2022 Division of Revenue Amendment Bill, 2022 Adjustments Bill, and 2022 Special Appropriation Bill: briefing by the Parliamentary Budget Office

Standing Committee on Appropriations

09 November 2022
Chairperson: Mr S Buthelezi (ANC)
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Meeting Summary


In a virtual meeting, the Committee was briefed by the Parliamentary Budget Office on the 2022 Division of Revenue, Adjusted Appropriations & Special Appropriations Bills. The Office observed that the nominal budget allocations to the provinces for 2023/24 would increase but given the projected inflation rate, there would be a decline in spending in real terms over the medium term. The cost-of-living crisis was plunging more people into destitution and came on top of the shock caused by the Covid-19 pandemic. It was doubtful that the country could afford not to spend more to address ongoing risks to livelihoods and the economy at large. The government plans to take part of Eskom’s debt onto its balance sheet. However, the MTBPS and other government plans do not adequately outline government’s long term plans for Eskom and the fiscal implications of such plans.

The Committee discussed the difficulties that departments were experiencing in spending, particularly on infrastructure projects and social grants, the effect of changes in preferential procurement policy and budget cuts to HIV and TB programmes, child mortality and malnutrition, the rationality of shifting unspent funds between unrelated departments, and the best response by government to events like the business rescue of Tongaat-Hulett in Kwazulu-Natal.

Meeting report

The Chairperson welcomed Dr Dumisani Jantjies, Director, Parliamentary Budget Office (PBO), and the team from PBO, and noted apologies on behalf of Ms M Dikgale (ANC). He explained that the meeting followed on from one held on 26 October 2022 with the Minister of Finance. PBO would be providing its independent view of the Bills.

PBO Presentation
Division of Revenue
- A 0.9% upward adjustment has been made to the percentage share for national departments by 0.9%
- The provinces’ percentage share decreases from 41.2% to 42.3%
- The local government share is relatively unchanged.
- The nominal budget allocations to the provinces for 2023/24 increases from R543bn to R556bn but given the projected inflation rate, there will be a decline in spending in real terms over the Medium-term Expenditure Framework (MTEF) period.
- An examination of the division of revenue in context shows that while need has grown, there have been declines in health and education services while the real per capita expenditure proposed over the MTEF declines.
- Funding was shifted between disaster grants to respond to the April 2022 floods. However, the Auditor-General of South Africa (AGSA) asserted that disaster spending has been too slow and inadequate.
- The 2022 Medium-term Budget Policy Statement (MTBPS) proposes R6.1bn for disaster relief but the government has to work on its preparedness and responsiveness.

Adjusted Appropriations
- Adjustments to the main budget amounted to R37bn, of which special appropriations amounted to R30bn and budget for unforeseeable and unavoidable expenditure amounted to R6bn.
- While the Social Relief of Distress (SRD) Grant had had significant positive effects, it was clear that the Department of Social Development was going to underspend the budget for the grant by a significant percentage.
- The cost-of-living crisis was plunging more people into destitution and came on top of the shock caused by the Covid-19 pandemic.
- It was doubtful that the country could afford not to spend more to address ongoing risks to livelihoods and the economy at large.

Special Appropriations
- R3.4bn is appropriated to Denel for implementation of a turnaround strategy
- R2.9bn is appropriated to Transnet for acceleration of repair and maintenance of locomotives
- An amount of R23.7bn is appropriated to South African National Roads Agency Limited (SANRAL) for debt redemption.
- The government plans to take part of Eskom’s debt onto its balance sheet. However, the MTBPS and other government plans do not adequately outline government’s long term plans for Eskom and the fiscal implications of such plans.

