Division of Revenue Bill: public hearings & SALGA input

Meeting report

Opening Remarks

The Chairperson welcomed Members and key stakeholders to the meeting. These included the South African Local Government Association (SALGA), led by Councillor Stella Mondlane, National Treasury, the Financial and Fiscal Commission (FFC), and the Congress of South African Trade Unions (COSATU).

There had been a previous joint meeting of the Finance and Appropriations Committees. Following this, National Treasury (NT) had also briefed the Committee separately, together with other provincial Portfolio Committee Members on the Division of Revenue bill. After this, the Committee had consulted with the FFC and the Parliamentary Budget Office (PBO). From last week, the provinces had been briefed. The provinces would then follow their public participation process and send back their negotiating mandates to the Committee.

This meeting would consult with SALGA and conduct public hearings on the Bill.

Apologies had been received from Mr E Njandu (ANC, Western Cape) and Mr Y Carrim (ANC, KwaZulu-Natal), who indicated that they would join the meeting late as they were in another meeting.

Two provincial legislature chairpersons were present in the meeting -- Mr Vusi Tshabalala from the Free State, and Mr Aaron Motswana from North West

The Chairperson requested Members not to give lengthy contributions so that they did not miss the bus to the Parliamentary Chamber.

SALGA Presentation

Councillor Mondlane said SALGA acknowledged the national government’s gloomy picture of the economic outlook and the fiscal challenges it faced that were exacerbated by the unforeseen and continuing demands on the fiscus as a result of the COVID-19 pandemic. SALGA would work with national government on resolving the challenges faced by local government, based on the activation of the resolutions taken at the Budget Forum Lekgotla in December 2020.

Revenue by municipalities had declined during the COVID-19 lockdown, and the extra R20bn relief funding had not matched the revenues collected in the previous year, according to a survey conducted by the Department of Planning, Monitoring & Evaluation (DPME). Municipalities had collected 20% of the billed revenue in the period April to June 2020, and the collection rate in the corresponding period in 2019 had been 93%. The DPME survey reflected that in the case of four metro municipalities, the own revenue collected was around R4.3bn less.

From the responses, SALGA supported the Bill.

Discussion

The Chairperson thanked Councillor Mondlane for the presentation.

Mr D Ryder (DA, Gauteng) told Councillor Mondlane it was great to see young people doing very well and representing SALGA at this level. He asked about the effect that the lockdown had on collection rates. The current collection rate was 20%, down from 93%. 93% was incredibly high, and 20% was incredibly low. Could SALGA confirm that those two figures were correct?

Another question was on something that the Committee had been pushing a lot. At the Budget Forum Lekgotla that took place last year, what was the level of involvement of SALGA? Did it feel that it had been listened to? Did it feel that its concerns were raised? Did Treasury give it adequate space to air its views? Were the responses given good enough responses to make SALGA happy? The reality was that there had been many questions around equitable share calculations and how it was distributed. The Committee had been promised that this was going to be aired fully at the Budget Lekgotla. Unfortunately, Members of the Committee were not allowed to attend. From SALGA’s perspective, was the Budget Lekgotla effective or was it just a presentation from Treasury on how much SALGA would be getting?

Mr M Moletsane (EFF, Free State) asked if SALGA could comment on how the model affected them in terms of the equitable share. Did they believe that it gave them what they deserved?

Mr Z Mkiva (ANC, Eastern Cape) said it was inspiring to see the deployment of young councillors and their capacity to be in the front line of service delivery. There was a suggested narrative that this year’s budget had ensured that there was a major increase in allocations favouring rural communities, particularly municipalities located in rural provinces, even amid the Coronavirus pandemic. This was not highlighted in the presentation. Did it have any impact or not? One of the slides referred to the migration of people from rural communities to cities, and that there were plans to balance infrastructure development in communities. Given the slight increase in favour of the rural provinces, it should have been raised as a point of contentment, because it was what Members had been calling for, for many years. It could help to ensure that those extra resources were used for infrastructure investment, particularly in the rural areas. Once there was infrastructure in the rural areas, it would be easier to attract private sector investment. Road infrastructure was one challenge that was causing development not to occur at a desired rate, followed by other basic bulk infrastructure. What was SALGA’s view on the prioritisation of rural municipalities this year?

The Chairperson said Members of the Committee were collectively impressed by the quality of SALGA’s work. It was good to see a young black woman leading and being able to present such quality work. She had been very impressed with the presentation. She agreed with Mr Ryder’s comment.

