In this virtual meeting, National Treasury briefed the Select Committee on the Second Special Appropriation Bill [B17-2021]. The purpose of the Bill was to propose urgent funding allocation of R32.85bn to the South African Special Risk Insurance Association (SASRIA) to meet the insurance claims caused by the unrest in Gauteng and KwaZulu Natal as well as the COVID-19 pandemic. The presentation outlined the allocation of funds to the, Social Development, support of businesses and security forces.
The Financial and Fiscal Commission (FFC) submission on the Second Special Appropriation Bill highlighted that the better-than-expected economic performance so far in 2021 providing a tax receipt windfall could now be offset by a lower tax take, as many businesses could make losses and employees could lose jobs. It outlined the budget vote allocations and the potential impact. It noted R21.3 million was allocated to the Southern African Development Community (SADC) Secretariat to enhance regional peace and stability, essential for regional trade and development. FFC suggested that the central question, given South Africa was facing multiple crises from COVID-19 and civil unrest damage, was if scarce resources should rather be prioritised inward domestically. FFC questioned the previous cuts to the Police budget that affected Visible Policing, specifically if there were opportunities to cut more in other areas such as Administration and VIP Security rather than to on-the-ground safety and security. FFC proposed recommendations, including the need for precise and detailed information about the specific allocations.
The Parliamentary Budget Office (PBO) in its presentation emphasised the role the state can play in the economy, which included addressing market imperfections and externalities, important gaps in key areas in infrastructure and social welfare provisioning, and longer-term economic planning. It outlined the allocations proposed in the 2021 Second Special Appropriation Bill. The challenges with the Social Relief of Distress (SRD) grant were noted including the delay in reaching its recipients and grants being paid to individuals who did not qualify. The SASSA (SASSA) had opened about 241 criminal cases against government employees and 657 against company directors. Risks for the medium-term budget considerations were presented, this included risks associated with high inequality, the ongoing pandemic and risk of future pandemics which needed to be budgeted for. It questioned if this Special Appropriation Bill could have been avoided if government had reassessed its fiscal consolidation stance.
Committee members welcomed the R26.2bn allocation to Social Development. They asked if research had been conducted to inform this decision. Concerns about loopholes in the grant system were highlighted, specifically the SRD grant. Did Treasury anticipate reintroducing the R350 grants after March 2022 and how viable would that be? Clarity was requested about the mean-income level of recipients of the SRD grant.
Members asked Treasury to state specifically where the funds were coming from for the allocations. It was suggested that the whole amount should not be ‘splurged’ on expenditure without putting some toward debt repayment; that departments needed to sort out their expenditure and procurement challenges without expecting more funds; and that Parliament should have some say about the departmental cuts. They asked what the ideal percentage of revenue collection was at this stage, given that revenue collection was currently at 28.5% of the budget. The comment was made that zero-based budgeting was not a popular phrase with the Radical Economic Transformation faction’ however projects in departments needed to be re-evaluated because of the circumstances the country was in. Clarity was requested about the money contributed to SADC.
It was suggested that the continued presence of the army on the streets in Gauteng and KZN was not a ‘good reflection of democracy.’ Members asked how the unrest damage costs would be validated and what would be the impact of moving budget funds away from service delivery and existing programmes. Concerns were raised about potential volatility of the upcoming local government elections and if additional funds would be needed for this. Clarity was requested on the consolidated loans and agreements to enable the additional R32.85bn special allocation. Concerns were raised about the possibility of further unrest, given that SASRIA had indicated that it was bankrupt and that government would have to assist if further claims were lodged.
Second Special Appropriation Bill 2021: briefing by National Treasury
The Treasury team of Dr Mark Blecher, Chief Director: Health & Social Development, Mr Ravesh Rajlal, Chief Director: State-Owned Enterprises, Mr Isaac Kurasha, Director: Trade & Industry and Dr Rendani Randela, Chief Director: Justice & Protective Services, presented.
- To seek Parliament to consider the Second Special Appropriation Bill proposing additional urgent funding allocations of R32.850bn to address the impact of the unrest and COVID-19 pandemic
- These allocations include amounts of R11.3bn authorised in terms of section 16 of the Public Finance Management Act (PFMA)
- The Bill provides for allocations in 2021/22 to the following votes:
– National Treasury (SASRIA);
– Social Development;
– Trade, Industry and Competition (DTIC)
- SASRIA is listed as a Schedule 3B public entity in terms of the PFMA and the Minister of Finance is its executive authority
- SASRIA is the only non-life insurer that provides special risk cover to all individuals and businesses that own assets in South Africa
- This is unique cover against risks such as civil commotion, public disorder, strikes, riots and terrorism, making South Africa one of the few countries providing this insurance, particularly at affordable premiums
- Based on a preliminary assessment undertaken by SASRIA on 14 July 2021, its current estimation of the claims it will be liable for range between R10bn and R20bn
- SASRIA noted it would require an equity injection in the event of claims amounting to R15bn
- A provision of R3.9bn additional funding has been included in the Bill to provide for a required capital injection should SASRIA exceed its limits.
