Division of Revenue Bill, Appropriation Bill & Eskom Debt Relief Amendment Bill: PBO briefing

Meeting report

Opening of the Meeting
The Chairperson welcomed Members of the Select Committee and officials and stated that the meeting would commence. She noted that the meeting formed part of a series of engagements in which the Parliamentary Budget Office (PBO) had been briefing the Select Committee and presenting its analysis of the three bills under consideration: the 2025 Division of Revenue Bill, the 2025 Appropriation Bill, and the 2025 Eskom Bill.

The Chairperson recalled that the Select Committee had previously raised concerns regarding the misallocation of funds between the North West and the Northern Cape. She requested the National Treasury to respond to resolving the matter. She added that a similar issue had occurred in 2012 and had been rectified at the time.

Apologies
Mr Lubabalo Nodada, Committee Secretary, informed the Committee that Mr Ashor Sarupen, Deputy Minister, National Treasury (NT), had submitted an apology as he was attending a meeting of the Standing Committee on Appropriations.

National Treasury’s remarks
Ms Ogalaletseng Gaarekwe, Acting Head: Intergovernmental Relations, NT, explained that the error in 2012 had occurred between two municipalities. She clarified that the mistake related to the total amount allocated rather than the breakdown per municipality. To rectify such an error, she stated that it could be addressed through Parliament by amending the relevant schedule or through the Division of Revenue Amendment Bill.

She further reported that the National Treasury had since informed provinces of the correction and had issued revised allocation letters. She added that, as the Treasury managed the payment schedule, it would ensure that the Northern Cape and North West provinces would not receive more than their appropriate allocations.

The Chairperson opened the floor to Members. She pressed for consequence management measures.

Discussion

Ms S Nxumalo (ANC, Mpumalanga) asked what steps the PBO intended to take to prevent similar errors in future. She expressed concern that a human error had affected an entire province and potentially the country.

Ms S Ndhlovu (ANC, Limpopo) supported the Chairperson’s earlier remarks regarding the need for consequence management. She questioned whether the error would have gone undetected had the Select Committee not identified it and emphasised that there ought to be consequences for the official responsible.

Ms M Siwisa (EFF, Northern Cape) stated that the National Treasury should have addressed the matter when the Select Committee first raised it. She argued that the current process of amending the schedule in the Division of Revenue Amendment (DORA) Bill could have been avoided. She attributed the issue to negligence by an official in the National Treasury and supported the call for consequence management. She also asked whether the National Assembly knew of the matter and whether the National Council of Provinces (NCOP) should alert it.

Mr J Britz (DA, Eastern Cape) requested that the National Treasury's response be put in writing and shared with Committee Members by the end of the business day.

The Chairperson reminded the National Treasury of Section 14 of the Money Bills Amendment Procedure and Related Matters Act, which provides for the rectification of technical errors. She enquired why the Minister had not addressed the matter, resulting in Parliament having to intervene.

Ms Gaarekwe confirmed that the National Assembly had been informed of the 2012 error. She stated that, to prevent a recurrence, the National Treasury was reviewing its quality control processes. She acknowledged that the matter was regrettable and confirmed that she was responsible for the division in which the error had occurred. Therefore, she accepted full responsibility.

She took note of the Chairperson’s reference to Section 14 of the Money Bills Amendment Procedure and Related Matters Act. She indicated that the National Treasury would act on the provision as soon as possible. She assured the Select Committee that the written response would be submitted accordingly.

Parliamentary Budget Office (PBO) Presentation

Dr Dumisani Jantjies, Director, PBO, briefed the Select Committee on Appropriations on the Office’s analysis of the 2025 Division of Revenue Bill.

National and local context
The PBO contextualised the Bill within South Africa’s socioeconomic challenges, including rising living costs, deepening inequality, and persistent unemployment. The presentation highlighted that the cost of the average food basket in 2025 exceeds the value of most social grants, leaving vulnerable households exposed to food insecurity. Concerns were raised about stagnant police staffing despite rising crime and the unmet demand in higher education due to infrastructure constraints.

