In a virtual meeting, the Standing Committee on Appropriations received a briefing from National Treasury on the draft of the Second Special Appropriation Bill 2021, and the proposed additional urgent funding allocations of R32.85bn to address the impact of the unrest and Covid-19 pandemic. The presentation covered the proposed summary of the allocations for the South African Special Risks Insurance Association (SASRIA), for Social Development, support for businesses, and security (Defence and Police).
The Committee raised concern on the effect of the adjusted Appropriation Bill on the country’s credit rating and revenue. How would National Treasury ensure that all allocations delivered on their purpose, particularly with respect to the guaranteed loan scheme? Members asked how cases of corruption, double dipping and abuse of the intervention would be addressed and prevented, and what conditions were attached to the support given to businesses that were affected by the unrest that had occurred in KwaZulu-Natal and Gauteng in July, and the Covid-19 pandemic.
The Committee asked about the impact of SASRIA and the extent of its cover. Issues of corruption within the private sector were also raised by the Committee, with the need to put processes in place to curb corruption being emphasised. Clarification was also sought on the problems posed by the closure of Post Offices, and the impact of this on the payment of grants. Other concerns were the effect of Covid on the education sector, and the impact of the appropriation on economic growth.
National Treasury said that the interventions would be funded from the higher than projected revenue collection of R38bn from 2020/2021, in order to avoid the reprioritisation of departments' budgets that had already been significantly reduced. The Department of Trade, Industry and Competition (DTIC) was considering critical infrastructural refurbishment for small businesses affected by the riots, with industrial loan facilities targeted towards supporting affected manufacturing companies, while the retail support recovery fund, in partnership with South African financial institutions, would provide interest-free loans to affected companies with no insurance.
National Treasury said that it was working with the Presidency to design a portal that would enable all small businesses to register and update all information on allocated funding. A condition for allocations was that the businesses had to show that they would continue to do business and retain their staff.
The Committee agreed to conduct further research on departments that were currently under-spending.
The Chairperson said the meeting would deal with the Second Special Appropriation Bill, which was the response of government to the effect of Covid-19 and the unrest of last month in Gauteng and Kwazulu-Natal (KZN), to assist all those that were affected.
Apologies had been received from Ms M Dikgale (ANC), Ms N Ntlangwini (EFF), and Ms N Hlonyana (EFF).
Presentation of 2021 Second Special Appropriation Bill by National Treasury
Dr Mampho Modise, Deputy Director-General (DDG): Public Finance, National Treasury, presented on the consideration of the draft of the Second Special Appropriation Bill 2021 and the proposed additional urgent funding allocation of R32.85 bn to address the impact of the unrest and Covid-19 pandemic. The summary of proposed allocations presented included allocations for South African Special Risk Insurance Association (SASRIA), for Social Development, support for businesses, and security (Defence and Police),
Mr A Sarupen (DA) asked what would happen if SASRIA’s claim exceeded the R3.9bn surplus paid to it, and what the consequences would be.
How would the adjusted appropriation bill affect the deficit and borrowing of the country, and what was the source of funding for these additional expenditures?
Mr O Mathafa (ANC) wanted clarity on the source of the funding gap, and the impact the bill would have on expenditure estimates, as well as on the anticipated revenue of the country.
How did National Treasury arrive at the sum of R300 million for small business grant/allocation? Was the amount based on specific programmes included in the Ministry’s request for funding, or was it based on requests that resulted from the impact of Covid? How would National Treasury assist these departments to ensure that all allocations granted deliver on their purpose, particularly with respect to the guaranteed loan scheme during the time of the pandemic? He also asked about the impact of the R300 million, and if would it be a grant or in the form of a loan.
Ms E Peters (ANC) asked how much would remain in the contingency fund after the R32.9bn was deducted.
She observed that it was very interesting that South Africa had the SASRIA insurance, and wanted to know if it was unique to South Africa, or if there were other countries that had this type of insurance. What was its history and report on affordability? How long had the cover been in existence in South Africa, and were businesses aware of the minimum premium with SASRIA?
She asked if there had been engagements between the Department of Agriculture, Land Reform and Rural Development, their provincial counterparts and National Treasury, for an assessment of the damage done to crops and land. Had the damage been quantified, and had National Treasury, the Directorate for Priority Crime Investigation (DPCI) and small businesses conducted an assessment? Every time government attempted to intervene in the economic space, it had met with corruption. It was therefore necessary to know if National Treasury and the relevant departments had put in place systems to avoid double dipping and people abusing its intervention. During the intervention done for the small businesses during the pandemic, the black and women-owned businesses in particular had claimed that they had not qualified under the loan guarantee schemes that were introduced. These resources ended up not being spent and reverting back to the National Revenue Fund. What would National Treasury and the relevant departments do where there were cases of double dipping, and how would fraud and corruption be prevented?