Allocation to Department of Social Development (DSD)
In line with the President’s announcement of 25 July 2021 on the reintroduction of the R350 SRD grant until the end of March 2022:
- The Minister of Finance has authorised the use of funds under section 16 of the PFMA, to defray expenditure of R10.013bn by DSD for the SRD grant for the first 3 months of implementation
- Approximately 13.2 million people will be eligible to receive the special SRD grant. This is 7 360 011 caregivers (average August 2021 to March 2022) and 5 853 661 previous grants recipients
- The Bill, includes the authorised R10.013bn and R16.687bn for the remaining months, i.e. November 2021 to March 2022
- The total allocation of R26.7bn will cater for people in distress and R500 million for SASSA for system enhancements to improve application and payment processes including the strengthened eligibility assessment system
Allocation support of businesses
- Department of Small Business Development (DSBD) and DTIC proposals to support businesses are R300 million and R2bn respectively
- R1.3bn has been authorised by Minister of Finance in terms of section 16 of PFMA for supporting businesses, and this will be a direct charge against the National Revenue Fund
- According to DTIC, the main places affected by the unrest were shopping malls which include some of the major retailers, fast food outlets, hair salons, surgeries, barber shops, small second-hand clothing shops, cell phone kiosks
- Extensive damage to infrastructure includes 161 malls, 11 warehouses, 8 factories, 200 shopping centres (approximately 3 000 stores were looted), 11 liquor outlets and 113 communication infrastructure.
- DTIC engaged with companies that have been affected through a survey to assess the extent of damage and type of support that may be required.
Allocation: Security (Defence & Police)
- R250 million additional funds allocated to the Police for deployment of police to deal with the recent unrest and riots mainly in Gauteng and KwaZulu Natal provinces
- R700 million additional funds allocated to the South African National Defence Force for the deployment of military personnel to assist police mainly in Gauteng and KZN
- The funds are also for the deployment of SANDF members for three months as part of the SADC Standby Force
Financial & Fiscal Commission submission on Second Special Appropriation Bill, 2021
Dr Nombeko Mbava, FFC Chairperson, Mr Chen Tseng, FFC Research Specialist and Ms Sasha Peters, FFC Programme Manager, presented to the Committee.
Overview of additional amounts proposed in Second Special Appropriation Bill
- Aim of a special appropriation is to appropriate additional amounts or effect appropriation adjustments to specific budget votes
- The Bill proposes additions to five Votes: National Treasury, Social Development, Defence, Police and Trade, Industry and Competition
- Need for additional amounts is as a result of the combined impacts of the Covid-19 pandemic and recent unrest in KZN and Gauteng
- Additions across the five votes amount to R32.85bn – the bulk is for subsidies to households via the Social Development Vote
National Treasury Vote
- R3.9bn is to purchase equity for South African Special Risks Insurance Association (SASRIA)
- The civil unrest in KZN and Gauteng in July was unforeseen and will negatively impact the economy and the fiscus
- The better-than-expected performance of the economy so far in 2021 providing a windfall in tax receipts could now be offset by a lower tax take, as many businesses could make losses and employees could lose jobs
- Pay As You Earn (PAYE) taxes and Corporate Income Tax (CIT) could thus disappoint on the downside. Support for business is critical, however, it translates into additional expenditure that is likely to worsen the fiscal scenario at the time when it was beginning to show signs of improvement
- The urgent need to support businesses, in particular small and medium enterprises, to recover from the unrest, cannot be overemphasised. It is critical for economic growth and job creation
- This allocation for SASRIA provides for repairing damage to businesses, a necessary step, but only a first one.
Social Development Vote
- The Bill proposes that an additional R26.7bn be allocated to the Social Development vote, all to be spent through transfers and subsidies:
- 98% to fund the reintroduction of the SRD grant (R350)
- Includes Social Assistance Transfers: Social grants - Specifically and Exclusively Appropriated
- Of which, R9.763bn expenditure is authorised in terms of section 16(1) of PFMA for SRD
- The balance of R500 million allocated to provide for social security policy development and the fair administration of social assistance
- Of which R250 million expenditure is authorised by section 16(1) of PFMA to improve application and payment processes including the strengthened eligibility assessment system
- Was originally meant for May to October 2020, but was extended twice –first to January 2021 and again to April 2021
- With the 2020 Special Adjustment Budget, R25.5bn addition was made to DSD budget to fund increased spending on social grants
- At the time of 2020 MTBPS, R6.8bn addition allocated to DSD to fund the extension of the SRD grant up until January 2021
- R2.8bn special appropriation tabled with 2021 Budget to DSD to fund up to April 2021
- In May, when the FFC commented on the 2021 Appropriation Bill, FFC cautioned against the impact of real cuts (over and above inflation) in DSD Vote and its impact on the poor and vulnerable given that 94.8% of the budget is for social assistance grants
- Given the economic and health crises facing South Africa, the social security grant system has played a critical role in providing much needed support to poor and vulnerable South Africans
- It is estimated that as at 2020, 18 million people received grant income - this rises by 6 million when the SRD grant beneficiaries are included
- Eligibility criteria expanded now to include caregivers to improve gender balance in grant uptake
- FFC submission on 2022/23 Division of Revenue notes progressive coverage of pre-existing and SRD grants with vast majority of recipients in the lower cohorts of household income distribution
- SRD grant introduction has provided some impetus for the discussion of a Basic Income Grant (BIG). To this end and as detailed in the FFC Submission on 2022/23 DoR, FFC recommends that the Minister of Finance should consider the fiscal impact of such a grant.
- The Second Special Appropriations Bill, 2021 contains additions to the Defence Vote
- An amount of R700 million is to be appropriated to Provide and employ defence capabilities, including an operational capability, to successfully conduct all operations as well as joint, interdepartmental, interagency and multinational military exercises.