Division of revenue allocations
Dr Jantjies confirmed that after accounting for debt-service costs, the contingency reserve, and provisional allocations, the national sphere was allocated 49.1% of nationally raised revenue. However, 66.9% of this was subsequently transferred to other institutions. Provinces were allocated 41.5%, and municipalities 9.5%.

Municipal revenue share
Local government was projected to receive R167.7 billion in 2024/25, accounting for 20.5% of total municipal revenue. When combined with municipalities’ own revenue of R652.3 billion, this translated to 34% of total revenue across all spheres.

Key appropriations and conditional grants
Key funding increases included implementing the public sector wage agreement, extending the COVID-19 Social Relief of Distress (SRD) grant, supporting the modernisation of the South African Revenue Service (SARS), and funding basic education assistant programmes. The largest conditional grant allocations were directed to health, education, human settlements, and transport.

Recommendations
The PBO urged the Committee to consider the impact of proposed tax measures on vulnerable groups, ensure improved municipal financial management, and align allocations with National Development Plan (NDP) goals to advance equity and sustainable development.

[See attached for full presentation].

Discussion

Mr P Swart (DA, Western Cape) noted that despite the growth in migration and urbanisation, the Western Cape remained underfunded in relation to the increasing demand for service delivery. He asked what adjustments to the equitable share formula were under consideration to better reflect urbanisation trends and population growth in the province.

He raised concern that real per capita funding for provincial functions such as health and education was deteriorating, despite escalating costs. He asked how the National Treasury (NT) would ensure that provinces were not forced to cut frontline staff or reduce access to basic services due to funding increases that remained below inflation.

Mr Swart observed that infrastructure backlogs were rising while investment was declining. He enquired why there was no clear national infrastructure recovery plan and questioned how the National Treasury addressed inefficiencies in provincial infrastructure delivery.

He stated that over 66% of total national appropriations comprised transfers and subsidies, while capital expenditures accounted for less than one per cent. He questioned whether the NT was satisfied with this spending pattern and how it would address infrastructure challenges such as schools and clinics. He proposed that capital expenditures should be significantly increased to meet the country’s development needs.

Mr Swart commented that the SRD grant had lost real value. He further remarked that the scale of the government’s public employment programmes was too small to meaningfully impact the high unemployment rate. He asked how the National Treasury justified modest increases in public employment allocations while describing youth unemployment as a “ticking bomb.”

Mr Britz commented on the R350 SRD grant and asked whether the NT had calculated the real impact of the 0.5% increase in Value-Added Tax (VAT) on society's poorest members.

He enquired about the current ratio of residents per specialist and whether such statistics were available. He pointed out that in a large urban area such as Thembisa in Gauteng, very few neurosurgeons were available to serve a population of over one million people. He added that he was aware of the Department of Health’s plans to reduce the number of specialists.

Referring to Slide 24, he noted with concern that the nominal growth rates were higher than the country’s overall economic growth, which he regarded as problematic.

Mr Britz highlighted that all three spheres of government drew revenue from the same taxpayer base. He therefore asked whether the National Treasury had calculated the total tax burden—both direct and indirect—borne by the average South African, and how this amount was distributed across the three spheres.

On Slide 32, he sought clarity on whether the percentages reflected under “total provincial spending per function” referred to actual expenditure or allocated funds. He pointed out that none of the nine provinces consistently spent their full budgets.

He expressed concern regarding the decline in the contingency reserve reflected on Slide 36.

Mr Britz sought further detail on the statement that provincial education departments were under significant budget pressure. He stressed that these pressures translated into real-world consequences such as reduced teacher numbers, fewer textbooks, and cuts to administrative support.

He asked for the National Treasury’s alternative proposal, given that its own presentation indicated that a R30 increase to the child support grant did not sufficiently address the shortfall or mitigate the impact of the VAT increase.

