ATC210601: Report of the Standing Committee on Appropriations on the Special Appropriation Bill [B5 – 2021] (National Assembly – Section 77), Dated 1 June 2021

Standing Committee on Appropriations

 Report of the Standing Committee on Appropriations on the Special Appropriation Bill [B5 – 2021] (National Assembly – Section 77), Dated 1 June 2021

Having considered the Special Appropriation Bill [B5 – 2021], referred to in terms of Section 13 of the Money Bills Amendment Procedure and Related Matters Act No. 9 of 2009 (as amended by the Money Bills Amendments Procedure and Related Matters Amendment Act, No 13 of 2018), the Standing Committee on Appropriations reports as follows:

 

1. Introduction

Section 213(2) of the Constitution of the Republic of South Africa, provides that money may be withdrawn from the National Revenue Fund only in terms of an appropriation by an Act of Parliament. The 2021 Special Appropriation Bill (hereafter referred as the Bill) proposes to appropriate an additional amount of money from the National Revenue Fund to the votes of Health and Social Development and to effect an adjustment to an appropriation of money to the vote of Public Enterprises. In executing this mandate, the Standing Committee on Appropriations, hereinafter referred to as the Committee, is established in terms of section 4(3) of the Money Bills Amendment Procedure and Related Matters Act, 2009 (as amended), and herein referred to as the Act.

The Bill was tabled by the Minister of Finance on 24 February 2021 during the tabling of the 2021 national budget and was referred to the Committee for consideration and report to the National Assembly as prescribed in section 13 of the Act. In processing the Bill, section 4(4)(c) of the Act also requires the Committees on Appropriations of both Houses to consult with the Financial and Fiscal Commission (FFC). In addition to consulting with the FFC, the Committee also invited the Parliamentary Budget Office to comment on the Bill.The Committee also consulted with the departments who were directly affected by the Bill, namely Department of Social Development, and Department of Health and the SOC concerned, namely,South African Airways SOC Limited,

Section 13(2) of the Act also requires the Committee on Appropriation to hold public hearings on the Bill and for the Committee to report to the House on the comments and amendments to the Bill. In compliance with the requirements of the Act, advertisements were published in national and regional newspapers from 30 April 2021 to 7 May 2021,inviting the general public and interested parties to comment on the Bill. The public hearings on the Bill were held on 28 May 2021 via the Zoom virtual meeting platform. In response, written and oral submissions were received by the Committee for consideration, and inline with the requirements of the Act from the following individuals and organisations:

 

• Department of Transport and Supply Chain Management, College of Business and Economics, Johannesburg Business School: University of Johannesburg;
• Organisation Undoing Tax Abuse; and
• Congress of South African Trade Unions.

 

1. Background

Section 16 (1) of the Public Finance Management Act, No.1 of 1999 (PFMA) authorises the Minister of Finance to authorise the use of funds from the National Revenue Fund to defray expenditure of an exceptional nature which is currently not provided for and which cannot, without serious prejudice to the public interest, be postponed to a future parliamentary appropriation of funds. Section 16 (2) of the PFMA states that the combined amount of any authorisations in terms of subsection 1 may not exceed two (2) per cent of the total amount appropriated in annual national budget for the current financial year.

South Africa, like the rest of the world, has been battling with the Covid-19 pandemic since March 2020. In order to combat and proactively respond to the necessary requirements of fighting the Covid-19 pandemic, requires agility and proactive response from government as this pandemic was unknown and its impact unpredictable. The Covid-19 pandemic has had a negative impact on the South African economy through its associated lockdowns, which meant business activities were limited, resulting in both low economic activity and declining tax revenue. Furthermore, the Covid-19 pandemic has huge negative impact on the lives and livelihood of many South Africans.In addition, the Covid-19 pandemic hit South Africa when economic growth had not recovered to the pre-2008 global financial crisis and unemployment at its highest since the Quarterly Labour Force Surveys (GLFS) began to be published by Statistic South Africa. In trying to mitigate the negative impact brought by the Covid-19 pandemic, government had to intervene in various ways in order to assists affected businesses, and importantly cushion the poor and the most vulnerable against the pandemic, who were facing a various types of uncertainties during this period. To this end and as proposed in the Bill, the Minister of Finance as authorised by section 16 (1) of the PFMA, is requesting Parliament to appropriate funds from the National Revenue Fund, in order fight the Covid-19 pandemic as follows:

• Department of Health (Vote 18): aproposed total of R1.250 billion is allocated out of the National Revenue Fund to fund the procurement of Covid-19 vaccines, and implement a related Covid-19 vaccine research project.
• Department of Social Development (Vote19): a proposed total of R2.826 billion is allocated out of the National Revenue Fund to fund the extension of the Special Covid-19 Social Relief of Distress Grant.

