The Select Committee on Appropriations met on a virtual platform to receive a briefing on the Division of Revenue Bill for the 2023/24 financial year by the Financial and Fiscal Commission (FFC). The presentation highlighted the current struggling economic context, such as the high unemployment rate and widening inequality. It also shared the Commission's concern on the impact of the deepening systemic corruption taking place in the public sector.
During the discussion, Members asked the Commission for its recommended interventions to address the lack of costing in education and health, its view on zero-based budgeting, its economic strategies to boost job creation, solutions to close the gap in income inequality, its view on the public-private partnership on the child support initiative, its suggestions to mitigate the risk posed by the resource allocation model for the agencies that were fighting corruption, as well as the impact of the public wage bill.
Members sought clarity on the meaning of fiscal transparency, and the feasibility of the proposed basic income grant (BIG). They expressed concerns about the increasing debt servicing cost, government's ability to take over Eskom's debt, top municipal managers burdening the public wage bill but being unable to perform their duties, the inability of municipalities to generate revenue for self-sufficiency, and the transparency at Statistics South Africa (StatsSA).
They stressed the importance of implementing the Commission's recommendations, and were urged to play a more active role in ensuring their implementation at the executive level.
Members had conflicting opinions on the views contained in the Commission's presentation on earning inequality along racial lines, and the FFC attributing poverty as a leading cause for the unrest last July. They also differed in their views on the impact of the black economic empowerment (BEE) policy on the economy and job creation.
Briefing by FFC on the Division of Revenue Bill submission for 2023/24
Prof Aubrey Mokadi, Commissioner, Financial and Fiscal Commission (FFC), said he would be standing in for Dr Mbava, who had apologised for being unable to attend.
He read the central theme of the Commission's 2023/24 submission: to address the country's socio-economic vulnerabilities through fiscal transparency and strategy. For the past two years, government has tried to balance fiscal sustainability alongside the need to provide social relief interventions in the face of the Covid-19 pandemic, rising unemployment, and widening inequality due to joblessness. This effort had been marred by myriad shortcomings, irregularities, fruitless and wasteful spending and a deepening of corruption, exacerbating the country's constrained fiscal condition.
Mr Chen Tseng, Head of Research, FFC, provided the structure of the Commission's submission.
Mr Siyanda Jonas, Researcher, FFC, provided the context in which the submission was tabled.
The Commission recommended strategies for preventing corruption in the public service, and discussed the funding for anti-corruption agencies.
Ms Gianni Delle Donne, Researcher, FFC, discussed the debt sustainability in South Africa. She highlighted that South Africa faced a lot of uncertainty on its future debt path because of the increasing debt servicing fee.
The inequality in South Africa's labour market was also described to the Committee. The effects of social grants on household behaviours and the public sector wage bill were discussed.
Ms Sasha Peters, Programme Manager, FFC, briefed the Committee on the review of the provincial equitable share (PED) formula, the use of provincial conditional grants, and the current situation in the basic education sector.
(Details of the presentation can be found in the presentation slides).
The Chairperson noted that the FFC had mentioned the lack of costing in education and health, which she noted was happening not only in education and health, but rather cut across in other departments. She therefore wanted the FFC to provide some advice to the Committee on what the best intervention would be.
She asked about the FFC's view on zero-based budgeting.
The Chairperson commented that more than 30 percent of the population depended on social grants in this struggling economy. If the Commission was of the view that the current economic policies devised by the President were not working, could it provide any concrete economic interventions to the Committee?
She referred to the inequality in income distribution highlighted in the presentation, and asked the FFC's view on how to address the issue and close this widening gap.
Dr Bandile Masuku (ANC; Gauteng Provincial Legislature) expressed his support for the proposed basic income grant (BIG). However, he suggested that the BIG must be linked to citizens' active participation, and that the grant should be seen as an incentive to incentivise people to perform certain functions.
He commented on the public wage bill, and emphasised that education, health and police should not be seen as a cost, but rather more of an investment. For instance, the more health professionals hired in health facilities could help reduce medical litigation bills and improve service efficiency. Safety and security was a topic which everyone was complaining about in the country, so there was a need to employ more police officers. He asked the FFC's view on this. He also stressed the importance of community health workers in tracing and tracking tuberculosis (TB) and HIV patients. He highlighted the need to focus on preventative treatments, rather than the curative treatments the country currently did, which were unaffordable.
Mr D Ryder (DA, Gauteng) appreciated the important inputs made by the Commission, which greatly expanded Members' knowledge.
He asked for the publisher's hard copy to be made available to Members to make it easier to reference in preparation for the Division of Revenue Act for the 2023/24 financial year.
He sought clarity on the notion of a public procurement authority, which seemed to have been suggested in the presentation. He wondered if the Commission was proposing to centralise procurement, and expressed his concern about the time constraint affecting the empowerment of small and local suppliers. He emphasised the principle of the value for money test in procurement.
