The Budget Committee met virtually with the Financial and Fiscal Commission (FFC) to receive a briefing on their 2022/23 submissions for the Division of Revenue Western Cape, followed by a briefing by the Provincial Treasury and the Department of the Premier on the 2021/22 fourth quarter financial and non-financial performance.
The FFC presentation was presented in chapters. These included:
- Measuring the macroeconomic and fiscal impacts of Covid-19 in South Africa;
- Measuring the effectiveness of government expenditure on performance;
- The impact of the Covid-19 pandemic on the local economy;
- Addressing gender inequality through gender budgeting in the public sector;
- Testing the means test -- social assistance in South Africa and Covid-19;
- Covid-19 and food security;
- Water and sanitation access, distribution efficiencies and tariff setting in South Africa;
- The role of intergovernmental oversight and support in avoiding a Section 139 intervention; and
- Leadership, management and governance for sustainable public service delivery.
The ensuing discussion by Members covered whether recommendations were considered and implemented; the tracker system on recommendations previously made; the accountability of people involved in a project and people who had interfered in the project; the presentation of the report to local government and specific municipalities; opportunities for engagement in terms of the report; the success of Section 139 and Section 100 interventions in terms of the Constitution; the responsibility of provincial governments towards assisting local municipalities at the local level without making use of section 139 interventions; the results of municipalities after administration by provinces, and whether it had helped in improving their financial situations; and gender-responsive budgeting. Other matters discussed included localised production and procurement, the bloated public sector wage bill, intergovernmental infrastructure and irregular expenditure, and consequence management
The Provincial Treasury and Department of the Premier presentation covered the departmental preliminary budget performance for the 2020/21 financial year; the preliminary infrastructure performance and the validated non-financial fourth quarter performance data for all departments and public entities; new Covid-19 interventions implemented during the fourth quarter, and progress on interventions implemented in the previous three quarters; and the reasons for departmental under-performance.
During the ensuing discussion, Members sought specific reasons for under-performance or non-performance, and wanted to know whether the results of entities were included as the total sum of the performance of the departments to which they reported. They also asked about the total amount of under-spending on infrastructure projects, the under-expenditure during the fourth quarter, whether any of those funds were rolled over for the current financial year, and whether any of the targets not reached had been addressed in the quarter since.
The Chairperson welcomed everyone, and said the Committee would be hearing a briefing from the Financial and Fiscal Commission (FFC) on its 2022/23 submission for the Division of Revenue, followed by a briefing from the Provincial Treasury on the 2020/21 fourth quarter performance (financial and non-financial). The Committee would then deal with some Committee administration matters involving minutes and quarterly reports, followed by the usual resolutions and actions.
She allowed Members to introduce themselves, and said that Mr David Maynier, Member of the Executive Committee (MEC): Finance and Economic Opportunities, Western Cape Provincial Government, was present in the meeting but had submitted an apology, stating that he would be staying for the first hour before having to move on to a lekgotla, and would then join the Committee meeting later again.
Financial and Fiscal Commission submission: 2022/23 Division of Revenue
Ms Elzabe Rockman, Commissioner, FFC, said the presentation consisted of ten chapters.
Mr Chen Tseng, Director: Research, FFC, would present:
- Chapter 1 – Introduction by, presented the context within which the submission was tabled;
- Chapter 2 – Measuring the macroeconomic and fiscal impacts of Covid-19 in South Africa;
- Chapter 3 – Measuring the effectiveness of government expenditure for performance; and
- Chapter 6 – Testing the means test -- social assistance in South Africa and Covid-19.
Dr Mkhululi Ncube, Programme Manager: Local Government Unit, FFC, would present:
- Chapter 4 – The impact of the Covid-19 pandemic on the local economy;
- Chapter 5 – Addressing gender inequality through gender budgeting in the public sector;
- Chapter 7 – Covid-19 and food security; and
- Chapter 8 – Water and sanitation access, distribution efficiencies and tariff setting in South Africa.
Mr Thando Ngozo, Senior Researcher: Macroeconomics and Public Finance Unit, FFC, would present:
- Chapter 9 – The role of intergovernmental oversight and support in avoiding a Section 139 intervention; and
- Chapter 10 – Leadership, management and governance for sustainable public service delivery.
Chapter 1 – Introduction
The FFC’s submission was made against the backdrop of a very fragile economic environment amidst the country’s second recession in a decade. The pandemic caused many challenges, including the FFC’s fiscal efficacy system in accommodating pandemic-induced challenges. The pandemic also intensified existing inequalities and condemned many people to unemployment and poverty. The questions abound on the impact of the pandemic on the state’s fundamental obligation – being the progressive realisation of citizens' basic rights, as enshrined in the Constitution. The pandemic also highlighted inadequacies in access to basic services and food and heightened imbalances and conflicts in society, especially when considering the gender dimension. It further exposed inadequacies in the country’s oversight, accountability and leadership. Provincial and local government would bear the impact of funding cuts and revenue losses and would need to find ways and means to adjust to a constricted fiscal environment whilst mitigating against service delivery losses.
The theme of the FFC submission is the effect of Covid-19 and the changing architecture of sub-national government financing in South Africa. The FFC believes that a comprehensive and evidence-based analysis of the socio-economic impact of the pandemic was key to developing a set of informed recommendations that can contribute to turning around the economy to achieving an inclusive and sustainable growth trajectory. Its recommendations subsequently seek a recovery process that is sustainable and leaves no one behind. The context within which the submission is made is informed by: growth in growth domestic product (GDP); unemployment; the budget deficit; gross debt to GDP; provincial average annual growth; sectoral contributions to the provincial economy; and tourism. The submission is structured in four major parts -- the macroeconomic impact of Covid-19; Covid-19's impact on local government; Covid-19's impact on people’s lives (Bill of Rights); and oversight and leadership.
In terms of growth in GDP, the shock of Covid-19 is significant, with a - 51.7% decline in annualised quarter to quarter change in quarter 2 of 2020, to the sudden rebound of 67.3% on the production side. The South African economy was 2.7% smaller than it was in the first quarter of 2020. On the demand side, firms are busy restocking. Consumption has resumed marginally, but trade is still in the negative region. GDP by industry showed roughly the same trend, with volatility caused by the lockdown and the Covid-19 pandemic. The official unemployment rate increased from 32.5% in quarter 4 of 2020, to 32.6% in the first quarter of 2021. The unemployment rate, according to the expanded definition of unemployment, increased to 43.2% in quarter 1 of 2021. The Western Cape had an unemployment rate (official definition) at 23.7% in quarter 1 of 2021. Government gross debt had increased to 80.3% in the 2020/21 financial year due to Covid-19.
Provincially, the disaggregated regional data for GDP masks the idiosyncrasies in growth between provinces and thus the impact of the Covid-19 pandemic. The finance, real estate and business services continue to be a key contributor to the provincial economy, at 22.7%. According to the Tourism 2020 report released by Statistics SA, the overall number of travellers (arrivals and departures) decreased by 71%. The Covid-19 pandemic impacted the tourism industry hard in South Africa, mainly due to the lockdown and travel restrictions that were imposed, and would negatively impact the Western Cape’s tourism industry.
