National Treasury 2022/23 Annual Performance Plan; with Deputy Minister

Meeting report

Opening remarks
The Chairperson welcomed Committee Members, the Deputy Minister of Finance, Dr David Masondo, the Director-General of National Treasury, Mr Dondo Mogajane, National Treasury officials, officials from entities that reported to Treasury, the media and members of the public.

There were no apologies.

The Chairperson said that the SA Revenue Service (SARS) was supposed to join, but the Commissioner, Mr Edward Kieswetter, had asked the Chairperson if SARS could present its performance plan at a later date, as SARS had a lot of work at this time of the year.

Deputy Minister Opening Remarks
Deputy Minister Masondo said that the DG and his team would take the Committee through Treasury’s Annual Performance Plan (APP) for 2022/23.

Deputy Minister Masondo said he would update the Committee on three things: (1) what National Treasury had been doing since the recent Constitutional Court ruling on the 2017 Preferential Procurement Policy Framework Act (PPPFA) regulations; (2) the Public Procurement Bill’s progress; and (3) the filling of critical positions at National Treasury, particularly the Office of the Chief Procurement Officer and the Accountant-General.

On the judgement on the PPPFA regulations, it was important to indicate what the court had ruled on, as the public seemed to be confused on this. The court had ruled that the Minister’s powers on the PPPFA were limited to Section 3, which dealt with the threshold of 80/20 and 90/10. The court had said that the PPPFA regulations that the Minister had issued, which were beyond Section 3 on state organs procurement, were unlawful.

National Treasury had gone to court after this judgement. Minister Enoch Godongwana had urgently filed an application to the Constitutional Court. There were two reasons for this. Firstly, to establish whether the regulations issued by the Minister would remain valid for 12 months (until 15 Feb 2023). This would mean that Treasury would have 12 months to fix regulations if the court clarified this. Treasury had therefore gone to court to clarify the period within which it had to fix the regulations

If this was not the case, Treasury needed to check whether these regulations, which the court ruled as not lawful, were not valid from 16 Feb 2022 (the date of Constitutional Court judgement).

While waiting for clarity, Treasury had not stopped procurement. Treasury had stated that state organs needed to apply for an exemption to National Treasury from the PPPFA, including the 90/10 and 80/20 threshold. This was to avoid irregular expenditure and was not meant to stop procurement. Exemption requests were to be sent to National Treasury and would be approved within two days.

Treasury had also published a Gazette on its website to address Section 3 for public comments. This dealt with the threshold. The closing date would be 11 April 2022.

The point was that procurement within Government had not stopped and state organs should apply for an exemption. The quote had not done away with B-BBEE, contrary to “some of the misrepresentation of the judgement’s outcomes.

On the state of the Public Procurement Bill, Deputy Minister Masondo said that since Government was the largest buyer in the country, it had a responsibility to ensure that its procurement policy supported economic growth and transformation.

Government spending on procurement was close to R1 trillion. Public procurement was a powerful instrument for Government to ensure that it transformed the economy to reflect the demographics of South Africa, on race, gender, and “other important social categories”.

Procurement was also essential for government to industrialise through, amongst other things, prescribing local content for certain goods. Government should continue to require sellers of certain goods to the government, to increase their local content to create more jobs, so that South Africa industrialised and built its manufacturing base, which had haemorrhaged since 1994. Manufacturing had constituted 24% of South Africa’s GDP but had now decreased to 11%.

Public procurement did play a role in industrial policy. Treasury needed to ensure that government stopped the de-industrialisation that had been taking place in South Africa.

Clause 4 of the Public Procurement Bill would enable state organs to set aside for women, localisation, Black people, and previously disadvantaged people, provided it was passed by Parliament. It was not only about previously disadvantaged people. All South Africans should be concerned about the current state of the economy (including challenges around ownership, control, and participation of the Black majority).
           
Morally, if the Committee were to “forget about history”, which was difficult to do, the current reality needed to be tackled to change the demographics of ownership, control, and participation of Black people (including employment). Procurement played a major role in achieving these objectives.

Redressing the imbalances of the past was a constitutional requirement of redressing the imbalances of the past. The majority of South Africans needed to feel as if South Africa belonged to all who lived in it – Black and white. This had to show up in the way in which people accessed material needs.

Treasury planned to table the Public Procurement Bill for consideration by Nedlac in May 2022. The reason for the delay (Treasury had planned to bring the Bill last year) was because Treasury needed to take into account some of the recommendations from the Zondo Commission and the recent Constitutional Court judgement.

On filling vacancies, Treasury had held interviews for the Chief Procurement Officer and the Accountant-General posts. The memos were waiting for Cabinet approval, so Treasury could proceed based on the interviewing panel’s recommendations.