- Of which, R354.442 million (50.6%) is for Compensation of Employees; R324.260 million is allocated for Goods and Services; and R21.298 million is for Operations of the SADC Secretariat to enhance regional peace and stability, essential for regional trade and development.
- However the question at this critical moment, where SA faces multiple crises due to pandemic, and recent unrest, among other internal instabilities impacting state capabilities – should scarce resources perhaps rather be prioritised inward domestically?
- The Bill proposes a R250 million addition for Visible Policing compensation costs
- With the tabling of 2021 Budget, the Police Vote was de-prioritised - in particular the Visible Policing Programme which plays key role in enhancing community safety and reducing violence against women and children, declining from R53.4bn in 2020/21 to R49.5bn in 2021/22
- At the time concerns were raised how this cut would be absorbed especially given the labour-intensive nature of this department and the Visible Policing programme in particular
- According to 2021 Estimates of National Expenditure, it expected to manage the budget cuts partly through reducing number of personnel from 181 344 in 2020/21 to 162 945 by 2023/24
- Largest reduction is in Visible Policing personnel cut by 3499 between 2020/21 and 2021/22
- Whilst fiscal constraints dictate a reduction in government spending, there is a need to weigh the options and potential impact of cuts such as cutting more from Administration or Protection and Security Services as opposed to on-the-ground safety and security?
Trade, Industry and Competition
- The Second Special Appropriations Bill proposes an additional expenditure amount of R1.3bn in respect of the Trade, Industry and Competition Vote, Specifically and
- Exclusively Appropriated and authorised in terms of section 16(1) of PFMA, via transfers and subsidies, towards Various Institutions of the public corporations through the Industrial Development Corporation (IDC) financing.
- The purpose of this special appropriation is to stimulate and facilitate the development of sustainable and competitive enterprises, through the efficient provision of effective and accessible incentive measures, that support national priorities.
- FFC notes uncertainty regarding this special appropriation, despite being specifically and exclusively appropriated, as the selection of the beneficiaries to be supported, the conditions for such allocations and the expected outcomes are unknown, save that it will be executed through a transfer to the IDC as financing vehicle.
Overall, the additional appropriations to the five Votes in the Bill are essentially addressing the unanticipated implications of domestic and regional unrest and are therefore supported by FFC as they largely constitute non-discretional spending. Notwithstanding this, FFC makes the following recommendations and observations:
- Whereas fiscal support for businesses and households impacted by the unrest is vital, additional expenditure diverted to this is bound to undermine infrastructure and other expenditure supporting the nascent fiscal recovery driven by better economic performance; and to detract from the fiscal consolidation exercise aimed at reducing debt-servicing costs
- FFC appreciates that current economic conditions may necessitate a reduction in government spending. There is a need to consider the choices made within this reduced resource envelope and to ensure a favourable balance between core and non-core spending (example of Police vote but applies more broadly) - and even unforeseeable spending
- Given the experience of the implementation and relief brought by the SDR Grant, there is a need for the Minister of Finance to consider the policy options and affordability of some form of Basic Income Grant – this will enable better planning and prevent the need for stopping/reintroducing support measures for poor and vulnerable South Africans
- Precise and detailed information on specificities of the allocations to enable more in-depth analysis is not included in the Bill. Thus FFC recommends that an indication of the outputs against the various proposed allocations be provided.
- In the case of DSD, Parliament should receive a clear plan detailing how the R500 million adjustment will be used to enhance the grant application and payment processes
Parliamentary Budget Office (PBO) on Second Special Appropriations Bill
Dr Dumisani Jantjies, PBO Director and Dr Nelia Orlandi, Deputy Director: Public Policy, presented to the Committee.
Fiscal Policy Framework and Existential risks
- Fiscal consolidation forces government to focus only on solutions to deep structural problems in the economy that are micro-economic, supply-side problems that require limited government expenditure
- This approach is based on a false dichotomy of the role of state and market in the economy; that the state should limit itself to creating the conditions for the private sector to take the lead in the economy particularly for job creation
- The approach disregards the multiple roles the state actually plays in the economy in providing services, employing a large share of the workforce, owning assets and enterprises, developing policies, regulating behaviour of economic agents inside and outside of markets, international trade diplomacy and ultimately partnerships with private sector economic actors
- The state also plays roles in the economy that the private sector does not plan to address:
• Market imperfections and externalities
• Important gaps in infrastructure, social welfare provisioning that private firms do not provide
• Inequality through measures to address inequality that support social and political stability
• Relief and recovery from pandemics, natural disasters and economic and financial crises
• Longer-term economic planning, particularly in a global economy where corporations are footloose and institutional investors and activist shareholders pressure them to focus on short-term returns rather than long-term nurturing of investment.
South African Special Risk Insurance Association
- SASRIA is a public enterprise listed under schedule 3B of the Public Finance Management Act
- It is the only short-term insurer in South Africa that provides cover against special risks such as civil commotion, public disorder, strikes, riots and terrorism
- SASRIA balance sheet showed total actual equity and liabilities as at 31 March 2021 of R10.48bn and the forecast for 31 March 2022 is R11.57bn.