Chapter 2 – Measuring the macroeconomic and fiscal impacts of Covid-19 in South Africa
The Covid-19 pandemic and nationwide lockdown triggered the most significant recession in South Africa’s economic history. Inefficiency in public sector service provision, combined with the pandemic’s shock on overall productivity, led to the highest levels of unemployment, poverty and inequality. There was uncertainty about what the financial and fiscal roadmap should look like, to ensure that policy priorities were realised. Supply and productivity were adversely affected through mass unemployment and deficiencies in total factor productivity growth. Shocks to consumption and investment in the second quarter of 2020 contributed to the fall in aggregate demand. Depletions in inventory stocks and a lack of imports undermined a swift growth in recovery through consumption. Long run, potential output was projected on a downward trend, at –0.5%.
Financial stability showed that producer prices rose as a result of the lockdowns, adversely affecting consumer purchasing power. Higher consumer prices affected affordability of goods for poorer households. The fiscal space in terms of the primary balance deteriorated further with the onset of Covid-19. As a result, the fiscal impulse had been compelled towards a consolidatory stance at the end of 2020. An increase in concentration and dependence on tax for public revenue generation has made fiscal revenue vulnerable to Covid-19. Fiscal leakages undermine the positive spill-over effects that economic growth has on reducing the public debt burden. This also affects investor behaviour, which further dampens growth prospects.
The FFC calls for active engagements between the three spheres of government to ensure formalisation and alignment of provincial and local government economic reconstruction and development plans, with resource commitments in the 2022/23 division of revenue. The 2022/23 division of revenue should, in promoting economic growth, be more specific in supporting local demand and localised product procurement, to support value chains. The Minister of Finance should eliminate fiscal leakages and inefficiencies through reprioritisation, merging and downsizing departments.
Chapter 3 – Measuring the effectiveness of government expenditure for performance
In terms of statistical regression results, the multiplier effect of government expenditure on GDP growth was positive. Additionally, its impact on poverty had been negative over time, i.e., reducing poverty. Regarding unemployment, the government expenditure multiplier was generally negative, but weakly positive in certain years, indicating that government expenditure reduces unemployment. The efficacy of key performance indicators (KPIs) reveals that departments are meeting their projected annual targets.
South Africa’s wage bill as a percentage of GDP is high and increasing, relative to other countries. Spending efficiency in terms of economic activity appears to be operating relatively efficiently (approximately 80% efficiency). The least efficient spending is the poverty headcount (50% efficiency), poverty gap (low of 60%) and inequality (low of 70%).
The Minister of Finance should ensure that departments enhance the consistency and coherency of their KPIs to the financial commitments of their budgets via the medium-term expenditure framework (MTEF) technical guidelines. Indicators that incentivise a target that was costed are encouraged, as opposed to merely indicating progress on a specific objective. The Minister should review the public sector wage bill across all spheres of government, with a view to reduce expenditure on non-core functions. In terms of the fiscal multiplier effect, the currently low returns or multiplier effect of expenditure on the GDP needs further investigation by the Minister, especially as the economic environment going forward due to Covid-19 is still changing.
Chapter 4 – Impact of the Covid-19 pandemic on the local economy
The Covid-19 pandemic exacerbated the challenges already faced by the local government sphere. As of December 2020, the local government sector had incurred close to R 25 billion in Covid-19 related expenses. As expected, the metros accounted for the largest portion of Covid-19 related expenses. The impact of the Covid-19 pandemic has been more pronounced on the revenue side. Covid-19 related revenue pressures can be illustrated by evaluating revenue collection rates. Metros and intermediate cities were hardest hit. However, metros and intermediate cities have rebounded – suggesting some financial resilience which they owe to a diversified revenue base. Property rates were the least affected revenue source for all municipal categories. Electricity revenues were also moderately affected. Worst affected were water, sanitation and refuse removal, due to social distancing regulations. Virtually all municipalities interviewed noted an increase in consumer debt, which created a huge shortfall in their accounts due to Covid-19. In turn, this led the municipalities failing to service their debt to Eskom and water boards.
The FFC noted the following needs within the local government sector:
(1) Promoting local economic growth, by streamlining red tape, reducing time frames for getting permits or licences, and reducing the compliance burden of their regulations;
(2) Revenue enhancement -- diversify revenue mix; and
(3) Embracing e-government through automation and online platforms.
Municipalities should undertake a detailed and unbiased analysis of the services they provide, to align their responsibilities, services and programmes to their financial capabilities. Municipal organograms, staffing levels and the compensation of employee budgets should be set at levels that do not crowd out service delivery expenditures. In addition, role players should ensure that municipal budgets are credible and based on realistic revenue collection rates. Municipalities should stimulate local economic growth by creating investment-friendly conditions and streamlining regulations that impede investments within their jurisdictions. Municipalities should consider additional revenue-enhancing strategies, such as the selling of redundant assets and creating new revenue-generating infrastructure. National Treasury should support municipalities to embrace e-government (digitalisation) and diversify their revenue mix as part of building the financial resilience of local government.
Chapter 5 – Addressing gender inequality through gender budgeting in the public sector
In South Africa, women continue to bear a disproportionate burden of the triple challenges of poverty, unemployment, and inequality. Government has committed to gender equality in all spheres. Despite these commitments, gender inequality remains high in South Africa. The Covid-19 pandemic has worsened gender inequality. One of the avenues that have been adopted globally to turn the gender equality commitments into reality has been gender-responsive budgeting.
The FFC study revealed four crucial issues about government budgets and gender issues:
- Limited mainstreaming of gender issues in departmental budget processes. Departments generally lack gender-disaggregated data and information to enable the implementation of gender-responsive planning, budgeting, monitoring, evaluation and auditing. Gender-responsive budgeting is difficult to undertake without gender-disaggregated data and information.
- Limited gender disaggregated data. Gender-disaggregated information could be found in other areas, but such information was seldom integrated into the strategic documents of departments to allow gender-responsive budgeting processes.
- Lack of detailed departmental gender-specific performance indicators. Departmental performance indicators are not sufficiently detailed in providing data on the number of women and girls who benefit from their programmes. The Department of Women, Youth, and Persons with Disabilities (DWYPD) has various indicators related to each programme and targets set, and is expected to take the lead in coordinating the implementation of the government's gender equality commitments.
- Legislative, policy and institutional framework on gender-responsive budgeting. Gender equality and women's empowerment are often an afterthought or relegated to a sector or specific outcome, rather than an integral component across all government sectors. Oversight on gender equality and women empowerment also tends to be limited to the Portfolio Committee on Women, Youth and Persons with Disabilities, yet it should be cutting across all committees. The Commission for Gender Equality budget is mainly consumed by the compensation of employees, and the risk of such a high compensation of employees' budget is that it may crowd out other important priorities and their mandate.
The DWYPD and the Department of Planning, Monitoring and Evaluation (DPME) should finalise the institutionalisation of gender-responsive planning throughout national and provincial government as envisaged by gender-responsive planning, budgeting, monitoring, evaluation and auditing (GRPBMEA). National Treasury, with the DWYPD and the DPME, should spearhead the implementation and mainstreaming of gender-responsive budgeting throughout the entire scope of the budget process. National Treasury should create an enabling environment to institutionalise the GRPBMEA. National Treasury and the DWYPD should consider the introduction of a formal gender auditing process.
