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FINANCE PORTFOLIO COMMITTEE
27 October 2000
SECOND ADJUSTMENTS APPROPRIATION BILL
Second Adjustments Appropriation Bill [B67-2000]
Explanatory Memorandum Adjustments Estimate 2000/01 (email email@example.com for this document)
Chairperson: Ms Hogan
Andrew Donaldson, Acting Deputy Director General, gave a presentation to the Committee on the Adjustments Estimate 2000/01. The meeting focused on the identification of some of the adjusted expenses as "unforeseeable and unavoidable". This justification was challenged, primarily by Mr Andrew (DP), as inadequate and unsatisfactory. He argued that many of the adjustments so explained were completely foreseeable and avoidable. The Chairperson ultimately agreed and left Mr Donaldson with a list of requests for information, in order to clarify the adjustments. In the course of the discussion, there were some revelations on spending of poverty relief moneys, the organisation of the Conference on Racism, and other financial management issues.
Adjustments - general
Mr Donaldson began with a chart of adjustments consolidated into a few categories. He explained these before moving on to the annexures, which presented more detail.
Salary and fuel costs
There was some discussion about the appropriateness of combining salary and fuel costs. Mr Donaldson tried to justify this by saying that both were related to inflation. Prof Turok (ANC) asked for a breakdown, and Mr Donaldson promised to give it. He provided this near the end of the meeting.
Mr Donaldson explained that the figure relating to January-March cheques is a one-off shift of spending. For historical reasons, government workers whose birthdays fall in the first quarter of the year have not been getting their birthday bonus of a thirteenth month's wages until April. This is being changed so that all employees get their birthday bonuses in the month of their birthday. Thus, there will be a shift of spending that would have occurred in April 2001 to January, February, and March 2001.
Mr Andrew (DP) stated that he had a concern that some of the adjustments are not permissible by law. Under the PFMA (Public Finance Management Act), section 32, "adjustments" are to be for expenditures that were "unforeseeable and unavoidable". He stressed the conjunctive "and". Thus, he considered that a change of policy does not qualify. Mr Donaldson replied that this expenditure was not just a change of policy but a part of a wage settlement from a bargaining session. There could be an issue as to whether the executive had the authority to include such a change in negotiations, but there would have been extraordinary difficulties from a treasury management point of view in trying to phase it in. The Chair agreed that it was thus an unforeseen result of bargaining.
Mr Andrew (DP) objected that on this logic, any change to a budget could be made as an adjustment. He stated that the cost was partly avoidable because the union was fully willing to accept a phase-in over three years. Mr Donaldson repeated that this would have been too complicated.
State debt costs
Mr Andrew (DP) asked why there was a change in the state debt costs. Mr Donaldson replied that many factors have affected this, including lower financial requirements, higher interest on foreign debts along with the fall in the rand, and new positions taking advantage of short-term money markets. Prof Turok (ANC) stated that he would like an explanation in writing because this is important. Mr Donaldson replied that it is reported monthly in the Gazette. The Chair asked that the National Treasury alert the Finance Committee to information that is coming out. She stated that this seems to be a big problem with the Finance Department. The Committee would like the disaggregated debt costs from the three factors this same day, as it needed these for its deliberations. Mr Donaldson replied that there are more than three factors and that there is no detailed breakdown for all of them.
Introduction to adjustments for particular Departments
Mr Donaldson stated that the adjustment for SARS relates mainly to the change in the taxation system.
Home Affairs - Independent Electoral Commission
The adjustment for Home Affairs relates to the election expenses of the Independent Electoral Commission (IEC). Mr Andrew (DP) asked how these were not foreseeable when the IEC had been requesting additional money for months. Mr Donaldson stated that there had been in-depth discussions with the IEC about its requirements and that they had not had all the details sorted out at the time of the budget. The Chair stated that the IEC should have anticipated the costs of local elections and that it is not acceptable to be negotiating the budget the year after the budget. She asked why the IEC was allowed to revise its budget later in the year. Mr Donaldson stated that Treasury had not reached agreement with the IEC by the time of the budget. The Chair stated that these extra costs should have been part of the supplementary figures so that Parliament would have been alerted.
Mr Andrew (DP) added that there was a rather large margin of error in the Finance Department when the IEC was continually putting in larger budgets, the Finance Department had not allowed them, and the Finance Department now had to allow a 70% increase. Any department could now say that it had been doing research and request huge additional amounts of money. This was not within the spirit of "unforeseen and unavoidable". The Chair agreed that it was more like late budgeting, although she noted that there might be difficulties when the IEC is an independent institution. Mr Donaldson noted that the budget of the IEC is mediated through Home Affairs but that this new transfer rivals the size of the whole rest of the Department. He stated that the Treasury relies on responsible departments to negotiate with entities that are in the same vote. There have been problems with the IEC negotiations for several years.
