Appropriation Bill & Second Adjustment Appropriation Bill: National Treasury briefing

Meeting report

Opening Remarks

The Chairperson welcomed Members of the Committee, National Treasury officials, support staff and members of the public on the platform. The Committee will be looking at the Appropriation Bill and the Second Adjustments Appropriation Bill that deal with the allocation that has been given to the national sphere of government. This is in line with the Money Bills Amendment Procedure Act.

Briefing by National Treasury

Ms Nompumelelo Radebe, Director: Public Finance Division, National Treasury, took the Committee through the presentation.

2022 Appropriation Bill

The 2022 Appropriation Bill proposes to appropriate money from the National Revenue Fund for the requirements of the State for the 2022/23 financial year; to prescribe conditions for the spending of funds withdrawn for the 2023/24 financial year before the commencement of the Appropriation Act for the 2023/24 financial year; and to provide for matters incidental thereto.

The Appropriation Bill was tabled in Parliament together with the national Budget on 23 February 2022.

The amounts appropriated to each vote are set out in the Schedule of the Bill.  The Schedule is divided by vote and by main division within a vote (i.e. by programme and/or transfer and subsidy to a national department within a vote). A purpose is set out for each vote, programme and transfer and subsidy to a national department within a vote. Allocations are categorised in terms of Current payments o Compensation of employees, goods and services o Interest and rent on land, Transfers and subsidies, Payments for capital assets and Payments for financial assets.

Budget 2022 Highlights

-Following economic growth of 4.8% in 2021 GDP growth is expected to average 18% over the next three years.

-Total consolidated government spending will amount to R6.62 trillion over the next three years.

-More than 50% (R3.33 trillion) will go towards the social wage.

-Main budget non‐interest spending is increased by a net of R282.3 billion over the MTEF period compared to the 2021 Budget.

-Increase supported by higher‐than‐anticipated revenue collections and does not jeopardise the path to deficit reduction.

-Additional allocations of R110.8 billion in 2022/23 R60 billion in 2023/24 and R56.6 billion in 2024/25 are made for several priorities that could not be funded through reprioritisation.

-A primary surplus will be achieved in 2023/24 and the consolidated budget deficit is projected to narrow to 4 2% of GDP by 2024/25 Gross debt stabilises in 2024/25.

-61% of the total budget is appropriated to DCoG, DHET, DSD, Police and Transport mainly for free basic services, post-school education and training, social grants, crime prevention and investigation, and maintenance of the road transport network.

-R44 billion in 2022/23 to extend the special COVID‐19 social relief of distress grant for 12 months

-R9 billion (and R9.4 billion in 2023/24) for the Presidential Employment Intervention to create about 514000 short term jobs in 2022/23.

-71% of the total budget is for transfers and subsidies – mainly social grants, conditional grants, transfers to public entities, university subsidies and NSFAS

-The largest share of compensation of employee allocations goes to labour intensive departments e.g. in the Peace and Security function group. No provision is made for compensation increases above the carry-through implications of the 2021/22 public service wage agreement. Departments are required to continue adhering to their compensation ceilings and, if needed, reduce personnel numbers to sustainable levels.

-Payments for capital assets constitute 1.5% of the total budget and are mainly for indirect grants (bulk of infrastructure funds allocated to provinces and municipalities mainly through conditional grants).

-Any permanent new spending commitments, such as additional social protection, must be fully financed by tax measures or spending cuts to prevent a deterioration of fiscal balances and ensure that the public finances are not overextended when the economic cycle turns negative in future.

Second Adjustments Appropriation Bill 2021/22 Financial Year

The Bill gives effect to adjustments to the appropriation of money from the National Revenue Fund for expenditure approved in the 2021/22 financial year and provides for matters incidental thereto.

The Bill includes an additional R500 million to the National Department of Health to pay for COVID-19 vaccines and related logistics costs.