- Early estimates by SASRIA is claims from July 2021 events could be R20 to R25bn
- Claims will be settled with insurance companies over 2 financial years
- For SASRIA to maintain a 100% regulatory solvency rate, it requires a R15bn capital injection
- The Bill however provides only a R3.9bn capital injection
- To be able to accommodate future shocks, it is not clear if SASRIA has undertaken a review to streamline operations, implement cost savings, increase operating profit and improve solvency
Social grants preliminary performance
National Treasury indicated that:
- Approximately 13.2 million people will be eligible to receive the SRD grant based on:
- 7 360 011 caregivers (individual caregivers who receive a CSG will now be able to access this R350 grant as well as asylum seekers) and 5 853 661 previous grant recipients
Challenges identified with SRD grant
- The 2020 Supplementary Budget Review identified that the rollout of Covid-19 social relief has been rapid in programmes that use existing infrastructure such as the child support grant and tax relief programmes
- The SRD grant (to partially compensate for income lost as a result of restrictions on economic activity) has, however, taken longer to reach recipients
- SASSA had told the Select Committee on Health and Social Services (1 September 2021) that:
• The Auditor General findings on the R350 special relief grant was the lack of data integration across government
• Grants being paid to individuals who are not distressed: 67 770 grants were paid to individuals who did not qualify. Although this number is small (less than R25m) given the scale of relief provided, it should be prevented
• SASSA has opened 241 criminal cases against government employees and 657 against company directors abusing the grant.
Further risks for medium-term budget consideration
- The social, economic and political risks associated with extraordinarily high inequality are not the only risks facing South Africa and the global community
- The ongoing pandemic and the risk of new pandemics in the future has to be included in budget planning so resilience is built within society to promote economic stability in the face of pandemics
- Climate change risks of severe weather disasters and prolonged droughts are not far off events but are occurring now and have to be planned and budgeted for immediately
- The fourth industrial revolution impact and contagion from economic and financial crises elsewhere in the global economy require not only measures such as strategic capital controls and increased domestic manufacturing of key products but also planning and budgeting to enhance skills and foster resilience to disruption from technological change
- Consideration is required for increased government expenditure on comprehensive social security, national health insurance, improved education and training opportunities to promote solidarity across society to ensure social stability as pre-conditions for political / economic stability
- Social and political instability can cause huge material damage in a very short period of time. Spending on stability is an investment in preventing this damage.
- Fiscal policy responses to planning for risks and uncertainty could include:
• The enhancement of automatic stabilisers as part of a comprehensive social security system
• Additional automatic stabilisers that kick in when there is a crisis
- A developing and growing South African economy requires the stability associated with building an inclusive economy, which means government’s fiscal policy framework and long-term planning has to start increasing expenditure to ensure the socio-economic rights in the Constitution
- Decisions to increase taxes and when necessary to borrow more have to be seen as investments in the future and take into account that reconstruction and development cannot happen in an unstable environment
In context of the special appropriations, the questions that the MPs should consider are:
- If this special appropriation bill may have been avoidable if government had reassessed its fiscal consolidation stance; and
- If reassessment would have allowed government to seriously take into account warnings about the fragile social fabric and the impact of the 3rd wave of Covid-19
- The Bill proposes additional urgent funding allocations of R32.850bn which include allocations already authorised in section 16 of PFMA for SRD: R10.013bn and DTIC: R1.3bn
- PBO provided additional information on preliminary outcomes for 2020/21 that show over collection on revenue and underspending on appropriations
- First quarter outcomes for 2021/22 shows higher than expected revenue collection and slower spending according to a 25% notional benchmark
- The special appropriation is expected to increase the main budget balance if all other amounts are kept the same
- Preliminary outcomes for 2020/21 and Quarter 1 expenditure in 2021/22 show underspending in specific votes that submitted a request for an urgent special appropriation
- DSD estimated 13.2 million people will be eligible to receive the special SRD Covid grant based However, it is not clear how the number (7 360 011) of caregivers was estimated.
- Caregivers should be well defined. It would also assist if actual numbers of recipients of
a caregiver grant could be provided.
The Chairperson appreciated the DSD allocation for R26.2bn. She asked if Treasury and DSD had conducted research to inform this decision. Had DSD submitted a plan to Treasury? Would the money be used where it was needed to accommodate the poor? She suggested that if the payment was done automatically it could cause problems, with the wrong people being paid. Would a new process of re-registering take place? Some of the people who received the relief might have passed away – how would that be verified? She suggested that there were loopholes. She thought that DSD had learnt a number of lessons from the past about that. She sometimes received an SMS telling her to ‘come and collect her grant.’ She was not sure what grant, she always ignored these messages. She suggested this could offer ways to abuse the system which would be problematic. She requested assurance from National Treasury it was satisfied. She noted that the presentation spoke about nine million people who would benefit. She suggested that Treasury needed to take the FFC and PBO advice seriously. There needed to be a long-term strategic plan for the relief fund. A welfare state should not be created, but the poor needed to be cared for. Those affected needed to be the ones benefitting from this.
Based on a SASRIA briefing the previous week, she suggested that Treasury and DSBD needed to look into the projects, processes and policy that allowed Small, Medium and Micro Enterprises (SMMEs) to access relief. It was difficult as most of the SMMEs were previously disadvantaged and were not familiar with the procedures. It seemed that those SMMEs did not always benefit from what government intended. She requested Treasury look seriously at the challenges PBO outlined. She noted the 2021/22 Budget had reduced police personnel. That was a concern given that more police were needed – she asked that this be clarified.