Mr Britz requested an indication of how the commitments made by the President during the 2025 State of the Nation Address (SONA) would be incorporated into the Division of Revenue Act (DORA).

He observed that many municipalities did not bill accurately for services rendered. He noted that municipalities owed Eskom significant amounts and that water boards were experiencing financial distress. He asked how these issues could be addressed effectively.

Ms Siwisa noted the recent statement by the Minister of Higher Education and Training (DHET) in the National Council of Provinces (NCOP) that international students were welcome to study in South Africa. She expressed concern that, despite this invitation, the country already faced serious infrastructure challenges in accommodating South African students. She stated that many young people struggled to find placement in higher education institutions within their provinces and were often forced to relocate. She questioned the appropriateness of extending limited educational resources to international students when domestic demand remained unmet. She further asked to what extent the budget aligned with education and training programmes in high-demand areas such as technology and green energy. She also asked how the Minister intended to improve the quality of education for students from lower-income households.

Ms Siwisa raised concern about developments in the Northern Cape involving Independent Power Producers (IPPs), which she described as corrosive. She warned that increased IPPs could threaten Eskom’s relevance as a state-owned entity. She stressed that more effort should be invested in supporting Eskom and maintained that it could not be allowed to fail.

She expressed dissatisfaction with the budget’s support for reviving township economies, noting that many community members were making genuine efforts to improve their areas but continued to face barriers to opportunity. She questioned whether the budget ensured adequate funding and access to economic opportunities for previously marginalised businesses, including those owned by persons with disabilities, women, and the youth.

Ms Siwisa enquired how the 2025 budget aimed to strike a balance between land redistribution efforts and the need for economic productivity.

She criticised the increase in VAT, stating that the presentation reinforced Members’ concern that the increase was unwise. She called for attention to the minimum wage and the rising cost of the basic food basket, particularly for vulnerable households.

Ms Siwisa called on the National Treasury to explore measures to recruit more unemployed young people into law enforcement services. She asked whether the budget provided adequate resources to the South African Police Service to improve policing and crime prevention. She also raised concern about the lack of shelters for victims of gender-based violence and for teenage mothers who experienced abuse within their homes.

Ms Nxumalo commended the budget’s approach in shifting greater allocations and resources to provincial and local government, noting that most citizens accessed services at the local level. She asked what further steps could be taken to enhance municipal financial sustainability, particularly through improving the billing system and ensuring a fair and equitable service fee structure.

Referring to the ongoing energy crisis, she enquired how the budget ensured energy security. She asked what additional measures the Parliamentary Budget Office could propose to promote a sustainable and reliable electricity supply, noting that electricity was critical for the growth of small businesses.

Ms Nxumalo asked what further interventions the PBO could recommend addressing gender-based violence, especially in improving access to services and protection orders. She also enquired how the budget enhanced support for services to victims of crime, including shelters, counselling, and victim assistance programmes.

Mr J Majola (MKP, KwaZulu-Natal) was aware that the plan and its implementation plan had been approved by the Cabinet. In preparing the relevant Slide, he asked if the PBO had referenced that document. He further enquired about the National Transport Development Plan (NTDP) status, questioning if it was still at the Cabinet stage or needed to be cascaded to the Select Committee.

He highlighted the increase in the food basket and raised concerns about its affordability for poorer individuals. He noted that the Competition Commission had indicated that retail prices of essential foods remained high despite low production costs and fuel prices. This suggested that savings were not being passed on to consumers. He asked what interventions were required in this regard.

Mr Majola expressed concern that the increase in VAT would disproportionately burden middle—and low-income earners, who typically spend over 68% of their income on essential items such as food, water, electricity, and housing. He sought clarification on the government's approach to addressing the negative impacts on these communities.

He asked whether the government was progressing in reducing grant dependency within communities. Referring to Slide 16, he expressed similar concern regarding the number of applications received at universities compared to available spaces, which he believed indicated a lack of prioritisation for the higher education sector.