From the Budget Lekgotla and the strategic session in 2019, there had been recommendations on issues that were identified as shortfalls. Since then, had SALGA seen any improvement in relations? She was concerned, because the relationship between the Committee, SALGA, and the National Council of Provinces (NCOP) needed to be nurtured and strengthened, since SALGA was not only working with this Committee, but also with other different committees. What was SALGA’s assessment of the impact of the implementation of resolutions that were taken?

SALGA's response

Councillor Mondlane responded to the question on the figures for revenue collection. She said the reference was with regard to the four metro municipalities that were used as an example. The 20% and 93% was not a general percentage forall municipalities -- it referred only to the four metro municipalities that were used for that survey.

On the question about the equitable share, there was a slide in the presentation which pointed out that “SALGA was concerned with the proposed decrease in equitable share of R66.5 billion from last year to this year, and reducing by 0.4% over the MTEF, amid the ever-increasing number of poor households due to the effects of COVID-19.” The equitable share issues had been addressed in that slide.

On the question from Mr Mkiva, she said the movement of extra resources to rural areas was appreciated. However, it must be acknowledged that this recent injection would not necessarily address migration issues immediately. Sustainability of the injections would certainly make a huge positive difference.

A SALGA official responded to the question on the Budget Lekgotla and the resolutions of 2019. SALGA had played an active role in planning and preparing some of the papers that were discussed at the Budget Lekgotla. It was collective effort between SALGA, the Department of Cooperative Governance and Traditional Affairs (CoGTA) and National Treasury. This spoke to the resolutions referred to by the Chairperson on the relationship. In the past year, there had been a great improvement in the relationship, and SALGA had been participating very actively with various committees of Parliament. SALGA appreciated this.

In the first phase of the Budget Lekgotla held in December, the focus had been on three work streams -- the revenue, the challenges articulated, and the expenditure, including the powers and functions. Work stream leaders were identified to discuss the equitable share. A technical task team was put together to come up with implementable propositions around the local government equitable share.

It was suggested that Mr Njandu take over as Acting Chairperson, since the Chairperson was having connection challenges.

Further discussion

Mr V Tshabalala (ANC, Free State Legislature) said he sent an earlier apology as he was chairing the Whips meeting in the province, so he was connecting to the meeting late. He had gone through SALGA’s presentation and commended the good work it had done. He was concerned with the decrease in the equitable share. This matter needed to be treated seriously. There was a need to formulate a committee that would address issues of the equitable share in dealing with the problems on the ground, especially in local municipalities. For example, in a deep rural area of Tseseng, one would realise that when the infrastructure was installed, it had been made for only the few villagers there. Now that the area was growing, there was a serious backlog in the infrastructure. The infrastructure problems needed to be taken very seriously. National Treasury needed to recognise this when making allocations. Many recommendations had been made over the years. The problem of ageing infrastructure was not being dealt with, and it was a crisis. This led to be problems of water supply and how Eskom could assist municipalities where there was no infrastructure. He appealed to the Committee to take this matter seriously.

The Chairperson apologised for the disconnection, and thanked Mr Njadu for taking over.

Mr Ryder said the response on the collection rates was an important one, and thanked Councillor Mondlane for clarifying that it involved only four metros. The response that was often received from Treasury was that one of the reasons why local government only got a 9% allocation from the fiscus was that they had their own mechanisms to collect and generate revenue. While this was good, the situation that had been highlighted by the massive decline in revenue collection or payment of rates, from 93% to 20%, was problematic. The collection of rates in the metros was substantially higher than that in rural municipalities. Could the PBO investigate revenue collection across the municipalities? It was one thing to bill a user or resident, and a different thing to actually receive the money from that resident. The response from Treasury about the inability of local municipalities to generate their own revenue had to be interrogated carefully, otherwise local municipalities would continue failing. Doing things in the same way would lead to the same results that had always been achieved.

From the research, what were the collection rates in municipalities? Had Covid-19 affected them? Were all municipalities doing their utmost to ensure they could collect optimally? Were they empowered to do what they needed to be doing? Did they have the capacity to do so? Where did that fit in terms of the district development model (DDM)? There needed to be a whole research on revenue collection and revenue streams in municipalities which would tremendously inform the Committee going forward. Could the Committee request the PBO to help with that information?

Mr Mkiva asked about the funds following function. There was a glaring tendency, when it came to budgets allocated for the creative sector -- the arts and culture fraternity -- as well as sport and recreation in the municipalities, for the funds to get diverted to something else. He appealed to the SALGA leadership to speak to the municipalities about this matter, because it was a travesty of justice. The arts, culture and sporting fraternity were very key for the livelihood of the rural communities. Infrastructure such as playing grounds was not up to standard. Could they ensure that the little that was budgeted for that sector actually went there? It was so minimal, and should not be re-routed.