Deputy Minister Masondo said he would hand over to DG Mogajane to present Treasury’s Annual Performance Plan (APP) for 2022/23. He asked the Chairperson if he could be excused at 10am due to prior commitments.

National Treasury 2022/23 Annual Performance Plan

National Treasury (NT) mandate MTSF priorities
Mr Mogajane said that in presenting the National Treasury’s plan for 2022/23, it was evident that there would be many obstacles (some old and many new) in the coming year. As the pandemic continued, there would be global uncertainties that could devastate the local economy and impact Treasury.

Treasury would need to be resilient to overcome the systemic challenges of inequality, poverty, and unemployment – all exacerbated by chronic low growth, rapid global warming, and intensifying conflicts, among other uncertainties.

This would require a determined effort from Treasury in pursuing ongoing endeavours to accelerate economic growth, including taking structural constraints into account, applying measures to retain investors, and restoring public trust. Safeguarding the fiscal framework remained key in Treasury’s activities.  This would be intensified and would lower the cost of doing business.

It would be crucial to inform the public of Treasury’s service delivery commitments in 2022/23.

National Treasury’s APP 2022/23 focus
Mr Mogajane provided an overview of Treasury’s key focuses, including the national budgeting process, managing the fiscal relations of the three spheres of government, interacting with regional and international organisations to increase South Africa’s economic development, filling vacancies, and gender mainstreaming.

The Department, through the budget facility for Infrastructure and partnerships with the Development Bank of Southern Africa and Infrastructure South Africa, is helping to build a pipeline of viable projects. The Budget Facility for Infrastructure has considered 61 projects submitted by public institutions and approved a total of R6.7 billion in fiscal support in the 2021/22 adjustments budget and over the 2022 MTEF period. Most of these projects have multiple funding sources and are designed to crowd in private investment. The Infrastructure Fund is working in conjunction with public agencies to prepare six projects with a total value of R96 billion. This includes the rollout of broadband infrastructure and the construction of six new border posts.

In line with its mandate, the National Treasury is reviewing government’s macroeconomic policy from the global financial crisis to the present. The policy review will examine how key indicators, such as economic growth and employment, have evolved since 2008; assess government’s fiscal, monetary and macroprudential policy choices; and propose appropriate reforms to policy targets and institutional frameworks. A draft review document that will be finalised at the end of March 2022, will form the basis for workshops, public discussions and additional research. A final review is expected to be published in 2023.

Treasury programmes
Ms Laura Mseme, Chief Director: Strategic Planning Monitoring and Evaluation, National Treasury, provided an overview of the programmes currently run by Treasury.

- Programme 1: Administration
- Programme 2: Economic Policy, Tax, Financial Regulation and Research
- Programme 3: Public finance and budget management
- Programme 4: Asset and liability management
- Programme 5: Financial systems and supply chain management systems
- Programme 6: International financial relations (medium term)
- Programme 7: Civil and military pensions, contributions to funds, and other benefits

The Department outlined the performance indicators and targets for each programme.

Human capital

A key focus for this period will continue to be placed on people’s matters. In order to better support employees during this challenging time, both professionally and personally, consultations will be regularly conducted including staff surveying to direct working-remotely support initiatives and target the employee wellness services. Further measures to attract and retain critical skills in the Department as well as recruiting persons living with disabilities are being undertaken.

Financial resource plan 2021/22-2024/25
Treasury’s allocated budget for 2022/23 was R33.9 billion. Of this, 86% was appropriated to transfers and subsidies, managing public entities reporting to the Minister of Finance, the municipal conditional grants, and social households for civil and military pensions.

See attached presentation for further details.

Discussion
Dr D George (DA) said that comprehensive thought had gone into the presentation. National Treasury was a crucial function in the country and in the economy. Its success was vitally important to successfully navigate the complexities of the economic environment. He raised three concerns.

His understanding was that Treasury was the custodian of national assets, or that it had a very important role in national assets. He recalled reading in the newspaper that 51% of SAA’s shares had been sold, but that Treasury had not been involved in the SAA sale. This was troubling if Treasury was the custodian of national assets. As other assets were sold, he asked what Treasury’s role was.

On overall responsibility for the prudent financial management of people’s money, which he said was all “tax money” from the people, as Government did not have any money of its own, he highlighted that this money was in Treasury’s domain.

It was not easy to manage public finances, since it was known as a “leaky bucket” and this was a global challenge. In South Africa, there was “significant leakage” from the public financing system for various reasons that the Committee and Treasury were aware of. How did Treasury see itself plugging up these holes and sorting out this problem?

