Provincial Treasury on the Provincial Economic Review and Outlook (PERO); Provincial Treasury Quarter 2023/24 Performance

Meeting report

Opening Remarks by the Chairperson

The Chairperson welcomed everyone to the meeting. She asked that the Committee Members introduce themselves, and thereafter gave the Minister the opportunity to provide opening remarks.

Ms Mireille Wenger, Minister of Finance and Economic Development in the Western Cape, greeted the Members of the Committee. On behalf of the Department, she said that they were pleased to present the Provincial Economic Review and Outlook (PERO) and Quarterly Performance Report. She introduced Ms Julinda Gantana, the Acting Head of Treasury, who would lead the presentations.

Ms Gantana asked that the team introduce themselves to the Committee. She then said that the Department would start with the PERO presentation, starting off with Ms Robinson.

Provincial Economic Review and Outlook (PERO) Briefing

Ms Shirley Robinson, Chief Director: Public Policy Services, Provincial Treasury, explained that the PERO is a slimmed-down presentation, to ensure that it is credible and easily accessible. Each chapter is in small portions and presented in an analytical grasp on figures, which draws the story of the PERO through. As PERO is presented, the Western Cape Province has received much traction in economic growth, despite the pressures of a stagnant, global and domestic economy. This has really shown the impact of fiscal pressures and the persistent energy crisis. With this said, the economy is slowing and highlighting social challenges, particularly poverty and crime. A particular focus has been raised on the youth this year in an attempt to bring forth the youth employment challenge. The young people of the country, who are the hope for the future, face significant challenges regarding unemployment and education outcomes, despite the economy offering some respite on employment growth. The growing population is driven by in-migration rather than fertility, exacerbating future resource strains. Urbanisation requires proper planning and management, and it is noted that spatially focused anti-crime measures are starting to bring hope, which is shown in the data.

Ms Robinson explained that the PERO surveys the province’s socio-economic landscape, highlighting the challenges to which the budget has to respond within an acknowledged fiscal context. The Department had special budget MANCOs (management committees), which identified policy priorities within each of the themes of jobs, safety, and wellbeing, informing the policy choices and trade-offs rather than just vote-specific. In October, these MANCOs will be translated into more detailed budget choices and trade-offs in the provincial intake. As certainty starts to come to South Africa’s national fiscal framework in October and early November, the Department will start to settle through the provincial fiscal framework into the 2024 budget process.

The budget process takes into account the global and South African economic uncertainty, persistence, and impact on households. South Africa finds itself in an emerging and developing economy, but its growth is at the bottom end of the emerging country counterparts. She noted that global growth remains uncertain and that China, a key economy in driving growth, is experiencing a deceleration in economic growth recovery due to a reduced export amount and slow domestic consumption. Global growth is expected to decrease by three percent over the next two years, with South Africa’s outlook really being impacted by persistent loadshedding. Slow growth impacts unemployment, low economy, and tax revenue.

In the last year, South Africa had the worst energy crisis on record. Average electricity generation was under 15%, compared to 10 years ago. In energy transition, South Africa’s base load remains to be fuelled by coal, and this has an impact as the world faces carbon adjustment mechanisms in trade. South Africa has experienced very steep energy price increases, with the City of Cape Town experiencing a 17% knock-up in price. This impacts on inflation, consumer demand and productivity. The Department has seen a slight uptake in inflation which is being monitored. Between 2013 and 2022, electricity prices increased by almost 140% while headline inflation rose by 56%. The Western Cape is on track with the national headlined inflation of 4.7% in July, nearing the SARB’s mid-year target of 4.5%. August started to see the impact of the high municipal tariffs, and it impacted with a rise up to 4.8%. The Department is keeping an eye on the rise in ore prices, which is expected to impact inflation in the coming months. Annual food inflation remains high at 10.10% at the end of July. This is an aspect to watch for low-income consumers. Low inflation over the medium term will start impacting the pressure to lower interest rates. The SARB and markets are signalling a reduction in interest rates early in the new year. This will boost economic growth and job creation over the medium term.

