Appropriation Bill: National Treasury briefing; with Minister and Deputy Minister

Meeting report

The Chairperson acknowledged the presence of the Minister of Finance, Mr Enoch Godongwana, and Deputy Minister, Mr Ashor Sarupen. She asked Mr Lubabalo Nodada, Committee Secretary, to confirm who was in the meeting.

Mr Nodada confirmed that the Ministry was present, along with National Treasury (NT) and Members of the Committee. There was a quorum to start the meeting.

The Chairperson welcomed everyone and said that the agenda had been circulated. The objective of the meeting today was to receive a briefing from the NT on the Appropriation Bill [B5-2024], which the executive had tabled during the Sixth Administration of Parliament. It was never processed due to the elections in May. The Committee therefore had a responsibility to prioritise the Appropriation Bill as per the legislative mandate in Section 4 of the Money Bills Amendment Procedure and Related Matters Amendment Act 9 of 2009, which was amended in 2018.

She asked Mr Nodada to introduce the Members of the Committee. While doing so, the Members should show their faces on camera, so that the Committee could familiarise themselves. Thereafter, Minister Godongwana would be allowed to make his opening remarks and delegate someone to do the introductions for National Treasury. The members of the staff should also be introduced.

Mr Nodada introduced the Members of the Committee.

Minister Godongwana greeted everyone on the platform. He said Deputy Minister Sarupen was present, and Dr Duncan Pieterse, Director-General, NT, was here and would introduce the team. He himself had terrible flu and had to see his doctor. However, this was the first meeting, and out of respect, he had decided to tender his apology personally. He asked to be released to see the doctor and then join the meeting thereafter.

Minister Godongwana's request was considered, and he was excused from the meeting because it was beyond his control. The Chairperson asked him to communicate if he would or would not join the meeting later. She thanked him for personally tendering his apology.

Director-General's overview

Dr Pieterse said he was joined mainly by the public finance division team responsible for working closely on the Appropriations Bill and departments on the various allocations. The presentation was brief, but it did indicate the various sections of the Appropriation Bill and the various amounts allocated.

He said that this Committee was very important to National Treasury, the budget process, and the crafting of the fiscal framework. Treasury looked forward to working with the Committee on the Appropriation Bill and other budget-related matters. It would like to make itself available to committees for any information that may be required, or any induction processes or any workshops that may be required to clarify aspects of the work that was being done.

The public finance team could talk about their work. The economic policy team could talk about the work that they do in putting together the forecasts that underpin the budget process. The asset and liability management team could talk about the debt and funding strategy. The team that works with the municipalities could also come down to speak about the work that they do. Some of his colleagues also came down yesterday to assist, and were available in Cape Town for any of these meetings. The Committee should not hesitate to reach out to the National Treasury.

He said the Appropriation Bill was an important piece of legislation. The legislation allowed for the drawing of funds from the National Revenue Fund (NRF) to meet the requirements of the state in a particular year. It was a legal mechanism that allowed the execution of the budget and the continuation of the service delivery work programmes of government. This related to social security obligations, the health sector, and so forth. It also included the commitments and obligations insofar as debt service costs were concerned. The debt service costs were a direct charge on the NRF, as per other legislative requirements that underpin the budget framework and the Constitution.

The Appropriation Bill was important because it was a mechanism that safeguards the rights and the progressive recognition of the rights contained in the Constitution. Therefore, it affirmed the various democratic values contained in the Bill of Rights. In addition, it played an important role in the transparency of the budget process and ensured that the country’s finances were managed in a sound, accountable and transparent manner. The Appropriation Bill was important, and the National Treasury was happy to have the opportunity to discuss it with the Committee.

He explained what happens before the annual budget is passed and what happens in the period between the start of the financial year (April) and the passing of the Appropriation Act. Section 29 of the Public Finance Management Act 1 of 1999 (PFMA) states that if an annual budget was not passed before the start of the financial year to which it relates, funds may be withdrawn in accordance with this section from the relevant revenue fund for the services of the state or the province concerned during that financial year as direct charges against the fund until the budget was passed. It goes further, and adds some caveats and says, for example, that funds withdrawn from the revenue fund in terms of this provision may be utilised only for services for which funds were appropriated in the previous annual budget or adjustments budgets. It may not, for example, exceed 45% of the previous financial year's expenditure during the first four months from April to July, and may not exceed 10% of the previous financial year's expenditure per month from August onwards. In aggregate, it cannot exceed the total amount appropriated in the previous annual budget. These were the mechanisms that applied while it waits for the Appropriation Bill to be considered by Parliament. There were other limits contained in that section, as explained above. National Treasury was available to assist in Parliament when considering the Appropriation Bill.