There were 882 traditional councils, which should have a symbiotic relationship with the local municipalities. It would be great to ensure that the municipalities capacitated the traditional councils to deal with issues of service delivery. Traditional councils were the core providers of service delivery in the villages, so it was important to empower them so that they could assist the municipalities to achieve targets and objectives. He appealed to SALGA to provide leadership in these two areas of concern.

Members requested that Mr Njadu take over chairing the meeting, since the Chairperson was again having connection challenges.

Mr Mkiva said the Chairperson needed fibre, so SALGA had to ensure that they laid fibre in rural villages. They must put pressure on the government to make sure that there was fibre.

SALGA's response

Councillor Mondlane welcomed the inputs from Members. She appreciated the suggestions made by Mr Ryder and Mr Tshabalalala, as they could assist in solving SALGA’s problems.

 She responded on the issue raised by Mr Ryder about having a general indication of how all other municipalities were doing in terms of revenue collection, and whether there was capacity to do that. There were some issues that made it difficult for municipalities to collect. For example, Eskom was used in municipalities to ensure that collection was done from households that were not paying the municipality for water services. When one comes to buy electricity from the municipality, 70% was taken by the municipality to go towards the water bill, while 30% went to the consumer. In a municipality, where 50% of the consumers were serviced by Eskom directly, and only 50% of households were serviced by the municipality, it was a hindering factor, because restrictive measures could be used only on households that were buying directly from the municipality. This hindered the mechanisms that were in place to maximise revenue collection. The request to have the PBO submit a general indication of how other municipalities were doing was welcomed.

She agreed with what Mr Mkiva proposed. However, the limitation was that arts, culture and sports had been taken away from the municipalities. They were not a core competency or function of the municipalities, but resides with the provinces. As such, the limitation was that there was no directorate in the municipality, as it was in the province. There was a gap between the municipality and the province in ensuring that this sector was adequately serviced. SALGA would reflect on this and see how municipalities could best bridge the gap to ensure that provinces were brought closer, since it was a core function of the province.

The Acting Chairperson thanked SALGA for the responses, and brought the item to a close.

Public hearings

The Administration gave an update on feedback from the public participation proceedings. An issue had been raised with the Chairperson over the past two weeks concerning a matter which was considered to be unfair. In preparation for public hearings, adverts had been placed in print media in all 11 official languages, using nine regional newspapers and two national newspapers (English and Afrikaans were used for the national newspapers). Emails were also sent out to stakeholders who usually made submissions, to inform them about the adverts and request them to make a submission on the Division of Revenue Bill. The actual bill and the adverts were attached to the emails. Some stakeholders had replied and said they would not be making submissions this time. From this group of stakeholders, only the Congress of South African Trade Unions (COSATU) had made a submission. This was being clarified, so that Members were not surprised as to why there was only one stakeholder. Publicity had been done, and the Administration had tried to comply with Section 72 of the constitution. However, only one stakeholder had given a positive response to the request.

The Acting Chairperson said the item on the public hearings was an important aspect. The Committee had noted the challenge regarding the response from the public, and needed to consider how to move forward on this matter.

Mr Ryder said people could not be forced to make comments. The Administration had been proactive enough, but only the “usual suspect” had responded. There was a general agreement that Treasury was under a fair amount of pressure in the current cycle. That might have had something to do with the lack of submissions. The Committee needed to consider the mechanisms that were being used to encourage public participation. There had been a recent article written by a non-governmental organisation (NGO) in the Western Cape on the mechanisms of public participation, which indicated that these days people seemed to react better to an electronic means of submission, rather than seeing something in the newspaper. Some of the “usual suspects” were NGOs who were generally good at responding. There was no problem with the Committee continuing today. One submission was satisfactory for Members to go ahead. There had been comments about the budget in the media, but the Committee must hear from COSATU. While he did not always agree with Mr Mathew Parks and his views, he acknowledged that COSATU put in hours of work as a social organisation. The Committee should proceed.

Mr Carrim said Members may have noticed that in recent months, or for more than a year, there appeared to be a love relationship emerging between the Democratic Alliance (DA) and COSATU, particularly with two individuals whom he did not want to mention. These days, COSATU got more praise from the DA than from the ANC. This needed to be investigated. It could be taken up when the Chairperson was fully functional.

The Administration staff needed to explain from their point of view why there had been lack of participation. It was deeply disappointing that there was only one submission. It could be a reflection on the Committee, and not necessarily the Administration. Parliament, the NCOP and the Committee needed to ask why this was happening. It was not a good thing. It had been mentioned that many people were now using social media, such as WhatsApp, Instagram and Facebook. The Committee must use all these platforms and not just fold arms. If nobody made a submission, the Committee would not pass the test. It could not be said that there was full advertising, and that hearings were organised, and the Committee should therefore not be held responsible for people deciding not to participate. The Committee could be held responsible. It was not a good indication, since these were budget issues. How much more important could the budget be in Parliament than in Covid-19 times?

