ATC191205: Report of the Select Committee on Appropriations on the Adjustments Appropriation Bill [B16 – 2019] [National Assembly (Section 77)], dated 05 December 2019

NCOP Appropriations

REPORT OF THE SELECT COMMITTEE ON APPROPRIATIONS ON THE ADJUSTMENTS APPROPRIATION BILL [B16 – 2019] [NATIONAL ASSEMBLY (SECTION 77)], DATED 05 DECEMBER 2019
 

 

1. Introduction

 

The Minister of Finance tabled the Medium Term Budget Policy Statement (MTBPS) on 30 October 2019, outlining the budget priorities of government for the medium term estimates. The 2019 MTBPS was tabled in Parliament with the Adjustments Appropriation Bill [B16 - 2019] (the Bill). Section 12 (15A) of the Money Bills and Related Matters Act No. 9 of 2009 (as amended) provides that “after the National Assembly passed the Adjustments Appropriation Bill, the Bill must be referred to the National Council of Provinces and referred to the Select Committee on Appropriations.” Accordingly, the NCOP referred the Bill to the Committee for concurrence on 04 December 2019.

 

 

1. Public participation process

 

To facilitate public participation and involvement, and in compliance with section 72 of the Constitution of the Republic of South Africa, an advertisement was published in national and community newspapers from 3 to 8 November 2019 inviting the general public and all interested stakeholders to make written submissions and comments on the Bill. In addition to National Treasury briefing the Committee on the contents of the Bill, the Organisation Undoing Tax Abuse (OUTA), the Congress of South African Trade Unions, the Budget Justice Coalition, and Fields of Green for All made oral submissions on the Bill, in response to the aforementioned advertisement. A public hearing was held jointly with the Standing Committee on Appropriations, in Parliament on 29 November 2019.

 

 

1. National Treasury briefing

 

National Treasury reported that the purpose of the Bill was to effect adjustments to the appropriations by Parliament of money from the National Revenue Fund for the requirements of the State in respect of the 2019/20 financial year to votes and main divisions within a vote; and amendments to the purposes that are specified.

 

National Treasury submitted that section 43 (1) of the Public Finance Management Act of 1999 (PFMA) allows Accounting Officers to utilise a saving in the amount appropriated under a main division (programme) within a vote to defray excess expenditure under another main division within the same vote. However, sub-section 2 of the same provision requires that the saving to be utilised may not exceed 8 percent of the amount appropriated under that main division. Importantly, National Treasury indicated that section 43(4)(b) of the PFMA did not allow the utilisation of funds from the amount which is specifically earmarked for transfer payments to another institution or entity, and according to 43(4)(c), funds earmarked for capital expenditure may not defray current payments. National Treasury added that all virements exceeding 8 percent must be approved by Parliament.

 

To this end, a total of 16 national departments who exceeded the 8 percent requirement of the PFMA were listed and National Treasury supplied the reasons for these virements and requested the Committee to approve them. These departments were the Presidency; Communications; Planning, Monitoring and Evaluation; Public Enterprises; Women; Higher Education and Training; Health; Social Development; Military Veterans; the Independent Police Investigative Directorate (IPID); Justice and Constitutional Development; Agriculture, Forestry and Fisheries; Labour; Small Business Development; Telecommunications and Postal Services; Cooperative Governance and Traditional Affairs; and Trade and Industry.

 

1. Stakeholder submissions on the Bill

 

4.1        Organisation Undoing Tax Abuse (OUTA)

OUTA reported that the lion’s share of the adjustments in the Bill went to state-owned entities (SOEs), who were facing serious challenges as a result of poor leadership and governance, mismanagement of funds, corruption and revenue deficits. OUTA largely rejected the Bill, due to the apparently unconditional injection into Denel, SA Express and SAA. OUTA was of the view that these entities had not undergone any significant change since their financial metrics started deteriorating rapidly, and that they were placing South Africa’s economic sovereignty in serious jeopardy. OUTA submitted that, if no extreme and immediate interventions were implemented, government ran the risk of losing control of its economic affairs to its international creditors. OUTA strongly recommended that the Standing and Select Committees on Appropriations demand that these allocations only be approved on the grounds of similar conditions as those attached to the Special Appropriations Bill on Eskom. Furthermore, that the Committees, in cooperation with law enforcement agencies, civil society institutions, National Treasury and the Department of Public Enterprises, should enforce adherence to such conditions with harsh and explicit consequences for non-compliance.