The DWYPD should coordinate, and spearhead initiatives focused on the capacity building of political and administrative leadership on GRPBMEA at all levels of government. The DWYPD should, on an annual basis, prepare a comprehensive report on how the Division of Revenue Bill responds to gender inequality and how fiscal policies translate the government's gender equality commitments. The DWYPD, with Stats SA, should provide explicit guidelines for collecting and integrating gender-disaggregated data to ensure the visibility of girls and women in government programme execution and in budgeting processes within the government. The Department should invest in statistical capacity-building in government to improve the measurement of gender equality indicators and the collection of gender-disaggregated data.
Chapter 6 – Testing the means test (social assistance in South Africa and Covid-19)
Almost all social grants in the country rely on a relatively simple means test as a targeting device to determine eligibility. To an extent, the negative impacts of Covid-19 have necessitated a reconsideration of poverty and vulnerability, as previously non-poor South Africans experienced severe income shocks, or a permanent loss of livelihoods. It was thus important to understand how well the existing grant system covers vulnerable South Africans, and whether the current means-testing approach ensures that the poorest receive grants, with no significant leakage to those who are ineligible. It is important to understand how the grant system was temporarily adjusted to reach those impacted by the pandemic, as well as how well targeted this effort had been. Research shows that the social grant system in South Africa is progressive. The possibility of poor individuals being excluded is low. 80% of those who lost their jobs in 2020 lived in a household where some form of social assistance was received. An alternative targeting mechanism did not appear to be warranted.
The Minister of Finance, in the Division of Revenue, should continue monitoring the outcome of the existing social grant system, which appears to be effective and pro-poor. The Minister of Social Development, with the Minister of Finance, should investigate the reasons for the exclusion of those persons who were eligible to receive an income grant, but do not receive it, and develop and implement appropriate remedial action. The Minister of Finance, together with the Minister of Social Development, should consider alternative means-testing regimes of the social grant system, such as an asset-based system of means-testing. The Minister of Finance should consider the fiscal impact of such a grant.
Chapter 7 – Covid-19 and food security
The FFC analysis shows findings of massive job losses (unemployment), and this caused an increase in child hunger, the likelihood of household’s running out of money for food purchases, and a recurrence of household hunger; Old age grants and Covid-19 grants proved more effective in protecting the households against this welfare reversal, compared to child grants. Old age grants reduce incidents of household food insecurity; and receipt of all grants reduces incidence of household food insecurity, suggesting the need to expand the scale of existing social grants. The shock to a household income resulted in a substantial welfare loss in terms of worsened adult and child food insecurity. Alternative social protection transfers have heterogenous effects in countering these effects. Grants with the largest scale proved effective in protecting households against the food insecurity shock, but not sufficient to fully insulate them.
The Department of Social Development (DSD) should involve local governments and non-profit organisations to collect better information on those unmet needs, and to deliver improved targeted assistance during pandemic times. The DSD should expand social assistance to increase the coverage of vulnerable groups. National Treasury should consider fiscal and monetary incentives during CovidOVID-19, such as lifting value-added tax, duties and other taxes on food businesses, or extending concession loans or loan guarantee facilities to food companies.
Chapter 8 – Water and sanitation access, distribution efficiencies and tariff setting in South Africa:
Water and sanitation services are needed during a pandemic, but it is known that South Africa is a water scarce country. Demand for water continues to exceed supply, but Covid-19 has changed the water and sanitation supply and demand dynamics. Hence, there was a need for more efficiency within the sector, improved demand management (price setting), private sector participation, more investment and better use of fiscal instruments to mitigate against economic shocks and public health outbreaks.
During Covid-19, access to water decreased by 2%. Almost 17% of households (2 969 199) lack sanitation services. On average, water service providers can maintain the same output with 49% fewer inputs. Inefficiencies are driven by non-revenue water provision. Water tariffs are not cost reflective in many ways. Private sector participation can lead to an escalation in water prices, but there is a need to bring in the private sector to fill the funding gap in terms of water infrastructure. De-risking potential investment deals and lowering transaction costs are key to attracting private investment.
Municipalities, advised by the South African Local Government Association (SALGA), should approach tariff adjustment cautiously, taking account of the poor during the duration of the Covid-19 crisis. The Department of Water and Sanitation (DWS) should establish a benchmarking of water service providers’ service level agreements, aligned to their performance indicators in terms of infrastructure, socio-political and financial indicators. The Minister of Finance should ensure that water and sanitation projects form part of the economic stimulus to help mitigate the impact of Covid-19. The Minister of Finance and the Minister of Water and Sanitation, with the municipalities, should systematically develop water investment by structuring mechanisms to de-risk private investments.
Chapter 9 –Role of intergovernmental oversight and support in avoiding a Section 139 intervention
Despite various initiatives aimed at regulating, monitoring and supporting local government, municipalities continue to be plagued with challenges that have resulted in consistent service delivery failures. Persistence of Section 139 interventions brings into question the effectiveness of oversight and support to identify and solve municipal challenges and build local government capacity prior to an institutional or financial collapse.
Emphasis should be on how best to ensure that oversight and support serves as an early warning system to avoid interventions of intergovernmental oversight or supervision. Capacity building grants are a form of financial support to municipalities, and there is often no association of these grants with the overall supervisory framework. Legislative and non-legislative monitoring and support initiatives have costs and benefits associated with them, often with little to no concomitant benefit from the use of these resources. Excessive regulations tend to elicit compliance for the sake thereof. Those municipalities that are unable to comply end up being continuously penalised, so differentiation is necessary. The implementation of the supervisory framework varies considerably across provinces and municipalities, as a relatively stronger supervisory framework is implemented in some provinces/municipalities relative to others. There is a lack of proper evaluation of most facets of the supervisory framework, including national support programmes. Legislative prescripts can promote duplication of efforts.
As part of National Treasury’s review of capacity-building grants, financial support to build capacity and institutional systems:
- should be disproportionately directed at lesser-resourced, poorer and rural municipalities;
- should make an effort to ensure capacity-building efforts were comprehensively consulted with and agreed to with a municipality;
- should either link capacity-building efforts to a municipality-specific diagnosis of capacity challenges or deficits, or be specifically aimed at addressing challenges picked up through intergovernmental monitoring; and
- should consider the consolidation of all capacity-building grants into one financial flow specifically linked to overall intergovernmental ‘support’ of municipalities
The Minister of Cooperative Governance and Traditional Affairs should implement mechanisms to undertake a critical evaluation of the impact of the regulations, monitoring and support provided to local government, with an emphasis on the explicit cost-benefit analyses when new legislation, regulations, monitoring and/or support initiatives are introduced across the supervisory framework. The cost-benefit analysis should assess not only the outcomes/performance related to the oversight and support framework, but also whether monitoring and support is provided in the most efficient and effective manner. The Department of Performance Monitoring and Evaluation (DPME) should be considered for this role.
