Appropriation Bill; Special Appropriation Bill; briefing & PBO input

NCOP Appropriations

02 June 2021
Chairperson: Ms D Mahlangu (ANC, Mpumalanga)
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Meeting Summary

Video: Select Committee on Appropriations, 02 June 2021

Besides the briefing by National Treasury on the Appropriation and Special Appropriation Bills, the Parliamentary Budget Office (PBO) gave an analysis of areas where government could save or reprioritise the budget due to the constrained fiscus.

National Treasury focussed on the budget reductions for 2021/22; aims of the fiscal strategy; freezing compensation of employees (COE); allocations for COVID-19 third wave; New Development Bank; Presidential Employment Initiatives; financial support to state owned entities; and the rescheduling of some infrastructure reductions in the 2020 Medium Term Budget Policy Statement (MTBPS). The brief noted lower budget cuts in departments that drive infrastructure compared to policy and safety-oriented departments; gross reductions (about 4.8%) and gross additions (about 4.0%); funding for Land Bank and Department of Health (DOH); Eskom allocation of 87% of gross additions; COVID-19 vaccine programme; and implications of the budget cuts.

Members appreciated the honesty of National Treasury in explaining the economic pressure faced by the country. Members asked about vaccine procurement; wage bill negotiations; cost of borrowing; delay in elections; structural reforms; SAA business rescue; COGTA under expenditure; NSFAS reductions; inability of Stats SA to carry out the census; COVID-19 third wave allocation; membership fees for international institutions and the New Development Bank; Presidential Youth Employment Initiative and the Economic Reconstruction and Recovery Plan; continual bail-outs of SOEs; alignment of budget with the State of the Nation Address (SONA); rating agencies opinion of the budget; and efforts made to privatise SOEs. The Committee resolved to request the Department of Public Enterprises to account why SOEs needed continual bail-outs.

Meeting report

The Chairperson said that the Appropriation Bill [B4-2021] and Special Appropriation Bill [B5-2021] would be passed by the National Assembly on 4 June 2021 and they would then be referred to the National Council of Provinces (NCOP) for concurrence. Both Bills were section 77 Money Bills which were processed differently from the Division of Revenue Bill as they did not require provincial mandates.

Appropriation Bill: briefing by National Treasury
Dr Mampho Modise, Treasury Deputy Director-General: Public Finance, reported that the proposed budget reductions focussed on narrowing the budget deficit. The proposal is that the consolidation of budget reductions takes place over five and not three years. The fiscal strategy aims to narrow the deficit and stabilise the debt-to-GDP ratio, primarily by controlling non interest expenditure growth, provide continued support to the economy and public health services in the short term, without adding to long-term spending pressures, and improve the composition of spending, by reducing growth in compensation of employees (COE) while protecting capital investment.

The risks include dealing with the challenges arising from the COVID-19 pandemic. However, domestic issues still arise due to the challenges in ailing state-owned companies (SOEs ) that require more funds and the negotiations on a new public service wage bill.

A summary of how the main budget non-interest expenditure has changed since the 2020/21 Budget shows that reductions are proposed for the skills development levy programme and the wage bill. Increases have been proposed for the COVID-19 response (to deal with the third wave) and other allocations such as the New Development Bank, Presidential employment initiatives, financial support to SOEs and public entities, and the rescheduling of some infrastructure reductions introduced in the 2020 Medium Term Budget Policy Statement (MTBPS). Although there had been under expenditure, only COGTA has major under expenditure presently hence it was difficult to implement the proposed budget cuts. Larger budget cuts have been proposed for the policy and safety-oriented departments because the COE in these departments are higher. Proposed budget cuts for the policy and safety-oriented departments such as Departments of Planning, Monitoring and Evaluation, Public Service and Administration, Correctional Services, Public Service Commission, SAPS, and Civilian Secretariat for Police Service are 15.5%, 15.3%, 13.3%, 12.0%, 12.3%, and 11.7% respectively while other departments have lower percentage budget cuts. The implications for this would be challenges in filling critical vacant positions while the challenge for the Department of Defence would be the inability to implement the Defence Review 2015 resulting in a decline in SANDF capabilities.

