Public Hearings on the Intergovernmental Fiscal Review

NCOP Finance

11 October 1999
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Meeting Summary

A summary of this committee meeting is not yet available.

Meeting report

Finance Select Committee

SELECT COMMITTEE ON FINANCE
12 October 1999
PUBLIC HEARINGS ON THE INTERGOVERNMENTAL FISCAL REVIEW

Documents handed out
The Intergovernmental Fiscal Review
Department of Finance's comments on Intergovernmental Fiscal Review
Idasa's Review of Provincial Governments: 96/7 - 99/00
Idasa submission
COSATU submission

PROGRAMME
Briefing on the Review:
Department of Finance
Response to the Review:
Financial and Fiscal Commission
Northern Province Minister of Education
Western Cape Minister of Finance & Development Planning
Other provinces comments
Idasa
COSATU

SUMMARY
Morning session: There was overwhelming consensus that the Intergovernmental Fiscal Review is an important document in terms of informing the debate around the provinces. The Department highlighted that the provinces had improved remarkably in the last few years given the tremendous challenges that they had faced. However, one disturbing trend was the increase in spending on personnel and a decrease of all other expenditure. The FFC highlighted the need for transparency, accountability, efficiency and good communication in terms of financial management. The MEC for Education in Northern Province explained the crisis in terms of education in the Northern Province and the inability of the province to rectify the matter.
Afternoon session: Summary currently not available

HEARINGS
The Chairperson, Ms Mahlangu, opened the meeting by congratulating the Department on producing an excellent document. She invited all present to raise issues or areas of concern related to the document during the meeting.

Department of Finance presentation
Mr Momoniat began his presentation by mentioning that he would have preferred the Intergovernmental Fiscal Review to have been released to the House at large because of the misinformed debate in the press around the issue of provincial spending. Because of a lack of accurate information this debate has not been constructive.

Since their inception in 1994, the new provinces have faced vast and numerous challenges. They have faced capacity constraints and other obstacles. However, the provinces have come a long way since 1994. It is unfortunate that statistics for 1992/ 1993 are not available to compare to those of 1994/ 1995, because it is likely that such statistics would reflect how far the provinces advanced even in their first two years.

Benefits of the Review
The document is very useful in terms of identifying trends, allowing comparisons between provinces and facilitating sectoral analysis. The Review shows the features of each province and highlights disparities between them. Mr Momoniat did caution that like must be compared with like. When comparing one must take into account that some provinces have inherited up to four Bantustan administrations and their liabilities.

Fiscal Achievements
Mr Momoniat noted that in terms of the deficit, each province had made improvements. In the 95/ 96 fiscal year, actual expenditure exceeded the budget by about 20 %. This can be accounted for to a large extent by the incredible expansion of service delivery owing to the influx of people entering the official system after democratisation. In addition to this, the provinces had been faced with unreliable or inaccurate information from previous administrations. Now the budgets and actual provincial expenditure are converging. This is a very positive development. In 97/ 98 the total provincial deficit came to R5,8 Billion. In 98/ 99 the province emerged with a surplus of R1,1 billion. The spending on social services has steadily increased, now accounting for about 85% of provincial budgets, and progress has been made in terms of debt repayment.

In terms of the challenges facing the provinces, one of the main concerns is that personnel expenditure takes up about 61% of the budget. This is up from 56, 5 in 95/ 96. If welfare grants are factored in, then it raises the percentage to 79%. All other non-personnel components of the budget have decreased. This is disturbing in that it does not help to have teachers and no textbooks and classrooms or nurses with no medicine.

Mr Momoniat took the committee through the document. Chapter 1 looks at economic and demographic profiles of the provinces. Much of the information was taken from the 1996 census and has been utilised for the purpose of the budgetary formula.

Intergovernmental System Matures
Mr Momoniat referred to Table 2.1 in the Review which explains how division of the budget between the spheres. Further information can be found in the appendix.

In terms of finance, co-operative government is working well. Significant progress has been made with regard to increasing equity between the provinces and there has been a shift of funds towards the poorer provinces. The allocation of resources has, on the whole, been remarkably peaceable. The Budget Council is operating smoothly as well as the central 4x4s and the MinMECs.