Mr N Kwankwa (UDM) asked about the conditions that would be attached to the support given to businesses affected by the unrest. Money could not be given to companies that were not aligned with the socio-economic objectives of the country. There were businesses that received grants which continued to employ illegal, undocumented migrants with the sole intention and purpose of exploiting them and maximising profit, while excluding the majority citizens from the economic mainstream. It would be an effort in futility if the businesses were not aware that there were conditions that required them to align with the countries socio-economic objectives.
He expressed delight with SASRIA, and asked for details of its cover, and if it only covered affected malls and big businesses, or if it also covered looting and violence in the townships. At what point could resort be made to SASRIA?
How many businesses would be affected by the creation of the industrial loan facility and the reprioritisation of R500 million?
The Temporary Employer/Employee Relief Scheme (TERS) had seen massive corruption and fraud, but National Treasury had failed to name and shame any of the companies responsible. Processes must be put in place to ensure that sanctions were imposed.
Mr X Qayiso (ANC) said that the Post Office issue was recurring. Though it was not National Treasury that managed the Post Office, the closure of some of its branches had posed a lot of problems with respect to the payment of the R350 grant. Long queues were seen around the country, and poor people were unable to access money. How would Treasury ensure that there was collaboration between it and the relevant institutions, so that people stopped being disappointed?
It was evident that with the personal protective equipment (PPE) projects that people enriched themselves. What measures would Treasury put in place to deal with these corrupt and fraudulent activities?
The effect of Covid had put immense pressure on education in the country. What measures were in place to deal with this challenge, and the pressure on the Department of Education? Though this was not a direct case for the Treasury, issues that were continually in the public space should not be ignored.
Mr Z Mlenzana (ANC) asked about the sources of funding. How much had been cut, and what were the negative impacts that needed to be addressed as a result of the appropriation?
Mr A Shaik Emam (NFP) asked what measures Treasury had taken with respect to the R250 million allocated for the deployment of police officers, and how would value for money be achieved? How would Treasury ensure that the recipients of SASRIA benefits were the actual victims, and that they were getting their exact entitlement? What was being done to ensure that small businesses which were not insured could receive cover in the future? How would its impact on the fiscus, taxes and the borrowing effect the economic growth of the country, and how could this be mitigated?
Businesses that were not covered at all had been given assurances that they would be assisted. When would this assistance unfold, and what process would be adopted?
Money had been allocated for a fixed period of time as a result of the unrest, but due to an anticipated protest which was going to put the police and defence force on high alert, there was a need for a further allocation to address the crises. What would happen in future, since the protest march had been postponed and not cancelled? What financial plans were in place for that future protest march, particularly for the Defence Force and the South African Police Service (SAPS)?
The Chairperson added that the Committee was concerned about similar problems, particularly corruption. When corruption affected big businesses in the country, it was resolved discreetly and they escaped jail by settlement. These were cases of injustice that had been created.
There were companies which defrauded the Department of Employment and Labour (DEL), and the funds claimed never reached the employees. The DEL, the Unemployment Insurance Fund (UIF) and the Compensation Fund (CF) needed to provide a response to this. There was also need for the Committee to interact with SASRIA and review its impact.
The Committee would like to know what the National Treasury proposed with respect to the gross under-spending of money allocated, and how it would ensure that the people who should benefit from the allocation received the money.
How could the impact of these interventions on economic growth be measured, such as inequality, employment creation and the impact on youth businesses? Money could not always be appropriated without a review of its impact conducted. Focus must be put on the distribution of money in order to witness a change.
He asked whether interventions were grants or loans, and what their differentiation in terms of price were, taking into consideration that people were not enduring similar challenges.
Also of big concern to the Committee was how National Treasury would ensure that money allocated reached the concerned people, or intended beneficiaries, on time.
National Treasury's Response
Dr Modise explained that SASRIA had been established after the Soweto uprising, about 42 years ago, and it was one of the few, or maybe the only, insurances that covered riots. SASRIA insurance was provided through agent companies, therefore businesses needed to ensure that SASRIA was included in their cover. Companies could not be forced to take cover, but more awareness could be created about this type of insurance and the fact that it was not expensive. The key factor remained how it would be funded. The R3.9bn was just the estimate of what SASRIA would need to augment their balance sheet.