The Chairperson said she had been expecting Dr Pieterse to introduce the team, but thanked him for the opening remarks. She had wanted Mr Phelelani Dlomo, Committee Content Advisor, to brief the Committee on the work that the Sixth Administration of Parliament had done on this. However, since Dr Pieterse had already started a part of the presentation, she asked Mr Dlomo to do so after the presentation.

National Treasury Briefing on Appropriation Bill [B5-2024]

Dr Rendani Randela, Acting Head; Public Finance, NT, took the Committee through the presentation. He said that the public finance team was on the platform, but they would introduce themselves when responding to the questions that may be raised.

The Minister had tabled the Appropriation Bill on 21 February during the national budget. Section 213(2) of the Constitution provides that money may be withdrawn from the NRF only in terms of an Appropriation Act of Parliament, or as a direct charge against that fund when it was provided for in the Constitution of the Republic of South Africa or an Act of Parliament. Section 26 of the Public Finance Management Act (PFMA) states that Parliament must appropriate money for each financial year to meet the requirements of the state. Section 7(1) of the Money Bills and Related Matters Act 9 of 2009 provides that the Minister of Finance must table the annual budget, as set out in section 27 of the PFMA, in the National Assembly at the same time as the Appropriation Bill.

Members pointed out that the presentation was not moving.

Dr Randela asked Mr Nodada for assistance. He asked if he should start from the beginning, or continue where he left off.

The Chairperson said that he should continue, as Members had had an opportunity to go over the presentation.

The presentation was now visible and moving.

After the tabling of the national budget, the Money Bills Amendment Procedure and Related Matters Amendment Act required three things:

• Section 8(3) -- Parliament must, within 16 days, submit a report to the National Assembly and the National Council of Provinces (NCOP) on the fiscal framework and revenue proposals;
• Section 9(3) -- The Division of Revenue Bill must be passed no later than 35 days after the adoption of the fiscal framework by Parliament;
• Section 10(7) -- Parliament must pass the Appropriation Bill with or without amendments, within four months after the start of the financial year, namely 31 July 2024.

Promulgation of the 2024 Appropriation Act was necessary because it would allow for monthly expenditure above the transitional provisions contained in the PFMA, and also, that expenditure was in accordance with the vote and programme purposes, as stated in the Act.

The Appropriation Bill was divided by vote and by main divisions within a vote. A purpose was set out for each vote. The allocations were categorised as follows: current payments (compensation of employees, goods and services, interest and rent on land), transfers and subsidies, payments for capital assets and payments for financial assets.

He took the Committee through the various sections of the Appropriation Bill. This covered:

• Section 4- conditions of appropriations.
• Section 5- use of unspent funds.
• Section 6- authorisation of expenditure.
• Section 7- spending before the Appropriation Act.
• Section 8- delegations and authorisations.

(Please see slides 6-10 attached for further information)

The budget for the Appropriation Bill was R1 102 797 941, with 22.5% of the total being allocated to current payments, 73% to transfers and subsidies, 1.4% for payments of capital assets and 0.1% for payments for financial assets.

The presentation set out the appropriations by vote (41 votes). The estimate of national expenditure (ENE) gave the nuts and bolts of the amount set out in slides 11-12, including non-performance information, objectives, targets and so forth. This was the budget per vote as estimated and tabled in February. The reconfiguration of certain departments was not reflected because the budget had been tabled before the elections.

The Appropriation Bill included R570m in provisional allocations, which would be confirmed after meeting certain requirements. The details of these provisional allocations would be finalised either during the 2024 adjustments budget or the 2025 budget, and thereafter allocated to specific votes. An additional R5 billion in 2024/25 had been set aside as a contingency reserve but not allocated in advance. This was to accommodate changes in the economic environment and to meet unforeseeable spending pressures.

