Induction Workshop: Legacy Reports, Committee Mandates & Procedural Matters

Meeting report

Induction Workshop: Briefing by Select Committee on Finance (NCoP) Content Advisor

Ms Esther Mohube, Content Advisor, Select Committee on Finance (National Council of Provinces (NCoP)), presented to the Committees the work done by the Select Committee on Finance (SeCoF) during the sixth term of Parliament. During the sixth term of Parliament, the SeCoF held 145 meetings, processed 40 pieces of legislation and two international agreements, and made one statutory appointment.

In view of the SeCoF’s intense programme, it had only undertaken one study tour, which included the South African Revenue Service (SARS) and South Africa Reserve Bank (SARB). The economic, social and political context of the sixth Parliament, which had included the Covid-19 pandemic, the Russia-Ukraine war, the Israel-Palestine conflict and the decline in global growth, had negatively impacted economic performance and policy and budget decisions. The South African economy recorded its third consecutive quarter of economic decline in the first quarter of 2020; about a million jobs had been lost and an already weak fiscal position had been worsened.

Ms Mohube stated that in 2020, the SeCoF had passed a Special Adjustment Budget that sought to provide economic and social measures in response to the Covid-19 pandemic, consisting of a broad range of measures to mitigate the worst effects of the pandemic on businesses, communities, and individuals. By 2023, the SARB had increased interest rates by a cumulative 475 basis points, which had posed a significant risk to the economic outlook. The rate of unemployment had continued to increase, and the economy had not grown sufficiently to absorb new entrants in the labour market. Within its limits, the SeCoF contributed to shaping the country’s economic and fiscal policy through its regular interactions with National Treasury.

She said that the SeCoF had urged National Treasury, as the custodian of economic policy, in consultation with the other relevant departments and external stakeholders, to ensure that the Economic Reconstruction and Recovery Plan (ERRP) restored South Africa to a more sustainable growth trajectory. Amongst other things, the SeCoF had recommended that, for policy certainty, National Treasury should clearly articulate government’s economic policy on growth from which the ERRP had been derived with the relevant parties, speedily implement economic reforms through Operation Vulindlela, and for the government to create a conducive environment for the economy to thrive, encourage investment, create jobs, and reduce inequalities. 

The SeCoF acknowledged that some progress had been made in addressing structural constraints to growth as reported in the President’s State of the Nation Address (SONA) and National Treasury’s Budget Review documents, however, this was not adequate.

Recommendations

• To further improve the annual budget process, the SeCoA should continue holding joint meetings with the SeCoF when considering money bills.
• There should be two Committee Secretaries.
• Follow-ups must be made on recommendations made to the Minister of Finance in the fiscal framework reports, with SeCoF where possible.
• Engagement with the SARB on economic and monetary policy issues should be considered.
• The Committees should follow up on mandates, leadership and governance, fiscal sustainability, performance, and challenges, as some of the public entities that were either fully or partially funded by the government were not yet self-sustainable and performing well.
• Briefings should be requested on progress with the implementation of Revenue Bills passed to determine whether these Revenue Bills were achieving the intended policy objectives.

• The Minister of Finance should table legislation in Parliament on time to enable the Committees to conduct effective public participation and do due diligence.
• There was a need for a further review of the Money Bills Amendment Procedure and Related Matters Act 9 of 2009 (Money Bills Act) to create more space for public participation in the budget during this term, as it required changes to the way Parliament organised its programme within a financial year. The new Committees needed to take this further.
• SeCoF’s approach to public participation, which went beyond the normal processes in Parliament to include comments from civil society stakeholders beyond formal hearings, should be continued and improved.

(See presentation attached for further details)

Briefing by the Select Committee on Appropriations (NCoP) Content Advisor

Mr Phelelani Dlomo, Content Advisor, Select Committee on Appropriations (NCoP), presented to the Committees the SeCoA’s powers and functions in terms of the Constitution of the Republic of South Africa, 1996. The main objectives of the presentation were to highlight key issues achieved in the sixth Parliament and outline areas of focus for the SeCoA in the seventh Parliament, maintain continuity on certain policy issues from the 2019-2024 legacy report, and outline some key challenges.