Government should reconsider its current approach to explore the principle of a differentiated method to municipalities when it comes to financial and non-financial reporting requirements, overall monitoring and support. The Minister of Finance should ensure that provincial treasuries are capacitated to undertake their oversight and support role of local government in terms of financial management. Government should review specific legislation that results in a duplication of the supervisory and regulatory roles of national and provincial government departments.
Chapter 10 – Leadership, management and governance for sustainable public service delivery
The success or failure of government with respect to infrastructure and service delivery is a function of leadership and leadership style. In the context of the Covid-19 pandemic, leadership plays a vital role, as key decisions need to be taken in order to respond swiftly, effectively, efficiently and economically at all levels of government. Findings from the FFC case study revealed a lack of dedicated and adequate funding, a lack of intergovernmental coordination, political interference and poor political leadership, the absence of policies and regulations, supply chain irregularities and project delays, and an escalation of project costs.
With respect to the Giyani bulk water project, leadership and governance challenges included poor political leadership and interference, as well as a failure to comply with supply chain regulations, which resulted in delays in project completion and escalated costs. Findings from the Auditor-General of South Africa (AGSA) report indicated that the increasing rand value of irregular expenditure in audit outcomes confirms that little effort is made to implement its recommendations, and indicated a lack of consequence management.
The Minister of Finance should ensure that commitment to compliance with legislation and policy frameworks is formalised with all participants in an infrastructure project prior to the commencement of the project, with financial consequences for compliance failures clearly set out. The Minister of Cooperative Governance and Traditional Affairs should review the intergovernmental coordination policy framework, and consider strengthening intergovernmental coordination vertically and horizontally. The intergovernmental relations arrangement defines how the three spheres of government should work together in the implementation of a number of mandates, but is silent on how coordination between these spheres should be managed. The Minister of Finance should incentivise consequence management to ensure that all public office bearers are held legally and personally responsible when they transgress supply chain management (SCM) policies in the implementation of infrastructure projects.
The Chairperson thanked the FFC for the presentation, and allowed Members to ask a round of questions.
Mr R Mackenzie (DA) said the Committee always appreciated the work that the FFC did, as it was always in depth and great quality research. He had read the recommendations and it almost felt like it was déjà vu, with different case studies. Some of the recommendations were related to intergovernmental relations, Provincial Treasury, and the DWS. As had been asked previously, when the late ProfDaniel Plaatjies was present, did the FFC actually take these recommendations into account and implement them? One of the recommendations in particular was the Giyani bulk water project, which had been going on for years and years. Based on his readings, he said that there had not been a sense of accountability of people involved in the project and the people who had interfered in the project, whether it be politicians or administrators. In terms of all of the great work that the FFC did, where did it go? At face value, it did not seem as if the recommendations had been considered. He asked the FFC to share with the Committee which recommendations had been implemented.
Mr L Mvimbi (ANC) said that his question might be similar to what Mr Mackenzie had raised, but different when it came to the chapter that dealt with local government. Had the FFC at any given point begun to present this report to local government -- perhaps to specific municipalities? Or did the FFC just present the report to SALGA? Did the FFC even engage on the report? As he looked at the presentation, especially the section that dealt with local government, he thought that it would be more beneficial for local government to see. He appreciated the in-depth analysis that the FFC had done when it came to issues of local government. He thought that the FFC also acknowledged local government when it came to the local economy. Had it had the opportunity to engage with either SALGA, specific municipalities, or local government in general?
When it came to intergovernmental relations, he noted that focus seemed to have been on section 139 of the Constitution, which was again the intervention of provincial government in issues of local government. Did the FFC at some point also look into section 100 of the Constitution, which was the intervention of national government into provincial government? Could it advise the Committee how, in the pandemic, provincial government had fared and what the responsibility of provincial governments had generally been towards assisting local municipalities at the local level, without having to actually make use of section 139 of the Constitution? When it came to issues of gender, what was the FFC’s attitude or view on issues of lesbian, gay, bisexual, transgender, intersex questioning, asexual and more (LGBTIQ+)? How did the FFC relate to this, and where did the FFC locate the LGBTIQ+?
Ms N Nkondlo (ANC) thanked the FFC for their extensive presentation and started with the last point that Mr Mvimbi had raised. She thought that a few months ago, in an engagement with SALGA, the chairperson of the National Council of Provinces (NCOP) had actually raised an alarm concerning what Mr Mvimbi had referred to -- about how the intervention of provinces in municipalities and putting them under administration had not yielded positive results, but was actually seen as trying to take over or was sometimes politicised. She was not sure whether the FFC had done any studies or research. She asked whether the FFC had any findings across the country about what the results had been of those kinds of municipalities post-administration by provinces, and whether it had helped in terms of improving the financial situations of those municipalities.
On the issue of gender-responsive budgets, she thought that it continued to be an elusive issue within the country. Policy-wise and institutional-wise, issues had been raised of gender. She thought that the report and presentation also continued to indicate that the country was not where it was supposed to be with all of the great policies and decisions or choices that had been made. One asked the question, if looking at everything that was happening, whether there had been movement, even with Covid-19. It was almost two years into Covid-19. She was raising this issue with gender, but broadly speaking, since 2019 -- given the type of submissions that the FFC had made -- she asked whether the FFC was observing any departure from national government in terms of how fiscal policy was managed in response to some of the proposals being made, including that of localised production and localised economy. On the one hand she noted that they were sitting with local procurement, localisation, or local content policy, but indeed there were still serious challenges in terms of the concept as an ideal and the actual implementation thereof.
She added that this was where one would find the old argument from a procurement point of view, of how to do it as a state entity without considering the premium that was paid and the competitiveness, which would obviously be a challenge in terms of where the country was sitting, looking at the current economic structure. This was her biggest question in terms of gender-responsive budgeting. She remembered that it was being discussed in the budget workshop that, even at this point, the last time the Gender Commission and Treasury were being told that it was still a discussion, and was not being implemented. She thought that the presentation confirmed this. What should be done to try and move things beyond ideas and findings that were being made towards actual implementation, as the country was sitting on a ticking time bomb.
Regarding the public sector, in one of the slides it was recommended to try and deal with the current bloated public sector wage bill, especially now there was the current crisis in the negotiations between the public sector unions and the Department of Public Service and Administration (DPSA). Regarding the type of proposals being put forward by the FFC at this point, were these things that it was starting to see being compacted in terms of the KPIs of the various directors-general in order to realise the shift required? It became very frustrating that Members were seeing, analysing, and putting up suggestions of what needed to happen in the country to reorientate the economy in order to realise sustained and inclusive growth, but things seemed very slow in terms of realising this.
With regard to intergovernmental infrastructure and irregular expenditure, she was always very interested in whether it was justifiable to still be speaking about infrastructure-led growth whilst there were all of the leakages in the ecosystem hindering the promise of infrastructure-led growth. This was one area that president after president had focused on -- infrastructure-led growth. If one looked at the ecosystem and irregular expenditure, including the one mentioned on human settlements from as early as 2014, there were fiscal leakages of huge amounts -- billions of rands -- which had been invested in the infrastructure-led growth which was supposedly meant to realise job opportunities, skills development, and other things needed as an economy. Year in and year out, the country was still finding itself on the other side in terms of output and outcome as South Africa experienced increasing unemployment, and an increasing lack of skills. This was all while the amount of investment increased, including funds international investors had put into the country for infrastructure projects. Was it justifiable to a layman to still be talking about infrastructure-led growth if the ecosystem had all of these leakages, which meant that the investment put into these infrastructure projects did not realise the financial return and the other developmental objectives or economic benefits that the country would have expected to derive?