See presentation for further details

Mr O Mathafa (ANC) asked what Parliament could do to help the Executive branch ensure that spending was improved. The projects the President had announced to kick-start the economy all required spending, but departments were struggling to spend. Were there measures in place to hold those who are not performing accountable? Was a space conducive to spending being created? What was PBO’s view on recent developments relating to government procurement and broad-based black economic empowerment (B-BBEE)? How would the new regulations impact society, particularly those B-BBEE sought to advance and empower? Could PBO indicate the number of people that did not receive the SRD Grant and how the shifting of R1.8bn of unspent funds would further impact those deserving of being considered for this grant? Was this shift in line with the trajectory that the President had put the country on concerning the economy and creating safety nets for the poor and vulnerable?

Mr E Marais (DA) was puzzled that spending on infrastructure had been so low, given the demand for replacement of old infrastructure. What was the problem? He also asked for confirmation of the split of the Gauteng Freeway Improvement Project (GFIP) debt between the Gauteng province and national government.

Ms N Ntlangwini (EFF) asked if there had been an increase or decrease in HIV prevalence over the last three years, given that there had effectively been budget cuts to HIV, TB and malaria funding and community outreach grants. PBO had reported on the percentages of people living below the poverty line and experiencing malnutrition in the country. Had it researched how the country could resolve these issues?

Mr X Qayiso (ANC) said that the level of underspending was really worrying. The Department of Public Enterprises (DPE), for example, had spent just 23% over the period of roughly six months. The state apparatus could not function if it did not spend. He remarked that to observe a well-functioning economy, there are indicators to show the economy functions well.  Unemployment had increased, and there were various reasons for this, in addition to the issues at Eskom. For example, issues of social transformation, health and education also played a big role in the economy. State spending on doctors and nurses impacted the health system and hence the economy as a whole. He noted that the presentation had touched on the infant mortality rate and asked if the PBO had done any research or made any observations on child malnutrition and food diseases like kwashiorkor.

The Chairperson questioned the rationality of shifting funds to a Department that was underspending. He asked the PBO to comment on the impact of the Presidential Employment Initiative. Who benefited from this Initiative? What had its impact been on young people in townships, rural areas and in different sectors? He noted that the private and public sectors were not independent, and asked what the impact of Tongaat Hullets going into business rescue would be on the economy of Kwa-Zulu Natal and the country in general. What impact would it have on agriculture, both commercial and emerging farmers, employment, unemployment and revenue collection? What should the government do in instances like this? Was it always better to protect jobs than to try to create new jobs? Did the DSD realise the savings due to greater efficiencies or to raised qualification criteria for grants? Would it not   make more sense to shift unspent funds within the DSD, for example, to employ more social workers, rather than shifting them to Transnet?

Dr Jantjies said the link between government’s objectives and the budget itself was constantly debated at the PBO. The view of the Office was that if there was a decline in social and economic indicators, one should clearly not be reducing spending in these areas. The decline in spending on health and education would have an impact over time and would come back to haunt the country. The PBO was asking the question of what the link was between policy proposals and the actual budget and how to ensure that these were aligned. It was concerned that there was a disconnect between these two things. The PBO had also raised some concerns about changes to preferential procurement regulations when they were at the proposal stage. For example, the Office was of the view that implementing a preferential procurement framework was still a constitutional requirement, and it was concerned that fragmenting procurement policy would cause delays in industrial and development policy. For each department to have its own preferential procurement framework also diverges from international norms. There was some risk that it would threaten investments made on the assumption of the existing national framework and work against the country’s development goals.

Ms Sbusisiwe Sibeko, Financial Analyst, PBO, said South Africa did not have as much detailed research into the impact of individual interventions on HIV rates as some other countries did. The number of people known to be living with HIV had increased over time but this was also due to more widespread testing. Nevertheless, it was estimated that the HIV prevalence rate amongst women had increased from 15% in 2002 to 25% today. This showed the impact of COVID-19, which had led to a 4% decline in the number of people who had received their anti-retroviral treatment. The South African Children’s' Gauge, a 2020 study by the University of Cape Town, indicated that 27% of children suffered from stunting. The were concerns about the intersecting issues of malnutrition and obesity in the country. What food schemes had been disrupted and what were the impacts of malnutrition in the long term? More data and a greater focus were still needed as South Africa remained an outlier compared to other middle-income countries in terms of the outcomes of children.