Mr D Ryder (DA, Gauteng) noted the allocations and generally supported them. He asked that Treasury state explicitly from where the money was coming. PBO had suggested from where the money was coming – however that was not the job of PBO – he wanted to know from Treasury from where the money was coming. It was implied that this resulted from excess revenue collection but this had not been confirmed. While the allocations were needed, excess revenue needed to be redirected to debt repayment. The whole bonus should not be ‘splurged’ on expenditure, without putting some of it into debt. He used the metaphor of a household receiving a Christmas bonus and spending everything on Christmas dinner but not repaying some of its debt so the household could live comfortably for the rest of the year.
He supported the allocations to the South African Police Service (SAPS) and SANDF; however, these should not be blank cheques. Departments needed to sort out their expenditure and procurement problems without expecting more funds. The Chairperson had noted with concern the reduction in police personnel. This had been happening over time and it was alarming that the Appropriations Chairperson did not note that with the continually declining budget allocations to police, numbers would be reduced. This was due to the appropriations that had been approved over years. There were problems with the way the police procured and spent its money. There were also problems with its internal organogram – that was a bit too top-heavy, that was present in both the police and the army. SAPS and SANDF needed to address these internal challenges at the same time without expecting blank cheques. The SANDF continued to have an unfunded organogram which was not a good situation. Treasury needed to sort this out.
The DTIC allocation to uninsured businesses needed to be monitored for fairness and proper allocation. Insurance claims payouts had a particular process that needed to be followed and the DTIC allocation needed to be handled similarly. The fact that DTIC was able to find those funds and reallocate them pointed to the importance of what had been discussed previously. He realised that zero-based budgeting was ‘not a popular’ phrase with the Radical Economic Transformation (RET) faction. Projects in departments needed to be re-evaluated. This was particularly important at the moment when money was tight and circumstances had changes dramatically…
Chairperson Ms Mahlangu interrupted Mr Ryder stating she valued his input, however, how does RET forces link to this.
Mr Ryder stated that within the governing party there was a disagreement about zero-based budgeting, this disagreement needed to be resolved due to the fact that it could not be business as usual. Expenditure on projects needed to be re-evaluated due to the circumstances the country found itself in. He valued the FFC presentation although it was ‘less exciting and controversial’ than normal.
Mr S du Toit (FF Plus, North West) stated that in February 2021 former Finance Minister Tito Mboweni said when presenting the Budget, that South Africa could not afford another wave of the pandemic as the economy was under such a lot of strain. He heard mention of excess revenue collection being used - from where was the money coming? National Treasury’s presentation mentioned a small portion of the existing budget was shifted. What was the value of the consolidated loans and agreements to allow the additional R32.85bn to be possible? If money was obtained from elsewhere, what was the current debt service cost on that? It was evident that unemployment would not necessarily change for the better in the near future.
There was also a possibility that there would be unrest in the future for various reasons. SASRIA had indicated it was bankrupt and that government would have to assist if further claims were lodged. Was National Treasury prepared for that? How did Treasury anticipate meeting the need of further extensions to the R350 SRD grant after March 2022? Since COVID-19 was still ‘used as a tool to restrict economic growth through regulation’ and unemployment would not end in the next five months – how would it be taken further? Did Treasury anticipate re-introducing the R350 grants after March 2022 and how viable was that? There had been a slight growth in the economy but the economy had not yet caught up with the losses incurred up to this point. With the large number of individuals immigrating, the health sector under pressure, high crime levels and corruption – what was National Treasury’s view? Could South Africa afford all these expenditures? At a municipal level more support would be needed post-elections in the new budget cycle. The PBO presentation said that revenue collection was currently at 28.5% of the budget. What was the ideal percentage for revenue collection at this stage?
Mr W Aucamp (DA, Northern Cape) noted Members had asked from where the money was coming and the fact that money like this should be going to alleviating the country’s debt. The presentations showed that a lot of money was going to SAPS and SANDF for costs incurred during the July 2021 riots. A lot of the presenters called what happened in July ‘riots.’ There was a large number of private security companies that assisted the police and in some instances the private security companies did the job entirely. If it were not for the private security companies, there would have been much larger problems. DTIC was providing money to uninsured businesses – which was fine in this instance, everyone needed to be helped. He noted that no money was going toward private security companies which assisted, based on the costs incurred. What would be done to help the private security firms that assisted the country during this time? What would be done in future, not necessarily a question for this meeting, for a more sustainable relationship between private security companies and the police in the way in which they were working?
Mr Y Carrim (ANC, KZN) said he did not think that ‘those of them who were empathetic’ with this measure, limited though it was, were naïve to the extreme challenges that existed with economic growth and the national fiscus. It was a matter of trade-offs. People were free to describe the ‘unrest’ as they wished. There was no scientific clear notion of what ‘July 2021’ represented. It should not be pretended that there was a scientific definition, for example ‘riots.’ In 1976 the Apartheid government called them ‘riots;’ it was then argued that it was the ‘Soweto Uprising.’ It was not a mindless thing. Calling it social or civil unrest was not just a ‘covering up,’ it had an ideological meaning. Riots implied something that was meaningless – that people were ‘inherently pre-disposed to violence and destruction.’ He suggested they agree to disagree – not impose a view on one another. The way one defined what happened in July 2021, shaped one’s responses.
He noted, based on what was presented, that some of the expenditures would not lapse. It was difficult to believe that the SRD grant would end on 1 April 2022. One of the reasons the R32.8bn was disbursed was due to an unexpected commodity boom. The Minister and Treasury had gone on record to that effect. He asked that it be confirmed from where the money was coming. He found it hard to believe that Treasury would limit it to the 9.4 million recipients – that Treasury would be able to contain it within that figure. Treasury was using a means income criteria which was very tenuous and fragile. He did not know what the threshold level was but given the desperate poverty people were experiencing and huge inequalities – it would be interesting to know what the mean income level was of the recipients.