Mr Phillip Prinsloo, Economist, Provincial Treasury, said that the Western Cape’s GDP and employment levels grew by one per cent per annum over the last ten years, notably more than the national economy but also lower than population growth. Over this period, the agricultural, government, and finance sectors stood out with high growth rates. Since the first quarter of 2020, the GDP grew cumulatively by 0.3%, while employment increased by 6.3%. The province’s outlook sits at a sluggish 0.5%.

The energy crisis hampers the province’s growth. In 2022, Eskom distributed 16.9% less electricity to the Western Cape than in 2013. A study found that nine percent of surveyed businesses are at a high risk of insolvency in the province. In 2022, the economy was 1.3% lower than it should have been.

Regarding youth unemployment, Mr Prinsloo explained that the youth bulge offers geographic dividend opportunity. However, there has been a weak employment uptake. Youth labour force participation rate in the first quarter of 2023 rose from 60.9% to 80.9%, noting that it was marginally above that for the older age cohorts (74.7%), after adjusting for formal education attendance. In the second quarter of 2023, youth unemployment rose to 31%, which was significantly higher than the Western Cape’s total unemployment rate (29%). This implied that the youth are not sharing in the employment gains, with the province’s overall employment rate increasing by five percent and youth employment declining by four percent. In the first quarter of 2023, the Western Cape youth unemployment rate was 33.2% lower than youth unemployment in South Africa (46.5%), Northern Cape (36.6%), Eastern Cape (52.4%), Free State (51.6%), KZN (43.1%), North West (49.3%), Gauteng (48.1%), Mpumalanga (51.0%) and Limpopo (44.4%).

By looking at the role of education in employment outcomes, it is well known that education provides a comparative advantage with local unemployment rates. It was depicted in the presentation that tertiary employment over a five-year period expanded by 28.8%, and secondary by 15.5%, as opposed to a fall in employment levels in the less-than-secondary education cohort. Is education the solution to improve the youth unemployment rate? The statistics show that this is not the obvious solution. If youth unemployment is compared to all the other age-category cohorts on the same standard of education, youth unemployment still seems significantly higher than the other cohorts. For tertiary education, it is 14.6% versus 4.8%. Therefore, the Department must look beyond improving education outcomes, and consider other factors as well, such as experience. Although education provides a comparative advantage, over time, it seems to diminish. Over a five-year period, unemployment rates among the youth with tertiary education increased from 5.9% to 14.6%.

Spatial employment is an innovative section incorporated into PERO, consisting of data from SARS (South African Revenue Services) rather than sample data. Just by comparing the employment growth for the different districts. There is relative employment outperformance of rural districts compared to the Cape Metro, with the following districts: Cape Winelands (35.1% employment growth contribution against an employment share of 12.4%); West Coast District (12.1% employment growth contribution against an employment share of 4.6%); Overberg District (9.7% employment growth contribution against an employment share of 3.1%) between 2018 and 2022; Cape Metro, which accounted for only 35.8% of total employment growth contribution, despite having a 72.2% share in the Western Cape’s total employment.

Ms Taryn van Rheede, Director: Public Government Budget Services, Provincial Treasury, led the Committee through the key socio-economic trends applicable to the Western Cape, and the context in which some of the Department’s key service delivery providers find themselves in terms of education, community, health and safety. The Western Cape accounts for 12% of the national population. Between 2013 and 2022, there was an increase of over eight percent in population growth, second to Gauteng. She said they expect to receive another 1.116 million additional people in the province, driven by in-migration. This accounts for 39.2% total population growth. The Western Cape is experiencing a youth bulge. Youth (15 - 34 years) is 16.3% larger than the 35-to-54-year age population. This is not to be seen as a disadvantage but rather an opportunity, as the Department tries to target the youth unemployment problem. There is an increase of elderly individuals (1.1%) since 2014, and the life expectancy of females (71.7 years) is higher than that of males (66.3 years) in the province, as predicted from 2021 to 2027. The province will likely experience a declining fertility rate. About 53.5% of the total Western Cape population is below the lower-bound poverty line in 2022, a decline of 1.9% from 2020. While this is promising, Ms Van Rheede noted that the overall number of poverty remains high, largely due to COVID-19.