Mr Momoniat did mention the need to link the budget to service delivery. The process of policy formulation should take cognisance of the budget and visa versa. Now that the provinces have achieved macro-stability and are out of crisis management, it is important to focus on micro-reforms to improve services delivery.

Education
Enrolment in educational facilities has increased since 1994 by 2.5 million to bring the number of learners to 12.5 million. Here too, the trend is that most money is spent on personnel (about 90%) and very little on capital expenditure. This is despite the fact that spending on education has risen from 30 billion to 39 billion in the last three years. However, most of this increased spending went to salaries. It should be noted that not all expenditure on education is incurred at a provincial level. National government spending is primarily on tertiary education.

Health
There has been a notable rise in expenditure on health. Capital expenditure has increased largely because of the building of two academic hospitals. In terms of Table 5.10 dealing with Health expenditure in the provinces, it should be noted that per capita expenditure is higher in provinces that have academic hospitals. These hospitals also provide services to those living outside the borders of the province in which they are situated.

Welfare
About 90% of Welfare expenditure is spent on social security and only 10% on other welfare services. This has implications for the Welfare Department's emphasis on developmental welfare.

Non-Social Services
Mr Momoniat mentioned that non-social services were difficult to compare between provinces because in some provinces a particular service was provided for by local government and in another province, the provincial government may fulfil that responsibility. He did mention that from now on, local government allocations would go directly through the National Department. From 2000, housing grants would fall under the Provincial budget.

1999/ 00 - 2001/ 02 budgets
In terms of the budget for this period, cost surprises in terms of personnel expenditure could be expected. Provinces must also pay off their overdrafts. Mr Momoniat clarified the definition of a deficit, stating that a deficit existed where current expenditure exceeded revenue collected during that same financial year. Another issue he raised was that local government's budget systems were not internationally compliant and the Department hoped that this would be remedied within the next three years.

Discussion
Mr Aulsebrook (KZN) inquired about how personnel costs might be contained in light of the need to increase capital expenditure for instance in education.

Mr Momoniat responded that the Department does not dictate to the provinces how they should spend their resources. The province should look at the quality of the outcome gained by spending money on personnel and non-personnel respectively and take a decision on expenditure with that in mind.

Mr Tooley (Northern Province) asked whether it was possible to have figures on the exact amount of money over which provinces have discretionary power.

Mr Momoniat replied that this was very difficult to asses as in all the budgets a large amount is committed to certain areas like the salaries of personnel.

The Chairperson raised a concern about problems caused by information systems and the lack of communication between systems.

Mr Momoniat felt that this had already be addressed to a large extent by the installation of Persal and FMS systems in all provinces. All systems are now compliant and if fault is to be found, it often lies with managers and not the system itself.

The Chairperson inquired about steps that were being taken to reduce the percentage of the budget that is spent on personnel.

Mr Momoniat indicated that this was being discussed by the various MinMECs. The MinMECs for Education are aiming at reducing personnel expenditure to 85% of the budget. He indicated, however, that the decision was not in the hands of the Department of Finance. The Department may give recommendations, but ultimately the decision about the division of funds lies with each provincial department respectively.

Mr Marais (Free State) asked for clarification of the phrase "healthy provincial competition" and what was meant by budgets being "meaningful" .He also queried whether there had been consideration of giving power to the provinces to levy taxes on property.

Mr Momoniat responded that "competition" referred to provinces competing with each other to be the most efficient and frugal. According to Mr Momoniat, the budgetary process is a democratic one and not a top-down one. Once the budget has been enacted, no-one has the right to alter it unilaterally. In terms of "meaningful" budgets, it is important that provinces felt constrained by the budget and do not overspend. If actual expenditure vastly exceeds the budget, then the budget lacks meaning in that it does not reflect actual spending. With regard to provinces levying taxes on property, this is declared illegal in the Constitution.

Mr Marais inquired further as to whether the Department had considered asking the Auditor General to conduct impact studies.

Mr Momoniat said that at present there is only compliance auditing and not performance auditing.

Ms Fubbs (Gauteng) raised a question about BASS (a financial mangement system) and when they could expect it to be installed. She was also concerned about systems being able to cope with Y2K problems. She went on to raise the issue of ghosts in the system and an inability by the system to relinquish sending cheques to those no longer employed by the state.