Mr Donaldson stated that the costs here came mainly from costs denominated in foreign currencies and unexpected movement in the rand.
The main adjustment here related to repairs and maintenance of helicopters that had been active in the Mozambique floods.
Mr Donaldson stated that this was for such items as the lost orange oil tanks. The Chair noted that the slide presentation revealed that the Department had requested R361,2 million but Treasury recommended just R11,2 million. Mr Donaldson stated that it had requested many items that were not unforeseeable and unavoidable.
Mr Donaldson stated that there were several items here. Prof Turok (ANC) asked about the discrepancy here between the request for R502,2 million and the recommendation for R156,8 million. The Chair stated that this was appropriate for departments to make requests and Finance to refuse them. Prof Turok (ANC) rejoined that these should be coordinated and that departments should not be putting in wild requests. The Chair stated that the adjustments process is not the same as budget creation and that these are just unforeseen and unavoidable expenses. Mr Donaldson stated that Treasury takes a strict view on this requirement and that some departments try to take a looser view.
Mr Mofokeng (ANC) asked for what items had Labour wanted R805 million that was refused. He stated that there are some very large numbers in the requests column that have not been explained. Mr Donaldson stated that the large Labour request related to the Unemployment Insurance Fund (UIF) and legislation on changes to the contribution structure. The Chair noted that there is no lack of explanation when there is a pile of explanatory memorandums.
Ms Joemat (ANC) stated that with the large amounts requested, perhaps the Committee should get to see the requests that go to Treasury. The Chair stated that this should be discussed along with how Treasury tables its budget estimates.
The Chair noted that SARS was getting just R28,6 million after requesting R317,4 million for costs associated with changing the tax laws. Mr Donaldson stated that the excess amount had not strictly satisfied the requirements and belonged in the main budget. He stated that there was an allocation for some of the preparatory work that did merit it.
Annexure A - Parts A to E
Mr Donaldson said something about the supplementary estimates in part A of this annexure relating to money out of poverty relief and employment programmes. The Chair asked if the supplementary estimates are poverty relief allocations. Mr Donaldson replied that some are and noted that others are supplementary allocations to Education, Health, and Welfare related to the HIV/AIDS programme.
In part B of the Annexure, Mr Donaldson explained that R 98,6 million allocated to poverty relief would go unallocated. The Chair asked if this was separate from the amounts in the supplementary estimates in part A. Mr Donaldson replied that it related to underspending and delays in progress. There had been flood damage in Mpumalanga, and another R 129 million of poverty relief money was reallocated to this in part C. Thus, of the R 1,2 billion originally allocated to poverty relief, R98,6 million was to be unallocated and another R129 million to be reallocated.
Prof Turok (ANC) stated that he was lost. He stated that the figures made sense from a bookkeeping standpoint but not from a policy standpoint. He asked how much of the R1,2 billion designated to poverty relief was spent on poverty relief. The Chair interjected that this session was not to be an assessment of government spending. Prof Turok (ANC) stated that the Committee needs to know why requests were made if it is to approve the R98 million. Mr Donaldson replied that the R98 million was already in the supplementary estimates and that this was now just a bookkeeping explanation. He stated that Monday's budget would include explanations of poverty relief programmes and HIV/AIDS funds. The Chair noted that parts A and B of the Annexure had been voted on previously, so the Committee's focus should be on C, D, and E.
Turning to part C, Mr Donaldson explained that there is a roll-out of R2 billion to allow for underspending. This is separate from the R6 billion of rollovers from last year. It is essentially a provision in advance for underspending. Treasury does not automatically approve roll-outs but has strict criteria.
Mr Donaldson explained that the requested increase in expenditure is R1 789 843 000. The figure in part E of Annexure A, R 3 887 443 000 is D minus B, which is the difference between what had previously been voted and what had been appropriated. The Chair asked Mr Donaldson to confirm that he is asking Parliament to approve R3,9 billion. He confirmed this.
Annexure A - Breakdown
Mr Donaldson explained that the next sections of Annexure A break down the increases. Part (iv), in particular, identifies the overall figure for each department. Annexure B will provide the complete details.