(Please see the presentation attached for further information)

Deputy Minister Sarupen added that the Appropriation Bill was a critical part of keeping the government financed. The Appropriation Bill had to be interrogated in detail, as it was a financial plan for every single department for the next year. Government's strategy could be implemented only with finance.

Briefing by Committee Content Advisor

Mr Dlomo said that there was a legacy report detailing all of the work done by the Sixth Administration of Parliament, including the outstanding work, which was the Appropriation Bill. An exact date -- 31 July -- had been set aside for that legacy report to be presented to the Committee.

For the Appropriation Bill, a specific process was going to be followed. Several dates were set aside, with the briefing of the Committee being the start of the process. The Committee would have a meeting with the Financial and Fiscal Commission (FFC) tomorrow, which was a consultation that was required. It would also have a consultation with the Parliamentary Budget Office (PBO) on 23 July. There would be public hearings where different organisations from civil society make their input into the Appropriation Bill. Thereafter, the Committee would compile the report and adopt it. The report would then be included in the announcements, tablings, and committee (ATC) reports. Members would debate the report in the House, and it would be adopted with or without amendments. This was where the process would end. The work that the Sixth Administration of Parliament had done would be presented during the induction session on 31 July.

Discussion

The Chairperson said that before she handed over to Members to ask any clarity-seeking questions, she would ask her questions. When would the current misalignments between the 2024 Appropriation Bill and the newly restructured departments be established? The current Appropriation Bill did not consider the new reconstruction of some departments such as the Department of Public Enterprises, which had been dismantled from some state-owned entities (SOEs) and was being realigned to the Presidency. The Department of Agriculture, Land Reform and Rural Development (DALRRD) had also been separated from one another. Electricity/energy had also been separated from the Department of Mineral Resources and Energy. The Appropriation Bill needed to capture the recent changes in the Cabinet of Government of National Unity (GNU). When was this going to be implemented to ensure that it was relevant to the GNU?

She said that there would be time to ask follow-up questions.

Mr D Ryder (DA, Gauteng) said that he understood why the presentation had been brief. The affected section 29 of the PFMA did place a certain constraint on government on how to behave after 31 July if the budget was not approved. While those constraints were noted, one wondered if it was such a bad thing. A bunch of new ministers were in place who perhaps wanted to change the direction of certain departments. Crafting or amending a new budget could be a time-consuming process, but nothing focused the mind like having a bunch of colleagues who were worried about whether the budget was sufficient to cover their salaries. This would perhaps prompt people to work quickly. While the constraints were noted, limiting government spending might not be the worst thing. The new configuration and new political guidance must still be put down. He noted that there would be an adjustment budget down the line, and that there were other constraints that were quite substantial. Programmes or departments could not be changed dramatically. This might be a factor in the light of the election during the budgetary cycle. This was his observation on the Appropriation Bill that had been put forward to the Committee.

He was not a fan of incrementalism, but thought that a zero-based budget was something long overdue in many departments. The next budget would be the optimal time to consider going back to zero-based budgeting and re-evaluating every single programme and its components, considering the structures of the departments and their focus areas. Incrementalism was the way that the budget had pretty much been put together.

The returning Members of Parliament could already see the impact of the 20% reduction in the budget of Parliament. Resources were scarce. He gave an example of printers that had been whipped out of the offices, which could have imposed some constraints. The reduction of the budget for Parliament was concerning because Justice Zondo had commented in his recent reports that Parliament was not doing what it was supposed to be doing. Why was the executive taking away resources? There was a large amount of money for rebuilding the National Assembly. Where was that funding coming from? Would there be further limits on public works?

Concerns had been raised about the reduction of certain key budget votes. The President had spoken about an infrastructure-led recovery in terms of the economic recovery plan. However, the budgets for certain departments were being reduced. The departments for science, innovation, mineral resources, forestry, fisheries, environment and tourism were key for improving the economy. This was where growth could happen, and job opportunities could be created. All of these budgets were going down. He was concerned about the impact the reduction would have, especially considering the unemployment rate in the country. There were people, especially the youth, who were struggling to find employment. This budget did not address the fact that these catalytic departments could make a big input into the economy. He was pleased to see the increase in the equitable share that was going down to local government. National Treasury had changed the way that it reports the division of revenue, but this would be dealt with in the upcoming weeks.