Regarding spending on the SRD Grant, it was important to realise that an allocation had been made. DSD had realised that it would not be sufficient to provide for all 10.9 million people who needed the grant. It then changed the eligibility criteria to reduce the number of recipients. According to the more stringent criteria, there were 7.5m eligible applicants, of which 6.5m had actually applied. The large number of people who needed the grant but were not receiving it remained a concern.

Dr Nelia Orlandi, Deputy Director: Finance, PBO, reported that R44bn had been allocated for the SRD Grant. At mid-term, there had underspending of R6bn and further underspending could be seen at the end of the financial year. What could the government do about low infrastructure spending? Each time this issue was discussed, the tendering and procurement processes were indicated as the problem. Over time, because government struggled to spend, it created other entities and used other vehicles to spend on its behalf. For example, in education, the Development Bank of South Africa was used to implement infrastructure projects. The question of whether all of these vehicles were efficient and effective should be asked. Did they deliver results? There were also a large number of employment programmes with lots of duplication and inadequate reporting. For example, the Department of Employment and Labour (DEL) had not measured the performance of the Jobs Summit or the Mass Employment Stimulus Programme in its Annual Performance Plan (APP). The Department had produced research reports on youth retention and new forms of work to be able to achieve the requirements of the Medium-term Strategic Framework (MTSF) to create 1 million youth jobs but there was no reporting on job creation progress.

Similarly, the Department of Planning and Monitoring had planned to create over 400 000 jobs by 2024 through Operation Phakisa. Two integrated assessment reports were compiled but did not mention the number of jobs created. Progress had been made on creating jobs through the Extended Public Works Programme (EPWP) but the Department of Public Works had indicated that they would not report on job opportunities created next year. Reporting needed to be improved. National Treasury should be asked to explain the impact of large once-off shifting of funds between departments.

Dr Seeraj Mohamed, Deputy Director: Economics, PBO, said there seemed to be a systemic inability within all spheres of government to plan, develop and implement infrastructure projects. There were also problems in the way procurement was being done. One could argue that there were capacity problems but at the same time, as Dr Orlandi had explained, numerous agencies were created and lots of outsourcing took place. More money would need to be spent on fixing systems. Even before the 2012 consolidation, a culture had developed around the way budgeting was done, leaving the budget constrained and not allowing room for further spending. The notion of implementing a zero-based budget as a solution to spending problems was inadequate. National Treasury had advised that they would not fully implement a zero-based budget, but only aspects of it. It really needed to take a step back and look at the big picture to identify weaknesses and systemic risks. He acknowledged that HIV/AIDS was not spoken about enough even though nearly 20% of adults were still affected. He also agreed that more needed to be done on reporting on employment interventions. The provision of services such as education and early childhood development programs were all part of the same chain rather than alternatives to each other. He undertook to respond to the question on the impact of the business rescue of Tongaat-Hulett in writing.

Dr Jantjies noted that the SRD was a new system, and it was almost inevitable that there would be hiccups. Underspending was to be expected in the beginning, for instance. Nevertheless, there was still a need for mechanisms to monitor its implementation and plans to address emerging problems.

Follow-up discussion
Mr Qayiso wondered why the PBO had not requested information on job creation. This information was of crucial importance to the public. If the PBO was not able to get it, what could the Committee do to get hold of it?

Dr Orlandi explained that the PBO used performance information from departments’ APPs, assuming that this information would be linked to a budgeted programme that was funded, monitored and audited according to government-wide standards in the legal framework of the Public Finance Management Act (PFMA). If performance information was not in the APP, the Office could not be certain of whether it was budgeted for. It could ask for reports on specific matters like job creation but for the current project, the PBO had wanted to show how important it was for departments to reflect MTSF priorities in their APPs.

The meeting was adjourned.


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