Briefing by the PBO on the 2024 Division of Revenue Amendment Bill, 2024 Adjustments Appropriation Bill, and 2024 Special Appropriation Bill

Meeting report

The Chairperson welcomed the Committee Members and the delegates from the Parliamentary Budget Office (PBO).

Mr Lubabalo Nodada, Committee Secretary, presented the apologies of Members who were absent and those who were leaving early.

The Chairperson stated that the Committee is dealing with three important Bills, and that PBO’s presentation is welcomed. She added that the discussion will take place after the presentation.

Briefing by the PBO on the 2024 Division of Revenue Amendment Bill, 2024 Adjustments Appropriation Bill, and 2024 Special Appropriation Bill.

Dr Dumisani Jantjies, Director, Dr Nelia Orlandi, Deputy Director), Ms Kagiso Mamabolo, Economic Analyst, and Dr Mukundi Maphangwa, Public Finance Analyst), PBO, provided the Committee with a comprehensive briefing on the 2024 Division of Revenue Amendment Bill, 2024 Adjustments Appropriation Bill, and 2024 Special Appropriation Bill.

The presentation looked at the socio-economic landscape for the 2024 Amended DORA and Adjusted Appropriation and discussed the implementation of the Basic Education Laws Amendment (BELA) Act, amongst other provisions, may necessitate the integration of over 200 000 Grade R learners into the education system. It also looked at attendance in early childhood education has also fallen, with participation among children aged 0-4 dropping from 34.4% in 2013 to 33.6% in 2023. It was found that the enrolment ratio for Black, Coloured, and White groups has declined in 2023, while the Indian/Asian group has increased in participation rates. Revised spending cuts in the MTBPS 2024 may further accelerate the decline in educational enrolment across most racial groups. Police funding in the MTBPS for 2024/25 reflects only a marginal (below inflation) increase of 0.2% from the allocation in Budget 2024.

Social Grants were discussed as it was found that persistent unemployment, combined with inadequate social support, has led to the continued prevalence of poverty and inequality in South Africa. The result has been a long-term, cumulative negative impact on households, communities, and society. It was indicated that the majority of South Africans live in poverty, which enables grants to act as a lifeline for many households. It also looked at the SRD grant and how there is no indication of what will come after the current SRD grant ends in 2025.

The presentation provided an overview of local government and the research indicated that local governments have been unable to self-finance at the level expected by the local government fiscal framework. They also found that financial and operational challenges hinder local government from delivering basic services. The NT reports that electricity, water, sanitation, and waste management services are in long-term decline due to underinvestment in maintenance, rehabilitation, and expansion at the municipal level. According to the Auditor-General of South Africa, the challenges facing municipalities include inadequate skills, cash flow problems, governance failures, and a lack of accountability while only 34 out of 257 municipalities (13%) obtained a clean audit in the 2022/23. These persistent cash flow challenges being faced by municipalities require government to reform the current revenue model for municipalities.

Dr Jantjies also concluded that there is an urgent need to review the equitable share formula because the formula used to allocate resources through DORA is outdated and in dire need of review.

See the full presentation attached.

Discussion

Mr B Radebe (ANC, Free State) referred to the meeting with the South African Local Government Association (SALGA) on 19 November, and the issue regarding the R58 billion that they have requested to sustain services on the ground level, such as electricity provision and water and sanitation. He added that there are a lot of leakages within local governments. These leakages come in the form of corruption, making SALGA’s request difficult because more money would be misused. If they disapprove of granting SALGA more money, the communities will suffer due to it. He requested PBO’s advice regarding this matter because the Committee will have to present the Division of Revenue Bill to the House, but they are compromised. He then gave the example of children dying due to spaza shops not working effectively as a result of a lack of financial support.

He questioned what the police donations were for and wanted an explanation regarding it. The issue regarding social grants was also brought up and there was no explanation of how to go about achieving economic growth. If economic growth does not occur, finding the resources to fund social grant programmes will be difficult. He also questioned what the Department of Trade, Industry and Competition will need in terms of funding to stimulate economic growth. He also questioned whether there is enough support for South African businesses to generate Forex to trade with other countries in Africa through the use of the African Continental Free Trade Area (AfCFTA).

Mr J Britz (DA, Eastern Cape) stated that there are disparities in tertiary education and questions the benefit of them since many people are still unemployed. He suggested that instead of placing lots of emphasis on tertiary education, there should be a shift towards vocational and technical training.