Mr Andrew (DP) interjected to ask about the funds allocated to local and provincial governments, asking how these can be unforeseen and unavoidable when the provinces choose how to spend their money. Mr Donaldson replied that this is a difficult aspect of the intergovernmental financial environment. He stated that the national government must make provision for the provinces based on a general understanding of them being subject to pressures. He noted that much of the increase to provincial governments was from increases in takeup of the child support grant.
Mr Andrew (DP) asked whether there is within the various documents any document that explains the split between the provinces. Mr Donaldson replied that there is not currently but that it will be Gazetted soon. Mr Andrew (DP) suggested that he would have liked more details. Mr Donaldson replied that he will get more. He noted that the R 600 million has been allocated based on the equitable share formula, as there would be big problems if provinces could request specific allocations.
Mr Donaldson referred to parts (v), (vi), and (vii) of the Annexure, which deal with state debt costs, appropriations for judges' salaries, and reallocation of poverty relief funds. The Chair noted that this was where Prof Turok's question about poverty relief funds might come up again. She stated that (vii) is not an explanation and merely repeats what was said in other documents. She stated that some explanation is needed. Prof Turok (ANC) stated that the problem is that if the president says that poverty is important and allocates R1 billion to poverty relief and then the Committee hears through the grapevine that there are problems spending it and it is being spent on disaster relief, this creates uncertainty on the meaning of the original statement. The Chair stated that the poverty relief money in certain provinces is being invested in repairing infrastructure broken in the environmental disasters that hit those provinces. She stated that the allocation is not out of poverty relief but to particular poverty relief projects. Mr Donaldson stated that the change breaks down to three amounts. First, R83 million is being suspended from the R203 million allocated to Welfare / Social Development. That department has a programme that sends money to NGOs but that is complex and took time to get going. The department is still administering last year's allocation. Second, R25 million is being suspended from the R274 million allocated to Public Works. Its community-based public works programme is already rolling over money. Third, R28 million is being suspended from the amount allocated to Health. Its nutrition projects in particular communities are having trouble spending money.
With this, the Committee proceeded to the specific discussion of the details of particular departments in Annexure B.
Annexure B: Details of Unforeseeable and Unavoidable Expenditure to be Provided for in the Adjustments Estimate
The Committee discussed some of the Departments listed in Annexure B.
Mr Andrew (DP) asked if the increased force levels for the local elections had really been unforeseeable given that they should have known that local elections were on their way. Mr Andrew (DP) said this section gives inadequate explanation for why an adjusted expense is justified as "unforeseeable and unavoidable". He called it "a complete fudge" since it does not tell why the expenses were not foreseeable. Mr Donaldson replied that the military had previously provided emergency service in elections but that extra difficulties were now anticipated in KwaZulu-Natal and the Western Cape, so there was R29 055 000 set aside in the adjustments to provide for standby protection.
Mr Andrew (DP) asked if there is any deduction from the provincial funding for this allocation. Mr Donaldson replied that the Treasury had been persuaded by the Minister of Education that there were some special transitional costs here, so it had not been deducted.
Mr Andrew asked if it was not foreseeable that colleges of education would be incorporated into higher institutions. He asked when this had been decided. Mr Donaldson replied that additional costs had not been anticipated. The Chairperson agreed with Mr Andrew's concerns, saying the budget is "skating close" to the meaning of "unforeseeable and unavoidable". She noted that the Committee should perhaps be stricter.
At number 11, Foreign Affairs, of the Explanatory Memorandum, Mr Andrew said there was no attempt to justify why the listed items had not been in the original budget, as well as no attempt to justify their classification as unavoidable and unforeseeable. Mr Andrew pointed specifically to the opening of a mission in Kigali, UN Peacekeeping, UN accommodation and the SADC Council of Ministers meeting.
Mr Donaldson agreed that these were "marginal" items. He identified the opening of a mission in Kigali as the most significant. He stated that the Treasury Committee had been persuaded that conflict and increases in diplomatic action there passed the test to establish the Kigali mission earlier than planned in the MTEF. As to the adjustment for UN accommodation, he explained this was the result of a misunderstanding between the Departments of Foreign Affairs and Public Works. Each department thought the other would pay and so the expense was not properly foreseen before the budget was made.
Mr Andrew questioned this, saying the expense of UN accommodation should have been foreseen even if it was not certain what department would bear it. Mr Donaldson answered that neither department would admit to having responsibility for the expense. The Chair interjected that it seemed technically incorrect to have this as an adjustment rather than as part of the supplementary estimates. Mr Donaldson stated that the government was stuck with it in any case as an unavoidable treaty commitment.