Maybe people had a feeling that they were not taken seriously by Parliament as a whole, not just by this Committee. Maybe they think Government was a waste of time. Maybe they think Parliament was too supine and weak, and did not tackle the Executive effectively. All these issues were on the rise, and it was not a good situation. There should not be a technical approach of saying, “We have done everything, and we cannot be held responsible.” It was the responsibility of the Committee if the public did not participate. What was Parliament if there was no public participation? This was a very serious issue and applied to all Committees, not just Appropriations. Could this be compared to the municipal structures in the early period of the country’s democracy? This was a big leap. Obviously, it was natural that things would fade, and people would lose enthusiasm over time, but the stage that had been reached was not acceptable. It may not be discussed now, but at some stage the Chairperson should be requested to facilitate discussion among the Members on this.

The Acting Chairperson thanked Members for the comments. He invited COSATU to make their submission.

COSATU Presentation

Mr Mathew Parks, Deputy Parliamentary Coordinator, COSATU, begun by commenting on the lack of submissions for the public hearing, and said the Division of Revenue (DoR) had a lot of technical information. There were other bills that went through Parliament which had huge public interest. For example, the Portfolio Committee on Labour was dealing with the  Compensation for Occupational Injuries and Diseases Amendment Bill and the Employment Equity Bill, among others, and there was significant participation. However, COSATU shared the concern because Parliament was critical.

It was very pleased that the DA was coming around to COSATU’s views. On the DoR, COSATU disagreed with the Government on its approach, as it had shifted too much towards austerity -- the reduction of expenditure approach. COSATU and its affiliated unions fell that there was need to have a stimulus approach. Some of the key worrying questions raised by COSATU included the threat of Eskom's collapse, as it was forced to repeatedly increase electricity tariffs far above consumer price index (CPI) levels, thus suffocating the economy and squeezing cash-strapped consumers; the DOR Bill was silent on when government would have eradicated mud schools, the sanitation and infrastructure backlogs; cuts of R19 billion to local government would weaken dysfunctional arms of the state.

However, COSATU welcomed the increased allocations and additional jobs proposed for early childhood education; school sanitation; the health facility revitalisation grant; National Health Insurance conditional grants; and municipal electrification investments.

Finally, there was need to address the fundamental causes of economic and fiscal crises by rebuilding the state institutions, creating jobs, tackling crime and corruption, and alleviating poverty.

Discussion

The Acting Chairperson thanked COSATU for a comprehensive presentation.

Mr Ryder said he wanted to raise one red flag from what Mr Parks had said in the presentation regarding his thoughts that Government should buy some political goodwill from employees. While it may be unparliamentary language, "it was not a good thing to say.” Government had overpaid for supposed political goodwill over the past decade, and the public sector wage bill had gone higher and higher to keep chief financial officers (CFOs) and municipal managers tame and quiet while the looting went on. The administration and employees could not pretend that grand scale theft had not gone on without their assistance, sometimes at the managerial level. Mr Parks had justifiably and correctly stated the fact that lower-level employees were less complacent than some of the senior millionaire-managers. However, buying political goodwill was a not good thing in dealing with the public sector wage bill.

Mr Parks had been correct in pointing to the tiers within the government administration, and the fact that police officers, nurses and teachers should not be the ones who were footing the bills for the corruption happening at higher levels. A concern had been raised by about councillors’ pay. Some councillors were hopelessly overpaid, but those were the bad councillors. The good councillors, who did their work properly as expected, were underpaid for their time, effort and commitment. While all employees could not be painted with the same brush, all councillors should also not be painted with the same brush. There was some justification for an increase for certain councillors -- for instance, where there had been growth in population, which Mr Parks had also pointed out. Municipalities worked on different levels and different grades. Depending on one’s grade, as one moved up the grades, their salary band increased. However, for a useless councillor paying them , even one cent was too much, but there were many councillors that did fantastic work.

He was in entire agreement with Mr Parks when he pointed out the need to review priorities and expenditure versus across-the-board cuts.. This was zero-based budgeting -- to go back to the beginning and see what the money was being spent on, rather than just increasing, or decreasing across the board. Every small item of expenditure should be evaluated to see how it was adding to the pot. This fitted in with the economic reconstruction and recovery plan (ERRP).