He stated that the conditions of hospitals are unhygienic and inadequate. The lack of fiscal control further increased wastage, and he gave examples of hospitals purchasing buckets at R2 000 per bucket. There is a need to do more to increase the level of efficiency that people deserve. He also added that the issue of basic education between public and private schools requires many different factors to be considered and they cannot be compared directly as they are different altogether.

Mr Britz stated that all Members are concerned with the unemployment rate. There are 13.1 million people not economically active in the country, which is problematic. He added that money will never be enough because there will always be a need to keep asking. However, the issue is that a lot of the money is wasted. Hence, there is a need to look into the reason behind local government’s basic service delivery inefficiencies to improve them so that they can benefit the needs of the communities.

Mr J Majola (MK, KwaZulu-Natal) stated that he shared the same sentiments as the previous speakers. He expressed his concerns regarding the ratios of teachers to learners in public schools compared to private schools and questioned whether this represents an acceptable norm. He also expressed his concerns regarding the ratio of doctors to patients.

Mr Majola stated that he would like some clarity regarding the usage of the disaster relief grant, and questioned what will happen once the Social Relief of Distress (SRD) grant is phased out. He requested that details be provided for what will be phased in to replace the SRD grant.

Ms S Nxumalo (ANC, Mpumalanga) stated that the problem lies within the local government's failure to perform duties for the locals, which results in many complaints being received. She added that there are many challenges in municipalities, especially in rural areas where municipalities do not collect money and are also not getting financial assistance.

She raised concerns in terms of the SRD grant which the Minister announced will be discontinued from 30 March 2025. She proclaimed that this may have been a premature decision. Considering this, she mentioned that a framework should have been developed for a new structure to be put in place to compensate for this removal. She emphasised that in a few months, it will be March 2025 and there will be more problems from this discontinuation as people will have nothing to eat, which is why there is a need for a solution.

Ms Nxumalo added that the money municipalities owe to Eskom and the Water Board is going to be withdrawn from the equitable shares. They are preventing these municipalities from delivering services efficiently and making them suffer more because they lack budgetary allocations, so there is a need to place more focus on them.

She further raised the issue of education, health and social development which are the key departments. It is important to recognise that they are having many challenges. Some hospitals do not report anything, they use old equipment which results in more deaths. Another issue raised is that of the unfunded mandate as local government which is a challenge.

Ms M Siwisa (EFF, Northern Cape) stated if social grants are cut, it will result in more children not having access to grants and unable to go to school. Attendance in tertiary education is dropping and will continue to drop because of their parents being unemployed. She added that the issue regarding the ratio of learners to teachers is only on paper and it does not reflect the reality of the situation. She stated that she was an educator for several years, and when she started, she had six classes, and the highest number of learners in those classes was 65 and the lowest was 48. This does not enable the teachers to identify which children require more assistance. If basic education cannot be adequately funded, it will result in fewer children going to tertiary education and this underfunding will result in a lack of professionals and resources.

She stated that it is unfortunate that the Division of Revenue Bill did not refer more to job creation because if there is more job creation, more money is generated. Local government will continue to fail because the people utilising the services cannot pay for them because they are unemployed. Unemployment also results in fewer taxes being collected, and more government expenditure because of social grants, and this is a concern because unemployment because it results in people suffering from stress and other health-related issues which causes the health sector to be overburdened. This will result in a continuing poor doctor-to-patient ratio, as some medical conditions are a consequence of poverty. She added that job creation can solve many problems as less money will be spent on grants, the budgets of other departments will be increased so that they can fulfil their responsibilities, and the budget cuts that the departments experience will be reduced. She stated that the state is spending money that it does not have, and this is not sustainable, and this creates a loophole for other people to control it in the future.

Ms S Ndhlovu (ANC, Limpopo) stated that it is important to start with the budget of the National Assembly building which also needs to be accounted for in addition to municipal corruption. She further added that there is an issue with the statistics compared to the actual number. This is because many legal and illegal people residing in the country contribute to the economic crisis. She requested advice and a plan on how to address such matters. She added that there is a need to be able to assist and follow the money with effective and efficient oversight.

Mr Peter Johnson (WCPP, MPL Chairperson SC Budget and Finance) stated that he served in local government as a member of finance and infrastructure which was the biggest part of the municipal budget at that stage. He agreed with Dr Jantjies’ closing remarks that reviewing the equitable share formula will be beneficial, and it is important to include provincial governments there as well. He emphasised that many issues would continue to be raised until the formula is reviewed.

PBO Responses

Dr Jantjies stated that the structure of the three spheres of government requires rethinking. There are nine provinces but several municipalities, and questioned if there is a need to grant local government more capacity to ensure services get delivered. He responded to the issue of unfunded mandates. He stated that the funding model requires more consideration for what it means for implementation because it deals with policies that require implementation without the financial provisions. The issue of governance requires more consequences put in place according to various reports, and he stated that he is concerned with the poor-performing local municipalities being punished because if municipalities are punished, it directly affects the communities.