These challenges included very tight timeframes when processing the Medium Term Budget Policy Statement (MTBPS), the Division of Revenue Amendment (DoRA) Bill [B4-2024], the inability of some provinces to submit their voting mandates on time, the lack of responses by the executive pertaining to the implementation of SeCoA recommendations, the time constraints because of the NCOP Committee model, and the inability to follow up on state-owned enterprise (SOE) bailouts and debt relief.  

The powers and functions of the SeCoA include considering and reporting on: spending issues; amendments to the DoRA Bill, the Appropriation Bill [B5-2024], and Adjustment Appropriations Bill [B34-2023]; the MTBPS; recommendations of the Financial and Fiscal Commission (FFC); actual expenditure published by National Treasury; and any other related matter set out in the Money Bills Act.

Mr Dlomo highlighted the key focus areas for the Seventh Parliament and outstanding issues of the Sixth Parliament. The key focus areas in the short term were processing all Money Bills, the Appropriation Bill, FFC recommendations and the MTBPS 2024, and dealing with Conditional Grants, which were not dealt with in the sixth Parliament due to time limitations. In the medium term the key focus areas were: to follow up on the Zero-Based Budget Policy Proposal; engage budget consultations with public benefit organisations (PBOs), the FFC and the South African Local Government Association (SALGA); continue to monitor medico-legal claim issues as part of fiscal leakages; ensure that the SeCoA addresses the issue of tight timeframes; ensure partnership and cooperation with provincial committees to enhance public participation; ensure continuous capacity building initiatives for both staff and members; and ensure continuous reporting on the Committee Recommendation Tracking Tool.

The key focus areas in the long term included: conducting workshops on the provincial and local government equitable share; ensuring that disaster relief funds were availed for all the provinces affected by disasters; following up on the conversion of the Social Relief of Distress Grant to deal with the income gap from ages between 18–59 years; ensuring that the issue of construction mafias and extortion was addressed by the executive; ensuring that the uMoloto Corridor Project was implemented to address road carnages; ensuring that site visits and study tour visits be conducted in the seventh Parliament, and; holding a joint meeting with SeCoF to assess and monitor the country’s fiscal position, given the rising debt service cost from fifth Parliament.

(See presentation attached for further details)

Discussion

Chairperson Legwase noted that the SeCoF in the sixth Parliament had invoked Section 100 and Section 139 interventions. She asked what evaluative mechanisms had been adopted to measure the success or failure of the interventions in the respective municipalities or provincial government. For instance, the SeCoF had resolved to recommend that the NCoP approve the Section 139(1)(c) intervention in one of the municipalities in the North West called Ditsobotla Local Municipality. However, the intervention did not yield any results.

Ms A Siwisa (EFF, Northern Cape) asked about the high debt level and debt service costs, and noted that one of the recommendations was that National Treasury ensures that the debt management and strategies were effective to stabilise the debt over the medium term and to avoid a sovereign debt crisis. She stated that the presentation indicated that debt was 75% of the gross domestic product (GDP). How could the Committee assist with ensuring that National Treasury implemented the management strategy and ensured its effectiveness, particularly when the recommendation was so broad? There was a lot of information and a lot that the Committees needed to learn as novices in the space, but the hope was that the door was open for Members to consult and bring forward any questions to the Committee Advisors, Researchers, and Secretaries.

Mr J Majola (MK, KwaZulu-Natal) noted that page nine of the SeCoA presentation indicated there had only been one special adjustment in the entire term of the sixth Parliament. He asked whether the adjustment had included the annual adjustment budget or if it was related to a specific crisis such as Covid-19. The Committees could not adopt the very same recommendations that would not be addressed. He noted that Ms Mohube had mentioned the GDP being in severe crisis and the alarming unemployment rate, which were concerns that had been raised before. These issues would probably be recommended to the Committees of the eight Parliament if the current Committees were unable to develop a working framework to deal with all these issues.

