ATC211208: Report of the Standing Committee on Appropriations on the 2021 Medium Term Budget Policy Statement, Dated 8 December 2021

Standing Committee on Appropriations

Report of the Standing Committee on Appropriations on the 2021 Medium Term Budget Policy Statement, Dated 8 December 2021

 

Having heard and considered submissions and comments from identified stakeholders on the 2021 Medium Term Budget Policy Statement, the Standing Committee on Appropriations reports as follows:

 

1. Introduction

 

The Minister of Finance tabled the 2021 Medium Term Budget Policy Statement (MTBPS) on 11 November 2021. The MTBPS was tabled in terms of section 6 (1) of the Money Bills Amendment Procedure and Related Matters Act, No. 9 of 2009 (the Act) as amended by Act No. 13 of 2018 (the Act). The MTPBS is a government policy document that communicates to Parliament and to the country the economic context in which next year’s national budget will be presented, along with government fiscal objectives and spending priorities over the medium term (three-year expenditure period). As required by section 4 (4) (b and c) of the Act, after the tabling of the MTPBS by the Minister of Finance, the Division of Revenue Amendment Bill and the Adjustments Appropriation Bill were referred to the Committee for considerations and report to the National Assembly (NA). Amongst its responsibilities, as per section 6 (8) of the Act, the Committee is required to consider and report on the following:

• the spending priorities of national government for the next three years;
• the proposed division of revenue between the spheres of government and between arms of government within a sphere for the next three years; and
• the proposed substantial adjustments to conditional grants to provinces and local government, if any.  

 

In an effort to deepen democracy, promote good governance, enhance public participation and involvement, the Committee invited the following stakeholders for submissions and comments on the tabled 2021 MTPBS:

• Financial and Fiscal Commission; and
• Parliamentary Budget Office.

 

 

In addition to the invited stakeholders, the Committee published an advertisement in national and local newspapers from 5 to 12 November 2021 inviting the public to make submissions and comments on the 2021 MTPBS. The Committee held public hearings with interested stakeholders on the Zoom virtual meeting platform on 3 December 2021. The following submissions were received in response to the aforementioned advertisement: 

• Congress of South African Trade Unions; and

• Amandla.Mobi;

 

2. Economic overview and context

 

The 2021 MTBPS was tabled at the time where South Africa was beginning to emerge from shadows the Covid-19 pandemic. However, the three societal ills of unemployment, poverty and inequality remain a cause for concern, and this has been made worse by the prolonged effects of the Covid-19 pandemic and its associated lockdown which have resulted in reduced economic activities. The Quarterly Labour Force Surveys (QLFS) published by Statistics South Africa (STATSSA) has also painted an unfavourable picture in as far as unemployment is concerned in South Africa. STATSSA reported that as at the end of the third quarter of 2021, the official unemployment rate had increased by 0.5 per cent from 34.4 per cent in the second quarter of 2021 to 34.9 per cent in the third quarter of 2021, the highest since the start of the QLFS in 2008. According to STATSSA, the expanded unemployment rate increased by 2.2 per cent to 46.6 per cent in the third quarter of 2021 compared to the second quarter of quarter of 2021.

 

As the South African economy accelerates its recovery from the negative economic impact of the Covid-19 pandemic, National Treasury projects that the South African economy will grow by 5.1 per cent in 2021, decreasing to 1.8 per cent and 1.6 per cent in 2022 and 2023 respectively. National Treasury further highlighted that this projected growth reflected supportive global growth and export commodity prices, and the easing of the Covid-19 lockdown restrictions. However, National Treasury has cautioned that structural constraints in the domestic economy like inadequate electricity supply, combined with the Covid-19 induced job losses will continue to limit the speed and the durability of the recovery and long-term growth, if not properly addressed. In addition, National Treasury highlighted slow take up of the Covid-19 vaccines, which might potentially results in future waves of the pandemic as serious threat to both communities and economic activity.

The International Monetary Fund (IMF) in its October 2021 World Economic Outlook report, projected that the global economy will grow by 5.9 per cent in 2021 and 4.9 percent in 2022, and moderate to about 3,3 per cent over the medium term. However, IMF has also emphasised the uncertainty of this projected growth due to the rapid spread of the Covid-19 Delta variant and the emergence of new Covid-19 variants, which increase the uncertainty about how quickly the pandemic can be overcome. To this end, the IMF highlighted the disparities in vaccine access and in policy support between different countries as a key factor that will bring about uneven economic recovery between advanced, emerging and developing economies. IMF estimated that while almost 60 per cent of the population in advanced economies were fully vaccinated and some already receiving booster shots, about 96 per cent of the population in low-income countries remained unvaccinated.

 

It was against this background that the Committee decided to invite and have engagements with identified stakeholders on the 2021 Medium Term Budget Policy Statement.