Mr Momoniat said that he was not an IT specialist and perhaps it would be better to address these questions to those who were. However, with his limited knowledge of IT, he felt that the problem with ghosts was often a managerial and not a systems problem, The manager is responsible for checking the list of employees generated by the system. There are continual ghost-busting exercises under way although an area of concern remains the relative ease with which names of non-governmental employees can be entered into the system. Mr Momoniat indicated that no final plans had been made about BASS and that it is thought that current systems are all Y2K compliant.

Financial and Fiscal Commission's response to the Review
Mr Morobe indicated the approval of the Commission for the Intergovernmental Fiscal Review which is particularly useful for indicating the present state of the provinces and challenges for the future.

Mr Morobe stated that the FFC was currently involved in a major review of the functioning of the Commission and is preparing to make its recommendations for 2001. Once this is completed the FFC will brief the committee. Key components of the report will be: principles of intergovernmental fiscal relations, a review of the current provincial budgets, the relationship between current and capital expenditure, sub-national borrowing and formula funding.

Mr Morobe emphasised the importance of accountability, transparency and efficiency. To a certain extent the Review gives effect to these principles and should be commended for it. In a study conducted by the FFC, United Nations Development Fund and UNICEF, it was found that ironing-out problems in service delivery can be achieved by the efficient use of existing resources rather than increasing the resources allocated. Efficiency must be a priority concern for Parliament, the NCOP and the civil service.

There is also a need to review constantly the understanding of the budget process by participants. Lack of information is disempowering and it is important that all participants use the same terms to denote the same concepts to ensure mutual understanding. Mr Morobe queried the extent to which information was filtering through to the NCOP with regard to programmes underway to deal with difficulties concerning Persal and the Financial Management System.

Mr Morobe suggested that in surveying the Review, cognisance should be taken of the underlying processes that gave rise to the figures and not just the figures themselves.

In conclusion, the two major concerns of the FFC were the decline in capital expenditure and the consequences for subsequent generations. Although spending on personnel is important, it is vital that we leave a tangible legacy of infrastructure such as hospitals and school buildings and not consume all the resources. This is being currently addressed.

The other concern relates to the local government budget in light of the elections in the middle of next financial year. The new incumbents will take office midway and will thus inherit an existing budget. In addition to this, there is a need to address the issue of local government budgets as mentioned by Mr Momoniat.

Discussion
Ms Fubbs (Gauteng) asked about the World Bank's approach to budgeting which includes personnel expenditure as part of capital expenditure. She also wanted to know how South Africa compared to other countries of a similar income level.

Mr Morobe responded that investment in people is very important and to some extent can be considered as capital expenditure. For example, investing in the training of civil servants in order to fulfil their obligations effectively is not too different from capital expenditure. South Africa apparently compares favourably to other countries with a similar income.

Mr Hamilton inquired about sub-national borrowing in terms of Section 120 (2) of the Constitution. Mr Morobe pointed out that sub-national borrowing is indeed regulated by the Constitution, but is further regulated by enacted legislation. When a province wants to borrow money, the necessity of that loan is evaluated by the Loans Co-ordinating Council. Mr Momoniat referred Mr Hamilton to the Public Finance Management Act.

Mr Marais (Free State) inquired about the capacity of provinces to carry an overdraft and as this could be considered as a form of borrowing.

The response was that overdrafts are possible but they have to be to be paid off in the same financial year in which they are incurred. It should also be acknowledged that those provinces that incorporated Bantustans inherited overdrafts from the previous administrations.

Mr van Zyl (IDASA) asked how much the provinces currently owe and how much they are repaying.

Mr Momoniat responded that it is difficult to say, but he estimated it at about R3 to 4 billion.

In conclusion the Chairperson pointed out the necessity for the committee to determine what its oversight role would be in terms of the budget process as well as monitoring that the money allocated for a particular task is indeed used to carry out that function. She requested that the committee be invited to attend FFC meetings.

Education MEC for the Northern Province: response to the Review
Mr Edgar Mushwana began his presentation by taking the committee back to 1994 when the Northern Province came into being and had to incorporate four Bantustans as well as seven education7 administrations into the current province. They lacked vital information such as the number of schools or teachers in the province. At least now that information has been gathered.