With the Defence budget, he noted that the army was still on the streets in Gauteng and KZN. Nobody wanted that. It was not a good reflection of a democracy, when an army was deployed in the way it was. At this stage it seemed that they would be around for a while. He did not know to what extent the allocations were taking into account the period for which the army was deployed in the unprecedented way that it was.
The day before the Police Minister stated that more money was needed for the local government elections and that he would approach National Treasury for this. Government and the police were anticipating the need for security forces at the local government elections, as the elections might be volatile. Even within his own party as the nominations process was finalised… it might be a sign of what was to come. He was not sure if section 16 of the PFMA would be used for this.
For what was the money for SADC being used? South Africa was integrated into the Southern African states, some believed that South Africa owed them, historically and politically. The boundaries in the longer term were absurd. How much more did one need an integrated African Union (AU). The more the European Union (EU) collapsed, the bigger the AU challenges were anyway. Could this money be deferred? How could productive use of this be ensured – should the Committee not have oversight over that?
Was National Treasury doing enough to cut down on expenses and wastage? If there were to be cuts, they should ideally be looking at what the parliamentary committees considered. Surely, there was some role for Parliament to play? When departments made cuts, they did so on the basis of their own criteria – that Treasury might give them – it was not a political decision necessarily. He suggested that Parliament should have some say on the cuts. He noted the NCOP Chief Whip, Mr Mohai, was in attendance. He asked why he was in the meeting when he had so much else to do.
Mr E Njandu (ANC, Western Cape) said there were a number of different impacts of the July 2021 unrest. The country went through a difficult time during the unrest. He asked what informed and validated the figures for the costing of the unrest damage. As budget funds were moved, what would be the impact on service delivery and existing programmes?
The Chairperson asked Treasury who would benefit from all the allocations.
Mr S Mohai (ANC, Free state ) appreciated the extent to which the briefings provided clarity on a number of issues.
National Treasury response
Mr Ravesh Rajlal, Chief Director: SOEs, replied about how those damage costs were arrived at, saying this was determined by SASRIA, according to the claims it received. SASRIA was going through a process to verify those claims. When the initial projections were mentioned on 14 July 2021, it stood at about R15 to R20bn. Treasury could report that SASRIA had received claims as of 9 September 2021 of approximately R22bn. It needs to be kept in mind that SASRIA was still in the process of verifying and auditing those claims. Those claims were from people who had insurance and were covered by SASRIA. The verification process would likely take some time. Treasury was still in discussions with SASRIA about the actual quantum of claims, how those claims would impact on its solvency ratio and to what extent the additional support would be required – or the quantum of the support required and over what timeframe. SASRIA was in the process of sharing its financial models with Treasury and would look at how it could assist with self-help measures as well. SASRIA would look at how to increase premiums to cover the additional claims going forward.
Mr Isaac Kurasha, Director: Trade & Industry noted Members' comments and recommendations were mostly about how DTIC should provide support. To ensure access for SMMEs in the townships and rural areas, DTIC needed to work together with other departments, such as the Department of Agriculture and Rural Development and DSBD to ensure there was enough communication to all areas and affected businesses, so that those affected would apply.
On monitoring the DTIC funding allocation, one of the requirements Treasury had made to DTIC was that it needed to come up with a reporting mechanism and provide reports to Treasury showing the disbursements of funds, where money was given and for what. There needed to be assurance that the money was used for the specific purpose it was allocated for – and the reporting mechanism would serve to do this. Treasury would be engaging with DTIC from time to time to ensure it had oversight and a view on what the money was being utilised for.
On the beneficiaries, Treasury would look at what the money sought to address – which was to restore the operations of the businesses so that people could go back to work. One could imagine the impact the unrest had on workshops, businesses, factories and shops that had been destroyed and closed down. People were out of jobs – the ultimate beneficiaries would be employees. The applicants for the funding would likely be businesses, shop owners and industrial parks. The intention was to ensure that people got back to work as soon as possible.
Dr Rendani Randela, Chief Director: Justice & Protective Services, replied about the service delivery impact of the allocations. From a security perspective, it could be put differently. What would the situation have been without the SANDF deployment? At the moment it was peaceful – could that be attributed to the deployment of both the police and the military? If the answer was yes, that was the impact of that allocation.
Dr Randela with Mr Carrim about budgeting for something like this – it was very difficult because it tended to be like a moving target. For example, when Police and Defence were initially deployed, Defence was expected to exit on 12 August 2021 – that deployment was extended. The Mozambique deployment was for three months – expected to exit on 15 October 2021. The riots were a moving target – it was initially thought that it would only happen for a short period of time but there had been extensions.
Dr Randela replied about the Minister of Police approaching Treasury – he stated that Treasury had not been formally approached. On the R21 million contribution to SADC, this fell under transfers and subsidies. Every contributing country was expected to contribute a certain amount to deal with logistics and such in Mozambique. Hence the R21 million allocated – this applied to every country participating in Mozambique.
On sorting out wastage and procurement challenges, various initiatives were taking place. One of these was in the Department of Defence, known as the ‘Reach of Nation Strategy’. Spending reviews spoke to identifying areas of savings so Treasury could fund other spending pressures in those departments. On private security, there had always been collaboration between public and private forces against crime. Dealing with crime was not only around riots, but on a daily basis the police partnered with private security. Over and above that, private businesses already employed private security.
