FFC on 2023/24 Division of Revenue submission

Budget (WCPP)

05 August 2022
Chairperson: Ms D Baartman (DA)
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Meeting Summary


The Budget Committee of the Western Cape Provincial Parliament (WCPP) convened for a virtual briefing by the Financial and Fiscal Commission (FFC) on the 2023/24 Division of Revenue (DoR) submission.  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. 

The Committee found the mismatch between skills and the market demand problematic. The Commission recommended upskilling young people through on-the-job training opportunities and learning soft skills to support job retention. Well-coordinated interventions between the Department of Employment and Labour, the Department of Higher Education and Training and the Department of Women, Youth and Persons with Disabilities, should boost youth employment.

The increasing public service wage bill, which accounted for 35% of the budget, raised concerns about its impact on the country's finances. The Commission emphasised that growth in the wage bill was driven by wage increases and not an increase in the number of employees. The Department of Public Service and Administration had to consider balancing notch progression and cost-of-living adjustments during wage negotiations.

Meeting report

The Chairperson welcomed the Financial and Fiscal Commission (FFC) delegation to the meeting, and lauded the excellent work done by the FFC.

FFC Presentation: 2023/24 Division of Revenue submission

Mr Chen-Wei Tseng, Acting Chief Executive Officer (CEO), FFC, assisted by Ms Gianni Delle Donne and Ms Shafeeqa Davids, FFC researchers, presented the 2023/24 Division of Revenue (DoR) submission to the Committee.

The theme of the 2023/24 submission was addressing socio-economic vulnerabilities through fiscal transparency and strategy. Mr Tseng said that the National Council of Provinces (NCOP) Chairperson, in a joint Select Committee meeting, had wanted to know if the strategy was clear enough. He remarked that if the strategy had been clear, fiscal stability would not have been threatened by the weaknesses that led to corruption. The Zondo Commission report exposed the weaknesses in fruitless and wasteful spending. Efforts by government to balance fiscal sustainability with the need to provide social relief were being hindered by fruitless and wasteful spending, and a deepening of corruption. These shortcomings and irregularities worsened the fiscal position of the country.

The submission was tabled in the context of a 1.9% gross domestic product (GDP) increase in the first quarter of 2022. This indicated a recovery to pre-pandemic productivity levels. The budget deficit was projected to decline from 6% of GDP in 2022/23 to 4.2% in 2024/25. The increase in government spending was associated with increased unemployment on a macro level, referred to as the crowding-out effect. The situation was not conducive to economic growth. A marginal increase in employment post the Covid-19 lockdown period had been reported. The official unemployment rate had declined from 35.3% in quarter four of 2021, to 34.5% in the first quarter of 2022. The unemployment rate in the Western Cape had decreased from 28% to 25.2%.

Strategies for preventing corruption in public services and funding for anti-corruption agencies

Strategies for preventing corruption in the public sector were examined. Funding models for supporting anti-corruption agencies were evaluated, drawing from case studies and institutional and budget analysis. Recommendations on steps and mechanisms to prevent or eradicate corruption included a renewal of the governance structure of anti-corruption agencies through the National Anti-Corruption Strategy and a dedicated funding framework in support of anti-corruption agencies.

Youth unemployment and intergovernmental fiscal relations

The goal was to understand the effectiveness of the fiscal framework and relevant public institutions in addressing youth unemployment challenges. Recommendations included coordinating all labour markets and skills programmes by the relevant stakeholders such as the Department of Employment and Labour, the Department of Higher Education and Training and the Department of Women, Youth and Persons with Disabilities. Well-coordinated interventions could boost the impact of existing labour market programmes through integration and leveraging initiatives.

Assessing debt sustainability

The aim was to understand debt sustainability in South Africa, particularly in volatile economic conditions over the last few years. Key sustainability indicators and other quantitative tools were applied to assess the impact of high debt levels on economic growth and the future trajectory of debt sustainability. The Commission supported pro-growth fiscal consolidation and efforts to reduce the borrowing requirements and recommended that the Minister of Finance must exercise and maintain fiscal discipline through regular reporting throughout all spheres of government.

Affluence and inequality in South Africa's labour market

Income inequality stemming from the labour market was a key driver of overall inequality in South Africa. The goal was to investigate earning trends across different income groups to emphasise the extent of inequality and identify key shortfalls in the current policy environment. Reducing inequality required policies that enable large-scale job creation and more equitable wage growth across different sectors of the economy. Greater investment was required in labour-intensive industries that were able to absorb low-skilled workers into the labour market.