Mr P Swart (DA, Western Cape) said that part of his questions were related to what Mr Ryder had said. He was a new Member, and suggested that the recommendation of Dr Pieterse for more induction and workshops should be accepted. This would help capacitate the Committee, and would help to dive deeper and get more equipped with finance. He referred to slide 5.4, which states that ‘an amount set out in Schedule 2 to the Bill must be spent according to the purpose specified in that Schedule.’ He asked for clarity on this because the budget was so important, especially for the new journey of the GNU.

He said some ministers had raised concerns, with one Minister even stating that ‘they had to do more with less.’ What specific methodology and models were used in the annual budget formulation process? How did it ensure that the budget allocations were aligned with strategic priorities and long-term goals of the government and specific departments? He noted that it had been said that public participation was important -- how did the National Treasury incorporate feedback from various stakeholders and civil society? He was concerned about how the communities' concerns were incorporated into the final budget.

The Chairperson was no longer on the platform, but to keep the meeting going, Mr Ryder took over as Acting Chairperson, and asked the Members to continue with their questions.

Mr J Britz (DA, Eastern Cape) said that being a new Member of Parliament had been daunting, especially for finance, since he had been in the legal profession for 35 years. He was trying to find his way around the Appropriation Bill. There were quite a few disasters in the country. There was foot and mouth disease, fires, and floods. What provision was made for the so-called "acts of God" or natural disasters in this Appropriation Bill? How did this relate to the division of revenue? The GNU necessitated new departments and the unbundling of others, such as the Department of Public Enterprises, the Department of Agriculture, Land Reform and Rural Development, and the Department of Mineral Resources and Energy. It was important for the Appropriation Bill to capture the recent changes in the Cabinet of the GNU. What measures were going to be put into the Appropriation Bill? As a citizen of this country, he was concerned about the increasing cost of debt. This would have a negative effect. What percentage of the budget was going towards the repayment of debt? How much would be left or available for service delivery?

The Committee Secretary said that the Chairperson was trying to rejoin the meeting, and she rejoined the platform.

Mr K Ceza (EFF, Mpumalanga) said that he had a new gadget and was trying to raise his hand, but had not been able to do so. He asked for an opportunity to speak.

The Chairperson said that Mr Ceza could ask his questions after the next speaker.

Ms M Siwisa (EFF, Northern Cape) said she had connectivity issues and could not follow everything that was said in the meeting. She had raised the issue in the last meeting that holding meetings on Zoom would not be effective. There was now the crisis of people being locked out of meetings and missing certain parts.

What were the reasons for funds being stopped? What were the terms and conditions for a Minister to approve an unspent fund of more than 8%? She noticed that there were fewer learners with results to allow their entry into higher education. This was the effect of less money. The focus was not well directed towards early childhood development, and lower grades were not financed properly for learners to register in higher institutions, affecting their ability to form part of the economic growth in South Africa.

Ms Siwisa had connectivity issues, and could not continue her observations.

The Chairperson was also no longer in the meeting.

Mr Ryder asked Mr Ceza to raise his concerns.

Mr Ceza said that this did not seem feasible. He had been taken out of the meeting while Mr Dlomo was speaking. It was critical information that had been provided, and he needed to hear it. This was not practical, and was not going to result in the quality of engagement that needed to happen.

What had accounted for the reductions that pertained to local government? There were 171 municipalities that were dysfunctional and were not able to have financial management. 66 local municipalities were dysfunctional. The issues of local government being at the coalface of service delivery should be considered. The fact that there was no economic activity should be explained. This would translate into unemployment. The unemployment and poverty rates had to be addressed. Ultimately, revenue collection should also be addressed. Some metros did have an economy. What had accounted for the reduction? The White Paper for Local Government also had certain assumptions that people would just play and pay. It did not address the huge unemployment rates that would follow, including poverty and inequality. Some people did not participate in the law-making process, and they should have been dealt with. From a preservation of culture perspective, it should be dealing with people who were knowledgeable and should be part of the law-making and decision-making process at the local government level to ensure that even children could go to school successfully.