Dr Mark Blecher replied about re-registering for the SRD grant and what would happen in cases where recipients had passed away. Everybody had to re-register, there were six million people who received the grant over the past year and all of them had to re-register. Quite a lot of them had, about four to five million of them had already re-registered. Another four to five million caregivers had registered, who had been newly included.
The R350 SRD grant was interesting as a ‘new age' form for the social security space. It was dealt with very unlike the other social grants. Firstly, most people applied online not through the SASSA offices. It was an online grant application and online grant assessment process that involved cross-checking more databases than had ever taken place with any of the other grants. There were cross-checks over approximately six different databases. One of those databases was Home Affairs. This addressed the question of someone having died as there was regular cross-checking and downloading from the Home Affairs database. SASSA was starting to enter into the age of ‘big data’ and that was encouraging and spoke to a long-term reform in the social security environment. As the country moved to a mandatory social security system, there needed to be much more use of big data. If the Chairperson received an sms about getting her R350 grant – he requested she forward this to him and he would communicate it to SASSA immediately. SASSA could investigate why her number was being fraudulently used. He was happy to facilitate that interaction.
Dr Blecher replied about the longer-term strategy for the SRD R350 grant. There were a number of things happening on this. The first piece of work Treasury had commissioned was through the Southern African Labour and Development Research Unit (SALDRU) at the University of Cape Town in the Economics Department, that had done a lot of work on social grants. Treasury had commissioned a study to look at the poverty gap of people below the food poverty line, which was about R40 to R60bn by two different estimates. If one had to consider five or so interventions, what would be the most efficient way of closing 80% of that gap? Treasury had asked SALDRU to evaluate four to five different options that could potentially be used. One of them was the continuation of the R350 grant and another was a basic income grant, which was a bigger version of that. There were other options Treasury had asked SALDRU to consider, one of them was a Brazilian Bolsa Familia grant, which was a family/household grant which went to the poorest households or families. This was how the grant system worked in Brazil, Mexico and the Philippines. SALDRU would check that option and its efficiency. It would all be done through quantitative modelling. SALDRU was also asked to look at extensions of the Presidential Employment Programme and a job seekers allowance. Four or five different options would be considered and modelled to determine which was the most efficient. Treasury should receive the report from SALDRU in a week or two. The Presidency was doing work on a bigger anti-poverty strategy, some of which may be presented in the Cabinet Lekgotla over three days. DSD was looking at a number of other options. This was all a work in progress and Treasury looked forward to reporting back to the Committee on some of these initiatives.
Treasury greatly valued the presentations and the advice from the PBO and FFC. One of the interesting things that PBO brought up was urging the Committee to follow a more expansionary fiscal stance. He noted that Mr Carrim had spoken about trade-offs. This was likely something core to the work of Parliament and the various finance committees in Parliament. Treasury's Budget Office would be presenting the proposed fiscal framework for the coming financial year to the Committee for formal approval in the coming months. The question would need to be considered – if the framework was too tight or too loose and if the trade offs were being appropriately balanced. The debate was a very important one – it was a debate that occurred in National Treasury with differing views.
Dr Blecher replied about splurging the tax revenue bonus and the commodity boom. For the first five months of the financial year, the tax take was R70bn above target. That sounded wonderful, but one had to remember that the target was revised down – approximately R175bn. It was R70bn above target but still lower than it was when it was laid out initially in 2020. The R70bn as at 31 August 2021 was made up of R47bn corporate income tax, R12bn personal income tax, R7bn Value Added Tax (VAT) and R3.9bn fuel levy. The R33bn in the Bill would be largely funded through the overrun in corporate tax. It would not be funded through reprioritization from other votes. As the R70bn was bigger than the R33bn it would be partly used toward debt.
Considering the call for a more expansionary spending path – there were the problem of interest payments reaching 20% of government revenue and almost R300bn a year. What the country spent on interest annually exceeded the health budget considerably and had increased by about R100bn a year over the past four or five years. There was R100bn less to spend on services because it was being spent on interest. This was part of the difficulty and trade-off.
The R70bn overrun was being driven by the commodity boom as Mr Carrim mentioned. This was one of the reasons National Treasury was reluctant to agree to very substantive recurrent implications – which were different to once-off recommendations.
Dr Nombeko Mbava, FFC Chairperson, replied about the Police budget vote. The FFC submission was that a R250 million addition was proposed to the Police vote and yet there had been a gradual reduction in the number of personnel.
Mr Chen Tseng, FFC Research Specialist, added between the Police main budget in February 2020 and the supplementary budget, there were instances of long-term underspending specifically on personnel. Given the underspending, the releasing of funds and surrendering of funds back to National Treasury, this had been quite difficult from a public finance management perspective. It was quite difficult to be stable with that budget allocation and spending efficiency management. The underspending had been standing. The suggestion that differentiating the nature of the unrest would have a bearing on the policy interventions devised to address it was ‘incredibly insightful’ – with all the economic and political implications involved.
Prof Aubrey Mokadi, FFC Commissioner, replied about the role of the private security companies. In general, it was not only confined to private security companies. When one considered communities in general and the role that was played by them – it was very significant. The broad view that FFC took was that of the Minister of Finance, who had suggested that it was a big learning curve to bring a dialogue between the three parties, being the private security companies, the community players and government. Through those dialogues, policy issues could be developed.