Ms Zeenat Ishmail, Chief Director: Strategic Management Information, Department of the Premier (DotP), Western Cape Government, thought that the presentation was very insightful, and said she had put her hand up to congratulate the FFC. She focused on two chapters from a DotP perspective. She welcomed chapter 3 and the commentary on the alignment and effectiveness of the performance indicators per se, consistency and coherence of the KPIs, and measuring progress. She thought that it would be very welcoming to engage the FFC further on the value of performance data, as it was something that the DotP was focusing on very much. She added that the Department would also like to share their service delivery indicator publication with the FFC.
Secondly, she mentioned chapter 5 and the concluding remarks -- in particular, what instruments and tools were being used. Progressively over the years, the Western Cape government had very much tried to “spice up” the technical indicators' descriptions in the annual performance plan. If one looked at this and compared how indicator development had taken place, there was a full landscape and the Western Cape government was now starting to show how those indicators spoke to gender, youth, disability and the elderly. In terms of the evaluations, this was spot on. The Western Cape had historically done a number of evaluations since 2011, having done more evaluations than Africa itself. Within the context of the national evaluation system, impact evaluation and cost-benefit analyses were the most expensive, so there were not many of these that had been done. The Department of the Premier looked forward to engaging the FFC further.
The Chairperson reiterated that the FFC had heard directly from Ms Ishmail that she wanted to have coffee and a chat about indicators, KPIs and performance.
Mr Mackenzie had one further question that he had forgotten to ask. Did the FFC have a tracker system on recommendations made two or three years ago to various entities, to see which recommendations that they had implemented and which recommendations they had not?
The Chairperson said that the FFC had spoken about consequence management. Had it considered suggesting to the national government -- perhaps to the Department of Justice -- that it legislate the ancient Roman common law principle of qui tam? The South African common law system was currently based on Roman-Dutch common law and qui tam was an abbreviation for the original principle of ‘qui tam pro domino rege quam pro se ipso in hac parte sequitur’ which essentially meant that ‘he who sues in the matter for the king as well as for himself.’ She knew that this was still a common law principle in South Africa. because the Competition Commission also had it within its regime. There was therefore precedence for the principle, and it had never been outlawed in South Africa or repealed in any of the statutes. The principle allowed people on the streets, whether it be private citizens, organisations, or non-governmental organisations (NGOs), who picked up fraud or fruitless and wasteful expenditure where there was fault, to essentially sue on behalf of the government and the public.
In some jurisdictions like the United States, they would then give the government an opportunity to join the application. The application would thus be sealed with the whistle-blower’s names and details until the government had an ability to assess whether or not they wanted to join the application. If government did not join the application, then the whistle-blower had the option of unsealing the application and going forth with the court case on behalf of the public in order to recuperate the funds that were stolen by persons. She said that there was precedence in South Africa for this principle, and that there was precedence in other jurisdictions similar to South Africa and its current common law system. Had the FFC ever considered making such a recommendation? She knew that if a recommendation like this was implemented, it might not necessarily be exactly the same as in other jurisdictions, but given that it was never repealed in South Africa’s statute books, it might be worthwhile to revisit the Roman principle of qui tam.
Ms Rockman said that it was almost as if Mr Mackenzie had been sitting in the FFC meetings when he had asked about the tracker system for recommendations. In the FFC’s most recent meeting on 15 July, it had dealt with exactly the same issue, where it was beginning to review and update which tracking systems it had and what was in place. There was a new project within the FFC to redevelop and improve digitalisation to make it easier. This was because, when one started dealing with recommendations of 10 to 15 years ago, it became complicated. The FFC was working on breaking it down into thematic areas so that it became easier to track and see what the recommendations were, whether they had been implemented or not, whether the environment had changed if it had not been implemented, whether it was worth relooking at, and what the impact had been if it was implemented. This was thus a very dynamic environment and a subject that the FFC was now dealing with.
The FFC got these questions as to whether National Treasury or government took the FFC recommendations seriously every year from every legislature. There were a couple of dimensions to the question. There was an agreement between the FFC and National Treasury which dated back some years ago. The agreement was that National Treasury responded to issues that directly affected the division of revenue, but if the FFC made other recommendations that did not directly affect division of revenue or fiscal matters that fell directly in the scope and mandate of National Treasury, then National Treasury would refer those recommendations to other departments. She did not think that the FFC had been strong enough in following up on the other recommendations -- the responses and impact, and feedback etc. This was an area of work that the FFC was now looking at, but they had also realised that they needed to relook at the way they formulated recommendations. What could be noticed from the presentation was that the FFC had attempted to bring in much more specific recommendations in saying that, for example, they recommended that the Minister of Finance did XYZ. This was so that the recommendations did not fall through the cracks through being vague and not being assigned to someone specifically.
On local government, the Public Affairs Research Institute (PARI) had produced an excellent report on the effectiveness of section 139 investigations, and this study could certainly be shared with the Committee. When the FFC had started the topic, they had wanted to look at the aspect of effectiveness of section 139. After going through the PARI study, it was clear that the FFC would not be able to add more value than what was already there. This was why the FFC had changed its angle from how one prevented the section 139 interventions. She thought that the comments were to say that the traditional section 139 intervention, specifically those with an administrator model, had not really achieved the impact that it was intended to achieve. It would be noticed that there was a pattern of recurring section 139 interventions in some municipalities, which clearly meant that it was not sustainable. In terms of the question of how the FFC engaged with local government, the FFC had primarily engaged with SALGA, but acknowledged that there was a gap and that the FFC needed to engage broadly with the metros, secondary cities, and some rural municipalities. It was therefore something new that the FFC would be unpacking to see how they extended the reach of the FFC in these matters.
She thought that the gender paper was a very interesting and unique paper, in the sense that it was an area that the FFC had not looked at before. She said Ms Ishmail had been correct in saying that the lack of consistency and quality of performance indicators, and the inability of government departments to produce gender disaggregated data and use it, was an area that the FFC really needed to improve. Stats SA and the Commission for Gender Equality (CGE) produced gender disaggregated data, but the FFC did not use this information or properly integrate the information in its planning systems. The new proposed framework on gender-responsive budgeting, monitoring, planning and evaluation had been under consideration since 2018, but there had not been enough momentum to get to finality with the matter. This was something that the FFC was highlighting, to say that they really needed to prioritise and focus on this area because it had lost a lot of the momentum that it had in the early years. It would also be engaging with the CGE, as they produced excellent work and excellent research reports. The FFC thus needed to further engage with the CGE and see how they could collaborate to move the gender debate forward.
She stood to be corrected by the researchers, but she did not think that the FFC had done work on the LGBTIQ+ aspects, but this might be something that it would be looking at in future. She had been the pushing the FFC to focus on and not dilute the gender narrative and gender perspective by bringing in youth, children and people with disabilities. The gender narrative tended to be diluted, and it was something that the FFC needed to be very conscious of not doing if they wanted to achieve what they had set out to do in reaching gender equity and equality.