(Mr Ceza's network connection was indistinct)

Ms S Ndlovu (ANC, Limpopo) said that everyone on the platform could realise that the virtual meeting was not working. This was the beginning of term, and tomorrow was uncertain. Members had asked that there be physical meetings. The presentation was important, and the questions of Members were important. There must be an alternative. There should not be a situation where Members are not happy. She was worried about how the system was treating this Committee. The presentation was acknowledged, but there should be another session to have a physical discussion. The current discussion should be discontinued. As indicated by Dr Pieterse, there could be another presentation. She suggested that the Committee should try to have a physical meeting next time.

Mr Swart said in the chatbox that this had not been a good start for this important meeting. Virtual meetings did not work well.

Mr Ryder agreed.

Ms Siwisa said that she agreed with Ms Ndlovu. Issues had been raised on Friday that Members were going to struggle with network interference resulting in contributions not being made properly. This was exactly what was happening today. Some parts could be heard, but others could not. The Committee could not be effective enough to make a contribution or ask relevant questions to understand the Appropriation Bill. This was a disadvantage not only to the Committee, but also to the South Africans who could not properly hear the contributions of the Appropriation Bill. The Committee was behind because the Appropriate Bill needed to be finished by 31 July. Members were in and out of the meeting. The next meeting had to be physical so that the Appropriation Bill could be understood in the context of why the specific allocations were made, and the terms and conditions. There were no solutions at this point because Members were being kicked out of the platform.

Mr Swart suggested in the chatbox that written answers to all the questions should be received. This was not working for this group.

Mr Nodada asked that one of the Members hold the fort until the Chairperson was back.

Ms Ndlovu suggested that the Committee pause for five minutes until the Chairperson was back. It was important for her to be part of the meeting. The Committee could not continue without the Chairperson, especially when it was beyond her control.

The Chairperson rejoined the meeting and apologised for the situation beyond her control. She thanked Mr Ryder for holding the fort.

Mr Ryder indicated that many Members struggled with the same issues as the Chairperson. Comments had been made that this was not conducive for the Committee to do its work. The questions had now come to an end, and National Treasury had to respond.

The Chairperson thanked the Members for their patience. She was looking at a venue for the next meeting because of the network challenges. It was unfortunate that a venue was not available for this meeting. She would reach out to the Chairperson of the National Council of Provinces (NCOP) on this issue.

Department's responses

Deputy Minister Sarupen said he would deal with the more political questions, and the rest of the team would handle the technical questions.

The current budget was based on the priorities of the Sixth Administration of Parliament. The Seventh Administration of Parliament was in the process of developing new priorities. Once those priorities were put into place, the budgets would be able to be aligned with the annual performance plans (APPs). There had been a Cabinet meeting last weekend to discuss this in a great amount of detail, including new priorities and a five-year set of objectives that would guide every single department. The President would make an announcement when everything was ready and approved.

Insofar as the concerns around the reduction of the budget for specific departments were concerned, it was not just about the money that was spent, but where it was spent. Without the right investments, the outcomes would not be achieved, no matter how much money was put in. A lot of money ended up being returned as a consequence of not enough spending on things such as capital expenditure, particularly at state-owned companies (SOCs). These were areas that needed to be focused on.

He explained the budget process. Departments would draw up their APPs, and the budgets must speak to them. The APPs had been drawn up in the previous term from the medium-term strategic framework. The plans were drawn up in line with the National Development Plan (NDP) 2030. There was a broad vision in the NDP 2030. There were then five-year plans for each term of office, and they were translated into the APPs. The budget cycle then follows. Public participation and the processing of legislation was generally the responsibility of Parliament -- the National Assembly and the NCOP. The Standing Committee on Appropriations would be having its public hearings at the end of the week. This Committee would be having public hearings next week.

The division of revenue was the amount of money that was given to the provinces. Enterprises and local governments work on their own budgeting cycles and would set aside money in their social development or other departments for disaster management. However, in every national budget, there was an amount called the contingency reserve, which was used for various events, including natural disasters. The amount was about R10m annually for emergencies. He asked Dr Pieterse to correct him on the amount that had been set aside.