Due to the July 2021 unrest and magnitude of claims received, Sasria has been technically insolvent, unable to settle claims and to maintain a minimum solvency cover ratio (SCR) of 100% required by the Prudential Authority. Based on Sasria’s projection that the claims received from the July 2021 civil unrest would settle at R32 billion, the entity requested an equity injection of R22 billion. Thus, R3.9 billion was provided through the Second Special Appropriation Act (Act 15 of 2021), R7.1 billion through section 16(1) of the Public Finance Management Act and R11 billion through section 6(1)(b) of the Appropriation Act, 2021. This additional equity of R18.1 billion (together with the R3.9 billion) is enabling Sasria to settle its valid received claims, support the self-help initiatives being implemented, and recover its SCR to a targeted 180% to create a buffer.

Dr Mampho Modise, Deputy Director-General (DDG): Public Finance, National Treasury, added that she wanted to go over the regulations for the Social Relief of Distress (SRD) grant. In the past, the main prerequisite to receiving funding was unemployment. Those who did not meet this prerequisite could appeal the decision by the South African Social Security Agency (SASSA), after which the R596 poverty line became a consideration in the verification. National Treasury is now looking at doing these verifications for everybody, for which they received the concurrence to work with banks on the verification. This means that the R350 grant is for everybody, unlike in the past when the focus was on those who appealed, which was around 1 million people. The Department of Social Development (DSD), which has been in discussion with the Congress of South African Trade Unions (COSATU), will use this verification process while also considering the available budget, and will on a monthly basis reconsider the R350 threshold. This is to ensure that the grant is more inclusive than in the past.

Discussion

Ms D Peters (ANC) asked why National Treasury is not supporting SASSA and the DSD in creating a public education campaign regarding the issue of the SRD grant. She observed that the public unsavoriness last week was due to the lack of information and understanding on the subject and that there is a need for such an awareness campaign. Regarding the South African Special Risk Insurance Association (SASRIA), why should SASRIA’s shortfall be covered by the National Revenue Fund? Are any businesses that make claims against SASRIA not making contributions? When SASRIA is financially sustainable or ‘cash flushed’ do they pay dividends to the state? Is National Treasury able to monitor businesses that claimed compensation from SASRIA but did not reopen their businesses? Are the workers’ losses included in the claims that businesses submitted to SASRIA? Are these individuals’ issues being addressed or will they fall under the unemployed category?

Mr A Sarupen (DA) said that his questions will be on the main Appropriation Bill. How does the bill reflect the previous commitment made to zero-based budgeting made by Treasury and the previous Minister of Finance? He recalled that no Minister of Finance has appeared before the Committee since the start of this term and requested that Mr Enoch Godongwana, Minister of Finance, come to brief the Committee on his vision and how he intends to run the Ministry going forward considering that the Committee is the custodian of his legislation.

On the longstanding programmes run by various government departments that are funded, are there any assessments by Treasury to determine if these funded programmes are getting value for money and if these programmes are not duplicating other departments’ functions? How does Treasury end up agreeing to funding duplications of programmes? For example, there are programmes in National Treasury to support municipalities in their financing and budgeting but there are also similar programmes being run by the Department of Cooperative Governance and Traditional Affairs (CoGTA). The same programmes around the support for budgeting are also being run by provincial government departments and provincial treasuries. How will Treasury deal with the duplication of programmes across national departments, provincial departments, and municipalities as it is financially inefficient?

On the public sector wage bill, what steps are being taken to curtail the massive costs of 30 000 millionaire managers in the public sector? This is not referring to teachers, doctors, or nurses, this is specifically with reference to the millionaire managers who are getting upwards of 7% increases and are earning more than members of parliament, the president and so on.

Mr O Mathafa (ANC) acknowledged this budget is responsive to the challenges that are faced by ordinary South Africans, considering that 50% of the Appropriation Bill is earmarked for social expenditure. However, it was noted in the presentation that the Presidential Youth Employment Initiatives only create short-term employment opportunities. Since the country is battling with high youth unemployment, what other areas of the budget can be considered to be responsive to this challenge?

Adding to the previous question, what issues are hindering the private sector from ensuring job creation?

On capital asset transfers, Mr Mathafa recalled that Ms Radebe spoke about Bulk Water Infrastructure projects that will be identified and will receive allocations to ensure the projects are completed. How will these projects be identified? Is Tshwane involved and more specifically how would a plant such as the Hammanskraal Wastewater Treatment Plant be classified as a special project to qualify for capital transfer? Continuing the point of capital transfer dealing with water, Hennopsriver’s mouth is situated in Ekurhuleni, but it flows into Tshwane and Centurion; the contamination of this lake has caused business flight and loss of jobs. How will Treasury ensure that this issue is treated as a priority in terms of budget allocation?