On consequence management, the FFC was acknowledging that the Public Audit Amendment Act was a very important initiative. This could be seen in the latest audit cycle, where the Auditor-General (AG) was now citing the material irregularities. The AG had very clearly set out the steps that needed to be taken, and the consequences. It was unfortunate that it had to reach the stage where consequence management was not consistently applied and implemented effectively in the past. This aspect was a new aspect that the Chairperson had raised, and she was not sure whether the FFC had considered it. Mostly, the FFC would make recommendations according to its research topics, and she did not think that the FFC had made specific recommendations that affected the justice and constitutional development sector. However, this was something that the FFC should be able to look at.
Mr Tseng added on to Ms Nkondlo's question regarding whether infrastructure-led growth should be continued with. He thought that infrastructure-led growth had to be continued with, because in literature and economic theory, the job of the government was to provide public investments and bring about public infrastructure and public good – being the stuff that nobody else wanted to put their money into. It was therefore a must. However, there was the efficiency issue, whereby the question was if public investments were put down, then how much of it turned into real growth or economic returns and public capital for growth? This was where, over the past decade, government had somewhat fallen down. It would be remembered that over many years, a lot of focus was on the differentiation between social infrastructure versus economic infrastructure, but at the end of the day the country was where it was now. One had to rethink perhaps, and think a little bit deeper and more strategically, as to which and what type of infrastructure governments invest in, what the empirical or real returns had been on those investments, and how one then decided forward as to where attention should be focused.
The other question was asked by the Chairperson regarding consequence management. Ms Rockman had said everything regarding the material irregularities, and the AG had been given the baton to exercise its right, power and authority. The part that he wanted to bring in was that the Public Finance Management Act (PFMA) had never been used to prosecute anyone. This was even though inside the PFMA, there was a section saying that should there be negligent or wilful mistakes, irregularities, or fruitless and wasteful expenditure, such person must go to jail. However, this section had never been used and was perhaps a big gap in the consequence management, and as per the legislation, more needed to be done about implementing it. There was therefore now a Special Investigating Unit (SIU) and the AG's powers, which seemed very repetitive, duplicative and wasteful in themselves.
Dr Ncube said that he would simply underscore two issues, especially the issue about the FFC’s recommendations being taken seriously. There were two sides to the argument of whether the FFC’s recommendations were being taken seriously. It had been seen that government sometimes implemented the FFC’s recommendations after some time, as it took time for the wheels of government to change and respond to some of the recommendations. Initially, government would have a dialogue with the FFC, and then accept some of the recommendations and reject some of them. For those recommendations which were accepted, the FFC could not enforce their implementation, but that it was incumbent upon Parliament to make sure that those recommendations that were enforced were implemented. The issue really came back to Parliament in that, for those recommendations which were implemented, Parliament had to call the particular departments and find out whether they were implementing what they had accepted from the FFC. In some of the departments, it would be found that the recommendations would be implemented after some time.
For example, as the gender paper was being spoken of, in the previous week there had been a meeting at which stakeholders led by National Treasury and the International Monetary Fund (IMF) had debated on gender budgeting. From this meeting, a roadmap had been prepared to implement gender-responsive budgeting within government. There was therefore some movement. If one thought of it, the FFC had started recommending gender-responsive budgeting some four years ago, and in the current submission. Government was therefore actually taking this recommendation seriously.
Another example was, looking at two years previously, the FFC had recommended some alternative revenue sources in the local government sector. It was happy to note that government had responded and was now coming up with some legislation on development charges which the FFC had recommended two years before. These were some examples which indicated that the wheels of government took time, but that when the FFC’s recommendations were accepted, they were sometimes implemented. Parliament was also called upon to ensure that some of the recommendations that were accepted were really implemented.
He then underscored what Ms Rockman had said on interventions. A number of interventions had been seen to be failing, and there were very few success stories about section 139 interventions. He thought that everyone in the Intergovernmental Fiscal Review (IGFR) fraternity had actually noted that there was something wrong with the interventions – especially the administrator model, whereby one threw an administrator into a council that was intact, and hoped for that administrator to come up with miracles. It had been seen that this did not work. He thought that there was a process to review the particular intervention and sensitise all stakeholders about the weaknesses thereof and how it should be done – which process was being led by National Treasury. In some of the interventions it could be found that the intervener who was supposed to correct what was wrong had no capacity. He thus thought that the capacity of provinces to intervene was being looked into to determine whether they had the capacity to do so. The whole process of intervention had to be looked at holistically, and parties in the IGFR fraternity were actually looking into this.
The Chairperson thanked the FFC for joining the Committee, and said that it was always wonderful to have them in the Committee and to participate in engaging in the quite comprehensive research that they always did. She would definitely ask that Members take what the FFC had said for the 2022/23 Division of Revenue into consideration, and perhaps for the respective chairpersons to receive the FFCS’s documentation for their own consideration for committees.
She then allowed the FFC to leave the meeting and for Members to take a five-minute comfort break before the following presentation.
Provincial preliminary budget performance: 2020/21 financial year
Ms Analiese Pick, Director: Provincial Government Finance (Expenditure Management), Western Cape Provincial Treasury, introduced the presentation and presented the overview; the Departmental preliminary budget performance; and the Departmental preliminary infrastructure performance for.
Ms Ishmail led the presentation from a DotP perspective, presenting the validated non-financial fourth quarter performance data for all departments and public entities; new Covid-19 interventions implemented at Departments and public entities and progress on Covid-19 interventions in quarters one, two and three; and reasons for underperformance.
The presentation focused on the fourth quarter, which culminated with the aggregate spending and preliminary spending for the outcomes on the budget performance for the entire 2020/21 financial year. In terms of context, responding had started from 26 March 2020, with the first circular that was issued by Provincial Treasury on the pandemic. This escalated in terms of the national state of disaster.
The first objective from 1 April 2020, after having tabled the 2021 budget, was a full reprioritisation of the budget towards frontline services to respond to the pandemic. Three adjustment budgets had been passed to respond to Covid-19. This year also represented the first response in terms of fiscal consolidation and preparing the entire government system for a further fiscal consolidation at levels not seen before, culminating in what departments faced from a financial perspective. Regarding implementation and what this year meant in terms of assisting front line services to respond to the pandemic, it included unlocking value for money through good governance. Some of the ground-breaking work introduced in this financial year was the central procurement advisory committee, which was meant to guide the emergency and lockdown of procurement. The procurement disclosure report was also published for the first time.
Departmental preliminary budget performance: 2020/21
The provincial preliminary expenditure as at 31 March 2021 indicated a net effect, being a reduction of R 215 million. 98.2% of the budget had been spent, with a total under-spending of R1.3 billion. The majority of under-spending occurred in the Department of Education (DOE), the Department of Health (DOH) and the Department of Transport and Public Works (DTPW). Preliminary outcomes per economic classification reflected under-spending on the compensation of employees (CoE) and goods and services, as well as overspending reported against transfers and subsidies, and payments for capital and financial assets. Overspending would be offset by way of year-end entries, as well as the application of virements and shifts where applicable, and would be reflected as part of the final audited reporting. Thus, changes would be reflected in the annual financial statements that would be tabled within the legislature.