Effects of social grants on household behaviour and expenditure patterns

More than 30% of South Africans receive a monthly social grant, causing a strain on the fiscus. The demand for social grants increased rapidly due to the struggling economic conditions. The Commission recommended recalculating the social grant benefits, partnering with the private sector to sustain child support policy interventions, integrating social grants with existing social development programmes, and thoroughly investigating the current social grant network.

Investigating wage trends– an assessment of the public sector wage bill

The public sector wage bill had grown almost double the inflation rate since 2004. The increasing wage bill was raising concerns about its impact on the country's finances. The increases in wages and employment resulted in a wage bill that accounted for 35% of the government's budget. The Commission highlighted that the growth in the wage bill had been driven by wage increases in relation to the increase in the number of employees. The Commission recommended that the Department of Public Service and Administration consider balancing notch progression and cost-of-living adjustments to the fiscus during wage negotiations.

Review of the provincial equitable share formula – responsiveness to the changing social structure

The Commission reviewed and analysed the allocation of funding from the provincial equitable share (PES) particularly for the health and education sectors. The focus was on deviations from the PES formula, adjustments under financial pressure, and consideration of the changing social structure. The coordination of infrastructure delivery plans and programmes should be improved to ensure alignment between the national and provincial Departments of Basic Education (DBE). All provinces should undertake a costed norms approach to ensure consistency and a fully informed resource allocation.

Repurposing and realigning the system of provincial conditional grants

The conditional grant system was not subject to regular review to assess alignment to best practice principles and design requirements. As a result, the system was functioning sub-optimally and delivering poor outcomes in terms of unmet goals, incorrect classification, fragmentation, intermittent changes and old, dated and inequitable allocation criteria. The Commission recommended reviewing the grant scheduling system and the publication of the actual grant allocation formulae in the grant framework for transparency purposes. Clear alignment must be established across objectives, conditions and outcomes on all grants.

Budgets, performance and the constitutional right to basic education

The focus of this analysis had been to assess the efficiency of education spending and to determine how spending could be reprioritised to ensure that the right to basic education was protected, considering the reduction in basic education-related grants due to the Covid-19 pandemic. The Commission recommended that the DBE utilise the collection by the FFC and other sources of school-level data to compile a consolidated basic education sector database that integrates financial and non-financial aspects of basic education. The Minister of Basic Education should consult broadly with stakeholders to agree on a spending guide underpinned by a socio-economic rights approach.

Independent fiscal institutions and their effectiveness – common features and policy lessons

The Commission assessed the effectiveness of independent fiscal institutions (IFIs) and their influence on fiscal outcomes based on seven international case studies. Policy lessons for South Africa were drawn from reviewing the design and operational features of IFIs worldwide. The Commission and the
South African Parliamentary Budget Office (SAPBO) should be provided with timely and comprehensive access to relevant information, including the methodologies, assumptions and data used by National Treasury in the budget planning process. The Commission and SAPBO should be formally consulted on budget formulation and execution.

District Municipalities – powers, functions and funding framework

The District Development Model (DDM) was a single strategically focused plan for each of the 44 districts and eight metropolitan geographic spaces in South Africa. The model was introduced in 2019 to address the pattern of operating in silos across the three spheres of government. However, the model was established against a backdrop of dysfunctional district municipalities and a deteriorating local government sector. The Commission advised the Department of Cooperative Governance and Traditional Affairs (COGTA) to speedily review and repeal section 84 of the Municipal Structures Act to streamline the powers and functions of district municipalities in line with those of local municipalities. In addition, the funding should correlate with the adjustment of powers and functions. National Treasury should immediately abolish the Regional Services Council Replacement Grant and combine it with the Local Government Equitable Share for district municipalities under one funding instrument.


Mr R Mackenzie (DA) noted that slide ten reflected the provincial youth unemployment data up to 2015. He asked for the latest data to be made available. Some findings cited political will, ethics and integrity in government and society as important factors in the fight against corruption. Not taking the recommendations into account had a massive impact on society. He enquired if the Commission ever considered taking legal action regarding some of the recommendations that had not been implemented. He specifically wanted to know where the conversations started and ended concerning social grant recommendations, if not implemented.

Mr G Brinkhuis (Al Jama-ah) enquired about the possibility of District Municipalities being granted their own budgets in future.

The Chairperson asked if the Commission had begun investigating the costing models for PES allocations on health, social development and education.

FFC's response

Mr Tseng replied that the education costing model would be developed in the next submission. He drew attention to the call for a costed norms approach that had been made in 2001. At the time, the lack of data was offered as an excuse not to follow the approach. The Commission wanted to know if this was still the case 21 years later. Inconsistencies in the over- and under-allocation between provinces could be due to a lack of understanding of costing and the challenges in providing provincial social services. He emphasised that the Commission was not advocating that the allocation needed to be similar, hence the call for a costed norms approach. The model being considered by the Commission required a minimum level of infrastructure investment to mobilise social services in terms of teacher ratios and performance, beyond the pass rate. The approach was more important than the research solutions.