In addition, during the 2020 Medium Term Budget Policy Statement (MTBPS), Parliament approved a total of R10.5 billion through the Second Adjustments Appropriation Bill (B25 – 2020) to allow the South African Airways SOC Limited (SAA), an entity of the Department of Public Enterprises to implement its business rescue plan. Accordingly, the Minister of Finance may, on request from the Minister of Public Enterprises approve any portion of the funds allocated to SAA, and or, a subsidiary of SAA for the use of another subsidiary of SAA. The Minister of Finance, acting on request from the Minister of Public Enterprises approved a total of R2.7 billion out of the R10.5 billion allocated in 2020/21 financial year for the SAA business rescue process to be reallocated to fund payments for financial assets of other SAA subsidiaries as follows:

• A proposed total of R1.663 billion to the South African Airways Technical SOC Limited;
• A proposed total of R819 million to the Mango Airlines SOC Limited; and
• A proposed total of R218 million to the Air Chefs SOC limited.
   

1. Provisions of the Bill

The Bill proposes the following additional financial support to the following departments:

• An additional R1.250 to the Department of Health (Vote 18) for the procurement of Covid-19 vaccines, and implement a related Covid-19 vaccine research project in the 2020/21 financial year; and
• An additional R2.826 to the Department of Social Development (Vote19) to fund the extension of the Special Covid-19 Social Relief of Distress Grant in the 2020/21 financial year.

Furthermore, the Bill proposes the reallocation of a total of R2.7 billion in the 2020/21 appropriated funds from SAA to fund financial assets of its subsidiaries as follows:

• A total of R1.663 billion is reallocated to the South African Technical SOC limited for the 2020/21 financial year;
• A total of R819 million is reallocated to the Mango Airlines SOC limited for the 2020/21 financial year; and
• A total of R218 million is reallocated to the Air Chefs SOC Limited for the 2020/21 financial year.

 

1. Comments and hearings on the 2021 Special Appropriation Bill with interested stakeholders

The sections below provide an overview of the submissions made by the interested stakeholders in response to the published advertisement.

 

1. Department of Transport and Supply Chain Management, College of Business and Economics, Johannesburg Business School: University of Johannesburg

The Department of Transport and Supply Chain Management at the University of Johannesburg (UJ) highlighted the South African policy choice of competition and the need to foster and ‘maintain a competitive civil aviation environment’ as is the underlying objective of the domestic air transport policy, as opposed to a policy of a State-subsidized monopoly. UJ also highlighted the the conflict of interest of the Government in granting State financial aid to a State-owned airline and Government’s role as enabler and regulator of the aviation sector. It was of the view that the grant of State financial aid to Mango was contrary to the assurances regarding equal treatment of airlines and the role of Government and State-owned airlines in an economically deregulated competitive domestic air transport market, as is contained in Government’s air transport policies. UJ further cautioned the Committee about the negative impact of State financial assistance (of the proposed appropriation) to a State-owned airline, Mango Airlines, which distorted the free working of competitive forces, which ultimately drive private sector competitors from the market, therefore reducing competition and other negative consequences on consumer welfare.

UJ submitted that the appropriation of money to Mango Airlines (and SAA) was discriminatory and contrary to South Africa’s air transport policy, which inter alia provides that:

• Government will strive to level playing fields, and will promote competition;
• The role of Government will be that of ensuring level playing fields, and regulation for safety, leaving the operator as much freedom as possible to provide customer service as demanded in a competitive environment;
• The Government will in future not guarantee new loans to SAA or any other airline with Government interests, whilst private airlines have to borrow at their own risk;
• Equal treatment of all participants (equality before the law and subject to the same rules);
• Airlines should be able to enter and exit from the market;
• SAA to operate commercial basis; and
• SAA will not enjoy any privileges in terms of any legislation or any other practice as a result of it being a Government enterprise.

UJ also submitted that reprioritising R2.7 billion away from SAA’s Business Rescue Plan (BRP) in favour of the subsidiaries, implied that such an amount would have to be provided to the affected creditors somewhere in the future. This therefore implied that further money would have to be earmarked (appropriated) for SAA at a later stage. 

 

1. Organisation Undoing Tax Abuse

The Organisation Undoing Tax Abuse (OUTA) submitted that the SAA Business Rescue Plan (BRP) does not authorise the diversion of the R2.7 billion allocated to SAA to its Subsidiaries. In accordance with section 152(4) of the Companies Act, the BRP was binding on SAA and the Government and should therefore strictly be implemented in accordance with its terms.