Votes contributing to the net under-spending included:
For the DOH, preliminary net under-spending amounted to R361 million, which was largely in goods and services, CoE, non-profit institutions, and buildings and other fixed structures.
For the DOE, the preliminary net under-spending amounted to R 547 million, consisting of goods and services, buildings and other fixed structures, and a preliminary overspending on non-profit institutions. Under spending within goods and services and buildings and other fixed structure was related to projects that were adversely impacted by the Covid-19 pandemic. Overspending on non-profit institutions was due to advanced payments made in respect of the 2021/22 norms and standards paid in March 2021.
For the DTPW, the preliminary under-spending amounted to R230 million in terms of CoE, goods and services, and transfers and subsidies, due to the impact of Covid-19 and the resultant lockdown.
For the Department of Human Settlements (DHS), the preliminary net under-spending amounted to R76 million, which was related to the Provincial Emergency Housing Grant to address permanent housing solutions for households affected by fire and storm damage in the Masiphumelelele settlement.
For the Provincial Parliament, the preliminary net under-spending amounting to R14 million was mainly related to the CoE, due to vacancies not filled as planned which would be requested for rollover and reallocation in terms of the Financial Management of Parliament Act. Furthermore, the CoE under-spending in terms of direct charges was mainly due to Members’ salary increases not being implemented, as determined by the Presidency’s proclamation notice.
On average, public entities spent 89% of their budget in terms of the public entity preliminary expenditure as at 31 March 2021. Some accounting transactions still needed to be accounted for, but from a cash perspective, there was a R83 million overall under-spending on public entities. The aggregate net preliminary under-spending was mainly related to the Western Cape tourism, trade and investment promotion agency, Wesgro, the Western Cape Liquor Authority, the Western Cape Gambling and Racing Board (WCGRB), and Casidra. The Wesgro under-spending was mainly related to CoE as a result of vacant positions not filled as planned, as well as goods and services due to the postponement of planned events as a result of Covid-19 lockdown regulations. The Western Cape Liquor Authority under-spending was mainly related to CoE, as well as goods and services on activities adversely impacted by the Covid-19 pandemic. The WCGRB under-spending was mainly related to CoE due to vacant posts, and goods and services due to savings realised. The Casidra under-spending was observed within CoE and goods and services.
Departmental Preliminary Infrastructure Performance
95.5% of the budget was spent in terms of the infrastructure preliminary expenditure as at 31 March 2021. The majority of under-spending occurred in the DOE, DOH and DTPW. Infrastructure expenditure was impacted through reprioritisation of the budget and fiscal consolidation in preparation for the severe reductions seen as part of the 2021 budget. The impact of Covid-19 meant that the Western Cape Department of Health had to implement several unforeseen priority infrastructure projects to respond to Covid-19. Reprioritisation away from infrastructure occurred in order to respond to Covid-19. Some projects in planning and on tender or ready for tender had been delayed.
There had been a severe impact on the collection of revenue due to Covid-19. According to provincial preliminary receipts as at 31 March, R159 million was over-collected, mainly in the DOH, DHS, and DTPW, although not at the levels seen in previous years. When looking at tax receipts from gambling and liquor licences, R 84 million was over-collected, with the majority coming from gambling taxes. The over-recovery of revenue in total amounted to R243 million which was below previous years due to the impact of Covid-19.
Departmental revenue included the DTPW's own revenue, which was mainly derived from motor vehicle licence fees. These were mostly recovered by the end of the 2020/21 financial year, as motorists paid outstanding motor vehicle licence fees which were payable during the lockdown period. The DOH’s lower collections reported in 2020/21 were attributed to the national lockdown, which resulted in lower hospital patient fees, reduced collections from the Road Accident Fund (RAF), and a decrease in the submission of medical scheme claims. The DHS’s collections mainly included returned subsidies from municipalities remitted to them, the sale of property assets and rental income.
Validated non-financial performance all departments and public entities
Covid-19 had resulted in an adjustment process during the financial year, more specifically around the performance indicators. Measuring the 13 departments and their achievement against the performance indicator targets, a 77% average of targets was achieved. Looking at the governance, social and economic clusters -- specifically the departments that resided in the clusters -- it was seen that only five of the 13 departments achieved less than 77% of their targets. In terms of the public entities and their achievement against the performance indicator targets, a 72% average of targets was achieved. When looking at the three clusters and nine entities, it was seen that the Western Cape Heritage, Western Cape Language, and Western Cape Nature achieved 100% of their targets, whilst only four entities achieved less than 72% of their targets.
New Covid-19 interventions implemented (quarter 4); progress on interventions in quarters 1, 2 & 3
During the advent of Covid-19, the quarterly performance reporting process needed to be adjusted because a number of interventions had taken place which were not placed and did not find place within an annual performance plan. The adjustments were incorporated into amended annual performance plans and a quarter-to-quarter survey was introduced to supplement the data. The survey confirmed four new interventions implemented across the Western Cape government by departments and public entities in quarter 4. A total of 116 interventions were implemented by institutions across all quarters of 2020/21. 56% of interventions were completed, and 44% would continue into the next financial year. Provincial Treasury and the Western Cape Liquor Authority had completed 100% of their Covid-19 interventions.
Regarding the reasons for under-performance, in the governance structure there had been lockdown restrictions and additional interventions that needed to be issued; national disaster lockdown restrictions had resulted in schools opening late; and a resurgence in the province had resulted in outreach programmes being suspended. Other factors included school closures; late awarding of tenders by National Treasury; non-compliance of organisations; land invasions; few title deeds being registered and fewer beneficiaries qualifying for title deed transfers; over-achievement in previous quarters; budget cuts and priorities; quality performance data, and the usual demand-driven indicators.
Mr Mackenzie said that Ms Ishmail had started to answer his question towards the end of the presentation. His perspective was that, when lines read as ‘adversely affected by Covid-19’ or ‘due to Covid-19 regulations’ etc., one would like to see specific reasons in the notes. This was what Ms Ishmail had started doing at the end of the presentation in saying that the reason, for example, that the DHS could not spend money was because on site 734 North of Cape Town there had been a land invasion, so the contractor could not start. Or the reason why Treasury could not spend money was because the road from Cape Town to Beaufort West was closed for three weeks, so officials could not get there. This was the level of detail that one would hopefully see in the notes in future in all departments, so that one did not just get a general sense of ‘adversely affected by Covid-19 due to lockdown regulations.' He explained that the general reasoning did not tell him anything, but perhaps it was unfair to compare him to other people because he was a public representative and had been one the road and travelling. Specific reasoning made more sense. He would also speak to the other committees that he was in, but he hoped that the Committee would remind those that presented to them to be specific as to why XYZ was not done, and not just say that it was due to lockdown regulations.
The Chairperson suggested to Ms Ishmail that if the reasoning was Covid-19-related or related to a particular regulation where, for example, it was known that the schools were closed for certain weeks, perhaps a footnote could be included to say, regulation 1.3, school closed May X to Y 2021.