Mr Z Mlenzana (ANC) asked if Treasury is implementing the Standing Committee on Appropriations’ resolutions? If yes, would Treasury be able to account to the Committee on the implementation of the resolutions at a later date?

On the Presidential Youth Employment Intervention, are there monitoring tools, particularly for cash flow? Is cash being distributed according to the need identified?

With COVID-19, the 2021 July unrest, and now the KwaZulu-Natal floods in mind, he asked how Treasury plans to balance the creation of a welfare state versus the advancement of a developmental state and true economic recovery and transformation?

Mr X Qayiso (ANC) started by addressing the issue of unemployment. The budget makes considerations for the social wage, but it is important to also look at the larger issue which is unemployment. Treasury cannot exclusively rely on the Presidential Youth Employment Initiative but should work on a mechanism to address unemployment.

Moving on, he said, the pandemic has highlighted the importance of an initiative such as a state-owned pharmaceutical company. Is there an update with regards to this project? Has a fund been created to realise the plan of a fully-fledged state pharmaceutical company?

On the Commission for Conciliation and Arbitration (CCMA), it seems as if it has been stripped as far as budgeting is concerned. CCMA should be budgeted so that it can perform its function.

Finally, he asked Ms Radebe to provide context on her statement regarding departments that are not able to meet their financial commitments resorting to reducing personnel to meet said commitments.

Ms N Ntlangwini (EFF) asked if any research was done to check which companies will benefit from the funding going to SASRIA. She expressed concern over the fact that National Treasury is giving money to an institution that is supposed to be self-sustaining and therefore diverting funds from other functions. Additionally, National Treasury has not been proactive in ensuring that rentals within departments do not exceed other components of the budget. Is National Treasury working to ensure that the budget for rentals is cut down while working towards departments owning their own buildings?

Ms Peters referred to the SANRAL non-toll budget and asked if it is not possible for National Treasury to divert SANRAL’s non-toll budget, where it is underspent, to other areas where SANRAL services are needed? She uses the example of provinces that have bad road conditions such as the N12 through Wolmaransstad or the R31 through the Northern Cape, the budget could be better utilised for such projects.

Mr Z Mlenzana (ANC) asked if Eskom was experiencing monetary issues. Elaborating on the question he said that it seems as if Eskom was moving backwards from its resolutions, is this an indication that they are lacking in terms of appropriations?

The Chairperson asked that National Treasury, in their response, include how much has been allocated to the recapitalisation of Eskom. He supported Mr Sarupen’s request that the Minister of Finance appear before the Committee but asked that the Committee indicate which issues they would like to be covered in the meeting to better facilitate the meeting.

He asked that Ms Radebe explain the payment for financial assets that were mentioned in the presentation. It seems that National Treasury is moving towards the attainment of a primary budget surplus, in light of the challenges the country is facing, is it not rushed? Departments are receiving additional funding; before allocating these funds are the departments’ histories in terms of budget consulted? Is the money being spent efficiently?

Regarding the Department of Defence (DoD), the Chairperson said that there is a need for an increase in its budget and asked if there is a way for the National Treasury to intervene in this regard. This point also extends to Denel. Could an additional budget not be allocated, not to pay creditors but to provide a capital injection for it to continue to play its role?

The Chairperson, agreed with Ms Ntlangwini about allocations to institutions such as SASRIA while institutions like Denel and the DoD could make better use of funds.

He asked if the Department of Higher Education and Training (DHET) is more labour-intensive than the Department of Basic Education (DBE)?

Mr Mlenzana spoke about special appropriations regarding the floods in KwaZulu-Natal, are there any allocations toward this, could Treasury provide some information on the matter?

Lastly, unemployment, poverty and inequality are all going in the wrong direction, yet Treasury is appropriating R1.7 trillion, where are we going wrong?

