is there an evaluation of consequence management for departments that delay with infrastructure development? At what stage does parliament assess the effectiveness of the budget?
Dr Orlandi explained that the negative effects of the budget cuts will only be seen in the performance figures, not the budget figures. Given the PBO’s small capacity, it can do an analysis of Annual Performance Plans (APPs) based on the Committee’s selection of departments.
The Chairperson said the Presidential employment initiative of R11 billion has still not been allocated. Which sector, with a high multiplier effect, should the money be allocated to? The banks have only dispersed R18 billion out of the R200 billion credit guarantee scheme stimulus that was announced. In future, how should an intervention like the credit guarantee scheme be dealt with, to ensure the funds are dispersed?
What is the position of private sector debt locally? The budget was criticized on the consolidation period and the cuts? What are alternative sources of funds, keeping in mind the high and unsustainable debt levels?
He asked Dr Orlandi what she was trying to emphasis on slide 14?
Regarding the potential of efficiency gains on slide 13, which departments are being referred to and what does PBO suggest be done with those departments? What kind of questions should the Committee ask the Minister on the issue of contractors in the Department of Military Veterans? Leaving the responsibility of implementing green initiatives to the Department of
Will leaving the responsibility of implementing green initiatives on the Department of Forestry, Fisheries and the Environment, not limit the scope of the intervention? It should be implemented across departments like Energy and Public Enterprise.
Dr Orlandi replied that the PBO intends to look at the performance of previous allocations for employment initiatives, to determine where the funds should be allocated. She highlighted that the R11 billion is a once-off allocation and so it cannot be allocated towards continuous/permanent positions. It has to be allocated towards temporary positions or short-term employment initiatives.
She said explained that the efficiency gains in slide 13 highlight the departments with proportions of spending that differ from the spending trends of other departments. These departments who spend more on goods and services than COE, such as Statistics South Africa (Stats SA) and the Department of Military Veterans (DMV), can be looked into for potential efficiency gains.
After the meeting, the PBO will start an analysis on the ERRP which will include more information on green initiatives across departments.
Dr. Mohamed said Treasury did a good job showing the cuts across the departments and the implications at the community level. The state of crime, GBV and education prior to the pandemic also needs to be considered. There has also been a general societal increase in crime and GBV in other countries during the economic recession and pandemic. Other countries have been focusing on distributing stimulus packages but have not been adequate in addressing social issues. The fiscal sustainability of this needs to be considered. Can government afford this over the medium term and will it produce the impact government would like to see?
In macroeconomics, there is no proof that you can only have a certain level of debt to GDP. Treasury has presented it as though there will be a cashflow problem because the debt payments to GDP are growing and causing problems with credit ratings. Most developed countries and some developing countries have made use of greater central bank funding and quantitative easing. The credit guarantee scheme is similar to this, however it did not generate the desired impact. It raises questions on why the money was not directly infused in government’s budget in order to stimulate the economy. The sustainability of the BIG is not clear from economic theory, however, direct stimulation of the economy at the micro-level has large multiplier effects. PBO has not yet done a research project on BIGs, and is currently developing a research agenda for the year. It is currently focusing on household poverty and the lack of resilience of households. It cannot recommend a BIG at the moment, however it acknowledges that government needs to do something to support poor households deal with broader socioeconomic issues and also stimulate the economy.
Regarding the position of the private sector, he explained that debt to disposable income has been decreasing during the pandemic, which has implications for aggregate demand. This trend is projected to continue for a few years as households have been using debt to make up for a loss in income. On the other hand, there have been high returns on equities. This can pose a risk for investments in South Africa, as investors will move towards investing in financial markets than businesses for capital.
Dr Mohamed said that corruption has been placed under the broad label of poor management and its continued problems. There needs to be greater efforts in monitoring management and instilling accountability.
The Chairperson asked how often the PBO makes presentations to other portfolio committees?
Dr Orlandi said PBO has not received any requests from PCs for a budget analysis.
The Chairperson proposed that PBO proactively brief committees, other than the finance committees, on matters that affect their portfolios.
Dr Mohamed replied that the PBO is open to requests from Committees. However, one concern is that in the past year, it has lost two analysts who have not been replaced as yet. The reduced technical capacity is a concern but it can be discussed with the director.
Dr Orlandi replied that it would be difficult for PBO to brief lot of Committees due to its small capacity, but also it would not like to intrude on the work of committee researchers, who conduct a budget analysis as well. An interim option is for PBO to present its work to the Chair of Chairs.
The Chairperson requested that this matter be taken to the board of the PBO for a continued discussion.
The Chairperson, in closing, thanked everyone in attendance.
The meeting was adjourned.
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