On Slide 28, he highlighted the negative percentage of appropriations for the Departments of Agriculture, Communications, and Digital Technology, which he felt represented a vast resource that university students could tap into. He asked the PBO what factors influenced such adjustments to the national appropriations for these sectors.

He sought clarity on the percentage of appropriations allocated to the provincial equitable share. He asked what informed the equitable share formula, particularly whether it was based on population or other factors.

In terms of municipalities' proper functioning, he asked whether the government could ringfence funding for water and electricity services to ensure their effective delivery. In closing, Mr Majola enquired about the defence vote, noting that it had not been included in the report. He questioned how the government planned to address the repatriation of soldiers from the Democratic Republic of the Congo (DRC).

Ms Ndhlovu sought clarification on Slide 25's reference to "other institutions" and requested a breakdown of those institutions.

As a representative from Limpopo, she asked the PBO why Gauteng received a significantly larger allocation than Limpopo. She enquired if this trend could be reversed to allocate more funds to rural provinces, so that all provinces could contribute to and benefit from economic growth. She also complained about the insufficient equitable share allocated to her home province.

Ms Ndhlovu highlighted the weak local government structures, particularly on Slide 43, which included many rural local municipalities. She attributed their non-performance to a lack of resources and noted that the Treasury did not allocate adequate funds to these municipalities.

She linked this issue to the statement on Slide 49 regarding municipalities struggling with critical skills shortages in technical and management positions, alongside political interference undermining administrative effectiveness. She justified political interference, explaining that it was a "Catch-22" situation, as there is a difference between intervention and interference.

Ms Ndhlovu asked the PBO to provide clarity on the 2025 Eskom debt relief and how it aims to enhance Eskom's financial sustainability while reducing the long-term burden on the state. She attributed Eskom's current struggles to the ageing infrastructure and expressed concern about its impact on the utility's operations.

The Chairperson asked the PBO what measures could be taken to accelerate the transition to renewable energy and how the budget would mitigate the worsening economic conditions and the insecurity faced by businesses and households.

Dr Jantjies acknowledged the inputs of the Select Committee. They agreed that the NCOP should initiate a discussion on the extent to which existing government structures enable or hinder service delivery. He noted that, based on international comparisons, South Africa has significantly more layers of governance than most other countries. In this context, the NCOP has a critical role in reviewing the government structure to strengthen service delivery.

Linking expenditure to outcomes

Dr Jantjies advised the NCOP to engage with provincial Premiers to assess how infrastructure expenditure could be better aligned to specific outcomes. He emphasised the need for tangible results and a clear alignment between government spending and service delivery outcomes.

From policy priorities to budget allocations

He explained how the SONA informs the DORA. Budget allocations, he argued, are insufficient in isolation and must reflect policy priorities. SONA sets the strategic direction, and DORA allocations must be aligned to those priorities to ensure coherence and effectiveness.

Oversight and the role of VAT

Dr Jantjies outlined the role of the PBO in supporting parliamentary oversight by providing additional information on government proposals such as a potential increase in VAT. He explained that VAT can have positive outcomes by increasing revenue, supporting economic growth, and creating employment. However, he noted concerns about equity. Approximately 30% of VAT is paid by lower-income households, while other households pay 50%. The broader social objectives of taxation must therefore be taken into account.

Transfers to public entities and duplication of mandates

A PBO official reported that the National Treasury transfers funds to over 100 national public entities. The Department of Trade, Industry and Competition (DTIC) oversees 17 such entities, more than any other department. These entities are, on average, similar in size to national departments regarding employee numbers and compensation. However, significant duplication of functions exists. For example, the Department of Small Business Development (DSBD) and the Independent Development Trust (IDT) fund small businesses through programme grants. One public entity was reported to have only six employees, while its Chief Executive Officer earns R6 million annually. The PBO identified the absence of guidelines for institutional structuring as a concern.

Equitable share and funding formula

The PBO referred to a Slide in the Treasury’s presentation explaining how the equitable share formula is updated. It was also confirmed that the same formula determines the provincial equitable share.