One of the major challenges is the complete inability to raise own revenue and the consequent dependency on national government. This needs to be seen against a backdrop of the right to education as it appears in the Constitution. The Northern Province has a budget of R5.7 billion for education. Of that R5,445 billion is spent on salaries. This leaves R287 million for all other expenses.

In 1994 all salary scales had to be equalised. Given the very small percentage of whites in the province, the majority of teachers had their pay increased to levels formerly enjoyed only by Whites. Although a necessary move, this placed a further demand on already scarce resources. There are also very few private schools in the Northern Province so the province is almost solely responsible for educating learners and for employing teachers. In this respect the number of colleges had to be scaled down from over twenty to two as there was no employment for qualifying teachers. Already the province has 25 000 unemployed teachers. Redeployment of teachers is also difficult because of a lack of information, difficulties with the unions and resettlement of families.

A further difficulty is that because of a lack of pre-school facilities in most settlements, parents have been sending their underage children to school. Steps have been taken to prevent this.

In terms of backlogs, about R6.34 billion is needed to build the necessary number of classrooms. If libraries, laboratories and sports facilities are to be added, another R13 billion would be necessary. There is no ability to address the backlog through the province's equitable share.

Mr Mushwana referred the committee to Table 4.8 of the Intergovernmental Fiscal Review. There are currently 2 043 000 learners in the province. R210 million is needed for textbooks although only R61 million is available. A further R20 million is needed for science labs. However, there is no money available for this.

Mr Mushwana concluded his presentation by challenging the committee on what they were going to do to level the playing fields.

Discussion
Mr Mathebe (SALGA) reiterated Mr Mushwana's challenge to the committee about how they were going to respond. He felt that more money should be sent to the Northern Province. If the crisis in education was not addressed, unemployment will continue to grow over time. Education is one of the most important aspects of development and the committee should motivate that the poorer provinces get more money.

The Chairperson responded by pointing out that this is a country-wide problem and is not isolated to the poorer provinces. This needs to be addressed as a national issue and a systematic approach to the problem needs to be formulated. The role and responsibilities of parents also need to be taken into account.

Mr Hamilton (KZN) raised the issue of public sector inefficiency. He pointed out that certain NGOs were building quality classrooms for about R27 000 per classroom where as the government tender was about R200 000 per classroom. He felt that perhaps the government needed to be more flexible in the way that they solved problems. He also felt that perhaps too much was being attempted all at once and that priorities should be set. In his opinion, employment was the number one priority.

Mr van Zyl (Idasa) mentioned that the government formula does not take into account the socio-economic ability of the community in which the school is found.

Mr D Kgware (NCOP Chair of the Select Committee for Education) felt that the problems needed to be addressed in a holistic way. In other provinces there are schools standing empty. Despite the difficulties, relocation of teachers and rationalisation has to take place.

Mr Mushwana acknowledged that similar problems existed in other provinces. He said that in terms of Table 4.8 the low figure of R140 per learner for "Other expenses" needs to be addressed. This is the lowest figure for all the provinces.

Mr Marais (Free State) inquired about steps being taken to lessen dependency on the budget.

The Chairperson indicated that this issue would be discussed later in the day.

Comments of Western Cape Minister of Finance & Development Planning
Mr Leon Markovitz commended the Finance Department for a well-compiled and innovative Intergovernmental Fiscal Review in which the various provinces' financial data can be compared. From a provincial legislature point of view the Review is important in that it will enable politicians and other role players to better understand and participate in the budget process.

He added however the following concerns:
The crowding out effect of the Governments' salary bill and the negative impact it has on service delivery is a problem that cannot be ignored.
The own revenue side of province's budgets will have to be addressed with greater vigour. Finance MECs are required to be more innovative as they are desperately looking to fulfill existing requirements and there is not sufficient finance for them to become initiators.

The Western Cape had to deal with two serious blows leading to drastic cuts in capital expenditure. The first was the deterioration of macro-economic conditions which led to budget cuts. The second was the downward adjustment in the 1996 Census figures of the Western Cape Province. This resulted in large cut-backs in the province's allocations. He proposed that in future SA Statistics interact with provinces before presenting their census figures. The MTEF process had nevertheless allowed them to plan early and prepare a meaningful and balanced budget for the current and next two financial years.

He maintained that the major priority in the provincial budget must be an attempt to solve the problem of unemployment.