The proposed gross reductions are 4.8% while gross additions are about 4.0%. The proposed 4.0% gross additions are made up of funding for the Land Bank by Treasury (12.7%), Department of Health (3.0%), and 87.2% for  ESKOM by Department of Public Enterprises (DPE). The Health Department net increase is R6bn for COVID-19 vaccine programme with reductions in all other DOH programmes and reduction in conditional grants (R4bn) with the largest reduction for HIV/AIDS grants (R1.7bn).

Implications of implementing the 2021/22 budget cuts
Budget cuts would affect the filling of critical vacant posts and operational budgets. For Peace and Security, the ratio of custodial staff to inmate would worsen to 1:7 (presently it is 1:5) and the ratio of police to population would rise to above 1:400 (presently it is 1:220), limitation on recruitment of young and physically active force, further delays in the implementation of the Defence Review, and increased case backlog in the Justice and Correctional cluster. Also, the budget cuts would result in fewer transfers to public entities, reduce membership fees paid to international organisations, affect ICT and other infrastructure projects such as road maintenance, reduce funding for Stats SA new, old, and poverty surveys, lower assistance provided to the Presidential employment initiatives, Expanded Public Works Programme (EPWP), Community Work Programme and business incentives.

Budget cuts would also reduce COE, transfer to NSFAS, university subsidies, infrastructure grants and subsidies to TVET colleges. Budget reductions would result in below inflation increases in social grants, reduce the number of citizens assisted in the Funza Lushaka Bursary Programme, funding for Land Bank and Eskom.

The Committee should note that Treasury needs to ensure that funding is provided for vaccines and the Land Bank, which defaulted on its debt in April 2020. The Land Bank will receive R7 billion in recapitalisation over the medium term to put it on a stable and sustainable development path. A recapitalisation of R5 billion is proposed in 2021/22, to be funded through reprioritisation, and another R2 billion in both 2022/23 and 2023/24 for the Land Bank. Treasury proposed three different types of budget cuts to get the R5 billion recapitalisation needed in 2021/22 as it was difficult to do an across-the-board budget cut. A list was shown of the departments that would be affected by this R5 billion recapitalisation.

Special Appropriation Bill: briefing by National Treasury
Dr Modise outlined the three departments that will receive a special appropriation: DOH R1.25B, Department of Social Development R2.8bn, and an adjustment to the 2020 appropriation for DPE to reallocate R2.7bn of the R10.5bn given to South African Airways to South African Airways Technical (SAAT) SOC, Mango Airlines SOC, and Air Chefs SOC.

Mr Z Mkiva (ANC, Eastern Cape) welcomed the brief but registered concerns that the picture painted was not good as the economy was facing pressure due to COVID-19 challenges. He asked Treasury to state if it had plans to ensure that the economy was revived in the next three to five years, ensure that the budget deficit did not rise, and ensure that social grants are increased instead of reduced so alleviate the economic strain in rural communities until a turnaround was implemented.

Mr W Aucamp (DA, Northern Cape) asked what would happen if Treasury accepted the demands of labour unions. Where would it get the funds needed for the COE pay-outs? He asked in what ways COGTA was continually underspending. Is it advisable to allow the ratio of police to citizens to increase from 1:220 to 1:400 in a country where the effect of crime kept increasing? What could be done to make the presence of police stronger in rural areas? He expressed concern that only R6bn would be appropriated for purchasing COVID-19 vaccines. Should not more funds be appropriated to purchase vaccines? What is the total amount of funds reprioritised for SOEs . The brief shows 87.2% of the budget cuts would be allocated to Eskom again. When would Treasury stop allocating funds to bail out SOEs?

Mr D Ryder (DA, Gauteng) was concerned that it appeared as if the Committee was rubber-stamping what Treasury had proposed – as previous engagements with civil society had suggested. He appreciated Dr Modise’s presentation of the facts and agreed with Mr Mkiva that the effect of budget cuts on social grants would impact the poor negatively. The brief shows that the Land Bank would require more funds in the medium term hence the negative impact of budget cuts on departments would be massive.

