Provincial Treasury briefings on: Western Cape Adjustments Appropriation Bill; MTBPS & Q2 2023/24 Performance; with Provincial Minister

Meeting report

The Chairperson welcomed everyone, including the Members of the Education Committee from the Gauteng Provincial Legislature, who were on a best-practice visit.

Briefing by Provincial Treasury on Western Cape Adjustments Appropriation Bill, 2023; the Medium-Term Budget Policy Statement; 2023/24 2nd Quarter Performance (Financial and Non-Financial)
The 2024 budget process showed that greater certainty had been obtained, but the fiscal environment has deteriorated. The 2023 budget was tabled with no provision for the 2023 wage agreement. For the first time, the in-year fiscal framework was at risk due to geopolitical risks, increased debt costs and reduced tax collection. The wage agreement was instituted centrally, and provinces incurred the costs with no confirmation of funding from the national government. In response to the uncertainty, especially the wage agreement risk, the Western Cape government pre-emptively adopted a risk-led scenario-based approach to recalibrate the baselines of departments.

Quarter two financial and non-financial performance indicates that progress has been made to achieve intended targets (an average of 77% targets achieved). However, service delivery challenges remain, and higher inflationary pressures remain a risk. The Adjustments Budget is the first response to both in-year risks and the anticipated fiscal outlook. It responds to fiscal sustainability by addressing the 2023 wage liability, in-year service delivery pressures, and energy allocations, and by commencing infrastructure response to flood disasters. The Medium-Term Budget Policy Statement (MTBPS) provides the framework for formulating the 2024 budget.
(See presentation for more details)
Discussion
Mr C Dugmore (ANC) sought clarity on the net addition of R1.458 billion to the Adjustment Budget announced by the MEC in her speech to the House earlier in the day. However, the subsequent amounts from this, stated as allocated for Education, Health and Social Development, and with no stipulated amount for energy and jobs, all amount to about R1.784 billion, a difference of about R300 million from the announced figure. He also wanted to find out how much of the R64 million for pilot renewable energy solutions in the Department of Local Government goes to consultants, and how much is set aside for such things as generators and actual infrastructure. Since 2021, there have been concerns about the Municipal Energy Resilience Project which has seen millions of rands pumped into it, without any firm proposals on the cost of providing energy to the consumer.

Mr D America (DA) asked about the spending on CRE as of 30 September. He noted that there had been an increase of 541 employees at the Department of Mobility. He also noted that the explanation that there had been movements of staff between the old departments, into the newly created Mobility Department. He sought further clarity on the disparities in the reported number of staff movements within the reporting period. He also wanted to find out about the collection for the period. It was anticipated that there would be an increase in revenue collection for the year. Looking at the trends, was this still the case? On the fiscal consolidation report, he wished to know if there was an anticipated risk to service delivery due to the reduction in departments’ baselines. Were consultations done with the departments in this regard? The negative effects of central wage bargaining were beginning to show their disadvantage. When this was dealt with earlier in the year, a three percent increase was anticipated, but it turned out to be around 7.5%. Was there any certainty at that stage? What was the impact on wage progression in the medium term, considering this high increment that was eventually agreed upon?

Mr L Mvimbi (ANC) enquired if any public participation or consultation had taken place during the process of formulating the provincial budget. He noted that the MEC had announced ambitious plans to create a considerable number of jobs in the province. Were these realistic? He also followed up with the MEC on the announcements of provincial budget reserves mentioned in the policy statement. Can these not be used to mitigate some of the risks spoken of? The presentation did not seem to allocate for wage agreements under Education, Health, Social Development and Mobility. What were the reasons for this? The Minister’s speech had indicated that the national disaster funds were depleted. Mr Mvimbi wished to know if the provincial reserves would not be used in the event of disasters in the province. He further noted that the presentation made comparisons with First World countries and suggested that, in the future, fair comparisons with similar countries in Africa and developing countries elsewhere should be made to give a more realistic picture of where South Africa stands. On the budget policy priorities, he recalled that the Premier had announced plans to employ a thousand officers. How many had been employed in pursuit of that target so far?