Three possible funding options and sources had been considered for this initiative -- reprioritisation, a tax increase, or an increase in borrowing. All three options had been reviewed, assessed against the departmental budgets, particularly the under-spending to date, with the possibility of reprioritisation. When the reprioritisation exercise was done, it became evident that due to the significant budget reductions that were implemented in departmental budgets, it was close to impossible to reprioritize a significant amount of money. The under-spending found in the first quarter was less than R2bn, and was because the departments had already committed their budgets. The possibility of raising debt and its implication was also considered, and from the analysis carried out, raising debt was not a viable option. Increasing taxes was also not a viable option. However, it was observed that the revenue collection from 2020/21 was higher than projection by R38bn, therefore these interventions would be funded from the higher than projected revenue so as to avoid reprioritising, increased debt and a negative impact on the spending capacity of the departments. The intervention was linked to R32bn, because that was what the government could afford.
With regard to small businesses, the Department of Trade, Industry and Competition (DTIC) had conducted a survey to quantify the cost of the disaster and the affected entities. The Department had interacted with several businesses such as shopping malls, fast food outlets and salons, and continued to interact with them so as to update their numbers. In respect of the funding, DTIC was considering critical infrastructural refurbishment, and had allocated R600 million. This was where the support backing infrastructural development affected the economic areas.
The industrial loan facility, on the other hand, was basically to support manufacturing companies which had been affected by the looting. The target was to rebuild their infrastructure, and restock their working capital. This facility was administered through the Industrial Development Corporation of South Africa (IDC).
The retail support recovery fund was not a grant, but a fund that would provide partly interest free loans to some affected companies which did not have insurance, especially small companies. There was also the interest make up scheme, which provides interest subsidies to exporters, and would be implemented in partnership with South African financial institutions to support companies affected by the crises. The DTIC had different interventions targeted at different affected businesses.
National Treasury and the Presidency were working on designing a portal on which all small businesses would be registered, and details of their allocations and the reporting would be kept. This was work in progress, but was already being implemented. However, because the businesses needed funding on an emergency basis, R1.3bn had been allocated based on section 16 of the Public Finance Management Act (PFMA), and funds were released immediately to the DTIC. National Treasury, however, had ensured that it reprioritised the R300 million and the R700 million immediately. The Department had already been allocated to ensure that the affected businesses received the money required.
The contingency reserve of R12b at the time of the budget had been allocated mostly to the Department of Health for vaccines, and to deal with the third wave. The contingency reserve would be used only for its purpose as stated in the budget, and not for these interventions. Whatever money was left in the reserve would still be used for the health interventions.
On the conditions attached to businesses, consideration had been given to businesses that wanted to continue doing business. The biggest condition was that they stay in business and retain their staff. However, he did not know if there were any conditions in terms of who must be employed. The Department of Small Business Development (DSBD) would provide the Committee with responses on how they deal with the issue of South Africans and non-South Africans working in these businesses, but in terms of financing, the key condition was that they stay in business and continue operations.
On the Post Office and how the people were receiving the grant, SASRIA was speaking to the banks to try and reduce the queues at the Post Office, because the process required that funds be easily transferred to recipients. The Post Office had financial issues that they needed to deal with, so the responsibility of paying social grants should be spread and not limited to the Post Office.
Regarding the impact of Covid on education, at the time of the budget, Cabinet had asked National Treasury and the Department of Higher Education and Training (DHET) to look at the sustainability of fee-free higher education. Treasury had been working on that, and some of the outcomes had been presented in Cabinet, but the overall response and the plans on how this was going to be funded would be done by the NDPs.
National Treasury would report back to the Committee in October on all the departments that had under-spent. The important question, however, was the reason for the under-spending. Where it was because of inefficiency or flawed programmes, then programme designs would have to be changed. They were trying to assist departments to redesign their programmes to ensure efficiency.
The credit loan guarantee scheme was not included as part of the package, because it was still being redesigned and was not yielding the results it was intended for. Work was ongoing on the scheme and consultations were continuing on better ways of implementing the scheme. When it was redesigned and finalised, it would be presented to the Committee.
Dr Rendani Randela, Chief Director: Public Finance, National Treasury, said that quarterly expenditure reports could be presented on the value for money concerns, and he proposed that the Committee send an invitation to the Department of Performance Monitoring and Evaluation (DPME) to present on expenditures.
The impact of the deployment of additional police personnel and the military had been evident, as there were currently no riots. However, budgeting for these deployments may sometimes not be accurate. For example, the Defence Force was expected to exit on 12 August, but the deployment had been extended to September. This extension called for budgeting, and engagements and monitoring of the situation was ongoing to see how best to fund these additional deployments.