Since Parliament’s purpose is to protect the poor that rely on government the Committee should question why funds should be given to SOEs such as Eskom and Land Bank instead of the poor. Engagements with Treasury on the Land Bank on 1 June 2021 showed that the funds appropriated by Treasury for Land Bank would not be enough. Treasury would need to appropriate more funds. Therefore, the country should decide if it is advisable to appropriate the funds from the budget cuts to the Land Bank. He asked Treasury to clarify if the reprioritisation of funds for SOEs is the right thing to do because at this stage the country needs funds for other strategic areas such as equipping the South African army.

He asked Treasury to provide more information on COGTA under expenditure, confirm if the budget funds for elections and census were sufficient, give more information on membership fees paid to international organisations, the cost of belonging to BRICS Bank, and the current benefits of belonging to Brazil, Russia, India, China, South Africa (BRICS) New Development Bank (NDB). He asked if funds appropriated for the SAA business rescue were used solely to rescue SAA. Was South Africa prioritising infrastructure projects because the brief showed that the funding for Public Works has been reduced? How was the appropriated budget in line with economic recovery?

Mr S du Toit (FF+, Free State) expressed concern about the reduced funding for safety and policing. He also asked how much support was given by Treasury to the NDB and to explain how it would continue to assist SOEs with the shrinking revenue base of the country. Some SOEs were doing well and asked Treasury to consider the economic benefits of privatising the SOEs that were doing well as the funds from such privatisation could assist the country with debt servicing and its  turnaround strategy. He was concerned that the health sector was not ready for the COVID-19 third wave. He asked Treasury to clarify its plans to assist the health sector, and explain how it would provide more funds for safety, security and policing.

Mr M Moletsane (EFF, Free State) stated that the NSFAS budget cuts would deny more youths access to education in tertiary institutions and asked if Treasury had a mechanism in place to stop budget cuts to NSFAS, universities, and TVET colleges as youth unemployment was rising.

Mr Y Carrim (ANC, KZN) asked Treasury to clarify the notion that South Africa would return to the pre-COVID-19 growth rate only in 2025 as reported in the brief. This trend was not good enough as the country should be making plans for economic recovery as soon as possible to ensure that South Africa competes favourably with other countries. He asked Treasury to clarify why it is reducing funds for the Expanded Public Works Programme as South Africans are desperate for jobs and to confirm if the steps taken by Treasury to reprioritise funds are right. Mr Ryder was concerned that the budget bills would be passed by National Assembly by 4 June 2021 but the bills could be passed with amendments, without amendments or rejected. Any of these possibilities could take place on 4 June 2021. Members should recall how difficult it was to pass the Money Bills Act. The way forward was to discuss both the Appropriation  and Special Appropriation Bills in a structured way despite the formidable obstacles that arise from Section 8(5).

Changes have been made to the budget but the only difficulty is that Treasury has to implement the changes as Parliament cannot administer the changes. Although the budget would be passed on 4 June 2021 it does not mean that the budget would be passed without any changes. The African National Congress has been engaging on the budget bill but the National Assembly of Parliament has to empower the changes through legislation. At this stage, Members should not be looking at ways to reject the budget entirely but ensuring that Parliament exercises its power to have a greater say in the budget reprioritisations by consulting the relevant Committees. If funds have to be reprioritised from the Department of Human Settlements this cannot be done without enabling legislation. However, if funds should be reprioritised from departments where the money is underutilised, it would be a good thing. Media reports have shown that funds can be raised from underutilised Department of International Relations and Cooperation (DIRCO) properties, that is a good area where the country can recover underutilised funds and this should be done as the country needs funds.