Prof Mokadi suggested that it would be useful for the Minister to initiate policy discussions that could provide stability to the basic income grant - rather than the stop and start of support grants. On zero-based budgeting, FFC had presented its view and recommendations about zero-based budgeting in its previous submission.
Ms Elzabe Rockman, FFC Commissioner, stated that there still seemed to be many unknowns in the allocation that would end up with the Industrial Development Corporation (IDC). The IDC had a less than ideal reputation when it came to emerging business. That was perhaps an aspect the Committee might want to keep in mind and continue monitoring. Given the experiences with the previous SRD allocation, the Committee would probably be well advised to consider the corrective and preventative measures implemented to avoid a repetition of what happened previously. Note should be taken of the criminal cases opened against government employees. The question that remained was if the Department of Public Service and Administration (DPSA) would pursue measures against those government employees or if the relevant departments would individually pursue internal measures against those government employees.
Dr Dumisani Jantjies stated that government had adopted the National Development Plan (NDP) 2030 as a major strategy for the country going forward. It was important that government department and entity targets were drawn from that as well. PBO had briefed the Standing Committee on Appropriations last week and it raised the point that the underlying principle of NDP 2030 was government’s policy stance being backed by evidence and research – particularly socio-economic impact and market and public finance implications. He agreed that there needed to be trade-offs on where the spending should be. PBO was trying to emphasise the need for socio-economic impact assessments to look into the trade-offs and what would happen if there was no spending in a certain area for the economy. PBO would be happy to contribute to that conversation.
Dr Nelia Orlandi stated that the Special Appropriations Bill had been submitted for urgent allocations. PBO’s technical analysis was based on trying to find out if the allocations were urgent and if it needed to be allocated immediately or if some of the allocations could wait until the Medium Term Budget Policy Statement (MTBPS) adjustment budget process. Defence and Police had under-spent in Quarter 1 of 2021/22. By the time of the MTBPS adjustment budget process, there would be more information. There was currently a restructuring process underway – she knew that the police were trying to offer early retirement packages to its middle management. When one looked at police personnel that was where they reduced numbers due to the cut to Compensation of Employees (COE). There was also a reduction at the lowest level. It was not as if they were making a trade-off in training new police officers and getting rid of others. PBO did not know the entire process being followed in the restructuring. It was not that the police had to employ new people to deploy in the areas where there was unrest. In PBO's analysis it also checked if the police did not need the money just for COE or if it would be allocated toward overtime and where they could make trade-offs if it was for overtime. The other expenditure was for increased Goods and Services for the staff that were redeployed. Underlying detailed information would require more time for the adjustment budget process.
Mr Seeraj Mohamed, PBO Deputy Director: Economics, replied that he would limit his answers to the macro-economic questions raised by all the Members. As the fiscal framework discussions approached, he wanted to go back to PBO's pre-emptive Medium-Term Budget Policy Statement (MTBPS) Report of 2019 – before COVID-19. In that report PBO raised concerns about the capability of the framework as risk was not adequately taken into account. That needed to be built into long-term planning. This was included in PBO presentation. It was really important – there was a notion that the country did not have money but the impacts of fiscal consolidation, the contraction happening since 2012 and the adoption of fiscal consolidation was not related to the fact that it had constrained growth during recovery from the global financial crisis. There had been slow recovery globally. In South Africa there was increased uncertainty by the private sector to invest more but wanting to keep their money more liquid as businesses around the world did during that slow recovery. Linked to that was having households with access to credit, paying off their debt and decreasing spending. There was a broad acknowledgment by 2018/19 that a lot of the problems with growth in South Africa came out of aggregate demand and the fact that the government was limiting its expenditure (which was also a constraint on aggregate demand). Expenditure needed to be considered in the context of what government expenditure could have been as a percentage of GDP, if government had not pursued fiscal consolidation and GDP was allowed to grow further based on the money government would be spending.
On trade-offs, one should not think about the economy as a stagnant pot of money. The economy was a dynamic, growing entity that could also contract if it was not ‘nurtured’ properly. During the time the economy was recovering from the global financial crisis – when there was poor growth and lots of uncertainty – that economy could contract rather than grow. If government was spending money in the economy, particularly into the hands of low-income households, who could spend that money in the economy – there were two benefits to that. The first was more economic and political stability was being provided to the South African economy. The second was that one was injecting new money into the economy that could have a positive multiplier effect and support increased growth and investment. This was a debate that needed to be taken forward going into the discussion on the fiscal framework and, linked to that, on spending money on social security and putting money into low-income households. One was not fostering a culture of dependency – one should not be scared about terms like a ‘welfare state.’ Welfare states had been very successful for a long time in capitalist societies. There was proof that people who got those incomes were more likely to then move on and become more productive and educated members of society. The Constitution had socio-economic rights that over time, as it became more affordable to fulfil, the state could provide increased amounts of welfare into society that would lead to growth.
The increased amount of corporate income tax linked to the commodities boom – one needed to be careful of comparing spending on social grants to that of a ‘Christmas dinner,’ it was very different. If people were going hungry, it was not as if it was being ‘splurged’ on expensive ‘turkeys’. The stability in the economy needed to be increased by providing people with money so that they did not go hungry.
The Committee considered and adopted three sets of minutes from 09 June, 25 August and 08 September 2021.
The Chairperson noted that the Committee would meet on Friday 17 September 2021 at 3pm.
The meeting was adjourned.
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