This problem never ended. Treasury had responsibility for this. Dr George said that possibly the largest failure of Treasury had been to not properly manage the financial flows through other Departments, as this was Treasury’s responsibility. This had not been done particularly well, but he acknowledged how difficult this was. What was Treasury doing to make this better over time?

On government employees’ pension funds, there was an administrative problem in the Government Employees Pension Fund (GEPF). Members of that fund who had been unable to get their claims sorted out had been complaining. What was supposed to happen was that if someone was a member of the fund, and they left, passed away, or retired, then the administrative process needed to follow up efficiently. This did not seem to be the case, from the relatively small number of people who had contacted him to intervene. These were probably more difficult cases, but these claims were not being resolved. This was an enormous problem for all government employees that needed to be sorted out. There needed to be urgent intervention.

Mr Mogajane agreed with Dr George, as they had had discussions on this weekly. This was a challenge. In some areas, there were administrative challenges. At least 80% of claimants had been paid on time. Treasury needed to address the challenges around the 20%.

Key to this was finalising the Head of the Government Pensions Administration Agency (GPAA). Treasury was supposed to interview for this role, but one of the interview panel members had withdrawn. A Minister could not make it so there had been no quorum. This process required at least three Ministers on the panel.

This was urgent and needed to be fixed. Once a Head was appointed, these processes would come together.

The 20% of unresolved claims needed to be addressed. These tended to be problematic and have been in the system for a long time. GPAA needed to address these challenges.

On the financial management challenges and the “leaky bucket”, there was a question on what needed to be focused on. If these challenges were juxtaposed with the role of the Accounting Officer, it had to be understood what the Public Finance Management Act No. 1 of 1999 (PFMA) did and what responsibilities were bestowed on Accounting Officers as per the PFMA, concerning Treasury’s responsibilities.

There was a role that Accounting Officers needed to play on financial management, efficiency of spending, and related matters. The law clearly spelt out the role Accounting Officers played from an oversight point of view.

Treasury was not able to be in every national, provincial, and municipal department or entity.  The system was designed to give Accounting Officers responsibility and Treasury only came in in the end. There were only so many Accounting Officers looking after this.

The challenge was in ensuring financial improvement programmes were successful and that the interventions that were put in place were adhered to and the support given to the municipality was implemented. Efficiency and effectiveness needed to be sustained.

Treasury had continued to review its support programmes, including the Municipal Finance Improvement Programme (MFIP). The effectiveness of all interventions in the past five years would be looked at. If these interventions had not been effective, Treasury would develop new instruments. Accounting Officers needed to be held accountable. Divisions and Departments needed to be held accountable.

On SAA, it was important to understand the context in which this had occurred. This did not mean government departments did not engage with each other. On the specific role Treasury played, Mr Mogajane said that the SAA situation was a departmental responsibility. In this case, the Department of Public Enterprises (DPE) had exercised its role on Government mandates, to find partners for SAA. The DPE had then asked about what approvals were needed from Treasury, based on the existing legislation, such as Section 54 of PFMA. It would have been clarified what the DPE could get permission from Treasury on. Treasury’s role came as part of the process, but the process was a DPE responsibility. Treasury had raised some of its concerns on the transaction and the process. This was a normal process and there was nothing untoward about it. The DPE would be the right Department to answer questions on the SAA partners. It was not inappropriate of them to follow this process, as this was government policy. Treasury had then responded to the Standing Committee on Public Accounts (SCOPA) and requested 14 days because the DG had wanted to retrace Treasury’s steps properly. He had explained to SCOPA the process, consent, and legislative provisions.

Treasury had played a role and would play a role. The distinction between Treasury and the DPE’s roles were different.

The Chairperson asked about the R100 million owed by Treasury to the owner of the building it was renting.

The DG explained that Treasury did not owe anyone any money. The rental agreement was between the Department of Public Works and Infrastructure (DPWI) and the landlord. The landlord rented out a number of buildings to the State. The landlord had been frustrated with the process of constantly negotiating the rental agreement and Treasury’s building had been caught up in this.

There were a number of buildings that had been closed, including the Treasury building which had been closed for three days. On the fourth day, Treasury had had to intervene and got lawyers to say this could not go on. Treasury had said that it needed the building for staff, irrespective of the ongoing discussions between DPWI and the landlord.

Treasury had mapped its obligations. It paid DPWI and DPWI paid the landlord.

Mr G Skosana (ANC) asked about Programme 3 on technical advisers placed at Treasury and the three spheres of government which needed to effectively perform its responsibilities on financial management complaints, particularly concerning municipalities. There were municipalities that consistently did well with financial management and others that consistently did not do well. Were these advisers rotating to various municipalities or were they stationed at a specific municipality? If different years of the AG’s reports were to be compared, only a slight improvement would be found in different municipalities. Were these advisors going to do personal visits to or be stationed at municipalities with serious challenges?