The Chairperson corrected herself and said the Appropriations Bill would ‘undergo parliamentary processes’ in the National Assembly on 4 June 2021 whether passed with or without amendments, or rejected. The meaning she wanted to convey was her being positive about the outcome of the parliamentary process on the Bills as she wanted the funds to be appropriated to ensure that the departments carried out their work seamlessly. All Members share the stigma that the Select Committee is just a tool to rubberstamp the decisions of Treasury on budgets as civil society believes that the NCOP Committee is being pulled around and told what to do. However the truth is that Members have the opportunity to air their views within a limited time for discussions. Mr Ryder had been given ample time to engage on both Bills and there was no reason for Mr Ryder to indicate that the Committee was merely rubber-stamping the budget without any inputs. The Committee has the choice of adopting the budget bill based on the NCOP mandate after it has been passed by the National Assembly.

She asked Treasury to clarify how COGTA continually operated a system of under expenditure in its programmes when municipalities were complaining that they did not have the financial resources for projects.

Treasury has appropriated funds for Stats SA to carry out the census but Treasury spoke about the inability of Stats SA to carry out the census in 2021. Please could it clarify why Stats SA would not be able to carry out the census. She noted funds had been appropriated separately for Human Settlements department and Water and Sanitation department when the two departments had merged. She spoke about the water supply challenges at Dr JS Moroka and Thembisile Hani Local Municipalities in Gauteng and Mpumalanga and asked which department should be held responsible for the water supply challenges in provinces.

Treasury response
Dr Mampho Modise replied that it would take the country several years to get back to pre-COVID-19 economic growth rates. In the Budget Review, Treasury has GDP recovery to 3.3% in 2021 but a very moderate growth of 1.6% in 2023, the mild economic recovery is driven by the fact that when Treasury did the Budget Review the focus was on three strategies: the reforms, increases in tax, and the strategy for reducing the composition of spending.

The first is based on how the country could fast-track the reforms needed in the country. In Chapter 2 of the Budget Review Treasury goes into detail on these reforms and the implications of these reforms on the growth of the economy. Operation Vulindlela, the joint project management unit in Treasury and the Presidency, has been tasked to drive the economic reforms. Although these reforms are urgent, the impact would be seen within the MTEF and economic growth would be affected by delays in implementation of these reforms.

Secondly, Treasury observed that the country would not achieve its aim if some tax categories were increased. Therefore, Treasury proposed that personal income tax should not be increased because citizens are still challenged due to COVID-19. The proposed increase in company income tax has also been stopped because Treasury realised that an increase would erode the relief given to companies from the effects of COVID-19. Therefore the only increase in taxes has been within the alcohol and tobacco industries. The tax structure proposed by Treasury should favour economic growth.

The third strategy was a reduction in the composition of spending and reviews showed that protecting infrastructure through COE budget cuts translates to a salary freeze in the MTEF. Treasury protected capital projects to ensure that capital projects grew within the Consumer Price Index (CPI). Hence the budget cuts in departments that drive infrastructure are lower. For example, the budget cut in the Department of Transport is 3.3% while DPME has a budget cut of 15.5%.

Implementing these three strategies would assist the country in achieving the desired growth but the risk would be delayed implementation. Delays in carrying out the census are beyond the control of Stats SA as the entity could not carry out the census pilot last year. Stats SA has requested a roll-over of the amount appropriated for the census pilot to ensure that the pilot would commence in July 2021 and the full census would commence in 2022. Since the census cannot be carried out this year Treasury would have to provide the R2.2bn needed in 2022 and this would become a spending pressure because there is no allocation for the full census next year.

Any deviation from the wage bill negotiation would affect the appropriated fiscal framework. If the wage negotiation is higher, Treasury would be forced to look for funds from programmes that have not been committed such as the Presidential employment programme and infrastructure projects to augment the balance.

Ms Vuyelwa Vumendlini, Treasury DDG: International and Regional Economic Policy, said the country would be paying its third and final instalment of 350 million US dollars to the New Development Bank (NDB) on 3 January 2022. This would depend on what has been budgeted and Treasury is guided by movements in the exchange rate. Treasury might be able to make the payments but the country is under pressure because the NDB is not the only development bank to which the country needs to pay subscriptions. South Africa needs to pay subscriptions to the African Development Bank and the World Bank and both have been recently recapitalised and this creates some spending pressures. These development banks assist with infrastructure funding and very recently the country received loans from the ADB and NDB for the COVID-19 response. It  needs to access these funds because the loan terms are affordable compared with what is available in the capital market.