In terms of population growth by race, the second quarter of 2023 saw the racial makeup in the province as 37% African, 47.3% Coloured, 1.3% Indian/Asian and 14.3% White. Over the last five years, the African and Asian/Indian population has increased in the province (3.9% and 0.5% respectively) but there has been a decline in the Coloured and White population (-2.6% and -1.7%, respectively). A significant factor contributing to this would be net in-migration.

The following slide dealt with the number of doctors and nurses in the province. The number of public employed doctors per 100 000 people, increased from 43.4% in 2013/14 to 45.9% in 2022/23. However, the number of public employed nurses per 100 000 people declined from 204.6% in 2013/14 to 191.4% in 2022/23. There was a decline in the number of public healthcare facility visits (-23.1%), and the hospital patient day equivalent (-9.4%) visits from levels reached in 2019/20, through an innovative framework of community-oriented primary care as part of the COVID-19 response.

The next slide indicates the crime statistics in the province. The data compared the crime rates in the Western Cape per capita over the past decade. There was a decline in driving under the influence of alcohol or drugs (-68.2%), drug-related crimes (-38.2%) and sexual offences (-28.6%). There was an increase in murder (34.2%) and robbery at residential premises (36.2%). Focused provincial safety interventions in crime hotspot areas are yielding positive returns. The average number of crimes reported in the 13 quarters of LEAP implementation, compared to 13 quarters before LEAP implementation, included murder, which was reduced by 27 cases; sexual offences, reduced by 30 cases; drug-related crime reduced by 2 425 cases; driving under the influence of alcohol or drugs reduced by 428 cases.

In conclusion, she said that PERO emphasised the fact that the slow economic growth in the Western Cape continues to be expected. This emphasises the need to implement growth strategies regarding unemployment in the province. The ageing population will likely lead to pressures on health services in the future. The high and rising youth unemployment, regardless of the education outcomes, will also pose a problem, given the surging population that the province will likely experience. The youth population number could potentially provide a youth dividend, provided youth unemployment is improved. Spatial trends have been observed, specifically in terms of the spatial approach to crime, which has yielded positive results. The province has seen an increase in psychiatric admissions and suicide, and slow expansion of education infrastructure. There have also been relatively lower national budget allocations, accompanied by rapid net in-migrations and increased social pressures which are expected over the medium term. The Western Cape government will have to embrace improved efficiencies through automation and data integration, and spatially targeted approaches. In the face of diminishing resources, the Western Cape government faces significant financing needs to expand service delivery platforms, indicating a need to deepen service delivery partnerships in key service areas and explore long term financing for infrastructure from the private sector and development financiers.

See attached for ful presentation

Discussion

The Chairperson opened the floor for questions from the Committee.

[A portion of this section was not captured due to connection issues].

Mr C Dugmore (ANC) asked for clarification on what percentage of South Africa’s exports went to the United States of America (USA) and what percentage of tourists coming into the country were from the USA. He also noted that the presentation only referred to China, not any other BRICS country. He asked what percentage of SA exports go to other countries, such as Brazil, India, and Russia.

In terms of the agricultural sector growing by 37.1%, he asked which factors contributed to this growth and, in particular, which countries the Western Cape agricultural sector exports to. He noted that there had always been an aversion when talking about race, particularly when it came to youth unemployment. It’s been identified as a key challenge that so many youth are unemployed. He asked if the province had a racial breakdown of unemployed youth.