In the medium-term fiscal plan, there was a plan to stabilise the debt and to ensure that bailouts were no longer an issue. There was a fiscal plan that did not include any additional bailouts. The team worked hard at the National Treasury to protect the division of revenue and equitable share of local government. The national government was absorbing a lot of the losses in terms of fiscal consolidation.

He agreed that the White Paper on Local Government had to be reviewed, because it boasts a series of assumptions on how local government would function, and its funding model. He said his door was open for anyone who wanted to have a discussion. It would be the responsibility of the Department of Cooperative Governance and Traditional Affairs (COGTA) to introduce a new white paper and change legislation.

Dr Pieterse said that the team would respond to some questions, and he would come in at the end.

Dr Randela said he would address the question around the reorganisation of government and the departments. The process started with the Presidency and the Department of Public Service and Administration (DPSA). There should be a proclamation cementing what had been announced. Thereafter, the DPSA would determine the functions, along with National Treasury, to attach the budgets to those functions. These changes could not just be implemented, and hence it was difficult to implement them here. There were a lot of issues that needed to be addressed. There were labour issues, function shift issues, shifting of assets issues, and infrastructure for setting up the new department. There were also issues about the strategic plan, the APPs, and the reporting at the end of the financial year.

Between now and April 2025, the departments would be prepared to operate as separate departments in line with the proclamation. If this was done now, there would be a truckload of audit queries and endless requests for exemptions. It was not practical to implement things like this. If there was a small function shift, it could take up to two years. So, under the leadership of the DPSA, there were various work streams, such as human resources, finance, and accommodation to deal with all the issues.

There was an allocation for the refurbishment of Parliament, and any alternative use of those funds could happen in terms of the Parliament Act. That funding was therefore with Parliament. Certain funds had been earmarked with certain conditions that had to be complied with. Some of the conditions could be to meet milestones or quarterly reporting. If a department violated the conditions, there would be a recommendation for remedial action, so there might be a stoppage of funds. It was not a step that was taken immediately -- it was when a department had failed completely to meet the conditions that had been set out.

Dr Pieterse said that Deputy Minister Sarupen had been correct in saying there was a contingency reserve. An allocation set aside in the fiscal framework called the contingency reserve was meant to provide an additional buffer to cater for unforeseeable and unavoidable expenditures such as disasters. This was in addition to the disaster funding that had already been allocated to certain departments, like the Department of Human Settlements, which had grants for disaster funding. The contingency reserve was R5b for this year, R7b in the following year, and just over R14b after that.

Government debt was dealt with in two ways: as a percentage of gross domestic product (GDP), and as a percentage of revenue. As a percentage of GDP, the current fiscal framework stabilises debt to GDP in 2025/26, where it peaks. It would come down only thereafter, leading the debt-to-GDP ratio to around 75%. This was a moving target, because the GDP numbers change every quarter. Therefore, as the new GDP numbers come out, the debt stock and metric also change. The current framework aimed to start bringing it down from the peak of around 75%. Many of the peers were on a level considered to be acceptable of between 60-70%. There was still a long way to go, hence the emphasis in the budget documentation on structural reforms to unlock growth. There had to be a growing denominator to bring debt-to-GDP under control. The debt was so high because the cost of borrowing was high. Interest rates were high. The current fiscal framework aimed to bring down the debt, interest rates and borrowing costs. This would help businesses to invest, and the economy could grow again.

In terms of the infrastructure-led recovery, a lot of work had been done over the last few months, hoping that it would go through the government system. Some of the work had been presented at the Cabinet Lekgotla. National Treasury wanted to announce this work in the medium-term budget policy statement regarding the kinds of infrastructure reforms that were going to be required so that there would be an infrastructure-led recovery. Currently, the work is focused on three areas. The first focus area was the budget reforms required to direct more resources towards infrastructure. The second focus area was the private sector participation and the Public-Private Partnerships Regulatory Framework that was published earlier this year for review. The third focus area was the new infrastructure financing mechanisms, which was what the asset and liability management team had been doing well. A lot needed to be done to strengthen both the pipeline of infrastructure projects and how that pipeline was financed and executed.

Follow-up discussion

The Chairperson asked if Members had any follow-up questions or questions that were not answered.