He enquired about the increasing public debt and the public wage bill. There was an indication of another windfall from the South African Revenue Service (SARS). He asked the Commission if that fund would best be used to fund a few items that were not being funded in the current budget, or better used to reduce public debt.
Mr Ryder questioned the Commission's rationale in using the labour market to assess inequality in the country, given that the country had a 46 percent unemployment rate. His view was that it was not getting to the majority of the population.
He sought more details on the Commission's remark that StatsSA needed to improve its transparency. Given the important role which StatsSA plays in policy-makers decision making, he asked the Commission to give more details.
He disagreed with the national government's approach to taking more power away from the local government through conditional grants. He asked the Commission to provide more clarity on Schedule 4 and 5 grants.
Mr W Aucamp (DA, Northern Cape) expressed serious concern on the impact of government taking over Eskom's debt, as the government's debt servicing cost was currently spiralling out of control. He urged the government to consider totally privatising Eskom, as the entity would otherwise have made a lot more profit.
He stressed the importance of job creation in South Africa. The fact that 30 percent or more of the population relied on grants indicated that something was wrong in the country and the social welfare system would become unsustainable. He highlighted the need to find alternative ways to curb unemployment. He pointed out that black economic empowerment (BEE) and cadre deployment had not assisted in real job creation, nor benefited poor people in the street. Only a very small percentage of the population got jobs and became rich through this policy. Also, enforcing minimum wages protected only the current workforce, and did not help to create more jobs. He urged the government to create a more conducive environment for investment.
He suggested restructuring the public wage bill. He observed that many top managers in municipalities were unable to do their jobs, resulting in those municipalities having to pay more for consultants, which doubled the expenses. He urged consequence management being implemented on those managers with no skills.
The inability of municipalities to generate an income was a huge issue. At Ga-Segonyana Local Municipality, where he came from, residents had not received one invoice for rates and taxes in the last two to three years. He questioned how municipalities could generate income if invoices were not issued on time to residents.
He disagreed with the district development model (DDM), and argued that district municipalities were suffering, yet the government wanted to take more power away from people on the ground and centralise power in a higher sphere of government. He pointed out that empirical evidence showed that government worked best when there were competent local people who were involved in the operation.
The Chairperson thanked Mr Aucamp for his input, but noted that he had voiced his political view toward the BEE policy. As a cadre of the ANC, she needed to point out that BEE was the best policy the ANC had produced to balance the past imbalances. Cadre deployment was currently being debated. However, she agreed with Mr Aucamp that appointees should be capable, and any wrongdoing should be brought to book and those involved should be held accountable. She pointed out that the DA was not immune to cadre deployment either.
She pleaded with the Committee for unity, and asked Members to focus on deliberating the merits of policies, irrespective of their political party, to produce a policy that would benefit citizens.
Mr Aucamp said that he did not wish to enter into a debate with the Chairperson, and fully agreed with her that redress must take place. He simply wanted to point out that the outcome of the BEE policy had not achieved its desired objective, and had been to the detriment of the people of South Africa.
The Chairperson reaffirmed her point that she did not wish the discussion to become a debate.
Mr Aucamp said that as the Chairperson had reacted to his statement, she had initiated the debate, and he had no intention to start a debate.
The Chairperson responded that she did not see that she had done anything wrong, as Mr Aucamp had brought up the ANC policy in his input.
Mr Joe Mpisi (ANC; Gauteng Legislature) said that he had raised this as a point of order because he believed that Mr Aucamp was out of order for responding to the Chairperson's remark. As the Chair of the Committee, she was free to say whatever she wished to say.
Mr E Njadu (ANC, Western Cape) interjected, and cautioned Mr Aucamp against raising irrelevant elements such as BEE, which had not been the aim of the Commission's presentation, into the meeting. He accused Mr Aucamp of derailing the meeting and being out of order.
Mr M Moletsane (EFF, Free State) sought clarity on the growing gap between the public service and the private sector on their salaries. Given the current economic challenges, he wanted the Commission to explain the impact of the public wage bill.
Mr F du Toit (FF+, North West) remarked that the various causes that would lead to corruption, such as the inequitable distribution of resources, lack of consequence management, etc., had been mentioned on numerous occasions by Committee Members.
Mr Du Toit disagreed with the FFC's view in its presentation that inequality in earnings was still highly segregated along racial lines. The President had said in May that "we have gone backwards concerning increasing black management control, up-scaling skills development, entrenching enterprise development and broadening procurement to give opportunities to black women and the youth." He said it clearly indicated that this race-based policy did not work and was bringing corruption into the picture. He used the population growth figures of 1996, compared to those of 2021, according to race. In 1996, there were 31 million black South Africans, and there were now 48.6 million, which constituted a growth of 17.6 million. However, there were 4.4 million white South Africans in 1996, and only 4.6 million in 2021, a growth of only 200 000. That figure had to exclude those white South Africans who had emigrated overseas. He pointed out that the gap would have increased if one compared the 17.6 million population growth to the 200 000 growth for white South Africans. His view was that implementing a strictly race-based policy would not work.