Ms N Nkondlo (ANC) asked about the provincial government’s position on the economic strategy around China and Russia regarding trade. This is important because reference was made to China’s progress in terms of the trade market to the provincial economy. As far as this is concerned, she asked what message is being sent to the municipalities in this regard.

She asked for further clarification on the special MANCOs mentioned in the presentation. Which topics do they deal with? Who forms part of these meetings? Regarding the informal sector and informal employment, especially regarding youth employment, Ms Nkondlo asked if there was real interest in reporting on the informal sector. This is debated every time that PERO is presented. She pointed out that these deliverables often leave out the informal sector.

Mr L Mvimbi (ANC) welcomed the Minister, the Department, and the report. He asked if there were any comparisons between the Western Cape and other provinces besides Gauteng, as pointed out in the presentation. Some of these provinces could share similar geographics, such as being coastal provinces. He suggested that it would be important to understand why if this has not been done. Regarding the in-migration into the Western Cape, Mr Mvimbi asked which provinces were identified as the main feeders of in-migration into the Western Cape. His next question followed the global economic comparisons made in the presentation, specifically China. He asked why African comparatives were not also considered in this section.

Responses

Minister Wenger explained that the countries the Western Cape exports to can be found in the guide sent to the Committee, with the top 10 countries listed on page 43. Regarding Mr Dugmore’s question about racial statistics, the answers to his question can be found on pages 57, 58, 67 and 80. In response to Mr Dugmore’s question about the youth racial breakdown, the answer to this would be unreliable given the sample sizes, which is why it is not included.

In response to Ms Nkondlo’s question about economic strategy, the Minister explained that the Department intends to increase exports to the world by 2035, and this would include doubling tourism because tourism is considered an export.

The MANCOs are an internal budget process and mechanism that gives the apex priorities an opportunity to debate and discuss budget issues. The topics there are: growth for jobs, safety, wellbeing, and energy. When reporting on the informal economy, the Department included a national and provincial breakdown which shows the differing dynamics and the marginally smaller footprint of the informal sector in the Western Cape in comparison to South Africa, with the nation’s informal economy making up 13% of the country’s labour force versus 9% in the Western Cape.

In response to Mr Mvimbi’s question about population growth, this can be found on page 81 or slide 17 of the PERO presentation which shows the migration patterns across all nine provinces. Gauteng is the biggest recipient of the migration, with over 800 000 people. The Western Cape came in as the second largest recipient. Certain provinces like the Eastern Cape and Limpopo have the most net decreases in terms of population.

Ms Gantana explained that the Department had to review the entire budget process and focus on the areas pointed out by the Minister. It was important to have in-depth conversations around these areas to ensure the Department reaches the outcomes set by the Western Cape government.

Ms Robinson explained that 8.8% of South Africa’s exports go to the US, with 8.2% of the province’s exports going to the US. The team drew out, for ease of reference to communicate an analytical message, the top six exports, which can be distributed to the Committee. The PERO’s position is to put an evidence test to set the context. The PERO uses clear data sources and uses a clear evidence-based survey of the socio-economic landscape. The source of the labour market data is the quarterly labour force survey of Statistics South Africa, which is a sample-based survey at the national level. By the time the sample moves down to the Western Cape, they have a smaller sample. And as the Department starts to disaggregate further and further, they have to start looking at the sample size. The Development Policy Research Unit has done some very interesting papers as to what makes the sample size give credible results in this respect. In the employment section, the Department presented the data which is broken down by race of South Africa’s labour force, and the sample size received by the province. This enables a credible disaggregation.

Mr Prinsloo explained that the reason why the agricultural sector did so well was because of the export growth, which was over 200%. Some farmers just specialise in just exporting products. The destinations of these products are mostly Europe, the Far East, and the US.

Minister Wenger added that the Department selected the group of countries (in reference to the BRICS question) based on the top indicators. The Department presented purely statistics as opposed to a full, comprehensive list of countries.