The projected debt on page eleven of the presentation was estimated to be R1 trillion. If this projection became a reality, it would exhaust the entire budget. He remarked that the Section 12J venture capital companies was a very good strategy in terms of addressing economic growth, skills development, and job creation.

Mr J Britz (DA, Eastern Cape) stated that in the SeCoF’s first sitting, he heard from all the parties about the challenges affecting their communities. He noted that Members were in Parliament to serve the people of South Africa, but he questioned how serious they were about serving the people and doing their jobs effectively. How serious was the National Assembly (NA) about implementing the SeCoF’s recommendations? For instance, page thirteen of the presentation indicated that the employment tax incentive had been introduced specifically to address unemployment. This incentive was introduced in 2014, but the unemployment rates, especially youth unemployment rates, demonstrated a lack of implementation. It was important that this SeCoF, in the seventh administration, determined how it was going to put recommendations forward that would get the job done.

He stated that all parties were jointly concerned about the challenges inflicting citizens, but a lot of the time, party politics distracted government from doing the work that was necessary to change peoples’ lives. It was important to remain focused on serving the people of South Africa. A very important aspect of serving citizens was conducting effective oversight. How was the SeCoF doing in terms of oversight of the executive, and how should it improve its oversight in the future?

Mr P Swart (DA, Western Cape) thanked the Committees’ Content Advisors for conducting the workshop and compiling the presentation. He acknowledged that the goal of the workshop was to better inform the Members of SeCoF of their role. He noted that his background was in the legal field as he had been a lawyer for 35 years and what he had picked up was that lawyers and professionals in finance talked about bills vastly differently from one another. He kindly requested that Ms Mohube clarify some of the acronyms for the bills that were part of the presentation.

He also mentioned that in the recommendations, one of the stakeholders referred to was the PBO. He stated that the PBO was not utilised enough by the SeCoF, which should not be the case. The SeCoF should utilise the PBO more. He thanked the Content Advisors for their recommendations because they shed light on where frustrations laid. If the SeCoF of the seventh administration implemented the recommendations, the result would be a very successful administration.

Mr K Ceza (EFF, Mpumalanga) remarked that he was happy that the Content Advisors were able to be cognisant of the fact that acronyms had to be explained because there was often an assumption during presentations that the audience already knew the meaning of the acronyms. On page thirteen in the presentation there was mention of special economics that incentivised job creation. He acknowledged that from his experience in the Department of Cooperative Governance and Traditional Affairs (COGTA) and the Department of Mineral Resources and Energy, often as government there was a tendency to react to a crisis instead of taking preventative measures that inhibited the occurrence of a potential crisis. He asked what special economic zones had been built across the country and how serious the funding of these incentives was considering the job crisis in the country.

He asked what the difference was between austerity measures and the expansionary budget, considering the reductions seen across the departments that would affect service delivery going forward. On the vertical division of revenue, there was an allocation of resources between different spheres of government. There needed to be self-sufficient local governments because they were owed by government departments, water boards, and private businesses while they themselves owed huge amounts of money to Eskom. How could the SeCoF ensure that SARS followed up on the perpetual indebtedness of these entities?

He concurred with the other Members regarding the lack of transparency related to the reporting of interventions, shedding light on whether the interventions were successful or failed to yield results. He noted that slide sixteen of the presentation referred to the leadership of the Development Bank of Southern Africa (DBSA) and serious government issues including staff turnover rate. Looking at local government, it had a high staff turnover rate and often, this could be attributed to the hostility of the environment of local government. How could that space be corrected?