 

OUTA further submitted that the Bill showed additions of R17.924 billion (mostly for the SOEs) and cuts of R3.056 billion, due to the SOE bailouts. OUTA requested explanations for the following cuts:

• R15 million from compensation of employees in the Department of Cooperative and Traditional Affair’s Community Work Programme.
• Transfers of R157.225 million from National Treasury to the Government Technical Advisory Centre for job creation initiatives.
• R140 million from the Department of Basic Education’s School Infrastructure Backlogs Grant; which OUTA regarded as inexcusable, given the urgent need in this sector.
• R350 million from the Department of Higher Education and Training’s university infrastructure grants and R400 million from its Infrastructure Efficiency Grant.
• R250.9 million from the Department of Social Development’s child support grants.
• R70 million from the Department of Social Development’s social worker scholarships, while the country urgently needs for social workers.
• R764.429 million from the South African Police Service’s Detective Services, while there is an urgent need to improve such services to fight crime and corruption.
• R300 million from the Department of Small Business Development’s Small Business and Innovation Fund.
• R20 million from the Department of Transport’s Taxi Recapitalisation Programme.
• R51.218 million from the Department of Water and Sanitation’s Water Planning and Information Management Programme, which OUTA deemed inexplicable, given the widespread drought crisis.
• R225.054 million from the Department of Rural Development and Land Reform’s stipends for the National Rural Youth Service Corps.

 

OUTA further questioned the following additions:

• OUTA asked what the additional R4.5 million for the Department of Public Works’ Prestige Policy Programme would be used for; as this fund was used to repeatedly renovate ministers’ houses, seemingly flying in the face of the MTBPS statement that benefits received by political office bearers would be better managed.
• OUTA expressed concerns over the R385.140 million to the Department of Defence for weapons. The funds would go into the secret Special Defence Account, so that taxpayers had no idea how much was in the fund or whether the funds were really spent on the stated purpose.
• It was noted that the Bill added just R102.429 million to the National Prosecuting Authority (NPA) for 2019/20 and nothing for South African Revenue Service (SARS); despite the MTBPS announcement of an additional R1.3 billion for the NPA and R1 billion for SARS between 2019/20 and 2022/23 to combat corruption and improve revenue collection. As these were urgent priorities, OUTA expressed the hope that these amounts would be seen in the 2020 Budget.
• The Department of Water and Sanitation received an extra R5.489 million for the Orange-Senqu River Commission. This Commission’s work appeared to be secret and it did not appear to have run any public consultation. OUTA also could not find this in the Department’s budget for 2019/20, and requested clarity on this.

 

While OUTA welcomed the additional R241.927 million for the Regional Bulk Infrastructure Grant for emergency work on the Vaal River System and an additional R65.373 million through the Sedibeng Water Board for the Sedibeng Bulk Regional Sewerage Scheme; it submitted that there had been a great deal of confusion over this funding. The SANDF had been deployed to the Vaal region in October 2018, following the Minister of Finance’s announcement of funding for this, but this funding had apparently failed to materialise and the one-year deployment had expired. The Division of Revenue Amendment Bill referred to R241.927 million for the emergency work being rolled over. OUTA question why the funds had not been spent, and requested the Committees to investigate the Vaal River System clean-up promises, the funding arrangements and the progress of the work.

 

4.2        Congress of South African Trade Unions (COSATU)

 

COSATU submitted that various departments had shown extremely worrying levels of under-expenditure and a failure to achieve key service delivery targets; and was of the view that there should be interventions by the President, Parliament and the Auditor-General to hold the relevant officials personally liable. These departments included Basic Education, Higher Education; Water and Sanitation; Human Settlements; Energy; Correctional Services; Transport; Environmental Affairs; Small Business Development; Health; Cooperative Governance and Traditional Affairs; National Treasury; the State Security Agency and the South African Police Service.