Ms Tshepiso Moahloli, Treasury DDG: Asset and Liability Management, compared the loan terms received from the international finance capital market (IFCM) and those from development banks. For instance, a 30 year loan with a five year grace period has a 2% interest rate from the development bank while it attracts a 5% interest rate from the capital market. This gives a saving of about 3% when debt-service costs are a major expenditure burden for the country. Being able to borrow from these multi-lateral development banks has been favourable as the risk of borrowing from the IFCM is quite high. Treasury has in the past leveraged these financial resources and would continue to reduce the interest bill of the country. Treasury has provided the figures for its financial support to SOEs in Treasury’s submission to the Committee in the 2020 Budget appropriations. The updated numbers for Land Bank and SAA over the period of 2009-2023 at constant rates would be about R329bn. This amount appropriated is not the end. There is a very high likelihood that the SOEs would continually need a bail-out in the future because of the historical position of the SOEs which has been escalated by the COVID-19 pandemic. The SOEs have government guarantees on funds to service debt but it does not provide funds for SOEs to expand their infrastructure or for development projects in most of these bail-outs.

The exposure in terms of guarantees is over R400bn. There is no option because the claims on the guarantees are the first claims to the National Revenue Fund. Therefore, before salaries and grants are paid out, the country has to pay its debt obligations to lenders. Guarantees put pressure on the fiscus and it is not advisable to provide these guarantees because the SOEs rely on government to pay the guarantees. The budget of the SOC does not go through the budget process and undermines the integrity of Parliament in the budget process as Members question why SOEs need to be prioritised as SOEs do not meet their debts and rely on the State to pay the guaranteed debt. There is a very high likelihood that more bail-outs would occur in the future. Treasury is a shareholder in the Land Bank and Treasury will provide a written submission when that process led by Dr Modise is complete. These bids would be evaluated in conjunction with other government priorities to the extent that government can make these trade-offs for objectives that government feels are strategic to the country.

At this point Treasury cannot make a commitment of support to the Land Bank over the medium term however Treasury recognises that due to its default position, the Land Bank would not be able to access funds from the capital market. The Land Bank is in a position where the development and transformation mandate is being re-established, and the Land Bank needs support from the state to support emerging farmers who would not be able to otherwise access funds from the commercial banks because of the lending risk.

The Department of Public Enterprises (DPE) as the shareholder would be in the best position to explain if the funds allocated to SAA are spent in the right way. DPE would be in a position to present a monitoring progress report on how the money is being allocated according to business rescue prescripts. Treasury cannot comment on the SAA business rescue plan but suggests that the Committee invite DPE to account at an appropriate time.

The Public Finance Management Act requires SOEs to generate sufficient financial resources for their operations to meet their obligations to employees and debt lenders. Unfortunately, SOEs are not able to meet their obligations and this has led to situations where government must pay salaries and pay the lenders. The strategic entity partner would assist the Committee on the business rescue process as getting shareholders for SOEs is becoming difficult. Many frameworks have been proposed for privatisation, for instance, the private sector participation framework has been endorsed by Cabinet and is being tried out presently by the timing might be off. Is very difficult to get entities into entities that are failing. In such situations, there might be a need to pay the investors to acquire the entity but there is a framework.

The SAA through the business rescue plan is trying to bring in an equity partner hence government is prioritising the entity because it is strategic. The business model for selling the SOEs is difficult as most shareholders do not want to buy the SOEs since the costs for managing these SOEs are high. However, Treasury hopes that the process the President has started would work since every Minister would present their SOEs as strategic. Treasury hopes that the established Presidential SOE Council would help to reposition these SOEs to ensure that they contribute to the transformation of the country effectively and to strengthen the framework for SOEs. Prioritisation is key when Treasury brings the items that need to be prioritised forward as it goes through the Medium-Term Expenditure Committee, the Ministers’ Committee on the Budget, and ultimately Parliament. There are checks and balances and Treasury has taken an initial step on what it understands are the priorities. The choices of Parliament and the Cabinet would be reflected once these are approved. Treasury agrees that prioritisation reflects a key balance of the limited resources in the country.