Ms Robinson provided further insight into the informal sector, explaining that the focus is placed on the intractability of the informal sector. This is worldwide and has nothing to do with the want to use the data. The IMF has just released information about the impact on the informal sector, and this is where innovative data sources need to be considered, such as proxies, energy consumption, night light satellite data, and other advanced analytical methods. From PERO’s side, the Department does not have these data sources yet, but conversations are being held to identify which data sources can be used to present a richer picture of the informal sector.

The Chairperson thanked the Department and asked that the Committee present their second round of questions.

Follow-Up Discussion

Mr Mvimbi noted a strong emphasis on youth employment in the PERO. He asked if there had been any engagement with the National Development Youth Agency, the agency of government which deals with issues of youth, or if the information was purely compiled from the data gathered from Statistics South Africa. If there had not been interactions between the two departments, what would be the reason for this?

Ms Nkondlo pointed out that, if the data is being gathered on human beings in the informal sector, more work needs to be done to understand the sources, because there is no point in arguing for issues that cannot be tracked. She suggested that experts be involved in this process because they can then become the quantitative means from which understanding, and policy inputs can be built. Secondly, concerning social economic racial profiling, she asked if there was an indication of data that could help the Committee understand how many foreign citizens or illegal immigrants there are in the province.

Ms C Murray (DA) indicated her interest in the methodology behind PERO. Noting the challenges of the last census, she asked if a different approach had been taken to this year’s PERO. Page 43 of the PERO spoke to the major imports, particularly from the United Arab Emirates (UAE). She asked how this could impact the Department’s approach to their export market strategies and if there were any insights for the agricultural sector in Southeast Asian markets.

Mr Dugmore said that, right at the beginning of PERO, there is reference made to the budget process and the special MANCO. The Committee has been engaging on the PERO process and made suggestions. He asked if any considerations had been made in terms of process to have a broader engagement with business labour and civil society so that the preparation process from one year to another includes some kind of engagement with the key sectors of the economy.

Given the unemployment crisis, particularly amongst youth, Mr Dugmore asked about the percentage of public employment. He pointed out that getting young people involved in public employment is a basis for developing skills. His following question was directed at the MEC. He stated that the country needs to grow its economy, and this obviously includes exports. He asked if the Premier of the Western Cape opposed exports to Russia.

The Chairperson remarked that fewer children are being born in the province. She asked what the reason for this would be.

Minister Wenger explained that the Department uses official data sources based on stakeholder engagement. The PERO is merely the data that informs policy response. It kicks off the budget process by providing insight into what is happening in the economy and the province, to assist the Department in responding to these trends in appropriate, evidence-led policy responses.

She noted Ms Nkondlo’s recommendations on innovation in informal economy statistics. The PERO indicates that the province will experience a rapidly increasing population, requiring a robust policy response. In response to Ms Murray’s question, she clarified that the census data will be published on 10 October 2023, which will help supplement the Department's work. There are no current statistics on public employment in the PERO, but this does feature in the budget books. The Minister agreed that experience is important in enabling a pathway to a job, which is why the Department also focuses on experiential learning. This allows youth to get employment within the private sector with the assistance of the Western Cape government. In the last financial year, the Western Cape government saw 5 000 youth employed through this system. On Mr Dugmore’s question about Russian exports, government remains committed to the law. It opposes Russia’s invasion of Ukraine, but they do not focus on where the producers manufacture to. Instead, they focus on enabling the private sector to grow exports and produce jobs. The Western Cape government stands on the side of free trade and flow of the economy with respect for the rule of law and they would like to triple the exports by 2035.

Ms Gantana responded to the question about methodology and the data source. Stats SA is the official data source used for the Department’s research.

Mr Malcolm Booysen, Chief Director: Public Policy Services, Provincial Treasury, explained that the main aim of the Fiscal Futures Project is to enable the Western Cape to plan better and challenge the National Government’s Treasury regarding their own revenue and expenditure trends. This enables a scenario analysis on a long-term basis and establishes a foundation for a risk-management approach to the budget plan.