Members of the Finance Committee had learnt yesterday that there was not a lot of funding to municipalities and provinces to empower them to do what they needed to do to fulfil the construction plans. For example, in the Free State, the provincial roads were in a disastrous state but there had been a massive reduction in the provincial roads budget. That was infrastructure. As Mr Parks had said, there was talk about an infrastructure-led recovery, yet money was being taken away from infrastructure.

There had been a comment on the massive Eskom tariff increases. His personal bill had increased by 15% in the last two months. This was a massive jump in the current climate. As Councillor Mondlane had pointed out, where Eskom supplied directly, efficiency of credit collection processes was reduced. The massive increase by Eskom that had been allowed by National Energy Regulator of South Africa (NERSA) would certainly impact municipalities. The Committee was waiting to see what NERSA would do to authorise for municipal increases. If the margins narrowed because municipalities were given lower increases than what Eskom was charging them for bulk, it would hamper service delivery. This narrowing made reticulation maintenance and improvement, and the rolling out of reticulation, more difficult since municipalities were not including the margin between what they were charging customers and what they were paying to Eskom. As such, they did not have the money to maintain their infrastructure properly.

He was not sure if the comments on the North West intervention had been referred anywhere in the Bill. He agreed with Mr Carrim’s observation about COSATU being in line with the DA’s views. It was quite clear in the presentation that COSATU seemed to have realised that it was businesses that provided jobs, and that businesses also needed to be protected. However, those businesses were reliant on the services that were given to them by municipalities and provinces, and the infrastructure that was available to them in the areas where they operated. If this was not funded properly, the economic reconstruction and recovery plan was a pie in the sky.

He thanked COSATU for a good presentation, and acknowledged that there were some strong points of disagreement as one would expect, but also some strong overlaps which were important.

Mr Carrim said he agreed with most of what Mr Parks had said. Some of the issues that had arisen have less to do with the DoR than with appropriations. Did Mr Parks have any sense about what was meant by the President saying that the discussions, negotiations and engagements between government and the public sector unions should be revitalised? Was there any new thrust that he knew about which he could share in the public domain?

On social grants, the Committee had presented its report, and this was a matter for Appropriations to deal with. However, the Committee should re-endorse what had already been said, and put more pressure on the government to consider what Mr Parks had described as “the elements of a basic income grant.” As Members were aware, there was more support for it within government and the majority party circles, and the DA, COSATU and the South Africa Communist Party (SACP) had strongly called for it. It was supported across political parties, and there would be no relenting unless the two committees changed their view.

Referring to why fewer people were coming to the public hearings, he said there was an NCOP debate last week on the importance of the budget and the Committee’s oversight role in that regard. The Chairperson of the NCOP himself had said that of all the three bills, it was the NCOP’s treatment of the Division of Revenue and the equitable share which were most important. As such, there should be more public submissions here than with the Appropriations Bill. It was worrying that there was only one submission on a key function. Could a note be included in the Committee’s report to Parliament that the Committee noted with despair the acute lack of involvement in the submissions? The Administration could put this together. The Committee should not just present nice words that looked good on paper. It was not just the duty of the Chairperson, but of all Members, including the steering committee on both sides, to do something.

Mr Tshabalala said the issues he wanted to raise were covered by Mr Ryder and Mr Carrim. The Committee must seriously consider the points raised on the key worrying questions regarding Eskom and provincial government debt. The Eskom matter was very serious for municipalities. As Members were aware, various municipalities in Gauteng and the Free State were currently owing too much money. It was important for the Presidency to deal seriously with this matter. The more there were delays, the more millions were being added to the debt of the municipalities. National and provincial government and municipalities needed to deal with this matter. The idea of bailing out municipalities over their Eskom debt would never be supported. While there was a crisis on these matters, Eskom would be owed forever. This was a worrying factor for all of the different stakeholders. There should be a forum led by the Presidency, or the Minister of Energy, to deal with the matter of Eskom, which be a problem for the country in the coming years.

The Chairperson said she was covered by the comments of the Members on the issue of Eskom. She asked for an update on the statement made by the President. Could Mr Parks share that with the Committee? Members would understand if he was unable to do so.

She asked the Committee to join the frontline workers, all the nurses in the country and around the world, as they celebrated International Nurses Day. The Committee appreciated the work they had been doing and commended their commitment and sacrifices, especially while facing the pandemic.