Ms S Nxumalo (ANC, Mpumalanga) stated that she was grateful for the opportunity to meet all the Members and staff in person for their first meeting. She mentioned that she had a background in local governance and could attest to the Section 139 interventions as interventions that yielded no results for local government. Municipalities were worse off after the interventions than prior to the interventions having started. It was important to develop a workable solution with mechanisms to measure its outcomes. It was also vital to intensify the Committees’ oversight and public participation processes. She asked how many times a year the Committees had to conduct oversight. The Committees were the heartbeat of government, so it was important to ensure that they did not compromise on quality.

Mr Britz asked whether there was a duplication of processes in terms of public participation. He also asked if there was a mechanism to prevent unnecessary duplication between select committees and standing committees.

Mr D Ryder (DA, Gauteng) stressed that the Committees needed to understand their power and understand where money was being wasted so that it could be channelled in the right direction. The rules of the NCoP, as well as the Joint Rules, were very important for the Committees. Members had to read these rules and be clued up on every chapter related to the Committees.

Chairperson Ndhlovu explained how Section 139 was invoked, stating that one first had to apply Section 154, which entailed providing support to the government institution. Providing support was a necessary step in assisting the relevant institution. These were the steps that the Committees had to familiarise themselves with. She concurred with the Members who stated that the Committees had to intensify their oversight roles and in doing so, put all political tensions aside for the good of all citizens.

Responses

Ms Mohube remarked that she hoped Chairperson Legwase would not follow up on Section 100 and Section 139 interventions because she had put a disclaimer at the beginning of the presentation to reserve questions about these. She explained that although Section 100 had been referred to the SeCoF by the fifth Parliament, the sixth term Parliament had identified that it should be the Select Committee on CoGTA that dealt with Section 100 and Section 139 interventions. So, in the past term, the SeCoF had not done any intervention.

The reason why there had only been one special adjustment budget in June 2020 was because this adjustment had been necessitated by the Covid-19 pandemic and the economic downturn. The Money Bills Act allowed the Minister of Finance to table a special adjustment budget in such instances where the fiscal framework was going to be affected, hence the SeCoF followed up with the Disaster Management Tax Relief Bill [B11-2020].

On the tax incentives, specifically Section 12J, when the incentives were introduced, they were processed in the SeCoF. Between 2008 and 2029, National Treasury would review the incentives to determine whether they were achieving the intended objective. National Treasury had found that the Section 12J incentive was being abused because it was not used by the specific growth-targeted industry for job creation. For example, it was used by the property sector, which was not one of the initially identified sectors. After a reasonable period, National Treasury did not extend the sunset clause. On the special economic zones in the country, the special economic zones were dealt with only as it concerned the tax incentives.

Mr Dlomo explained that the Fifth Parliament had an intervention process directed to the North West Province. As it related to Section 100, which was assumingly similar to Section 139, there would be engagement between the national and provincial executives around specific departments with specific issues of concern that the executive at the national level identified. The executive would take it upon themselves to consolidate the process of intervention and come to the NCoP.

Within a certain number of days, the NCoP had to conduct a hearing and invite all the stakeholders involved, including the provincial departments intended to be assisted. It was a very thorough and comprehensive process. The main issues that were identified for the intervention were very specific. The Committees would have regular engagements about those issues. There were follow-up engagements between the Committees as well as an oversight visit to assess whether the intervention was making progress on those specific issues.

He stated that Section 100 had two different intervention streams. There was Section 100(1)(a) which dealt with the directives and identified the issues, but dealt with those issues that were not so severe as those that would invoke Section 100(1)(b), which had far-reaching consequences, such as the take-over of responsibilities. In terms of Section 100(1)(a), the directives would be sent to the executive who would instruct the relevant departments to address the specific challenges. In this case, the executive would not absorb any responsibilities; all they would do was monitor the progress as part of their oversight duty.