Ms Nkondlo thanked the presenters. In the performance information provided, were the results of the entities already included as the total sum of the performance of the departments to which they reported? She had seen that there was a separate slide on entities, but she wanted to check whether one looked at it overall, or if they were separated in terms of the performance results which were being presented at this point. When looking at the economic cluster type of entities, she wanted to know whether the result was included for the Department of Economic Development and Tourism (DEDAT), because they were overseen by the DEDAT as entities.
Regarding infrastructure under-spending, she wanted to know what the total amount of under-spending on infrastructure projects was cumulatively. She had seen the individual numbers. Was the biggest reason for the delays based on the lockdown? Was this the biggest problem one would find affecting infrastructure spending, which then dictated that if there was a Covid-19 lockdown, the reality was that when it came to infrastructure projects these problems would occur? She was therefore interested in both the aggregate amount of under-spending on infrastructure projects and what the Department of the Premier and the Provincial Treasury’s view was in terms of the numbers and challenges that were a source of such under-spending.
The Chairperson had similar questions for both the Provincial Treasury and Department of the Premier. Regarding the funding under-expenditure for the fourth quarter, had any of those funds been rolled over for the current financial year? If so, how much of the funding had been rolled over? Had spending on the funding that had been rolled over already started? The targets presented by the Department of the Premier were also for the fourth quarter, and were preliminary. Had any of the targets that had not been reached been addressed in the quarter since? How many of them had been addressed?
DotP and Provincial Treasury's response
Ms Ishmail responded to Mr Mackenzie that the Department of the Premier, in addition to the presentation which gave only one or two messages, submitted a quarterly release to the Provincial Treasury. She was sure that the release was issued to the Committee, and added that it was about 80 pages long, with an annexure with comments that had been received from departments and public entities on under-performance indicators. The release actually provided the programme in the particular department, together with the sub-programme, indicator, and comments received from the departments. One could always improve on the comments received from departments and measures had been put in place to get the specifics. The Department of the Premier was starting to get there, and it was where the departments, in the release issued, one could actually start seeing the reasons why a department had not achieved. One example was that the under-achievement was due to the Chrysalis Academy intake being reduced etc., so the release was a little more specific. She said that there were therefore more specific reasons available, but that she had just highlighted the thematic areas where under-performance was taking place. However, the DotP was happy to extract from the annexures and make it part of the presentation in the next presentation or engagement. She added that she would also engage Ms Pick on this.
The Chairperson alerted Members to their inboxes, and said that on Tuesday at 12h09 they had received the link to the documentation to which Ms Ishmail was referring.
Ms Pick responded to the Chairperson’s questions regarding the under-expenditure, what amount had been requested for rollover, and what amount had been approved for rollover. The preliminary under-spending amounted to about R1.3 billion. Of the R1.3 billion, R674 million had been applied for rollover in terms of the PFMA. Of the R674 million, thus far about R 90 million from conditional grants had been approved for rollover so that service delivery could continue. On the provincial side, there had been about R190 million approved for infrastructure in the education department for the fencing of schools. This could then also continue into the new financial year. The rollover for the DOE was mainly funding that was given to them in the second adjustment’s budget. As part of the second adjustment budget in order to respond with a recovery plan at that the time, the Provincial Treasury had indicated to departments that they would expedite infrastructure applications for rollover to ensure that there was service delivery and continuity thereof. This had then culminated in the R190 million education infrastructure.
Mr Klaas Langenhoven, Director: Infrastructure, Western Cape Provincial Treasury, said that the net under-spending on slide 13 amounted to just under R365 million. The past year had been particularly challenging in terms of Covid-19, and it had sent some serious shocks through the system. Provincial Treasury as a collective had not quite understood what the real impact would be at that stage. Accounting officers and heads of departments were very hesitant, because it was not known how the pandemic would unfold. He thought that there was a better understanding now, and that the current year looked a bit better in terms of spending in the first quarter, compared to the previous year. He thought that there was greater certainty, although the budget might be slightly reduced because of the fiscal position of the country. However, the spending performance looked a bit better. Government had come to terms with some of the uncertainties and shocks etc, and it was trusting that the year ahead would be smoother than the previous year.
Ms Ishmail said that in the earlier discussion, she had wanted to make specific reference to the release, and that she was trying to access it.
Regarding the question on the quarterly reporting system, she commented that the departments gave the DotP extensive notes on their performance, achievements, under-achievements or deviations.
Responding to the question about the entities, the entities reported separately. A particular department might be a parent department -- for example, Cape Nature and the Department of Environmental Affairs and Development Planning. However, the entity reported separately into the electronic quarterly reporting system because they had their own annual performance plan and annual report. No institution reported on preliminary performance, as they reported only on validated performance. This had been a change as in the quarterly performance reporting system. Previously the departments had the privilege of actually being able to talk about preliminary and thereafter, when going into the next reporting cycle, they could then look back at the previous reporting cycle and say that it was their actual validated performance. In terms of the full value chain of the quarterly performance system, the process had been removed.
The DotP did not do the reporting on tracking project spending, which would be where further work was needed. There was always improvement in terms of the value of performance data, which would be where one actually looked at the performance data to tracking of financial and non-financial performance on a particular project. She could make a suggestion on how the quarterly performance reports system worked, and that she was more than happy to oblige. A presentation could even be done on how the quarterly performance system actually worked. She explained that it was a rigorous cycle, that it was a full value chain, and that the Western Cape government was quite rigorous in terms of ensuring good quality performance data.
The Chairperson said that the Committee was also engaged in some research on budget, finances and money bills, so they would probably take Ms Ishmail up on the offer in order to have a presentation on the quarterly performance system.
She thanked the Provincial Treasury and Department of the Premier for presenting the very important information to the Committee, and said that it was always wonderful having them in the Committee. As things went along in the respective quarters and the respective years, she thought that Members were getting quite acquainted with all of the respective data and information.
Consideration and adoption of quarterly reports
The Chairperson went through the draft quarterly report of the Budget Committee for January to March 2021, and annexed the recommendation tracking document as at March 2021. She asked for a mover for the report with the annexure.
Mr Mvimbi moved the adoption of the quarterly report, with the annexure.
Ms Nkondlo seconded the adoption of the quarterly report with the annexure.
The Chairperson went through the draft quarterly report of the Budget Committee for April to June 2021, and annexed the recommendation tracking document as at June 2021. She asked for a mover for the report with the annexure.
Mr Mackenzie moved the adoption of the quarterly report with the annexure.
Mr Mvimbi seconded the adoption of the quarterly report with the annexure.
Consideration and adoption of minutes
The Chairperson went through the draft Committee minutes for 25 May 2021. She asked for a mover for the minutes.
Mr Mackenzie moved the adoption of the minutes.
Mr Mvimbi seconded the adoption.
Resolutions and actions
The Chairperson asked if there were any resolutions and actions.
She commented that the Committee had received information from Ms Ishmail who had offered to do a presentation on the quarterly performance system. She thought that the Committee should take Ms Ishmail up on the suggestion.
She thanked Members for attending the Committee meeting this morning and for being present and interactive throughout the entire week.
The meeting was adjourned.
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