He suggested that in future Fiscal Reviews, aspects such as comparisons on service delivery receive attention.

In conclusion he commended Minister Manuel for the way he is running his portfolio and the greater certainty within which provinces are now able to plan forward.

Idasa presentation
In their review of Provincial Budgets 1996/97-1999/00, Ms Lydia Ntenga, made the following points:
The emerging IGFR system does not appear to be working to increase social service expenditure on the poor. The original motivation of the system had been to increase delivery efficiency by decentralisation and inter-provincial equity by revenue-sharing formula. However with tight fiscal constraints there was a decline in budgeted capital expenditure, "economic growth departments" expenditure and in non-personnel budgeted expenditure especially in health and education. Expenditure decreases were higher in poorer provinces, further increasing the impact on the poor.

The reasons for these expenditure trends were:
· Provinces budget for reduced deficits and often surpluses in order to boost budget management discipline
· Large expenditure items over which provinces have no control expand and push out capital, economic support and non-personnel expenditure. For example salary payments and social security payments use up more than 75% of provincial budgets. Control of these two items is beyond the power of the provinces. Personnel expenditure is rigid because of the 1996 public service agreement regarding salary increases and the use of voluntary severance packages only with no retrenchments. Social security payments are rigid because the national sphere sets payment levels and eligibility criteria.

The remedies that Idasa suggests to counter these expenditure trends are:
the application of a horizontal formula
making social security payments a conditional grant or shifting this function to the national level
giving provinces greater power over human resources management with regard to salary levels and retrenchment

Discussion
Mr A Marais (ANC, Free State), Mr L Suka (Eastern Cape) and the Chairperson asked Idasa to clarify the comments that provinces have no discretion over the level of social security payments and the eligibility criteria and hence responsibility for social security grants should shift from the provinces to the national government.

Mr van Zyl of Idasa said that provinces have been overspending on grants. However provinces cannot decide on the level and eligibility criteria of these grants. If such decisions are out of the provinces' hands, then it is unfair to make them responsible for the funding of these grants. National government must make the grants directly or make them conditional grants. Currently the provinces were made to bear the financial consequences of national decisions and had to use other revenue to meet the shortfall.

Mr Mushwana (MEC for Education, Northern Province) concurred that this should be a national responsibility or alternatively provinces must be given some leeway in decision-making. He gave as an example the national policy of free health care to pregnant women and to children under six. He believed that this should not be applied universally as there are those who can afford to pay for these services.

Mr I Momoniat (Department of Finance) asked why Idasa had used budgeted rather than actual expenditure figures. He was greatly surprised that Idasa had said that the poor had got poorer and pointed out the many resources such as schools and clinics that had been built in poorer areas in the past five years. He questioned the authenticity of Idasa's figures.

In his response Mr van Zyl said that today's submission had been guilty of amnesia when one considered pre-1994. He asked the committee to look at Idasa's longer report, Review of Provincial Governments: 96/7 - 99/00, where there is an extensive list of successes mentioned. The trends that have been highlighted today have been happening since 1997/98 in that personnel expenditure has not been resolved and capital expenditure is not where it should be.

He pointed out that they had started working on this document a long time ago and actual expenditure data had only been available since 1999 and so they had used budget data. However he believed that there was value in looking at budget data as this reflected what provinces aimed and wanted to do rather than what eventually happened.

The committee wanted clarity as to whether Idasa's submission was a summary of what was contained in their longer report. Further the submission did not specifically address the 1999 Intergovernmental Fiscal Review document but instead focussed on a critique of the system itself.

Mr van Zyl agreed that their submission did not specifically address the 1999 Intergovernmental Fiscal Review document and agreed to provide a revised clearer submission. He hoped that they could go through their longer report with the committee sometime in the future.

Provinces' response to the Intergovernmental Fiscal Review
Gauteng: Ms J Fubbs (ANC) said the Review increases accessibility and understanding so that one can better re-prioritise in future budgets. The clear comparisons give a better perspective in assessing transformation. For the first time one can see the deficiencies and achievements of the provinces. In future they hoped to see greater linkages between input, output and outcomes. They also looked forward to programme budgeting in the future.

Mpumalanga: This legislature's comments would be forwarded to the committee as soon as possible.

KwaZulu Natal: Mr Hamilton (IFP) said this is a very valuable document in evaluating the province's performance and that the province welcomes it.