 

1. Medium term expenditure framework and expenditure priorities

 

The 2021 MTBPS emphasises the continued government commitments of accelerating structural reforms to promote growth, while keeping fiscal consolidation on course to narrow the deficit and stabilise the public debt; with a purpose of achieving a primary budget surplus by 2024/25, ending the fiscal consolidation policy. Consolidated budget deficit is projected to narrow from 7.8 per cent of the Gross Domestic Product (GDP) in 2021/22 to 4.9 per cent of GDP in 2024/25, while debt is projected to stabilise at 78.1 per cent of GDP in 2025/26. Consolidated government spending is projected to increase from R2,13 trillion in 2021/22 to R2.24 trillion in 2024/24, at an average annual growth of 1.7 per cent. Over the Medium Term Expenditure Framework (MTEF), government aims to maximise the value of this spending through cost containment, prudent and compliant financial management, and the eradication of wasteful use of public funds and resources.

 

Relative to the 2021 national budget, government proposes an increase in the main budget non-interest spending by a net R59.4billion in 2021/22. Total in-year upward adjustments to spending amounts to R77.3 billion, mainly to reinstate the special Covid-19 social relief of distress grant until March 2022, the costs associated with the implementation of the 2021 public-service wage agreement, and the outbreak of the public violence in July 2021, particularly in the provinces of Gauteng and KwaZulu-Natal. Spending additions were partially offset by projected underspending, drawdowns on the contingency reserve and provisional allocations from the 2021 Budget totalling R17.9 billion. As a result of the in-year adjustments, total non-interest spending will increase by R59.4 billion, from R1.56 trillion projected in the 2021 Budget to R1.62 trillion in 2021/22.

 

The R77.3 billion proposed upwards adjustments includes;

• R32.85 billion allocated through the Second Special Appropriation Bill;
• A proposed total of R20.5 billion for the implementation of the 2021 public-service wage agreements in the national and provincial departments;
• A proposed total of R2.8 billion in roll-overs;
• A proposed total of R1.1 billion for self-financing from the revenue generating activities of departments to be raised by these departments to continue with these activities;
• A proposed total of R2 billion, mainly from the public transport network grant due to the delays in the implementation of the MyCiti Phase 2A extension project in the City of Cape Town; and
• A total of R11 billion that was provisionally set aside in the 2021 budget for the Presidential Employment Initiative.

 

1. Division of revenue

 

In terms of functions, provinces are responsible for basic education, health services, roads, housing, social development and agriculture, while municipalities provide basic services such as water, sanitation, electricity reticulations, roads and community services. Over the 2022 MTEF period, transfers to provinces and municipalities will growth below inflation.  Over the medium term, government proposes to allocate 48.4 per cent of available non-interest expenditure to national department, 42 per cent to provinces and 9.6 per cent to local government (see table 1 below). Over the same period, national government resources decline at an annual average of 1.8 per cent, provincial resource increases by an annual average of 0.7 per cent and local government resource increases at an annual average of 4.1 per cent.

 

 

 

 

Table 1: Division of revenue framework

	2018/19	2019/20	2020/21	2021/22	2022/23	2023/24	2024/25
R billion	Outcome			Revised	Medium-term estimates
Division of available funds
National departments	634.3	749.8	790.5	817.4	764.7	743.0	774.4
of which:
Provincial indirect grants	3.9	2.9	3.1	4.0	4.6	4.6	4.0
Local indirect grants	6.3	5.6	4.1	4.9	8.4	9.0	9.4
Provinces	572.0	613.5	628.8	661.2	658.4	647.2	676.1
Equitable share	470.3	505.6	520.7	544.8	538.8	525.3	548.9
Conditional grants	101.7	107.9	108.1	116.4	119.6	121.9	127.2
Local government	118.5	123.0	137.1	137.6	146.3	148.9	155.4
Equitable share	60.8	65.6	83.1	78.0	83.1	83.6	87.3
General fuel levy sharing with          metropolitan municipalities	12.5	13.2	14.0	14.6	15.3	15.4	16.1
Conditional grants	45.3	44.2	40.0	45.0	47.9	49.9	51.9
Provisional allocations not      assigned to votes1	–	–	–	11.0	5.3	29.3	33.1
Unallocated reserve	–	–	–	–	15.1	28.8	29.3
Projected underspending	–	–	–	-6.3	–	–	–
Non-interest allocations	1,324.8	1,486.2	1,556.4	1,620.9	1,589.8	1,597.1	1,668.3
Debt-service costs	181.8	204.8	232.6	269.2	303.1	334.6	365.8
Contingency reserve	–	–	–	3.0	5.0	5.0	5.0
Main budget expenditure	1,506.6	1,691.0	1,789.0	1,893.1	1,897.9	1,936.7	2,039.1
Percentage shares
National departments	47.9%	50.4%	50.8%	50.6%	48.7%	48.3%	48.2%
Provinces	43.2%	41.3%	40.4%	40.9%	42.0%	42.0%	42.1%
Local government	8.9%	8.3%	8.8%	8.5%	9.3%	9.7%	9.7%

Source: National Treasury (2021) Medium Term Budget Policy Statement

 

1. Spending priorities by function group

 

Over the 2022 MTEF, spending on community development function, which mainly provides for basic services to households, grows the fastest, averaging 5.5 per cent per year. Over the same period, spending on social development will contract by an average of 5.9 per cent due to the special relief of distress grant concluding in March 2022. Debt-service costs grow at an annual average of 10.8 per cent while the contingency reserve remains at R5 billion over the 2022 MTEF (See Table 2 below).