Mr Mkiva appreciated COSATU's presentation, and supported it as it was progressive overall in its analysis of the situation. In the presentation, Mr Parks had said there should be no comparison between the private and public sectors on issues of corruption. What did this mean? In his opinion, the worst corruption was happening in the private sector. It had become so entrenched and institutionalised that people accepted it. For example, the illicit flow of money from the country to Europe and America was happening under their noses. State institutions like the South Africa Revenue Service (SARS) got beaten because the mafia had mastered the game. There was a need to be very aggressive. The fact that R1.3 trillion had been taken from the National Revenue Fund was not a true reflection of what was supposed to be received if the private sector was not taking the country for an easy ride. It was important to deal with the corporate multinationals and the private sector in general.

Secondly, there should be an understanding that the wealth and economy of the country was predominantly in the hands of the private sector. In a layman's calculation of the money that circulated in the country, both the declared and undeclared, one would find that the private sector was sitting with quadrillions. However, there was no proper declaration mechanism for that money, so they had a way of taking it out of the country.

On the Division of Revenue and equitable share, he said the country had been doing the same thing in the same way in the past 27 years. Was COSATU happy with that approach? There did not seem to be a robust transformation approach in dealing with Division of Revenue and equitable share. In the past 27 years, there had been the maintenance of cities and infrastructure in the broad scheme. The percentage allocated to transformation had been very minimal. No single new town had been built. Many malls had been built, but these were also linked to the very same establishment. How could there be transformation through having a more revolutionary approach in dealing with Division of Revenue and equitable share?

The same applied to Eskom, where maintenance had occurred without investment in new infrastructure. It should be acknowledged that some new things had come up in the last five years. The debt inherited by Eskom predated the new dispensation. This related particularly to poor people of the townships like Soweto. The Soweto community owed billions to Eskom. This was a debt which had been rolled over for years and decades. Would it not be a good thing to consider, for instance, for the poorest of the poor in Soweto, to write off that debt and start from a clean slate and perhaps give them a prepaid meter system? There was no way that the poor would ever be able to pay that off that debt. Perhaps reality needed to be faced, where the whole debt was written off and a new prepaid system was set up. Eskom would then be able to generate the much-needed resources from all the households in Soweto, particularly the poor. He liked to quote Sir Winston Churchill, even though he did not like him much, when he had once said that under capitalism, people shared in the wealth of the country unequally, while under communism people shared the misery in society equally.

The Acting Chairperson commented on the point which was raised by Mr Carrim on the public wage bill, and asked COSATU to give clarity of how things were developing.

Mr S du Toit (FF+) said previous speakers had mentioned that transformation had to be at the forefront. However, municipalities were the most transformed entities in the country through affirmative action. One of the speakers had talked about making transformation more noticeable in the DoR Bill. The country was far into the 27 years of democracy, and the time had come for things to evolve naturally instead of forcing transformation. The big problem with transformation was not allowing business to be created, but forcing businesses to be created to the detriment of other businesses that had to close down. The word transformation was the wrong word. It should rather be inclusivity. If there was inclusivity, the spectrum would be widened to allow for more people to enter the markets, to create businesses and jobs, as opposed to the detriment, closure and job losses that continued to prevail. That would be the correct approach.

On Eskom, the Deputy Minister had said that the huge Eskom debt in Soweto had resulted from a tax revolt from the previous dispensation, so a culture of non-payment had been created. He had requested that audits be done in different municipalities, especially on electricity meters, but because of the culture of non-payment, the people who were supposed to do the audit had not been able to do that work because they had been threatened with their lives. The big backlog and outstanding funds from municipalities to Eskom was troublesome and it needed to be addressed. Everyone needed to have a prepaid meter in their house. This must be done in the correct way, not just by writing off all the debt, which would encourage the culture of non-payment to continue happening.

COSATU's response

Mr Parks said he wanted to “plead the fifth” on Mr Mkiva’s comment about Winston Churchill on communism and capitalism. There was a very distinguished member of the Politburo of the Vanguard Party present in the meeting, and he did not want to be redeployed as a shop steward to Prince Albert Road by daring to express an opinion!

On the question political goodwill, what was meant was not to bribe workers, but to expect workers to further tighten their belts while in the second year of a four-year wage freeze. Public servants had not had an increase of two financial years now. In wanting to convince anyone to tighten the belts, to appreciate the need to compromise, and appeal to them about the fiscal challenges facing the state, politicians needed to be seen leading from the front. For example, the Minister of Finance must be seen earning to be R2.4 million, but taking a cut of 25% of his salary, or ministers paying market-related rents for their ministerial houses and not having arrears. Ministers, Members of Executive Committees (MECs), premiers, mayors, former MPs and spouses must be seen receiving significant cuts in their perks. A nurse who earns R186 000, who was a single African woman, with two children to support and heavily indebted, was expected to tighten her belt further, yet it was a very small belt. Politicians and top managers at Eskom, SABC, Transnet and the municipal level had to be seen to be suffering significant pain. This was the point -- not to say, “because it is election year, therefore the ANC must massage us as COSATU.”