He responded to the issue of social grants and stated that it is an integral part of the system and cannot be considered a handout. It is a constitutional requirement that the government provides to society in the country because it also contributes to economic growth. After all, the households receiving the grants spend the money which leads to more demand for consumer products and potential tax revenue. Regarding the SRD grant, he stated that Parliament gets a lot of mixed messages regarding it, and there is a need for a consistent message about whether it will be cancelled or not. He added that there was no need to announce its cancellation if there was no policy in place that would provide a replacement for the SRD grant.

Dr Jantjies stated that the statistics compared to reality is a fair point, but what Members should be concerned about is whether the statistics are used. If the statistics were used, there would not be misalignment in budgetary allocations.

Dr Orlandi stated that the donation received was for learners of policemen who died. The donation is for a good cause but ultimately, it is about the principle of taking the money from the compensation of employment (CoE) to increase the donation. She added that transferring money to that fund is a permanent arrangement.

Dr Seeraj Mohamed, Deputy Director: Economics, PBO, stated that economic growth is a result of the government spending more money into the economy and investing in learners, productivity in households and the ability of households to be more resilient to disasters. Industrial development is important, and it refers to the questions on job creation and the Department of Trade, Industry and Competition. He stated that more money needs to be spent on this because there is a link between expenditure and productivity of the workers.

From a developmental economics perspective, demographic differences are a crucial factor, as it is evident in countries concerned with older workers due to lower productivity and pensions. He added that South Africa has a young population, and countries with a younger population often experience economic growth spurts and development because more people are economically active. However, because South Africa has a lot of people who are not economically active, it causes the country to miss out on economic growth and development.

Dr Mohamed reiterated what Dr Jantjies said about the social grants not simply being a handout to people. In South Africa, we should be concerned about poverty and unemployment because it is due to structural issues in the economy as there are a lot of people who are trying to find employment but cannot find jobs. He added that it is government’s responsibility to provide social security.

Dr Maphangwa stated that local government funding requires proper oversight because there is an issue regarding governance. There is also a need to capacitate local government to conduct adequate oversight. He added it would be beneficial to look at the qualifications of the people in management and question whether they would be hired in the private sector.

Ms Mamabolo stated that the use of the Organisation for Economic Co-operation and Development (OECD) countries as a benchmark would be beneficial when looking at the learner-to-educator ratio and doctor-to-patient ratio. The average ratios mask many disparities in developing countries such as differences between rural and urban areas. She added that the doctor-to-patient ratio, according to the World Health Organisation (WHO), is one doctor to every 1000 patients which differs from South Africa where there is one doctor to every 3198 patients. When considering high-income countries, there are two to three doctors per 1000 patients compared to lower-income countries where the average is more porous.

Dr Orlandi stated that oversight and education problems have underlying inefficiencies. The PBO’s reports are based on conditional grants, specifically infrastructure grants which track the inefficiencies as seen with many schools being built but never completed. She emphasised that there is a need for stricter monitoring of the implementation of those grants. Bursaries for teachers, as seen with Funza Lushaka, transfer money to NSFAS to administer on their behalf but that money is inefficient as NSFAS has problems within their administration. A suggestive strategy is to transfer Funza Lushaka money or make it a conditional grant to monitor implementation on who is receiving the grant and what purpose it is used for.

Dr Jantjies stated that vocational education is important and has seen a lot of funding shifted to that sector. However, the degree to which they got more out of the system compared to tertiary and higher education systems in terms of the level of employment is important to consider. Parliament budgets and donations will be looked at and input will be provided in future.

The issue of unemployment needs to be addressed, and economic clusters need to be provided with more funding and alignment. Dr Jantjies commented on public works employment programmes and stated that there is a lot of fragmentation. There is a need to supervise public unemployment despite having adequate public policies in place. Many unemployed young people can be employed to help with government issues. Service delivery is important in the House. He added that they are working on a report for Section 139 and will present this before the next budget.

The Chairperson requested that PBO look at the budget of home affairs as there are problems there that need to be addressed. She thanked Members and requested Members to review the minutes once the PBO leaves. She thanked PBO for their efforts to empower and deliberate issues in an engaging format.

Minutes for meetings between 9 October to 14 November 2024

Mr Nodada (Committee Secretary) took the Committee through the minutes.

The Chairperson requested a mover for their adoption.

The minutes were duly adopted.

The meeting was adjourned.