Ms Robinson addressed the question about the demographics. She reiterated that the Department uses official data sources to create a credible picture, particularly on matters such as population. Stats SA uses a mid-year population estimate. While the Department does not hold any information on illegal foreigners and immigrants, Stats SA does have information on this.

The data on spatial publication is critical. The Department is in its final stages of publication of the Municipal Economic Review Outlook. Stats SA data tracks this down into individual municipal profiles. This year, it is particularly special because of the special granularity afforded by the special tax data where one can see where those jobs are located and what those economies look like. The Department is seeing growth in coastal municipalities and towns outside of Cape Town. The Municipal Economic Review and Outlook (MERO) will provide a detailed breakdown of these municipalities and economies.

On her last point about the Fiscal Futures Project, Ms Robinson explained that it helps the Department plan for uncertain times. The Department is in the process of finalising the first draft of the model and will hopefully be able to use it in the next cycle. She said the Department is excited to use this project to plan and create greater credibility on scenarios as they move into an uncertain future. Innovative financing, particularly for infrastructure, will also get a greater focus through this process.

Ms Murray asked if there were any findings on the UAE and exports. She also repeated her question about the methodology and if any lessons had been learnt from the previous PEROs.

Ms Robinson stated that page 43 of the PERO listed the top imports and exports in the province, with the UAE noting top in respect of exports in 2008 and 2013.

Mr Prinsloo seconded this, explaining that the Department did not have any specific findings for the increase in the percentage of exports to the UAE. Ms Robinson compared PERO to a story on the landscape. She explained that the Department spent the last year trying to improve the way PERO was presented, by steering away from merely presenting data and rather trying to provide context and a message behind the analyses. This is shown in chapter two, where the Department tried to highlight the greater granular detail of the impact of the energy crisis on businesses in the province.

The Chairperson recalled that the province’s exports increased two years ago with Halal foods to predominantly Islamic countries.

Ms Nkondlo spoke to the matter of the ‘missing middle’. She said that, by not tackling the youth bulge, specifically youth unemployment, government is faced with a problem once the youth enter adulthood. This is especially a problem in the informal sector. People between the ages of 35 and 50 feel that there are no intentional intervention policies for them in the economy, resulting in these people being left out of the economy. Data must be able to speak to this level and depth of the problem and the intervention options available. She referred to single mothers in poor communities who rely on social grants to provide for their families because they are too old to find work in the jobs that are prioritised. She suggested that the next cycle avoid one-sided policies.

The Chairperson thanked her colleagues for their questions. She noted that the PERO is an extensive document with over 100 pages, and suggested that the Committee Members read through this in their own time. She then moved on to the first quarter performance presentation.

Briefing by the Department of the Premier and Provincial Treasury: First Quarter Performance 2023/24

Ms Analiese Pick, Chief Director: Public Finance, Provincial Treasury, reminded the Committee of the engagement six months ago, where they told the Committee of their intention to go on an integrative journey of information. This presentation highlights the progress the Department has made so far. She hoped that the 90-page document would provide insight for the Members of the Committee, especially for those who also sit on other committees.

Ms Zeenat Ishmail, Chief Director: Strategic Management Information, Department of Premier, led the Committee through the first section of the presentation. Positive signs resulted from the socio-economic indicators in the first quarter. The province’s GDP grew by 0.1% in the first quarter of 2023. The number of unemployed people decreased by three percent, resulting in an official unemployment rate of 20.6%. Homicides decreased by 4.9% in the Western Cape and by 8.9% in the 13 priority areas, which accounted for 46.8% of homicides in the province. There was also a 1.2% decrease in sexual assault presentations at public hospitals compared to the previous year. The HIV-positive rate for 15- to 24-year-olds was 1.3%, and 15.5% of children born in government facilities weighed under 2.5kg.