National Treasury’s Responses

Mr Ravesh Rajlal, Chief Director: State-Owned Enterprises, National Treasury, said that SASRIA will only pay out to parties that have SASRIA in a policy. If it relates to issues of floods, SASRIA will not cover that. During the July unrest, at the time SASRIA had around R10 billion worth of capital but the claims that arose from the unrest were around R32 billion, hence the R22 billion request from SASRIA. As of 14 April, around R20 billion of the claims have been paid. Regarding the businesses that have closed down, National Treasury is awaiting a response from SASRIA, once it receives this, a response will be given to the Committee in writing. On the dividends, SASRIA has paid around R808 million to National Treasury over the past five years. He noted that dividends are only paid when an entity declares a profit.

In terms of Eskom, it has been provided with a support package of R230 billion in October 2019, of that R136 billion has been provided. In this fiscal year, R21.8 billion will be dispersed to Eskom and over the next two years, R21 billion and R24 billion will be dispersed.

Regarding Denel, National Treasury has been in conversation with the DoD, the Armaments Corporation of South Africa (ARMSCOR) and Denel on what the future state of Denel will look like and what are the core assets and what funding is needed.

Mr Marumo Maake, Chief Director: Public Sector Remuneration Analysis and Forecasting, National Treasury, addressed the questions on senior management salaries and the wage bill containment. He explained that senior management in the public service’s salaries are determined by the DPSA in concurrence with the Minister of Finance and are influenced by what happens at the Public Sector Co-ordinating Bargaining Council (PSCBC). The salaries of municipal managers are determined by the Minister of CoGTA. There are also entities whose salaries are determined by their boards, some of these entities write to the Minister of Finance to ask for concurrence but not all entities do that. The trends that Treasury is observing are that some entities determine their own raises which has resulted in unfair wage disparities. As a result of this, in 2019, Treasury gave a directive to public entities to freeze their wages. Since it was not legally enforceable and not possible due to internal policies, many institutions did not or could not comply. As a result of this, National Treasury along with CoGTA will embark on a process of reviewing remuneration policies across all public sector institutions with the view of making recommendations to the cabinet on a fair remuneration policy that can be adopted in the public sector. He acknowledged the need for legislation regarding the issues of remuneration specifically when it comes to public institutions. In terms of the containment of the wage bill, Treasury provides departments with a tool to assist when planning and aligning budgets with human resource needs, this is called the Human Resource Budget Planning Tool. When the budget and plan are in place, Treasury then monitors departments against that.

Ms Julia de Bruyn, Chief Director: Public Finance, National Treasury, replied to the Chairpersons’ question on DHET. Teachers are employed in the provinces and therefore the 400 000 teachers will be a part of provincial budgets which means DBE only has around 700 employees as opposed to DHET which has 30 000.

On Mr Qayiso’s question, the CCMA’s budget has not been slashed, in fact, R120 million has been added to the CCMA in this budget.

Mr Mark Blecher, Chief Director: Health and Social Development, National Treasury replied that SASSA does a great deal of communication to the public on the grants.

The Chairperson interjected to explain Ms Peters’ question regarding SASSA. He said that it was more related to the statement released by COSATU regarding the R350 grant as there is an impression of insufficient communication.

Mr Blecher explained that the DSD met in the National Economic Development and Labour Council (Nedlac) with COSATU and employers to further explain the position they have taken regarding the R350 grant. Going forward, it will be beneficial to look at what other criteria might be useful in determining the most appropriate access to the grant. On the balance between welfare and job creation, he agreed with the statement of Mr Mathafa that labour market interventions are required in addition to the R350 grants and ensured that the Treasury is working on projects in this area.

On the state pharmaceutical company, the progress seems to be very slow as the infrastructure available for production is not at a desirable level. The ability of the public sector to manage a new state-owned entity that deals with manufacturing and production are also being questioned along with the implications of such a company on the health sector specifically with reference to the cost of medication.

Mr Rendani Randela, Chief Director: Justice and Protection Services Unit, National Treasury, referred to the question regarding the DoD. He agreed that there is a need for increased funding for the DoD but said that it was not enough. The Department needs serious reforms which is why the R1.8 billion in the Appropriation Bill is necessary as it will assist the department in implementing the reforms.