Mr Rendani Randela, Treasury Chief Director: Justice and Protection Services Unit, spoke about  Treasury's various initiatives such as sharing of resources, consideration of modernisation at the cluster level, alternative dispute resolution methods to reduce overcrowding in prisons, reprioritisation in SAPS of its frontline staff. Engagements are ongoing since 2016 for Defence Force funding emanating from Section 200 of the Constitution. The biggest challenge would be COE budget cuts. The solution to the wage bill must not lie with increasing the COE budget. Engagements on revenue are ongoing to ensure that the Defence Force identifies in what areas to generate revenue therefore the review is a work in progress.

Ms Julia de Bruyn, Treasury Chief Director: Basic and Higher Education, said the terms of fiscal structure consideration were to reduce COE and increase fiscal spending. All the allocations for NSFAS, TVET colleges, and universities are transfers so budget cuts affected these transfers more. Engagements were made with the Department to reprioritise funds within these institutions. After the engagements, recommendations were made to Cabinet and Cabinet decided to save NSFAS but funds were pooled from some of the specialised programmes at universities and from infrastructure in TVETs and universities to meet this goal. This is what fiscal consolidation is about. Left to Treasury, we would have preferred to save particular programmes but unfortunately Cabinet is the body that approves fiscal consolidations. At present no more reprioritisation can be done without affecting the work of TVETs and universities.

Dr Modise agreed with Members that the R6bn allocation appropriated to COVID-19 in the budget was not enough Treasury has allocated R7bn from the Contingency Reserve Fund for COVID-19 pandemic preparations. The major challenge in purchasing vaccines is sourcing available vaccines, not funds. Treasury has considered funding from the Contingency Reserve Fund because it was not sure of the funding needed to procure vaccines at the time the budget was proposed. Treasury would be working with DOH on the way forward on vaccine procurement.

Mr Rezah Atcha, Director: Energy and Telecommunications said under expenditure occurred in municipalities when the municipality does not meet the conditions for a roll-over on its special grant funds. Treasury has a process to approve the roll-over and if the roll-over is not approved municipalities have to return the money to the National Revenue Fund. This money returned from under expenditure is offset through the Local Government Equitable Share. Both Human Settlements and Water and Sanitation have been merged into one Department and have one minister but have separate budget votes. The vote for Human Settlement is Vote 33 while that of Water and Sanitation is Vote 41.

Follow-up questions
Mr Ryder expressed concerns about risk aversion and the cost of borrowing. He asked Treasury to indicate the opinion of rating agencies on the country’s budget appropriations, Section 25 amendment, and the delay in elections. He appreciated that Ms Moahloli had indicated that privatisation of SOEs would be difficult without enticing investors and government had to pay private investors to acquire some SOEs. He welcomed her suggestion to invite DPE to give an account. DPE should be invited to explain why its planning resulted in the country having to bail out SOEs. It was a good thing that Eskom had redeemed its debts.

The Chairperson asked Members if they agree to invite DPE based on the suggestion of Ms Moahloli. An engagement with the DPE should however include the relevant Select Committee.

Mr du Toit asked if SOEs would not be able to exist without bail-outs based on the brief by Treasury that privatisation of SOEs was challenging.

The Chairperson asked for opinions on the proposal to invite DPE to give an account of why SOEs need bail-outs.

Mr Carrim agreed to the proposal.

Ms Tshepiso Moahloli agreed that credit ratings played a role in the country’s economic recovery and confirmed that rating agencies had stated that the country had lost its ratings on investments. Moody's Investors Service chose not to issue a statement on the county’s investment status but Fitch did and the statements on the country's investor status are published on the Treasury website. This is a risk on the fiscus as the ability to finance the country’s debt is questionable. The SOEs continually put pressure on the fiscus but the factors that could lead the country back to economic recovery include successful implementation of structural reform, reducing SOE guarantees through SOE reforms, and successful negotiations with labour to reduce the wage bill which would contribute to a better credit rating for the country.