Ms Ishmail then moved on to the first quarter performance delivery trends, noting that the Department’s formal targets did not correlate with socio-economic conditions nor the Department’s expenditure. Overall, the province achieved 350 (74%) of its 470 targets. As for the Department’s APP performance, 76% of the 392 targets were met. None of the 13 departments achieved 100% of their targets. Seventy-two targets were partially met, and 23 targets were not achieved. Regarding the public entity APP, the Department achieved 53 of 78 targets (68%). Three of nine public entities achieved 100% of all their targets, and one public entity did not have performance targets of the first quarter. Sixteen targets (21%) were partially achieved, and nine targets were not achieved. Seven departments achieved more than or equal to the Western Cape government’s target average of 76%. The Department of the Premier achieved 94%, the Provincial Treasury achieved 97%, the Department of Social Development achieved 79%, the Department of Cultural Affairs achieved 87%, the Department of Agriculture achieved 82%, and the Department of Mobility achieved 80%. A further six departments achieved less than the Western Cape government’s performance average. These were the Department of Local Government (75%), Western Cape Education Department (67%), Department of Health and Wellness (58%), Department of Infrastructure (28%), Department of Economic Development and Tourism (55%), and the Department of Environmental Affairs & Development Planning (69%).

Regarding public entity performance, five entities achieved more than or equal to the Western Cape’s average of 68%. These entities are the Western Cape Gambling and Racing Board (88%), Heritage Western Cape (75%), Western Cape Language Committee (100%); CapeNature (100%) and Atlantis SEZ (100%). Four public entities achieved less than the provincial average. These are the Western Cape Liquor Authority (53%), Wesgro (60%), Casidra (40%) and Freeport Saldanha IDZ (67%).

Ms Pick led the Committee through the province’s financial performance. She explained that every provincial department that has had a national department has indicated, to that sector, the unaffordability of picking up a wage agreement, especially in the frontline departments. This is essentially the R3.4 billion over-expenditure in wage agreements. About R447 million is also over-expenditure projected by the Department of Health regarding their goods and services at the end of June’s expenditure. This is mainly in terms of fuel costs, the backlog of operations and theatre time. A higher inflation rate also results in higher medical inflation. The Department has put a plan together to cover this over-expenditure. Ms Pick reminded the Committee that, depending on the outcomes of the wage agreements, the second quarter budget allocations can look very different to the current quarter.

Moving on to compensation of employees, the Department has continued with its decision to make a headcount. As of June, there has been an increase of 472 staff members, which is mainly in terms of the planned increase in education. The decrease in health and wellness is a response to COVID-19 contracts that ended. Across all the other departments, there has been a reduction of 61 staff members mainly because of the recruitment phase. The Department has asked all the departments to plan for if they do not receive funding from National for the wage agreements.

Only one public entity, the Liquor Authority, showed a difference in terms of its expenditure budget as it was the end of June. This is due to the slower rate at which the entity intentionally fills positions. When looking at infrastructure, it is noticeable that this entity is still very much on par with the spending in the previous first quarter of the previous financial year. Regarding human settlements, the spending there is mainly the HSGD grant which was planned to be received from the various municipalities and therefore could not be made, as well as some incomplete documentation received from the municipalities. On Cape Nature side, there are some delays in terms of the procurement side which has impacted the finalisation of procurement.

The next slide dealt with the province’s own revenue as of June. The Department is looking to collect in terms of both receipts by departments and taxation. These taxes are from gambling, liquor licenses, and motor vehicle license tax, and they equate to about R3.6 billion. From this, the Department has managed to secure R923 million, of which R205 million is from the Department’s own revenue, R331 million is from gambling and liquor license fees, and motor vehicle license fees equated to about R386 million.