Ms N Nkondlo (ANC) requested that the Chairperson assist the Committee by ensuring that there is better alignment and organisation of the presentations in future in line with past practices. The presentation was good and welcome, but too much information was put before Members to grapple with in a rather short period. This compromises the quality of the discussions. She also sought clarity on how the Department understood the reported 14.5% year-on-year increase in violent crimes in the provinces as a positive sign, as stated on page 6 of the presentation. Speaking on the Quarterly Labour Survey, the MEC indicated an increase in jobs created in the province – it was interesting to note that the current figures fare even lower than the same period in 2019. The increase in jobs may be a commendable achievement, but it is important to clarify the difference the data presents on a year-on-year basis. The statement made it clear that these benefited those with secondary and tertiary qualifications. Deliberate actions are needed to deal with the absorption of those affected. This was important because the data is telling that the previously disadvantaged are the most affected, and these are not raised by opposition parties to highlight race. She noted the pronouncements by the Minister, on the wage bill, and the indication that an intergovernmental dispute is being lodged. Who is driving this process, and what are the details? She also wished to know if the provincial government had had conversations with labour in the province, and what the details around this are. In terms of infrastructure, she sought clarity on what the reductions in new assets meant. Does it refer to schools and other public infrastructure? The impact of crimes from the so-called construction mafia activities was not mentioned in the presentation and the policy statement itself.

Ms Mireille Wenger, Provincial Minister of Finance and Economic Opportunities, responded to some of the questions. She clarified that the amount of about R1.4 billion mentioned was a net addition. It then breaks down the different allocations. The Department did not have a breakdown on hand for the R64 million for the Municipal Energy Resilience Programme, but her understanding was that the vast majority of that funding was for hardware. The Department could provide the information about it if required.

Ms Julinda Gantana, Acting Head of Department (HoD), Provincial Treasury, gave context and background around the movements of staff between the new departments. Human Settlements became part of Infrastructure, while the Mobility part which was part of the original Vote 10, became the Department of Mobility. The personnel numbers that have shifted from a zero base are made up of line personnel within the current provincial arrangement. On consultation, the departments were consulted from the first circular when the budget process began, with the potential risks communicated. Departments were requested to plan in line with these. On fiscal consolidation and funding of the wage agreement, the presentation demonstrated what was taken out of baselines and what was then reallocated. It does not deal with the funding with funding received from the national government funding the wage agreement in part.

The departments would need to absorb the wage agreement funding within the reduced baselines, as it was not received as part of the consolidation. This had been part of the consultation conversations that departments were warned to anticipate and plan for. Explaining the missing figures on wage agreement funding (slide 21) - there was an R1.1 billion shortfall, made up of R520 million from the Education baseline, and Health similarly has an R319 million shortfall in the current financial year. The Provincial Treasury was able to fund R243 million towards the wage agreement. There remains a shortfall in the social sector, hence the slide remained blank on that part. The provincial reserves were based on the 2024 MTEF – the main reserves set aside are those categorised as unforeseen and unavoidable like disasters (R22 million, of which R17 million was set aside for Microsoft licences at the exchange rate of R17 to the US dollar, which eventually increased; the remaining funds were set aside for agricultural flood damage). Further allocations in these categories will be in the next budget as this allows for planning time. What remains are unforeseen and unavoidable funds that may be used for disasters like the upcoming wildfire season.

On consultation, the provincial treasury has and continues to engage the municipalities in the Provincial Budget and Governance Forum. The Money Bill has its public participation process as set out in legislation. On the Growth for Jobs Strategy, she said that a goal of achieving a trillion-rand economy by 2035 means that there is a longer-term view of how higher growth rates will be achieved. Only through economic growth can revenue be increased and face the challenges of the time. The population is growing as fast as jobs are created. The programme thus seeks to address this and increase employment quickly. In addition, the skills development is contemplated in the Growth for Jobs Strategy. An intergovernmental dispute on wage agreements has been lodged led by the Office of the Premier. On crime and safety, slide (6) was meant to highlight job growth and not crime. The government continues to focus on safety through the Safety Plan. Citizens have also made safety a top priority for government to address in the province. 

On revenue, there has been considerable pressure on the expenditure of departments. There have been more efforts by departments to collect their own revenue. Treasury also provides details on which projects deductions will come from, and these are mainly projects in the design, pre-feasibility and planning phases.

A follow-up question was raised on safety in the province. Evidence is that crime is on the increase. Was there value for money to keep paying funds to the 1000 officers in the Law Enforcement Advancement Programme (LEAP), rather than redirecting and consolidating those funds to deal with the contributing factors to crime as identified by the Department?