On the issue of corruption, the Committee could invite the Special Investigating Unit (SIU) and the National Prosecuting Authority (NPA), including the Directorate for Priority Crime Investigation (DCPI) to make a specific presentation on Covid investigations. The NPA had an indicator of the number of people convicted of a crime or corruption within the private sector, and they could elaborate on the profile of the people investigated, the nature of corruption cases, and what they were doing in terms of investigation of corruption in the private sector.
Dr Modise said that there was an element designed in the portal that allowed for the measurement of successes of businesses which had been allocated funding, and the businesses that did not survive. When the portal was designed, key elements on the names of the businesses and how they got the money would be included in the portal, so that specific information on the number of businesses that got the money and the number that survived could be provided during reporting.
Mr Kwankwa, wanted clarity on the funding paid out on an emergency basis, and if the information was captured on the portal. The portal served as a control mechanism to ensure that there was no double dipping.
While concurring that the deployment of the army and the police was an ongoing target, he asked if those funds had been allocated, and what the difficulties experienced in budgeting for this had been.
Mr Qayiso said that in the case of the police and defence, a hard lesson was learnt during the violence and riots, where it appeared that the issue of goods and services was a bit of a challenge to the police. He asked to what extent the budget had captured the issue of allocation to goods and services, which remained a very critical issue. If the budget was just for salaries, it may mean a different story.
The Chairperson said that the Committee would definitely meet SASRIA on 8 September, and some of the questions asked would be better addressed by them. Time would also be allocated to interact with the Department of Employment and Labour, the UIF and the Compensation Fund, because these entities were at the centre of these interventions and had been more defrauded in the process.
Mr Kwankwa said that there were times in the past when big companies had defrauded the state and colluded, and the CEOs of the major companies were never arrested for the fraud committed by their company. The Committee needed to discuss the laws that tackle these fraudulent issues in both the private and public sector.
The Chairperson agreed that money appropriated was misused and abused, and there must be accountability once money was received from government. A case of settlement would therefore not suffice in dealing with such matters.
National Treasury, in dealing with expenditures, should not accept the explanation of Covid as a reason for under-spending. During the financial year under review, there had been no lockdown that prevented companies from working, so the Covid restriction reason would not be accepted by this Committee.
The Chairperson said that he had asked the Committee’s support staff to conduct research on the departmental institutions which were apparently under-spending. A letter would be written to those departments requesting an explanation for their under-spending, the corrective measures to be implemented, and their projections as far as the year end was concerned.
National Treasury's Response
Dr Randela said that through reprioritisation, Treasury was also making provision for goods and services. The biggest pressure, however, was where additional police personnel had to be deployed.
On the issue of the convictions, investigation of crime, and corruption in the private sector, he proposed that an invitation to the criminal justice system would help provide clarity on when they employed alternative dispute resolution mechanisms to identify the criminals in these facilities.
Dr Modise explained that the systems were parallel, and the DTIC was capturing all of this information in the process of working on the portal. Once the portal was ready, the information would be transferred to the portal. National Treasury had, however, informed the DTIC that they had to report on a monthly basis on their spending to enable monitoring of their spending pattern. For now, information would be captured through the DTIC and other entities that they would be using, and once the portal was ready, the information would be transferred to the portal so that the systems could be consolidated.
The Chairperson asked for a response on the people refusing to work on the grounds of the Covid 19 lockdown.
Mr Kwankwa commented on the issue of no protection provided to locals in the labour market. In 2007, the African Peer Review mechanism had issued a country report on South Africa, where it had warned against unfair competition between South Africans in the labour market, and illegal and undocumented migrants. While discrimination should not be entertained, money could not be given to companies that were not patriotic or that did not employ South Africans for racist reasons. A framework needed to be created and some form of regulation which would ensure South Africans were not excluded from employment.
The Chairperson added that the trucking business had also been identified as a sector where owners intentionally discriminated against South Africans. National Treasury should consider, as a condition of bail out, that a framework was in place to ensure that the majority of persons who benefited from employment opportunities were South Africans. People who were not documented did not pay tax, and the money being appropriated was taxpayers’ money.
Dr Modise said National Treasury would definitely consider this in discussion with the departments.
The Committee considered the minutes of 24 August 2021.
The Chairperson asked the Committee support staff to respond to the issue of trying to identify under-spending departments.
Mr Mzamisa, Committee Content Adviser, said that the brief had been taken and they had discussed it with researchers, and were working on it. The report would be ready before the Committee engaged National Treasury on the first quarter expenditure. The Committee was meeting with the Financial and Fiscal Commission (FFC) on this Bill
The meeting was adjourned.
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