On the SADC meeting, Mr Donaldson stated that there had been major pressure on South Africa to strengthen its role and host the meeting. Mr Andrew (DP) asked if the confusion had been about whether the meeting was to take place or about whether South Africa would bear the cost. Mr Donaldson replied that he did not know. The Chair noted that this was not in the explanatory memorandum and made general gestures of despair. She indicated that departments need to motivate their adjustments. Mr Donaldson stated that Treasury would rework its guidelines to the departments for the explanatory memorandums. Mr Andrew (DP) noted that Treasury presumably had the motivations since it had approved the items.
As to adjustment made for the "payment to SADC", Mr Donaldson said there had been an unanticipated increase in membership fees.
Mr Andrew (DP) asked why it was not anticipated that "Operation Crackdown", targeting "illegal" immigrants to South Africa, would mean increased costs for the Lindela Detention Centre, a holding centre. Mr Andrew (DP) asserted that these costs should have been foreseen. He asked if the police had not told Home Affairs that they were doing a crackdown. Mr Donaldson replied that he did not know.
Justice and Constitutional Development
Mr Andrew (DP) asked why the costs of the National Conference on Racism were not foreseeable. Mr Donaldson replied that Cabinet had decided to host the conference and that the Human Rights Commission had not foreseen having responsibility for it. The Chair asked when Cabinet took the decision to host the conference. Mr Donaldson began to say July, then said that he was not sure.
An ANC member asked about the item on the Promotion of Access to Information Act. Mr Donaldson replied that new costs had arisen because of responsibilities embedded in the Act that the Human Rights Commission did not have when the budget was compiled. Mr Mahlangu (ANC) expressed concern about the financial implications of legislation not being spelled out when a Bill is presented before Parliament. The Chair suggested that the Public Finance Management Act (PFMA) should require a costing of any new bill. Mr Andrew (DP) stated that the Committee of Dr Woods had voted down such a requirement. The Chair suggested that it needed to be reconsidered.
Mr Andrew (DP) suggested that the Committee should be bringing before it accounting officers from each department. The Chair replied that this had been the procedure in the past but that the Parliament had cut down the Committee's time and required it to deal with the Bill immediately, so it had not had time for this. She hoped that it would do so again in the future. The Chairperson agreed the explanatory memorandum was not clear, that there was not enough explanation as to why an expense was identified as unforeseeable and unavoidable. She suggested the Committee isolate issues, write to departments and ask them for explanations and motivations for their adjusted expenses, and particularly for reasons why they are "unforeseeable and unavoidable".
Mr Andrew (DP) made a further comment on the Conference on Racism. He suggested, first, that the admission that Cabinet ordered an independent statutory body to host a conference was in itself problematic. But an additional problematic aspect was the money. He noted that the mere fact Cabinet decides it wants a conference does not make it an unavoidable expense. The Chair asked about the possibility of funding the conference through a reallocation. Mr Donaldson replied that the Justice budget was stretched very thin. He added that Cabinet's decision showed that it considered the conference to be a priority and a matter of some urgency. Mr Andrew (DP) noted that he did not want to put Mr Donaldson on the hot seat on something that was clearly political.
The Chair noted that she hoped to see R318 million in Monday's budget for the SARS tax reform costs so that it would not be part of an adjustments request.
Ms Joemat (ANC) asked about the overall figure for disaster relief, since it is listed throughout the explanatory memorandum. Mr Donaldson responded that the overall figure was just under 1 billion rands, although there will be further costs running into the next year or two.
The Chair and Mr Donaldson went through a list of items on which he would provide further information:
- the breakdown between fuel and salary
- the reasons for changes in state debt costs
- a monthly press release to the Committee about new Finance documents (the Chair made a special request to the Finance Liaison, who was present, noting that all documents should come formally to Parliament and that parliamentarians should not have to go hunting for them on the internet)
Mr Donaldson indicated that he could provide a breakdown on fuel and salary costs related to inflation. The R 820 million went R325 million to the national government and R 495 million to the provinces. The national government faced an additional R 180 million in salary costs and R 145 million in fuel costs. The provinces faced R 390 million in salary costs and R 105 million in fuel costs.
The Chair reiterated the need to rework explanatory memorandums in the future.
The Chair noted that the Committee had no powers to affect the Bill and read the report indicating that the Committee had concluded its deliberations. Members agreed.
The Chair reminded members of Monday's budget lockup and budget presentation.
The meeting was adjourned.