Mr Britz asked about the extension of the social relief of distress (SRD) grant to support the poor. What was the progress in finalising the most impactful and sustainable intervention for social economic distress? He noted the 34% increase in the early childhood development (ECD) grant budget. What was the motive behind shifting R1 billion from the ECD grant to the National Department of Basic Education? The National Health Insurance Bill had been signed into law. What had been done to ensure that budget allocations for provinces had been considered? What strategies have been put into place to support provinces in transitioning to the new system of public health care? Basic healthcare in many provinces remained a huge concern.

Mr Ryder commented on the substantial increase in National Treasury budget. The debt repayments and interest payments had been crowding out quite a lot of service delivery issues. This was as a result of the current constraints. What was being done to mitigate this? What was being done to restrict further ballooning of the debt bill?

Department's responses

Dr Pieterse said that Dr Mark Blecher, Chief Director: Health and Social Development, National Treasury, was here to speak about the NHI healthcare funding and what was currently in the fiscal framework. Ms Julia de Bruyn, Chief Director: Public Finance, National Treasury, could speak about the ECD grant.

Dr Blecher said the budget had been tabled in February, following a lengthy period of months for public consultation. A lot of comments had been submitted during those hearings which were held by the Sixth Administration of Parliament. There was now a situation where the budget might not be finalised by 31 July. There would be some risk for the funding to departments, as stated by Dr Randela during the presentation. The spending in the current financial year could not exceed the spending in the last financial year. This would limit the inflationary increase and limit what departments could spend. The Sixth Administration of Parliament did a lot of groundwork. There was some urgency in passing the budget.

The NHI would take some time to roll out. It would take at least two years for the NHI funds to be listed as a new Schedule 3A public entity. There was some preliminary funding in the budget for provinces. This was called the NHI grant, which was for some activities such as infrastructure, and there was an indirect grant which was for the national department to finance some preparatory activities. The health budget of provinces was in a fairly tight situation. It was not reflected in the Appropriation Bill before the Committee because it had already been signed off previously in the fiscal framework and in the division of revenue, so this had already been set for this particular budget. The 7.5% wage increase was very important for the health and education budget. There had been about a R67 billion increase in provincial administrations. The NHI was something that would come back to this Committee over the next five years. A fairly small part of the 2024 budget was being asked to pass. These were very early preparatory stages.

The budget did make provision for the continuation of the SRD grant, which was now R370. It was funded for the first year. The second and third years of funding were contained below the line. There was effective funding going forward for the next three years. This allowed for time to look at finalising the SRD grant. This was something that the Seventh Administration of Parliament should put its mind to, because there was a range of potential configurations. National Treasury and several other departments, especially the Department of Social Development, were working separately and together to look at a range of potential options to replace the SRD grant. The biggest trade-off that needed to be thought through was the balance between the fact that recipients were often young adults between 18-30 who had never had work experience, so there had to be a balance between social grants for that age group, the kind of employment opportunities, public employment programmes, skills development programmes or any other programmes for development.

The SRD grant was expensive, and costs about R40 billion a year. If it was made permanent, it could increase to R100 billion by 2030. It would have substantial implications for the budget. The Committee need to pass only the numbers for this year. There were still a few months left for the Committee to wrestle with different options for the way forward. He would be happy to brief the Committee further on that.

Ms De Bruyn said that the ECD programme was delivered by the provinces. There was a set of pilots that were run by the national department. The first pilot was on the new nutrition model, and the second pilot was on the outcomes-based contracting. This was the reason the money had shifted from the provinces to the national department. R324 billion had been allocated for basic education, of which R32 billion was allocated at a national level, and the remainder was for the nine provinces. She said that roughly 80% of the R32 billion was conditional grants to the provinces. Basic education was a concurrent function, so the national department did deliver some of the items, but the main part of education was delivered by the provinces.

Dr Pieterse said that the most fundamental way of dealing with the increasing debt servicing costs was to have a sustainable fiscal framework and higher economic growth. If the economy was growing and the finances of the state were credible and sustainable, investors would buy the debt and would demand a lower risk premium and lower borrowing costs. Higher revenue came from a growing economy, meaning that less would be borrowed. National Treasury explained to the Standing Committee on Finance in a meeting that money was borrowed mainly for budget deficits. This was the difference between revenue and expenditure. The expenditure was much higher than the revenue. There was a very large budget deficit and therefore the need for borrowing.