 

COSATU made the following recommendations with respect to sectoral votes:

• Two thirds of South African Police Service members should be redeployed from head offices and desk jobs to specialised units, station level and community policing; all outsourcing in the security cluster should be stopped; plans should be developed to deal with labour and other courts backlogs; and there must be a comprehensive forensic audit of State Security Agency expenditure.
• Urgent interventions are needed to arrest the collapse of public hospitals and plans to build the National Health Insurance and the filling of public health care posts must be fast-tracked.
• Urgent engagement with civil society on an alternative to e-Tolls is needed; plans to save Metrorail and to expand reliable, accessible and affordable public transport in communities, must be considered.
• There must be an intervention plan to turn the Department of Water Affairs around, as well as a plan to hold the guilty accountable for the Giyani water debacle; and national, provincial and local plans are needed to turn South Africa from a water scarce to a water wise nation.
• There must be clear targets and dates to eradicate mud schools and address sanitation and school infrastructure crises; as well as clear plans by Public Works to ensure all public buildings are safe.
• There should be an end of outsourcing of municipal jobs to the Expanded Public Works Programme and Community Work Programme and insourcing these workers into permanent municipal posts should be considered; and there must be plans to stabilise distressed municipalities by integrating municipalities that are too small or lack a significant rates base with viable municipalities.

 

4.3        Budget Justice Coalition

 

The Budget Justice Coalition (BJC) expressed concerns about the declared unspent funds by departments and submitted that it was imperative for this not to disadvantage social programmes. The BJC made reference to the Education Infrastructure Grant (EIG) and expressed concerns that over the five-year period between 2014/15 and 2018/19, 94 percent (R58.4 billion) of the budget had been spent, while only 67 percent of associated planned targets had been achieved. More concerns were expressed about the potential impact of unspent funds (R215 million) on service delivery in water and sanitation, particularly in light of the ageing municipal water infrastructure and the delays in the completion of the Bucket Eradication Programme.

 

Regarding job creation, the BJC made reference to the declared unspent funds on the Employment Creation Facilitation Fund (R157.225 million) and the Community Works Programme (R300 million) and submitted that this could have been used to stimulate employment, especially for vulnerable groups.

 

Regarding the health sector, the BJC submitted that austerity budgeting was having a negative impact on especially women and transgender, gender diverse, and intersex people. Furthermore, these cuts had an impact on employment conditions, often resulting in critical staff shortages and hampering the increase of health professionals necessary to improve the levels of care and prepare for the transition to the National Health Insurance. The BJC also expressed concerns that neither the 2019 MTBPS nor the Bill made mention of the 2019 Budget commitment to spend R1 billion on the implementation of the minimum wage for Community Health Workers.

 

As an important measure to prevent regression in the realisation of socio-economic rights, the BJC asserted the need to improve the efficiency and effectiveness for spending allocated budgets across government. The BJC proposed that the Committee require national and provincial departments to provide clear turnaround strategies for improved efficiency and effectiveness on spending budgets. The role of National and Provincial Treasuries to support and monitor this in the departments most affected, should be clearly set out. The BJC further submitted that, merely identify under-spending and focusing on reallocations while failing to identify the specifics of the spending issues, was ineffective.

 

 

4.4        Fields of Green for All

 

Fields of Green for All submitted that, after studying the figures contained within the Bill, it realised that large sums of money had not been spent by government departments. It argued that these unspent funds should be used to start the development of a legal Cannabis industry in South Africa. Fields of Green for All further argued that there was no coherent plan on the part of government to address the issue of how Cannabis was going to be legalised in South Africa. The organisation felt that there were many government departments who could play a significant role in legalising Cannabis and there was a need to coordinate the work across all these departments. Fields of Green for All listed departments who had returned unspent funds to National Treasury and submitted that serious and careful consideration should be given to the appropriation of excess funds from government departments to be used for the development of a fully inclusive, vibrant and internationally ground-breaking Cannabis industry that would benefit many citizens. 

 

1. Observations and Findings

 

The Select Committee on Appropriations, having considered the inputs from the above stakeholders on the Adjustments Appropriation Bill [B16-2019], made the following findings:

 

1. The Committee observed that there was R3.9 billion in declared unspent funds by national departments, which may have a negative impact on the service delivery programmes where these funds were initially planned to be spent.