Mr T Munyai, MPL (Education Committee, Gauteng), noted that, in the tabled budget, there will be no funding for the 2023 wage agreement, signalling no further expectation of labour demands. He agreed that the country faced several challenges and sought comments on the presentation as he thought it had given the picture that there is no crisis of unemployment in the Western Cape. He further referred to the Minister's statement, which indicated an increase in the number of visitors to the province. He wished to find out if the provincial government would engage the national Department of Public Works on the land it recently made available to expand or add runways at the Cape Town International Airport, which he thought would further support the tourism industry and its growth. He also highlighted the stark contrasts between the poor and the affluent, noticeable when one drives around in some areas of the city. How does the provincial government, through the budget, seek to respond to these challenges? The responses would assist the visiting delegation from Gauteng to take lessons from the province.

Minister Wenger responded that the discussions on safety in the province would continue in the relevant Standing Committee on Community Safety in the coming days. However, indications from studies by organisations like the Institute for Security Studies (ISS) showed that, between 2017 and 2022, there have been some improvements in murder rates in the province. So, the LEAP programme was working hence the provincial government continues to invest in it. On unemployment, the unemployment rate stands at 20.2%. A total of 300 000 new jobs have been added to the job tally between quarter three of 2022 and 2023. This meant that the province now has the lowest unemployment rate, lowest expanded unemployment rate, the highest absorption rate and the highest labour participation rate. Unemployment is still too high even at 20%, hence the strategy to grow the economy by between 4-6% in real per year by 2035, creating the trillion-rand economy so that more jobs can be created to meet the population demand.

She agreed with the views that COVID-19 had disrupted global supply chains and impacted the economies, but inefficiencies in the ports worsened the country’s problems. The Cape Town port, a container terminal, was also performing below its own targets. About 55% of the country’s agricultural exports come from the Western Cape. So, it is important to ensure that this is fixed. The Minister was also happy that the province’s tourism was doing well and had shown incredible signs of resilience post-COVID. The Cape Town Airport does need refurbishment as it is now at capacity. The provincial government had made this request many years ago and continues to engage the Airports Company of South Africa (ACSA) and await an announcement on adding a runway, although she could not confirm how far that entity was with the process.

On inequality, last week the province published the Municipal Economic Review and Outlook, which would be shared with Members and the visiting delegation. It indicated that the Gini-coefficient of 0.601 in the Cape Metro was in line with that of the province, and less than that of the country. This indicated less inequality in the Western Cape compared to the rest of the country.

The Acting HoD provided further clarity on the questions around the wage agreement funding. At the time that the budget was finalised, there was no funding provided. The provincial government had to make provisions for it. It was that, when the agreement became clear, the funding was partially done by the National Treasury only for Education and Health. The slides indicate how they had to respond to that liability per Vote, and that there was currently a provision made for the wage agreement.

The Chairperson concluded this part of the meeting and indicated that the Speaker of the Legislature would then refer the budget to the respective committees for votes. The votes will be referred back to the Committee on Friday, 01 December 2023, for the final mandate.

Division of Revenue Amendment Bill [B33-2023]: Final Mandate Report
The Committee Chairperson noted that Members had been sent the responses from National Treasury on the Committee’s negotiating mandates (Document: Responses to recommendations contained in the Negotiating Mandates of Provincial Legislatures). The Chairperson read into the record the requests made by the Committee and the responses received from National Treasury.

Mr America proposed that the Final Mandate remain the same as the recommendations made in the Negotiating Mandates, which was that the Bill is not supported. It appeared that the recommendations submitted were not taken seriously, with the responses being broad, general and non-committal. He further proposed that the Speaker be approached for legal advice on whether the National Council of Provinces (NCOP) meaningfully considered the Negotiating Mandate as submitted and that, if not, the Presiding Officer consider challenging the process in the courts at some stage. The costs to run the process leading up to the mandates are quite high and perhaps the NCOP must be compelled to take the process more seriously considering its importance. He proposed that the Committee object to this. He noted that the meeting was supposed to take place the day before and it was unacceptable that the NCOP could not stick to its deadlines.

The Chairperson pronounced that three Members of the Committee had expressed their objections to the Bill, and one supported it. She noted the proposal above and there were no objections to it. The Final Mandate Report was read out, and it was noted that as per Standing Rule 90, the African National Congress expressed its minority view to support the Bill.

Mr C Fry (DA) moved to adopt the report, and Mr D America (DA) supported the proposal. The report was duly adopted.
Consideration and Adoption of Committee Minutes
The Committee also considered and adopted minutes of its meetings dated 23 and 24 November 2023, without amendments.

The meeting was adjourned.