On Programme 7, on the payment of pensions, Mr Skosana said that the last time he had checked, there was a serious outcry from the military veterans. He did not know whether the challenge was with the Department of Defense or with the Department of Finance.

Was there any improvement? If there were still challenges on paying pension funds, had Treasury resolved it?

The Chairperson acknowledged that Mr Skosana was able to have his video on the entire time for his questions and commented on the improvement of his internet connection.

Mr Skosana said it was because he was in Cape Town.

The DG joked that he was in Pretoria, not in Brits.

On the military veterans’ pensions, he said that this challenge was ongoing. Treasury had been picking up many irregularities, including that some veterans would not necessarily be veterans. It was important to review, along with the Department of Social Development, the processes and the challenges on who should be paid and who should be recognised. The challenges were wide-ranging. Some veterans were never recognised when the amalgamation happened, when the South African National Defence Force and the South African Defence Force discussions took place (on which veterans – Azanian People's Liberation Army (APLA) or Umkhonto we Sizwe (MK), among others). This remained a challenge.

When Treasury identified cases, these were dealt with and addressed. There was at least a process, though it was not that efficient (on finding the veterans and knowing where they were). In some cases, there were no official records, but it was known that they were veterans. There was a process to recognise veterans through the special pensions.

On the Municipal Finance Improvement Programme (MFIP), the challenges in municipalities were huge. The capacity and skills base in municipalities left much to be desired. What was seen on the ground was quite worrying. Treasury’s capacity to address these challenges might not be enough. Many municipalities required interventions. Challenges were not only administrative but also political, which required political interventions. The administrative and technical challenges were not just financial in nature but included management and leadership challenges. Only small interventions were possible, such as the MFIP and placing technical assistance in municipalities. This was not enough. Treasury did not have enough people or resources. Technical assistance was placed for a set period with certain interventions. However, new challenges emerged after the technical assistance moved to another municipality. Unless there was a concerted effort, especially politically, to address the challenges in municipalities, Treasury would continue “chasing itself”.

Ms Mseme said that currently, Treasury was doing a significant macro review on its support and capacity-building interventions. Each programme was being evaluated individually. The collective impact was also being evaluated so that Treasury could assess whether its impact on the entities it assisted was sustainable.

As part of this, the MFIP five-year programme cycle was coming to an end. Treasury had done a complete review of MFIP and had learned important lessons that would apply to the next iteration of MFIP. Critical to this was that the need was growing, but Treasury’s capacity had remained the same. The sustainability of the programme as it was currently designed was at risk.

Treasury’s impact had not been as sustainable, as municipalities had not been able to sustain support due to the context of their operating environment. Treasury was re-designing and re-defining MFIP’s operating structure to increase its footprint, enhance its sustainability, and deal with challenges that prevent it from being sustainable (including the interface between administration and politics, the ethics and culture in these structures).

Treasury was ensuring that the ownership of the intervention was located in the municipality, to eliminate dependence on the intervention. The intervention would provide support. The second level of support is provided through capacity-building. The intervention would be embedded in the municipalities.

Treasury was confident that the lessons learned from the previous iterations of the support programmes would assist it in innovatively and sustainably designing the new programme.

The Chairperson acknowledged the improvement in Treasury’s APP.

On the improvement on a number of programmes, he asked if there was still a system of paying performance bonus/incentives. It was wrong that when public servants did good, there was no comment on improvement, but were condemned when they did wrong.

What happened when there was improvement in the various business units (BUs)? Were there bonuses or incentives? Was it just business as usual? It was not ideal to work with staff that were not incentivised and were demoralised. How did the DG incentivise his team?

The DG said that Treasury did not pay bonuses because of government guidelines and that staff were not happy with this. For people working in finance, financial incentives were obviously important.

Treasury had to cultivate the mentality of wanting to belong to “this great institution”. It provided other motivations, such as the pride of being associated with Treasury, which could provide future opportunities.

It also provided training programmes sponsored by donors. With COVID-19, this had been a bit difficult. Treasury sent people to Harvard, LSE (the London School of Economics), and Yale for short-term courses, which was a big incentive. Staff could meet people who had a great experience.

Closing remarks
The Chairperson thanked the Members for participating, Treasury for presenting its APP, including the Deputy Minister, DG and the rest of Treasury’s team.

He said that he could see improvement, especially with Treasury filling its vacancies.

He thanked the Committee support team, PBO and other parliamentary staff members.

He acknowledged Treasury’s improvement. It was important to give credit where it was due and condemn actions when needed.

The meeting was adjourned.