The bail-out funds for Eskom go towards the pay-out of debt that Eskom owes. Treasury has been stringent on giving guarantees on SOE debt  because departments have been negatively affected when Treasury cuts department budgets. There have been positive impacts as a result of the Rand/USD appreciation. Treasury has put mechanisms in place to ensure that Eskom complies with the rules on guarantees. As stated in the brief over 80% of the gross additions are for Eskom.

Privatisation of SOEs has been difficult but it is possible as different investors derive different benefits and could unlock other value apart from financial gain. However, the investors have to do their due diligence to be sure and government would have to introduce some packages to entice investors to buy the SOEs. Treasury has requested that such investors present proposals to Cabinet for consideration.

Mr Ryder said Treasury had not given an indication if the budget was appropriately aligned with the promises of the President in the State of the Nation Address (SONA).

Dr Mampho Modise replied that the main focus would be on infrastructure where a provision of R4bn was made to the Infrastructure Fund for the financial year. The focus is also to stabilise the debt and consolidate the economy to ensure that the system does not collapse. The mechanism for trade-offs is based on the priorities that government feels are strategic to the country. What is key is to ensure that the mechanisms used would ensure that the objectives align with the promises of the President in the SONA. Two things have been done which include allocation of funding to the Infrastructure Fund and Operation Vulindlela is being used to improve economic growth. Infrastructure Fund allocations work with mobilising private sector funding in projects such as the student housing projects for universities where government invests in conjunction with the private sector. Hence the Infrastructure Fund is part of the budget and Treasury has protected funding for infrastructure.

The Committee should note that funds removed from PRASA are not to reduce infrastructure spending in PRASA. The funds were withdrawn because PRASA could not spend the funds. The other thing Treasury has been doing to align with the Presidential priorities is to utilise the R11bn from the Presidential Employment Initiative and Chapter 2 of the Budget Review capture the details of how Treasury hopes to use Operation Vulindlela to implement structural reforms needed in the country. Treasury has announced the bid for the process to generate electricity through independent power producers, creating employment through the Presidential Youth Employment Initiative, and supporting industrial growth through the allocations to the agricultural and small business development sector (SBDS). Incentives in the SBDS include the provision of about R333m to support small skilled businesses. The pipeline that Treasury has is worth about R340bn in different industries such as energy, water, transport, and telecommunication sectors. This work has already begun spearheaded by the Operation Vulindlela unit in the Presidency.

Treasury has been looking at how it will involve other entities such as Transnet and deal with any bottlenecks. These are some of the items that Treasury has proposed and the President and the Cabinet have been looking at these proposals. At this point, Treasury cannot present a budget that has not been approved but this brief is to inform the Committee of some of the strategies proposed by Treasury. It might look like the reduction of spending does not support the Presidential initiatives but Treasury had to compare the gains of fiscal consolidation through budget cuts to the cost of borrowing to meet the country’s needs. The cost of borrowing to meet the needs of the country presents more consequences than the gains in proposed fiscal consolidation reforms through budget cuts. The key to economic growth however would depend on how fast the country can implement the structural reforms to support economic growth which would ultimately align with the Presidential initiatives in the SONA.

Mr Mark Blecher, Treasury Chief Director: Health and Social Development, replied the allocation appropriated for vaccines was adequate. He said that 63 million doses have been procured. Only a quarter of the R5 billion has been spent. South Africa is presently dependent on Pfizer vaccine allocations.

Dr Mampho Modise said Treasury had published the Zero-Based Budgeting Framework on its website but it can send it to the Committee.

The Chairperson hoped that Mr Ryder’s questions had been answered on the zero-based budgeting framework.

Parliamentary Budget Office: Spending efficiency in a fiscally constrained environment
Dr Nelia Orlandi, PBO Policy Analyst, outlined areas where government could save or reprioritise the budget. She said she would send the PBO analysis to Members (see document).

The Committee adopted the 26 May 2021 minutes and the meeting was adjourned.

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