 

1. There was a request to approve roll-over funds (R344.9 million) for Health; Correctional Services; Agriculture, Forestry and Fisheries; and Water and Sanitation. These funds can only be rolled over in line with the public finance regulatory frameworks to ensure continuation of national government programmes, particularly the funds rolled over for the procurement of public hospital beds and linen in Limpopo.

 

1.  Whist there was a roll-over of R241.927 million for the Department of Water and Sanitation for the emergency Vaal River System pollution remediation intervention project in the Emfuleni municipality in Gauteng, there was no plan in place to implement consequence management for those responsible for polluting the river system.

 

1. The following national departments submitted requests for virements and shifting of funds exceeding R100 million: Public Enterprises; Health; Correctional Services; Justice and Constitutional Development; Tourism; Rural Development and Land Reform; and Social Development. The Committee views enhanced planning as essential to ensure effective and efficient programme allocations.

 

1. Given the role of infrastructure spending in igniting much needed economic growth and job creation, the under-expenditure on infrastructure budgets, especially by the departments of Water and Sanitation; Health; and Basic Education, was concerning. Under-expenditure on capital expenditure budgets pointed to a lack of capacity, poor planning, poor budgeting and inadequate project management skills within these departments. Moreover, under-expenditure, especially on infrastructure, may impact negatively on service delivery as well as other macroeconomic factors affecting South Africa, such as the debt-to-GDP ratio and interest payments.

 

1. The amount of virement requests by national departments from compensation of employees to other economic classifications due to vacancies not being filled, was a serious concern, especially for critical and frontline service delivery positions. Internal control measures, as prescribed by section 38(1) of the PFMA, were not strictly implemented in order to curb trends of non-compliance, resulting in irregular, fruitless and wasteful expenditure and the non-payment of suppliers within 30 days.

 

1.  The Committee noted the under-expenditure on the NHI grants, especially on infrastructure projects, and the Human Resource Capacitation Grant. This has a potential negative impact on government’s readiness to fully roll out the NHI programme. Yet, the Portfolio Committee on Health (NA) was in the process of finalising public hearings, conducted throughout the country, on the NHI Bill. The evidence of slow expenditure and non-financial performance-related challenges in respect of the NHI-related grants, which is meant to provide universal access to health services in South Africa, remains a concern for the Committee. 

 

1. The Committee is concerned about the under-performance on the Community Works Programme (CWP), which led to R300 million being declared as unspent. The CWP is an important initiative for addressing the triple challenges of poverty, inequality and unemployment, and if the under-performance is not urgently arrested, the Department of Cooperative Governance and Traditional Affairs may be viewed as reversing the gains achieved by the State thus far.  

 

1. The Committee noted with concern the R157 million declared unspent funds by the National Treasury on the Jobs Fund and the R22.1 million on compensation of employees, considering the high levels of unemployment in South Africa and the mandate of the Jobs Fund, which is critical for the creation of jobs and as a poverty alleviation mechanism.   

 

1. The Committee observed that the Small Enterprise Finance Agency’s Small Business and Innovation Fund declared unspent funds to the value of R300 million and this remains a concern for the Committee, given the great need for capital and support for small and medium businesses (SMMEs) from townships and rural areas.

 

 

1. Recommendations

 

The Select Committee on Appropriations, having been briefed and engaged with the above stakeholders on the Adjustments Appropriation Bill [B16-2019], recommends as follows:

 

1. With regard to the unspent amount of R3.9 billion, the Committee implores the Executive to improve the efficiency and effectiveness of spending allocated budgets across government, with the intention of achieving value for money, as an important measure to prevent regression in the realisation of socio-economic rights enshrined in the Constitution.

 

1. On the request to approve roll-over funds to the amount of R344.9 million, the Committee approves the roll-overs in line with the conditions set out in Section 4 of the Treasury Regulations, and recommends that measures be put in place to ensure strict compliance with costed and approved annual plans.

 

1. On the request for approval of virements and shifting of funds exceeding R100 million by the departments of Public Enterprises; Health; Correctional Services; Justice and Constitutional Development; Tourism; Rural Development and Land Reform; and Social Development, the Committee approves these with the understanding that affected Ministers will ensure that there will be enhanced planning in future and that proper budgeting will be done by the departments. Shifting and virement of funds should be done according to the requirement of section 43 of the Public Finance Management Act and section 6.3 of Treasury Regulations. This should be closely monitored and proper measures should be taken to ensure that these do not compromise service delivery and the integrity of tabled annual performance plans, and consequently, the entire government budgeting process.