OUTA also submitted that section 3 of the Bill appeared to be invalid under section 5(4) of the Companies Act as it contravened section 152(4) of the Companies Act. Section 3 of the Bill further appeared to be vague and overbroad in the absence of a specific empowering provision under the PFMA. To this end, OUTA cautioned that if the Bill was passed in its current form, it was susceptible to judicial review on any one of the grounds set out in these submissions. In addressing the abovementioned concerns, OUTA proposed the following:

• That section 3 be removed from the Bill and for the appropriation as contemplated under Part 10 of the Schedule to the Second Adjustments Appropriation Act, No 21 of 2020 to remain as is, to effectively implement the approved BRP.
• The Minister of Finance, the Minister of Public Enterprises and SAA should follow a separate process in accordance with the PFMA and such related legislation to determine the need for funding to the Subsidiaries, or fundamentally whether such Subsidiaries must be liquidated – considering the strain on SAA's continued sustainability.
• The aforementioned process must be open to public scrutiny for Government to make an informed decision on the continued sustainability of the Subsidiaries and ultimately its strain on the national fiscus (albeit through SAA).

1. Congress of South African Trade Unions

The Congress of South African Trade Unions (COSATU) welcomed the Bill and supported its passage by Parliament. It was of the view that the supplementary allocations for the rolling out of vaccines to fight Covid-19, the extension of the R350 Covid-19 Social Relief of Distressed Grant to the long term unemployed and to provide funding for the SAA Group were critical and needed. COSATU made the following proposals:

• That Government urgently tables in Parliament a clear plan that will ensure the revival and sustainability of the SAA Group and a jobs plan for their staff.
• That Parliament should reject the 30 April 2021 termination of the R350 Covid-19 Social Relief for Distressed Grant and extend same until the end of the 2021/22 financial year and beyond.
• That Government opens all Covid-19 vaccination sites by the end of May 2021 and ensure that at least 200 000 people are vaccinated daily and that the 67 per cent plus population immunity level is reached by December 2021.

Whilst it welcomed the Bill, COSATU expressed its disappointment that the Commission for Conciliation, Mediation and Arbitration (CCMA) was not included in the Bill and made the following proposals in that regard:

• That Parliament rejects the budget cuts to the CCMA and reinstate its reduced expenditure in the Special Appropriations Bill. 
• That National Treasury engages with the Departments of Employment and Labour and Higher Education and Training as well as COSATU and Organised Business in respect of additional sources of funding for the CCMA, for instance the unutilised funds by Sector Education and Training Authorities (SETAs).

 

1. Committee Findings and Observations

Having considered all the submissions made by the above stakeholders on the Bill, the Standing Committee on Appropriations made the following findings and observations:

 

1. The Committee notes and welcomes the Bill proposed allocation of R1.250 billion to the Department of Health in order to fund the procurement of Covid-19 vaccines and implement a related Covid-19 vaccine research project. Due the loss of life that has been brought by the Covid-19 pandemic to many South African families, the Committee is encouraged by this proactive move by government in utilising section 16 (1) of the PFMA, as the Committee expects government to be proactive and agile in the fight against the Covid-19 pandemic in order to prevent further loss of lives. Furthermore, the Committee is encouraged by government’s effort in researching a Covid-19 vaccine in South Africa. The Committee is of the view that with the infrastructure and technical capabilities that South Africa has, this research is long overdue and these delays have denied South Africa the opportunity to be among the first producers of locally developed vaccine.

 

1. The Committee notes and welcomes the Bill proposed allocation of R2.826 billion to the Department of Social Development to fund the extension of the Social Relief of Distress Grant, using section 16 (1) of the PFMA. The Committee welcomes and is encouraged by government’s thoughtfulness in extending the Social Relief of Distress Grant, due to the high rate of unemployment that the country is facing, made worse by the Covid-19 associated lockdown.

 

1. The Committee notes and welcomes the Bill proposed reallocation of R2.7 billion from SAA to fund the payment for financial assets for its subsidiaries, namely Mango (R819 million), SAA Technical (R1.663 billion), and the Air Chefs (218 million).

 

1. Recommendations

 

The Standing Committee on Appropriations, having considered the briefings and comments by invited stakeholders on the Bill, recommends as follows:

 

1.  That the South African Airways SOC Limited submit quarterly expenditure reports on the utilisation of the proposed R2.7 billion by the SAA subsidiaries. 

 

1. Committee Recommendation on the Bill

The Standing Committee on Appropriations recommends that the National Assembly adopts the Special Appropriation Bill [B5-2021], without amendments.

 

1. Conclusion

The responses to the recommendations as set out in section 6 above by the relevant Executive Authorities must be sent to Parliament as well as the Committee within 60 days of the adoption of this report by the National Assembly.

 

Report to be considered.