In the case of Section 100(1)(b), the executive would absorb the full responsibilities of running the relevant department to ensure that the issues were being addressed. The Minister of Finance would be coming to the SeCoA to brief the Members on the progress and the issues that had yet to be implemented. Within this process, tensions could come to the surface between the national and provincial governments because the provincial governments may feel as though they no longer have the power to run the particular department when it has been taken over at the national level.

The SeCoA would, at some point, feel the tension and frustration because the department would be unwilling to cooperate and share information that the SeCoA required. Department officials would be very hostile towards the SeCoA, and they would tell the SeCoA to go to the Minister of Finance to get answers. The reason being that some of these interventions served the purpose of addressing issues where corruption had been ongoing, and these issues involved some of these officials.

He stated that assessing whether the intervention was yielding results would entail the SeCoA going back to re-evaluate the intervention or make the decision to remove the intervention. The stakeholders would also have a role to play, which entailed looking at the issues and engaging the SeCoA on the improvements or failures of the interventions. It was the SeCoA that was responsible for determining whether the intervention had to be discontinued using a set of checklists that involved applying the mind to the evidence that had been collected.

On the issue of debt and the SeCoA improving its oversight over National Treasury on this issue, the legislative mandate of the SeCoA was very clear, and it gave the SeCoA foresight into what would be happening in the year. National Treasury would come with a whole lot of documents to deal with. The SeCoA would deal with some of these documents under pressure because there was not enough time. National Treasury would also be under pressure on their side, which was why a recommendation in Ms Mohube’s report indicated that National Treasury had to table bills within a reasonable time. Sometimes, National Treasury would deliberately delay the tabling of bills to compromise the SeCoA so that it did not have enough time to effectively scrutinise the bills. This was the reality of the long-standing tension between the executive and the legislature.

He advised the committees to single out some of the strategic issues and not to lump the issues all into one process. The committees should identify strategic issues and deal with them in isolation, such as the issue of debt, which is a very serious issue and could be dealt with simultaneously with another issue. It was an issue that the SeCoA had to engage National Treasury on without interfering or mentioning any other issue. There should be a discussion with National Treasury on the issue of debt related to the guarantees that had been issued, and the bailout packages which had also been issued as far as the fiscus was concerned.

Although the guarantees did not directly impact the fiscus, they were still a risk because there was a chance that the SOEs would not pay that particular amount back to the fiscus. Whatever was issued from the fiscus for the SOEs took away from the service delivery programmes meaning that there had to be budget cuts on items like medication, recruitment of staff, on servicing roads, and any other service delivery issues. It was an important issue that also had an impact on economic growth. This was an issue that needed its own attention.

On the austerity measures versus the expansionary budget, he explained that the expansionary budget was when the government spent more to stimulate the demand in the economy so that the economy could grow and have more economic activities. When it came to austerity measures, this was when the government realised that there was more expenditure than revenue in the economy. This resulted in budget cuts on certain programmes, eventually impacting key strategic areas. Austerity normally came to the fore when the level of borrowing was high because the borrowing had to be contained, which was why the issue of debt was very important.

A Parliamentary Researcher indicated that the special economic zones were not within the SeCoA’s mandate, but because they had researchers from other portfolios in the research unit, they could look for information on the special economic zones from the researcher who was from the Economic Development Committee. On the issues that affected local and provincial government, even though the SeCoA had a very specific mandate according to the Money Bills Act, it was an NCoP Committee and there were issues that the SeCoA could not run away from. Such issues touched local government as well as provincial government.

She added that the research team would also like to present to Members the report of the Auditor-General which would be published sometime in the week. The report would give insight into what was happening in local government, matters like staff turnover, leadership and instability in local government, which were some of the issues contributing to the state of local government.

On the issue of state-owned companies (SOCs), the financial risk the sector brought on the budget was troubling. The schedule two companies were supposed to be self-sufficient and generate profits, but currently, out of all SOCs, the Auditor-General has raised ongoing concerns. Ongoing concerns meant that without government support, they were unable to function on their own. About 70% of SOCs would not be able to function without a bailout from government. This showed the extent of the problem being faced. It meant that if Eskom was not getting bailed-out, then they would not be able to function, and this took away from the funding that could be going to programmes that addressed social issues.