Everyone had witnessed corruption. All unions needed to do much more to expose it. However, there were some unionised workers who had paid a heavy price. Two members of the SA Municipal Workers Union (SAMWU) were murdered in Limpopo for blowing the whistle on the VBS corruption. Other workers had also been attacked and killed. COSATU had had to intervene with the ANC from time to time about municipal workers, especially in the Free State -- Harrismith, Bethlehem and other municipalities -- being dismissed when they exposed corruption. There was a significant problem and more needed to be done, but there were many workers who tried their best. However, it was difficult to convince a municipal worker such as a cleaner to expose corruption when they did not see officials going to jail, and saw them remaining in their positions.

There were some councillors who did a fantastic job. They were the difference between life and death in many communities, especially in the formal areas. Treasury had been trying for two years to impose a wage freeze on municipal workers, so there could not then be an increase in what councillors earned. Some councillors, especially in the rural areas, were in the bottom grade. The allocation that municipalities got for the allowances was very little compared to the cities, where it was decent.

There was need to review the number of councillors -- was having nearly 10 000 councillors sustainable? Were the nearly 259 municipalities sustainable? Some of the municipalities lacked the economic base to be sustainable. There was a need for a roadmap to consolidate some of them, since they did not have an economic base. There was Prince Albert in the Great Karoo, which had a very small economy, and needed to have a different sustainable model. Hopefully, the district authorities would point things in along a sustainable trajectory, otherwise there was not much movement seen by CoGTA.

He agreed with Mr Ryder about having a nuanced approach, rather than blanket cuts to departments. There was need to assess the impact. While it was an Appropriations matter, to impose below inflation cuts to social grants when the amount that the individuals received was already small, was the wrong approach. The cuts hit the poor the hardest. COSATU was aware that the government had a very good infrastructure programme, led by the Presidency and the Minister of Public Works. COSATU supported the programme, but the cut to municipal infrastructure grants was worrying in a devastating way.

While the issues around Eskom may not directly deal with the DoR bill, they were raised because the DoR bill speaks to municipalities, and the sustainability of municipalities was one of the major threats to Eskom’s survival. COSATU had met Eskom’s management about two week ago, and the latest debt figure for municipalities that they gave was R37 billion. This amount was rising, and not decreasing. COSATU could share with the Committee specific municipalities and amounts that they received from Eskom. The Free State was the leading province. Since they lacked the capacity to enforce collections at the municipal level, Eskom’s response was to increase tariff trajectories for those with prepaid meters who paid on time. That was killing industries such as mining and manufacturing. He did not think Eskom's management appreciated the fact that they could not tariff their way out of the crisis.

People would say that electricity in South Africa was very cheap, as compared to Europe and other African countries, but they missed the point that the economy was on its knees, with industries and consumers struggling. More water could not be squeezed out of a rock. There had to be help. As the Minister of Finance had said, as an intervention, Treasury needed to deduct the money owed to Eskom for municipal allocations, although not at once, as that would collapse municipalities. Spreading it over 12 months would make sense. The situation in Soweto was a difficult one, and COSATU appreciated the pressure on any political party, especially in the runup to local elections, as they would not want to irritate voters. The debt in Soweto was about R17 billion, but it had to be tackled. COSATU agreed with Mr Mkiva that the pre-1994 should be written off if it could not be paid, but for the current debt and the debt going forward, there should be a reasonable roadmap which did not bankrupt people. It should not be ignored for the sake of not wanting to irritate voters. The expectation was that Kuruman, Thabazimbi and all municipalities would pay. Leaving the non-payment would create a backlash among all other consumers.

The solution should be to move to prepaid meters, and make sure that they were smart meters which were locally manufactured. There should be a roadmap for those consumers who could pay. There needed to be a right balance. The ANC had progressively championed free basic electricity to registered indigent households of 50 watts, with a certain amount of water. COSATU could share this information with the Committee Members, as there was detailed report about many municipalities that had either reduced that allocation or had not increased it. In some cases, they had simply stopped doing it, and there were elements of theft and corruption there too. The society had taken its eye off the ball, because so many communities, especially indigent households, were not receiving this any more. Members may remember that during the VAT discussions in 2018, one of the issues COSATU had raised in Parliament was that in exchange for the increase in VAT, it should consider increasing the allocation of free electricity and water to registered indigent households. This needed to be brought back on to the table, to try and manage the pain in a more sustainable way.