The fundamental way to fix this was to improve growth outcomes and the sustainability of the fiscal framework. To do so, the funding strategy has slightly changed in the last two years. The main way to change the funding strategy was to bring the debt service costs down within the risk metrics (chapter seven of the budget review) that had been set. The duration of the instruments had been shortened, but this came with its own risks. If all debts were due in the next few years, there was the potential to raise the default risk and the rollover risk. Everything had to be done within the risk guidance, because it worked as a mechanism to use the funding strategy to bring down the debt service costs. National Treasury had used slightly more bills this year than in the past. This had been done to bring the debt service costs down.

New instruments, such as floating rate notes, were introduced to bring down debt service costs. It relied more on concessional funding from the new Development Bank, the World Bank, the Kfw Development Bank (German Development Agency), Agence Française de Développement (AFD), and the French Development Agency. These concessional loans were substantially cheaper than what was in the market. This was another mechanism used to bring down the debt service costs. However, the only really sustainable solution to lower debt service costs was to have higher growth and a sustainable framework.

Chairperson's closing remarks

The Chairperson said Section 213(2) of the Constitution provided that money may be withdrawn from the National Revenue Fund only in terms of an Appropriation Act of Parliament, or as a direct charge against that fund when it was provided for in the Constitution, or an Act of Parliament. The Committee had received a briefing from the National Treasury so that it could give effect to both the mandates of this Committee and that of section 123 of the Constitution.

There were no more additional questions. She thanked the team at National Treasury and Deputy Minister Sarupen, for putting time aside to have such a robust engagement. She hoped that the Department of Finance, the National Treasury, and the Committee would work well together, and hold each other accountable in executing their respective mandates.

Connectivity issue

The Committee allowed for some time for the team at the National Treasury and the Department of Finance to leave the meeting before moving on to the next item on the agenda.

The Chairperson again apologised for the connectivity problems during the meeting. Members had struggled. She had written to the Chairperson of the NCOP to ensure that offices were allocated. Perhaps the connectivity in the NCOP offices or premises of Parliament was better.

Mr Ryder suggested in the chatbox that the letter be copied to the House Chair of Committees.

The Chairperson said this was noted.

Consideration and adoption of minutes

Mr Nodada took the Committee through the minutes of 11 July 2024.

The Chairperson asked if any inputs were to be made or any corrections.

There were none.

She asked for a mover and seconder for the minutes.

Ms Ndlovu moved to adopt the minutes as a true reflection of what transpired on 11 July 2024.

Mr Swart seconded the motion.

The Chairperson said that the minutes were a true reflection of last week's meeting.

The minutes were adopted.

Closing remarks

The Chairperson asked Mr Nodada to brief the Committee on any announcements. There would be a meeting tomorrow at 10h00, but she would do her best to talk to the Chairperson of the NCOP, the Chief Whip together with Mr Ryder, and the House Chair, to assist with offices so that meetings were run smoothly without the hindrances of any network challenges.

Mr Nodada said that there were no major announcements. He reminded the Committee that there would be a meeting tomorrow with the FFC on the Appropriation Bill. He noted the unfortunate situation that Members had experienced with connectivity. In advance, he made contact with the FFC to check their availability in case a decision was made to have a physical meeting. The FFC was on standby. The Committee would try to secure a venue. If this was not possible, a venue outside of Parliament could be secured, but this might have some financial implications. He could not give hope to Members, because this was above his level. If securing a venue was unsuccessful, the meeting would have to take place on the Zoom platform. The decision would be communicated to the Committee.

The Chairperson asked if Members would be available to attend a physical meeting tomorrow. There would have been Members who had not flown down to Cape Town, knowing that their meetings would be virtual. Were there any Members of this Committee who would not be able to attend if there was a physical meeting tomorrow?

Mr Britz said that he would not be able to attend a physical meeting because he was not in Cape Town.

The Chairperson said she would discuss with Mr Nodada on how best to approach the meeting tomorrow. There might be a need for a hybrid session for those Members who had not flown to Cape Town, knowing that there would only be virtual meetings. A decision would be reached before the end of the day.

The meeting was adjourned.