Eastern Cape: This legislature's comments would be forwarded to the committee as soon as possible.

Northern Province: Ms S Sithole (Finance Committee chairperson) echoed Gauteng's comments and appreciation.

COSATU submission

Ms Fiona Tregenna stated that COSATU welcomed the both the report and the opportunity to comment on it. COSATU sees the report as important in improving the accountability and transparency of expenditure and moving towards a results-orientated budgeting system. However she expressed COSATU's concern at the contradictory elements contained in the report, namely the desire for increased fiscal discipline versus the national commitment to improved and accelerated service delivery.

The presentation on COSATU's submission highlighted the following points:
- The performance of provinces should not judged on fiscal discipline alone. Provinces are being encouraged to turn in budget surpluses despite huge socio-economic backlogs.
- The review's commitment to the democratisation of the budgetary process is welcomed but COSATU called on both the Select and Portfolio Finance Committees to table legislation on Money Bills. Interaction and participation on financial matters must be allowed
- Provincial squeezing of resources does not lead to increased efficiency. Efficiency should be measured by outcomes and not by budget surpluses. Social needs must not become subordinated to fiscal targets. The provinces must continue to deliver to the public and budget surpluses should not be the result of deliberate cost-cutting exercises like reducing service delivery to the poor.
- Macroeconomic policy can advance or regress provincial development. It appears that developmental objectives are being replaced by budget deficit objectives, especially as a result of the GEAR strategy. Provinces could spend all their allocated resources but still not have enough to meet basic needs. COSATU calls for a review of the GEAR strategy.
- Government claims that capital spending is being squeezed out by public service wage expenditure. COSATU challenges this claim. Provinces have to squeeze their books because of a general lack of funds and capital expenditure is often the easiest to squeeze. The problem is therefore the shortfall in the national outlay of funds and not public sector wages.
- There is a need to align the budget with the collective bargaining process. COSATU proposes that the collective bargaining cycle should be completed before the budget goes to cabinet.
- The power relationship between national and provincial government needs to be re-examined. As national government collects taxes it holds a great deal of power and can drive the development of policies. This in itself is not a problem but it becomes one when inappropriate policy choices are made and forced upon provinces. Provinces have been made to prioritise the repayment of debts to national government. They also face unfunded mandates where responsibilities are placed on them by government without the allocation of adequate resources to carry them out.
- Provincial inequalities, existing as a legacy of apartheid, must be reduced. All provinces are having their expenditures squeezed but the effect is greatest in the poorer provinces. COSATU feels that any fiscal federalisaton will only deepen inequalities.
- Capital expenditure is needed to allow infrastructure development and encourage long term economic development. However tight deficit/GDP targets are leading to a decrease in capital expenditure. Figures show that capital spending has almost halved as a proportion of provincial budgets between 1996/97 and 1999/00 and that the decrease is most notable in provinces in greatest need of economic development.

Discussion
The Chairperson asked what the process would be to ensure personnel expenditure becomes less but civil service efficiency increases.

COSATU responded that it did not believe in a lean and mean state. Developmental priorities should determine expenditure. COSATU would argue against personnel expenditure being inherently wasteful instead seeing it as a way to meet the developmental aims of the state. The overall expenditure framework should be looked at. COSATU would not separate capital and personnel expenditure, a school could not exist without teachers, a clinic could not function without staff. The public service should exist to match the service delivery goals of the state. Consider the current education aim of reducing the pupil/teacher ratio, this hardly fitted with decreasing personnel expenditure. COSATU proposes a total audit of the public service to see if it is doing its job instead of focusing on just the wage bill.

Ms J. Fubbs further remarked that she would welcome a public service performance audit and would be especially keen to see an audit into teacher attendance. Workers did have a right to strike but there was great evidence that the teaching profession was developing a culture of non-attendance that had nothing to do with strike action.

Mr Mark Sweet responded that it was a generalisation to attack teachers on their attendance record. An audit would increase the ability to recognise and deal with indiscipline but they believed that a discipline system was already in place but it was not yet used effectively.