Responding to the question of allocating budgets to District Municipalities, he explained that district funding had not been transparent, nor was it clearly aligned, which complicated budget allocation. There was a need to physically map municipalities based on the structure of the districts. One-size-fits-all grants tended to become regressive because of not addressing the real problems of municipalities.

Mr Tseng said the issue of legal action had coincidentally been addressed in a meeting with the NCOP the previous day. According to the NCOP Chairperson, the Commission did not have the authority to tell the Executive Branch what to do. The job of the Commission was to advise the Executive Branch. Weaknesses in the oversight function had been highlighted in the Zondo Commission report. The report made it clear how power could be restored if proper oversight was exercised. It was not preferable for the Commission to take legal action to fix deep-seated problems. It had a mandate to make recommendations but not to enforce them. The chain of accountability was supposed to work independently.

Further discussion

Mr Mackenzie commented that his request for updated youth unemployment data had not been responded to.

Mr Tseng undertook to make the data up to the second quarter of the current financial year available to the Committee.

Ms N Nkondlo (ANC) sought clarity about the crowding-out effect and the relationship between infrastructure development and growth assumptions. She understood that infrastructure-related activities were intended to boost growth and create more labour-intensive jobs. It seemed that pumping money into infrastructure projects was not delivering jobs but increasing unemployment. Both national and provincial governments followed the same approach, but based on the presentation, the data did not support the assumption. She requested the FFC to simplify the skills mismatch with the market demands.

Many interventions, such as the Growth, Employment and Redistribution (GEAR) plan, the New Growth Path and the Youth Wage Subsidy, have been introduced under different heads of state to invest in skills development. She asked if the investments in terms of how much was spent on human resources, had been reconciled to the returns concerning economic growth. She questioned how the money had been spent, considering the high unemployment levels in the country.

She asked if fiscal transparency was a function of politics and whether it was limited to who was in charge of the purse. Oversight of the executive branch and the legislature ecosystem was a serious challenge. She wanted to know how agile the ecosystem was to whistle-blowers demanding more transparency. She questioned whether the social sector was taking transparency seriously, or if civil society and expat organisations were biased.

The Chairperson said she would allow Members to submit written questions to the FFC, given the comprehensive nature of the report. Responses to the questions would enable Members to be fully equipped to give input to the budgeting process.

FFC's response

Mr Tseng explained that a number of factors influenced infrastructure-led growth. The crowding-out effect meant that interventions that were intended to stimulate growth, had the opposite effect. The idea of economic growth and social infrastructure required a particular mechanism to provide the benefits of income and return. The investment in state-owned companies (SOCs) such as ESKOM, the Passenger Rail Agency of South Africa (PRASA) and the water boards, had benefited from infrastructure spending up to a certain point. The benefits had declined over the years due to the lack of maintenance. The different levels of government attached different meanings to capital infrastructure. For national government, it mainly meant office buildings, while provincial governments directed capital spending on social infrastructure such as schools and hospitals. Water and electricity infrastructure was the focus of capital spending by local governments. Infrastructure-led growth was not growing as fast as in the past. It was unclear where the money was being spent, because the budgeting process had not been transparent. The budget was a reflection of the past; if the past was unclear, then the ambiguity would continue in the future.

He advised that up-skilling should be a life-long process. It was problematic that acquiring skills in South Africa was happening mainly in the classroom through textbooks. The country was at a point of a skills mismatch because skills became obsolete over time. Young people should be given the opportunity to actively be trained on the job and acquiring soft skills to maintain the jobs. Employability was negatively affected if a person was unable to find a job on the first day of searching for employment.

He agreed that fiscal transparency had become political, but acknowledged that it was not a problem at all levels because politicians and an army of civil servants ran the government. It was the duty of civil servants to inform the executive authority about gaps through audit reports and budgets as part of the oversight function, for example.

The Chairperson commended the Commission for their wonderful work in the Western Cape. The information would be taken into consideration for budgetary input.

Committee matters

The minutes of the meeting held on 29 July were adopted without changes.

The Chairperson welcomed Ms Cayla Murray (DA) as a new permanent member of the Committee.

She requested Members to keep an eye on their e-mails for updates on the Money Bill Amendment Procedure Bill issue. A meeting on the matter will be held with the legal team in the coming week, based on input from the previous week.

The meeting was adjourned.


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