He disagreed with the FFC's view that poverty had led to the July social unrest. He could provide numerous sources that pointed to political instigators that had led to the unrest.
He also disagreed with Dr Masuku's view that voter registration should be a condition for getting a grant, as it could be misconstrued as buying votes.
Mr Njadu reiterated that the engagement of the Committee with the FFC was important, as it empowered Members to perform their oversight role.
He asked about the FFC's assessment of the agencies fighting corruption. In the presentation, the FFC had indicated that the nature of resource allocation might inhibit the fight against corruption, since the budget fell within a department's own budget vote. He thus asked the Commission what could be done to mitigate the risk of the issue, but also not require amendments to the current legislative framework.
He referred to the debt sustainability issue flagged in the Commission's presentation, and asked what could be done to strengthen this area.
Mr Fidel Mlombo (ANC; Mpumalanga Provincial Legislature) said that Members must appreciate the 1.9% gross domestic product (GDP) growth that had happened in the context of fiscal constraints and macro-economic challenges. Further, the FFC's presentation indicated that there had been a slight decrease in unemployment, which he said was a positive note to show that the intervention methods were effective.
He expressed his concern about the increasing debt servicing cost. His view was that the money spent on servicing debt should rather be spent on tackling issues such as unemployment and economic growth. He noted a pattern that money borrowed from other countries was often used directly for consumption, and was not used to create projects that would enable long-term sustainable growth. He asked the FFC to comment on that.
Commenting on the proposed basic income grant (BIG), he said that as he had been part of the ANC policy conference, he was glad that the decision had been taken to implement the BIG.
He enquired about the government-private sector partnership initiative on child support, and asked the Commission how that initiative could work out.
Mr Y Carrim (ANC, KZN) sought clarity on the fiscal transparency that the Commission had mentioned in its presentation. He noted the absence of the BIG in the presentation, and asked the FFC for its view on the feasibility of the BIG and to provide its explanation. He further queried whether there should be a wealth tax to fund the BIG.
Mr Carrim saiit should be common practice that strong municipalities should share their resources, especially human resources, with smaller and weaker municipalities. Even though the relationship between district and local municipalities could be complex at times, it should not be used as an excuse to forgo the District Development Model. He suggested that the Committee facilitate discussions with the Department of Cooperative Governance and Traditional Affairs (COGTA) on skill-sharing between municipalities.
He questioned whether the FFC's presentation would mean anything if those recommendations were not implemented. As the Commission had limited power, Parliament was in a better position to put pressure on the executive to implement those recommendations.
Prof Mokadi appreciated that Members had started to pay attention to the importance of the FFC's recommendations, and indicated that they would follow up with the executive in implementing those recommendations with which Members also agreed. He guaranteed that the Commission would be willing to assist should the Committee need more clarity on the information provided.
He agreed with Mr Masuku's remark linking the BIG to citizens' participation. He acknowledged the need to introduce citizens' responsibility to ensure their participation in democracy at the policy level.
He highlighted the anti-corruption measures which the FFC had discussed at length. Although government had already created instruments to combat corruption, the Commission and the South African Local Government Association (SALGA) believed that citizenship activism could play a more important role in curbing corruption.
Prof Mokadi confirmed to Mr Ryder the Commission's recommendation to establish a public procurement authority. The purpose of establishing such an authority was to ensure that supply chain processes were streamlined to stem corruption.
On medical litigation, he acknowledged severe weaknesses in the system. The Commission was also aware that some employees in the sector were active participants in corrupt behaviour, which thus continued to balloon the medical litigation figure.
On budget control, Mr Tseng highlighted misappropriation within public finance management. He stressed the need to improve the accuracy in public finance management, which he described as 'the appropriateness of appropriation.'
Mr Tseng said that the fiscal system was actually not that transparent. He questioned if the system was transparent, why so much money had been spent on purchasing things that were never realised. He said those incidents indicated that many of those expenditures were still quite opaque.
He explained that for the Government Employees Pension Fund (GEPF) to invest into debt for an entity such as Eskom, which had an undesirable credit rating, the return could be quite significant, which would benefit the GEPF. However, the government guarantees also aimed to ensure that the investment on debt was not going to default, and it was another indication that the budgets' details were not transparent.
Further, he pointed out that South Africa was not so good at planning its budget for next year. For instance, the Commission had noted that in some governmental departments, over 50 percent of their budget was dedicated to administration. He then questioned the core functions of those departments.
Mr Tseng clarified that the Commission was not advocating the centralisation of procurement. The Commission's view was to understand the cost of procurement because of cost escalations. The Commission did not object to the system, such as the principle of BEE, but rather focused on executing policies. For instance, in preferential procurement, when a buyer becomes the market maker or the price setter, it contravenes the very principle of market competition.
He said South Africa had been struggling for a long time with income inequality in the labour market. He indicated that the gap between the employed versus unemployed was even wider than the income inequality within the labour market.
The minutes dated 22 June were adopted.
The meeting was adjourned.
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