Ms Mohube commented on the duplication of public participation processes, stating that there was no duplication of public processes because, for instance, before a bill was tabled in Parliament, National Treasury had to go through its own processes which was required by law then the bill would go through the NA and then to the NCOP. It was better this way because it allowed for broader participation from different sectors to have input in the law-making process.

On the high debt levels and high debt service costs, as long as the economy was growing at the rate it is, the debt level would unfortunately keep increasing because the economy needed to grow, create jobs, and generate revenue. One of the reasons National Treasury had to ensure that its debt management strategy was effective was because debt had been accumulating over 15 years, so it was not looking good. One of the Members mentioned that the unemployment rate had reached 32.9% in the first quarter, which was not good because it meant that the economy was not able to absorb new professionals entering the labour market. The economy needed to grow to create jobs and generate revenue, otherwise the debt levels would remain high.

Further Discussion

Chairperson Ndlovu indicated she would not be taking hands because Members had to prepare for the next meeting. She added that this would not be the last workshop. 

Chairperson Legwase suggested that Members should be allowed to ask questions so that they exhausted the report and dealt with it in its entirety which would mean that in the next meeting, the Committees would be able to move on and deal with other reports. The meeting would not go past 13:30, but this would allow the day’s issues to be fully ventilated. Members who had no submissions were welcome to excuse themselves from the last few minutes of the meeting since the induction had been scheduled for 10:00 to 13:00.

Ms Siwisa mentioned that she wanted clarity on the issue of construction mafias and extortion, and noted that the issue of giving lower grade contractors opportunities to work and achieve higher grades had been raised to the Minister of Public Works and Infrastructure. She explained that if a town did not have contractors with a level five or six grade, the Department of Public Works and Infrastructure would go out and look for contractors in other provinces to lead the projects and most of the time, those contractors came from Gauteng, Limpopo, or Mpumalanga.

She noted that people were agitated that local contractors were being overlooked to lead such projects. This often created delays in the projects because locals would stop the projects from continuing until local contractors were employed. There had to be a strategy that ensured that contractors with lower grades were able to attain higher grades suitable for leading projects in their local towns.

Ms Nxumalo stated that she welcomed the suggestion of checking the committees’ resolutions sent to the executive. She asked how the Committees would know whether the executive had decided to implement the particular resolutions. The 15% which was ringfenced for maintenance in terms of the Municipal Infrastructure Grant (MIG) in the municipalities had to be followed up on by the Committees because there were many dilapidated projects that could use urgent maintenance. National Treasury had allocated a certain amount to municipalities in terms of the MIG, and when National Treasury experienced certain challenges, they went back to the municipalities to recoup that money which hindered service delivery in the municipalities and compromised civic trust. This was an issue that had to be attended to.

Mr Swart thanked the presenters for their excellent presentations.

Responses

Mr Dlomo stated that in the Appropriations Bill report, they had recommended that the increment that the South African Police Service (SAPS) had received from the budget should be channelled into programmes that would ensure that communities felt safe, because extortion was a really serious issue in townships. The issue of the 15% MIG was a problem that had to be looked at closely, but it also formed part of the continuous engagements between the SeCoA and National Treasury, CoGTA and other departments. The reality was that there had to be paperwork that followed a particular grant allocated for a project, but it was a matter that needed further engagements as it was a compliance issue that hindered the mandate of government to save lives, and alleviate poverty and unemployment as well as inequality. It was an issue that the SeCoA had been battling with since funding could not be issued without the necessary paperwork.

Final Remarks

Chairperson Legwase noted that there were reports that the SeCoA had passed that would be deferred to the next term. She thanked the staff for a successful induction.

The meeting was adjourned.