 While Mr Ryder had raised the point that COSATU was a socialist federation, COSATU was not blind to the need to save companies. When companies closed, workers lost their jobs. When companies bled, workers’ pensions were lost. COSATU had developed a retention toolkit with one of the manufacturing unions, which seeks to empower workers to recognise early warning signs in factories when companies were starting to bleed financially, where COSATU could intervene to help them stay afloat. COSATU wanted to empower workers to make sure that companies were assisted to remain sustainable.

Private sector unions had also looked at monitoring government tenders. The SA Textile Workers Union (SATWU) monitored the government's clothing and textile tenders. When they see a tender going out, they contact local clothing factories to apply to keep jobs afloat. There was need for everyone to be creative and productive to keep the economy going.

Part of labour’s commitment in the economic recovery plan was to drive local procurement. This included procuring cars or clothing materials, involving the bargaining councils and the sectors to ensure everyone supported local procurement, because that was how jobs and companies could be saved.

The question about the public service wage bill was a difficult one, because there was need for a win-win solution which did not bankrupt and force the government to go the International Monetary Fund (IMF) route and retrench workers or cut their wages. There must be a way to protect lower- and middle-income earners in government service, like nurses and police officers. There must be a way in which the government appreciates the need for collective bargaining, because if it just decides in an office in Pretoria to impose a wage freeze, there would be no negotiations. There was no space for unions and workers to engage with government on the matter and find solutions. This created labour market instability and strife, leading to wildcat strikes and violence. It also led to a brain drain from the public service.

COSATU had met with the President. There had been a political council meeting about a month ago, where the President had committed to intervening. He had also made the same commitment in his May Day speech, to find a pragmatic solution which addressed both government and workers' needs. Without being naïve, it was possible to find a win-win solution. It had to be done, otherwise the consequences would be too painful. Some of the ratings companies themselves did not think a four-year wage freeze was sustainable, and a pragmatic solution should rather be found which addressed everyone’s bottom lines. Part of COSATU’s proposal was having a single agreement across the entire state, not just in public service departments, but also for all state-owned enterprises (SoEs).

There were creative measures available. In 1998, when Madiba went to the unions and said a wage increase could not be afforded, he placed a reduction in the contributions to the Government Employees Pension Fund (GEPF) by the employer to fund the wage increase. As such, there were creative ways that could be used, but nurses could not just be thrown under the bus.

Responding to Mr Mkiva, he had not meant that public sector corruption and private sector corruption could not be compared, but rather that the public sector and private sector wage bill could not be compared. Often those who wanted to apportion blame by saying the public service wage bill was the cause for the fiscal crisis, would say it was more than one would get paid in the private sector. However, apples needed to be compared with apples. There were no farm workers in the public sector. The public sector had many skilled workers, like nurses, doctors, and teachers -- people with degrees and qualifications -- while the private sector included everyone under the sun. The comparison should, for instance, be between what a doctor in the public sector earned, which was less than what a doctor in the private sector earned.

It was true that there were countless examples of private sector corruption. In effect, people in the private sector get away with murder. There were the examples of Fidencia, Steinhoff, Tongaat Hulett, Bain Capital, and the auditing companies themselves where there had been covering up of corruption, even in the public sector. Often workers’ pension funds were stolen in both the public and private sectors. In Eskom, those who were implicated had to pay back the money. Challenges had been made regarding the coal supply contracts to Eskom. Eskom received about two thousand coal trucks per day, and there were countless incidents where stones were mixed with the coal. A person who managed a power station would allow it to collapse because his son or brother had a contract for maintenance worth millions. Most of the corruption, such as tax evasion, customs evasion, or the fraud that SARS was fighting, was from the private sector. The hope was that the Commissioner would make progress with his commitment to conduct lifestyle audits. COSATU supported the Auditing Profession Act, with the hope that it would help to tackle corruption in the auditing sector.

SALGA's concerns on the DoR bill and equitable share would be reviewed, as the collapse of many rural municipalities was clear, and urban migration was further constraining the cities. He did not have all the answers, but there was need for everyone to be creative. Gauteng, for instance, was in the worst of scenarios in both the public and private sectors. Why could Vodacom not have its headquarters in Bela-Bela? Why did it have to be in Johannesburg?

On the question on transformation, transformation was not a one-off experience. South Africa as a country was big enough to accommodate everybody. There was the Employment Equity Act and the Minimum Wage Act, and there were exemptions for small companies who could not afford to meet the compliance requirements. Transformation needed to be embraced, rather than having a situation where most African women were unemployed or paid a poverty wage.

Closing comments

The Acting Chairperson thanked COSATU for its responses.

It was agreed that the adoption of minutes would be dealt with in the next meeting.

He thanked SALGA and COSATU for being present in the meeting.

The meeting was adjourned.