 

1. On under-expenditure on infrastructure budgets, the Committee recommends that the Ministers of Water and Sanitation; Health; Basic Education; and Agriculture, Forestry and Fisheries (in respect of drought relief funding), should submit to Parliament, within 60 days after the adoption of this Report by the House, concrete plans on how they will ensure that under-expenditure on capital expenditure budgets are avoided. The plans should indicate how the department will avoid poor planning and budgeting and improve project management skills internally. These departments must further ensure that credible plans are tabled before Parliament and that these are properly aligned to the available budget for the next financial year.   

 

1. In addition to 6.3 above, all departments that requested virements from compensation of employees to other economic classifications due to unfilled vacancies, should, together with National Treasury and within 60 days after the adoption of this Report by the House, provide a report detailing why budgeted vacancies were not filled on time, particularly the critical ones and those on the frontline service delivery points. 

 

1. With regard to the under-expenditure on the NHI grants, especially on infrastructure projects and on the Human Resource Capacitation Grant, the Committee recommends that the Minister of Health should submit to Parliament, within 60 days after the adoption of this Report by the House, an updated report on government’s readiness to implement the NHI programme, including the report emanating from the NHI pilot study.  

 

1. Regarding the request to approve a R241.972 million roll-over for the Department of Water and Sanitation for the emergency Vaal River System pollution remediation intervention project in the Emfuleni Municipality in Gauteng, the Committee recommends that the Minister of Water and Sanitation should, within 60 days after the adoption of this Report by the House, submit to Parliament a plan for water conservation and indicate what consequence measures will be implemented for those responsible for polluting the river network system of the country.

 

1. With respect to under-performance of the Community Works Programme (CWP) which led to R300 million being declared as unspent funds, the Committee recommends that the Minister of Cooperative Governance and Traditional Affairs should, within 60 days after the adoption of this Report by the House, submit a report to Parliament on how the CWP under-performance will be avoided for the 2020 appropriated funds.  

 

1. With regards to the R157 million declared unspent allocation for Jobs Fund by the National Treasury, the Committee recommends that the Minister of Finance should, within 60 days after the adoption of this Report by the House, submit to Parliament a report on the reasons for this under-spending and how it will be avoided in future.  National Treasury should also brief the Committee on how the Jobs Fund is being administered in order to broaden its understanding.

 

1. On the declared unspent funds of R300 million by the Small Enterprise Finance Agency’s Small Business and Innovation Fund, the Committee recommends that the Minster of Small Businesses Development should, within 60 days after the adoption of this Report by the House, submit a report to Parliament on the reasons for these funds not being spent when small, medium and micro enterprises have long been identified as catalysts for stimulating economic growth.

 

1. On state-owned entities (SOEs) that received bailouts from the fiscus, the Minister of Public Enterprises should, within 90 days after the adoption of this Report by the House, submit to Parliament the turnaround plans of these SOEs, or a progress report on the existing turnaround plans, particularly Eskom, Denel, South African Airways (SAA), and SA Express. The Minister should further report to Parliament the progress made with the restructuring of Eskom as well as on finding an equity partner for SAA.

 

1. In addition to 6.11 above, the Minister of Finance should, within 60 days after the adoption of this Report by the House, submit to Parliament a report on all outstanding conditions attached to the SOE bailouts; while conditions for the 2020/21 Budget allocation to Eskom should be included in the primary legislation, to improve oversight and accountability.

 

1. The Minister of Justice and Constitutional Development should finalise the legislation and regulations relating to Cannabis in South Africa.

 

 

 

 

 

1. Conclusion

 

After having complied with section 12 of the Money Bills and Related Matters Act No 9 of 2009 (as amended), the Select Committee on Appropriations, having considered the Adjustments Appropriation Bill [B16 – 2019], referred to it, and classified by the Joint Tagging Mechanism as a section 77 Bill, reports that it has agreed to the Bill, without amendments.  

 

The Democratic Alliance and the Freedom Front Plus reserved their positions on the Bill.

 

Report to be considered.