In his response, Mr Momoniat said he believed it was too easy of COSATU to say that disciplinary procedures existed but that they were just not being applied. He believed that such teachers were committing a criminal deed against South Africa's children. He used the example of parents in Soweto who went to great lengths to send their children to Model C schools outside of Soweto in order to ensure their children were taught. He believed the big question to answer was why certain teachers in Soweto were not committed to delivery. The discipline issues needed to be dealt with so that delivery happened more effectively on the ground. There was no case to be made for paying teachers more to improve service delivery.

Ms J. Fubbs remarked that it would appear that COSATU may have to review its position regarding GEAR.

Mr Sweet exclaimed that GEAR was really presented as a fait accompli. There were no discussions on its constraints and the extent to which it makes economic development untenable. COSATU had made it clear that it had problems with GEAR but that did not mean that they proposed an irresponsible expenditure plan in its place. They accepted the need for a macro-economic expenditure plan but believed that it should enhance social development, those two things were not mutually exclusive. There needed to be a collective political discussion to try to find ways to get around the constraints and develop an economic programme that did not set out targets that became a religion - that is what GEAR has done. Economic plans must have more flexibility if our social programme is to retain its creditability.

Ms J. Fubbs noted that COSATU challenged the policy to 'right-size' the public service and wanted numbers employed to reflect numbers needed to get the job done. However the service had a reputation of being used as a means to decrease unemployment.

In response, COSATU felt that the approach to the public service should be the need to realign the service to fit South Africa's new democratic communities and not the communities of apartheid.

Ms J. Fubbs (ANC, Gauteng) commented on COSATU's statement that developmental objectives were being supplanted by budget deficit objectives. That would suggest a reduction in social spending but the figures actually showed otherwise. Sixty per cent of government spending went on social services and was aimed at reducing the legacy of the past. She believed that there was a need for fiscal rectitude. That appeared to be a constraint on developmental policies but if a deficit continued, less and less money would actually be available for that purpose. As a country with a developing economy it seemed unlikely that it could cope with continuing and increasing deficits. It did not make sense to ignore the need for fiscal discipline when it was really just a different approach to ensure the developmental aims of the state. Mr R. Tooley (Northern Province) asked what COSATU saw as a good figure for deficit spending versus GDP.

COSATU answered that it believed that tax revenue alone could not fund the required service delivery and that deficit financing was necessary and could not be fixed at a particular level. If revenue and the deficit are fixed then expenditure becomes the variable that bears the adjustments. Consequently delivery is unpredictable.

In response to this and other questions, Mr Mark Sweet of COSATU said that Government Employees Pension Fund (GEPF) had to move to a PAYE system which would then release billions of rands to use for capital and current expenditure. He added that COSATU did not believe that performance-related pay improved service delivery.

Mr Mohammed Kamdar, a parliamentary researcher, said that COSATU appeared to have no understanding of what was an acceptable limit to deficit spending. He had heard that some economists were advocating a level of 55% deficit spending. He believed that one cannot abandon the notion of spending within the paradigm of what one has.

COSATU asserted that no figure had been advocated by themselves but acknowledged that there had to be spending limits to expenditure. However those limits could not be determined by abstract macro-economic formulas.

In summing up, the chairperson said that it had to remembered from where South Africa was coming with regard to background political issues in assessing what it had achieved. The reality was that capacity constraints existed.

The Intergovernmental Fiscal Review, the first of its kind, is a concise report on current expenditure trends and it provides useful indicators as to whether we are progressing or going backward in the transformation process. Its tables would be updated on an annual basis.

She identified certain issues that had been contentious:
- the utilisation of the census as a tool for allocation
- macro-stability issues
- personnel costs (here she welcomed COSATU's willingness to sit down and discuss budget allocations to meet objectives in health, education and welfare)
- information technology systems
- provincial accountability, efficiency and transparency

However she looked to the Constitution's chapter on Cooperative Governance which encouraged harmony in intergovernmental relationships in order to work towards what was best for the country. With regard to the implementation of the Public Finance Management Act, it would be helpful for COSATU to participate in discussions as regards to the oversight role of the NCOP in provincial departments. Finally she mentioned several upcoming opportunities where stakeholders could engage and try to reach consensus: the white paper on budget reform, the money amendment bill as well as public hearings on the MTEF policy statements which would be conducted by both finance committees where one needed to establish how Parliament could use the MTEF as a tool to monitor how government is doing.

The committee members were united in their belief that the hearings had been extremely constructive.

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