See attached for full presentation

Discussion

The Chairperson asked what the Department’s plan is if national does not sign off on the R3 billion wage agreements fund, noting that this is more than some departments receive for an entire year and could thus have greater repercussions for the province’s budget. In terms of the gambling taxes that are being collected, she pointed out that this is amount is over-collected by more than R30 million. She asked what the reason for this could be.

Ms Murray followed on the Chairperson’s question about the wage agreements. She asked if any provincial savings could be used for the R3 billion shortfall. She also asked the contributing factors for the shortfall in motor vehicle license fees that were collected.

Ms Pick agreed that the wage agreements could cause a magnitude of problems if National does not grant this money. She said that the Department currently has no definitive answers because they are still operating in an extremely uncertain environment. They have engaged, from an administrative point of view, with the Department’s sector counterparts, which in itself will inform how the Department will approach this particular budget process.

Minister Wenger added that the implications of the underfunded wage bill are something that will be done in-year and will affect the Western Cape government centrally. The Department remains of the view that, if the wage negotiations are done at a national level, the funds should be divided among provinces for that, like in the past. The Department remains of the view that they will expect this funding to come to the province as it has in the past. There are other elements such as cuts in grants, which remain uncertain until finalisation.

Ms Pick explained that the province incurs expenditure every month. So, the number that the Committee sees in a projection of the entire cost for the entire year. The Department has stood firm regarding its headcount management in the province. When national decisions impact the wage bills, the Department believes that the damages should be picked up by government. In terms of the decrease in tax collection, there has been an increase in macroeconomic outlook, which impacts the paying back of the debt in the country.

Mr Booysen clarified that certain sectors, such as gambling, have recovered since COVID-19, particularly online sports betting. It has become more accessible for people to gamble, which has necessitated the reset of gambling revenue. The risk with motor vehicle license fees is also due to COVID-19 – people have deferred the registration of their vehicle licenses. It is public knowledge that about one million vehicle licenses will expire by the end of September, which could also be a contributing factor.

Ms Pick explained that the Department has a stabilisation fund to the value of R400 million which would address Ms Murray’s question about the province’s savings. There is also a fund for unforeseen and unavoidable emergencies, which makes up about R500 million in savings. This money would usually be designated for natural emergencies in the province, such as floods, fires, and springtides.

The Chairperson asked if the province did not require any additional funding for natural disasters, or if they did not have to make provision for added load shedding in the next financial year. The province would still only have R900 million to cover the expenses of the R3 billion wage bill grant if not approved by national.

Ms Murray asked which fiscal policies could be taken. She acknowledged that the right communication is needed from national, but wondered if any moves could be made until then to alleviate this pressure from the residents.

The Chairperson added that the Education Component Review also still needs to be concluded in terms of the provincial equitable share formula and whether or not the census or media data will be used, in terms of population. She asked if the Department had heard anything from national regarding this education review.

Minister Wenger acknowledged that, while this will be a challenge, the Department’s team is competent, and she is confident they will combat this challenge well. It will mean that the Department needs to consider innovative sources of funding, alleviate its partnerships, and think out of the box.

Ms Robinson said that there had been no communication from national with regard to the education review but that the Department will be utilising updated data based on learner enrols, and this data will be documented in terms of the medium-budget policy statement. There will also be greater clarity as to whether the release of the census data will be in time for the peer formula.

The Chairperson concluded that the Committee had heard some staggering information today, but she also acknowledged the positive increases she has seen in the presentations. She expressed her concern about the R3 billion wage grant. She suggested that the Committee keep this in mind when reading the PERO in conjunction with the Department’s financial and non-financial performance presentation. She thanked the Minister and the Department for all their hard work.

Minister Wenger thanked the Chairperson and the Committee for their engagement. She said that the Department will keep the Committee updated on their progress.

The Chairperson excused the Department from the meeting. She then led the Members through Committee-related matters, such as the adoption of meeting minutes. Thereafter, she thanked the Members for attending the meeting and for having such a robust discussion.

The meeting was adjourned.