Mr Rezah Atcha, Director: Energy and Telecommunications, National Treasury, replied on bulk water and the identification of beneficiaries. He explained that bulk water goes to municipalities and in terms of the municipalities’ integrated development plan and the water services and development plan, water is provided to communities. In this way, beneficiaries are identified. He added that the issue of Hammanskraal being classified as a special project will also be up to the municipality to do this, in this case, the City of Tshwane. Lastly, Hennopsriver is a water resource issue which is a national function and in the case of pollution, the ‘polluter pays’ principle applies. The national department will be in charge of issuing directives to the relevant water service authority to address the matter.

Dr Modise addressed Mr Sarupen’s question relating to zero-based budgeting. Treasury drafted a framework for zero-based budgeting that was approved by Cabinet. In light of this, National Treasury has done around 200 spending reviews and found that, among other things, there is no standard price for rentals and this is being discussed with the Department of Public Works (DPWI). A large number of duplications of functions were also identified and pose a major issue as it creates the problem of loss of jobs should these functions be closed or consolidated. Findings still need to be presented to Cabinet before they can be presented to Parliament.

In response to the Chairperson, she said that the Treasury considered several aspects in the drafting of the budget, this includes the most vulnerable and poverty-stricken in our society, the debt portfolio and the potential to acquire additional funding. That is why in chapter two of the Budget Review emphasis is placed on economic growth and structural reforms. She noted that it is also important to create an enabling environment for the private sector to assist in dealing with unemployment and understand the problem at the core of unemployment. She said that another issue that will need to be considered is if the nation has the capacity and skills to accommodate the shift towards green and renewable energy in light of climate change.

Moving on from this, she said the budget in its current form takes into consideration the floods. The Disaster Management Act that was drafted before the flood prepared Treasury to deal with the issue. She explained that there are different ways in which disaster is going to be funded which have been presented to the department and the Extended National Joint Flood Coordination Committee. Municipalities, whose financial year ends in June, can divert some of their remaining funds as needed for the disaster. Around R1 billion has been allocated to the Department of Human Settlements (DHS) and CoGTA. Considering that the financial year has only just started, departments have the opportunity to move some of the funding that was appropriated to deal with the disaster. Departments can also apply for unforeseeable and unavoidable expenditure, which will be considered around June or July. The contingency reserve will be used to deal with the requests. Given the mechanisms that already exist in place to deal with disaster funding, National Treasury will not be creating a Special Appropriation Bill at present.

On funding for the rebuilding of Parliament, the assessments of the proposals are still to be made but National Treasury is a part of the process and will be assisting in a way forward in terms of funding.

On the Presidential Youth Employment Intervention, she agreed that the Presidency could provide more details on whether the funding gets to the people on time.

On SANRAL non-tolls, as no decision has been made with regards to E-Tolls, this places SANRAL in a predicament. Non-toll funding might need to go towards the E-Toll debt.

In response to the Chairperson’s question on the primary budget surplus, she explained that there are several considerations. Firstly, the debt servicing cost. Secondly, the cost of borrowing is unsustainable. Thirdly, considerations need to be made for the redemption pressures due to short-medium term borrowing that took place after the 2008 financial crisis. She added that most of the budget goes to current expenditure, but not enough allocations are being made to infrastructure development, and the composition of spending needs to be shifted from current to capital. National Treasury has also asked that departments report on how much they have spent on the floods and what the purpose of the funding was for accountability purposes.

Ms Radebe, in response to the Chairperson’s question on what payments for financial assets are, explained that it consists of lending to public corporations or making equity investments. This would also include thefts and losses, funds that cannot be recovered and must be written off and exchange rate losses.

The Chairperson thanked Ms Modise and the National Treasury team and moved to the matter of the adoption of the Draft Programme of the Standing Committee on Appropriations Second Term of 2022 document.

Committee Programme

The Secretary took the Committee through the programme.

Mr Mlenzana asked if the 14th of June for the National Assembly debate has been confirmed.

The Secretary confirmed that it was.

The programme was adopted.

Committee Minutes

The Chairperson moved to adopt the minutes of the 16th of March 2022. The minutes were adopted.

The Chairperson moved to adopt the minutes of the 22nd of March 2022.

Ms Peters raised the issue of her absence and lack of apology due to technical issues.

The Chairperson said that it should appear as an apology and not an absence.

The minutes were adopted.

The Chairperson thanked the attendees and adjourned the meeting.