Policing and personnel structure

Concerns were raised about the South African Police Service (SAPS), particularly the absence of changes in personnel structures across various levels. The PBO confirmed that although the SAPS budget has increased, the number of personnel has remained constant over the Medium-Term Expenditure Framework (MTEF) period. The Office emphasised the need to increase police personnel to improve responses to issues such as gender-based violence (GBV).

Zero-rating and essential goods

The PBO discussed findings by the Pietermaritzburg Economic Justice and Dignity Group, which showed that many essential goods—such as toiletries—are not zero-rated. Not all poor households consume only zero-rated goods. Zero-rating was described as a blunt policy tool, as retailers are not obligated to pass the benefit on to consumers.

Economic indicators and price dynamics

The PBO reported using the Consumer Price Index (CPI) for its economic analysis. The issue is not simply that nominal growth exceeds real gross domestic product (GDP) growth but that real GDP growth is in decline. Regarding pricing, the PBO noted that consumers are not always protected from cost increases and rarely experience price reductions when inflation subsides. It was suggested that better retail pricing integration could improve consumer outcomes.

Expenditure on education

The Committee was informed of research by Stellenbosch University indicating that real per capita expenditure on learners declined 2.3% between 2009 and 2018. The sharpest declines were recorded in the Free State and Limpopo (13%) and the Northern Cape (11%).

Social Development and child poverty

The PBO reported that the Department of Social Development had reviewed the Child Support Grant and levels of child poverty. Several alternative approaches were under consideration.

Gender-responsive budgeting

The Office emphasised that the national budget must be responsive to the Constitution and the needs of women and marginalised groups. A recent paper on gender-responsive budgeting highlighted concerns. For example, while the government provides housing through the Reconstruction and Development Programme (RDP), women leaving abusive households are often placed in temporary housing, which leaves them vulnerable to returning to unsafe environments. The current budgeting system does not prioritise victims of GBV, and there is no mechanism to address this within housing policy.

Health workforce

The PBO referred to a pre-brief published the previous year on the ratio of doctors to patients, focusing on specialists. Data from the Department of Health (DoH) indicated that in 2019, there were only 10 medical specialists per 100,000 population.

Urbanisation and migration patterns

The Office reiterated that urbanisation is not exclusive to the Western Cape. Similar migration patterns have been observed in KwaZulu-Natal and Gauteng.

Quality of municipal infrastructure projects

The PBO reported that while infrastructure projects are being implemented at the municipal level, the quality of delivery is often poor. Roads that have been recently maintained frequently deteriorate within two years. The Office called for stronger accountability mechanisms in municipal project implementation.

Municipal billing challenges

Municipalities were reported to face persistent difficulties with billing systems. In many cases, they do not have accurate data on the amounts owed by ratepayers, undermining financial sustainability.

Intervention vs interference in local government

The PBO clarified the distinction between intervention and interference. Not all municipalities require intervention in terms of section 139 of the Constitution. Where such intervention is necessary, it should be time-bound and accompanied by clear objectives.

Public employment programmes and unemployment

While acknowledging the role of public employment programmes, the PBO cautioned that they are unlikely to address the scale of unemployment, particularly among those who have been jobless for more than a year.

Township economy and data gaps

The Office emphasised the importance of the township economy and encouraged the government to explore its informal dynamics in more depth. However, a significant data gap remains regarding the number of small, medium, and micro enterprises (SMMEs) operating in townships and the services they provide.

Barriers to township economic development

The PBO reported that the State Information Technology Agency (SITA) imposes the same conditions on township-based businesses as commercial banks apply to firms operating in the formal economy. However, many township enterprises do not have access to the same forms of capital and financing. The Office urged the government to reconsider what interventions could be implemented to facilitate the growth of the township economy.

The Office further noted that the South African economy remains highly concentrated, marginalising informal economic activity. The expansion of shopping centres and malls into townships is displacing opportunities for small, medium, and micro enterprises (SMMEs), further limiting prospects for local economic development.

Eskom debt relief and infrastructure investment

The PBO reported that the debt relief intervention was intended to strengthen Eskom’s balance sheet. Reducing Eskom’s debt burden would enable the entity to redirect financial resources towards maintenance and infrastructure investment. The Office cautioned that independent power producers (IPPs) alone cannot ensure South Africa’s long-term energy security. The challenges Eskom faced did not begin with State Capture but are rooted in the government’s historical underinvestment in the maintenance of ageing infrastructure.

Since receiving debt relief, Eskom’s financial position has improved. The Office reported that Eskom reduced its financial losses during the 2023/24 financial year and is projected to return to profitability in 2025. However, the R95 billion in outstanding debt owed by municipalities remains a critical threat to Eskom’s long-term financial sustainability.

Social grant trajectory

The PBO reported that the old age grant is projected to grow steadily, driven by South Africa’s shifting demographic profile. Therefore, it is unrealistic to anticipate a reduction in the grant over time.

In terms of overall grant trends, the number of grant recipients is not growing as rapidly as may be assumed, despite the scale of the country's socio-economic challenges.

Renewable energy and oversight responsibilities

Dr Jantjies informed the Select Committee that Eskom is investing in renewable energy and encouraged the Committee to monitor progress in this regard. He further noted that South Africa faces a serious infrastructure challenge and recommended that the NCOP develop a coherent oversight strategy that includes the Presidency and the Department of Public Works and Infrastructure.

Public spending, taxation and revenue generation

Dr Jantjies highlighted research showing that high-income earners benefit more from public spending than low-income earners. He contextualised the ongoing debate on tax as part of a broader international discourse and supported the view that the state requires increased revenue to implement its policy commitments.

Labour market alignment and skills planning

He proposed developing a national skills master file to assist in identifying the skills required by the economy. This would allow for improved alignment between government expenditures and labour market demands. He suggested that the Select Committee could evaluate whether government spending is aligned with the skills outlined in such a database.

Treasury’s input

Equitable share and migration compensation

A Treasury official confirmed that all provinces, including the Western Cape and Gauteng, are compensated for internal migration. The data used for this purpose is updated annually. At the time of the presentation, the most recent available data were drawn from the Income and Expenditure Survey, which includes poverty data. This dataset was released at the end of January. It will inform updates to the equitable share for provincial and local government allocations in the next Medium-Term Expenditure Framework (MTEF) period.

The official emphasised that the equitable share formula is not a budgeting tool. Although one of its components is weighted at 48%, and the average share observed is around 42%, this does not mean that provinces must allocate those funds to a specific department. For example, in most provinces, education receives the largest share of the budget. However, the highest allocations go to health in Gauteng and the Western Cape. These reflect provincial spending choices, and the national government cannot be held responsible for how provinces allocate their funds.

The official noted that during periods of pressure, such as the annual January school admissions period, there is often a public perception that the national government has not provided adequate funding. However, the equitable share is an unconditional grant, and provinces have full discretion over its distribution.

Capital expenditure and delivery constraints

On the decline in gross capital formation, the official stated that funds had been allocated, and the Minister of Finance had referred to a total of R3 million in the broader budget. Numerous conditional grants are available to both provincial and local government spheres.

The official referenced a presentation seen by the Select Committee on Finance the previous day, which indicated that over the past five years, provincial departments had returned approximately R12 billion in unspent conditional grants. In Treasury’s view, this points to a persistent problem of inadequate planning and poor delivery capacity, which must be urgently addressed.

The official concluded that if planning and delivery mechanisms were improved, the funds currently in the system would be sufficient to make substantial progress on service delivery. This would also enhance value for money, addressing concerns previously raised by the PBO about the quality of work delivered under existing grants.

Adoption of Committee minutes

The Committee adopted the outstanding minutes dated 10 December 2024, 14 March 2025, 18 March 2025, 26 March 2025 and 2 April 2025.

The meeting was adjourned.