 

 

 

Table 2: Consolidated expenditure by function1

	2020/21	2021/22	2022/23	2023/24	2024/25	Average
R billion	Outcome	Revised	Medium-term estimates			annual growth 2021/22 – 2024/25
Learning and culture	384.4	417.8	414.3	415.6	434.8	1.3%
Basic education	268.8	281.8	279.6	279.0	291.7	1.2%
Post-school education and training	106.6	124.7	123.4	125.3	131.5	1.8%
Arts, culture, sport and recreation	9.0	11.2	11.3	11.3	11.7	1.2%
Health	248.2	259.0	247.8	243.6	254.7	-0.6%
Peace and security	212.4	219.3	218.2	213.3	222.8	0.5%
Defence and state security	54.0	49.4	48.9	48.1	50.3	0.6%
Police services	103.4	109.4	109.2	106.2	111.0	0.5%
Law courts and prisons	46.9	49.2	50.4	49.6	51.9	1.8%
Home affairs	8.1	11.3	9.6	9.4	9.7	-5.1%
Community development	203.3	218.0	235.9	243.5	256.2	5.5%
Economic development	170.2	206.3	217.8	227.6	241.8	5.4%
Industrialisation and exports	31.9	39.5	37.6	37.9	39.7	0.2%
Agriculture and rural development	24.4	28.5	28.3	28.2	29.4	1.1%
Job creation and labour affairs	19.4	23.3	24.2	24.3	25.4	3.0%
Economic regulation and infrastructure	79.6	97.7	110.1	119.5	129.0	9.7%
Innovation, science and technology	15.0	17.4	17.7	17.7	18.2	1.6%
General public services	64.1	70.8	68.9	68.8	71.0	0.1%
Executive and legislative organs	15.2	15.3	15.3	15.4	16.1	1.7%
Public administration and fiscal affairs	41.6	46.8	45.3	45.1	46.0	-0.5%
External affairs	7.2	8.7	8.3	8.3	8.9	0.8%
Social development	365.7	399.6	321.5	320.4	333.2	-5.9%
Social protection	251.0	256.8	238.1	240.5	251.3	-0.7%
Social security funds	114.7	142.8	83.3	79.9	81.9	-16.9%
Payments for financial assets	90.9	68.4	27.5	25.1	25.2	–
Allocated by function	1,739.2	1,859.3	1,751.8	1,758.0	1,839.7	-0.4%
Debt-service costs	232.6	269.2	303.1	334.6	365.8	10.8%
Unallocated reserve	–	–	15.1	28.8	29.3	–
Contingency reserve2	–	–	5.0	5.0	5.0	–
Consolidated expenditure	1,971.8	2,128.5	2,075.0	2,126.3	2,239.8	1.7%

1. Consisting of national and provincial departments, social security funds and public entities
2. Allocated to 2021/22 spending

Source: National Treasury (2021) Medium Term Budget Policy Statement

 

The 202 MTBPS categorises consolidated government expenditure by “spending priorities by function group” namely:

 

• Learning and culture: the Covid-19 pandemic and its associated lockdowns interrupted the construction of schools, rehabilitation and maintenance and this delayed the achievement of all schools meeting the basic infrastructure norms and standards. Schools undertook rational schedule to adhere to Covid-19 protocol, which hampered the daily rollout of meals to learners through the national school nutrition programme grant. In the post-school education and training sector, growth in subsidies and grants has slowed for universities, technical and vocational education and training colleges, and the National Student Financial Aid Scheme. Over the medium term the operating model for the rollout of community libraries will be reviewed to ensure that construction of new libraries is matched with their full operating and maintenance costs, and with a greater focus on providing information and communications technology.  

 

• Health: the health function remains severely affected by the pandemic. There have been three large waves of Covid-19 infection to date. As of 21 October 2021, there had been 2.9 million confirmed cases of Covid-19, 88 835 confirmed deaths and 433 606 admissions to hospitals. This has put considerable pressure on provincial health departments. Although the volume of other services such as primary healthcare visits and overall hospital admissions have declined during the pandemic, service backlogs may have accumulated as a result. After several delays, the vaccination rollout started accelerating in June 2021. As at 23 October 2021, 21 million doses had been administered to 14.7 million individuals and 37 per cent of adults had received at least one dose. Absorbing the budget reductions implemented in the 2021 Budget remains a challenge in the health sector. Nonetheless, discussions are under way on how to respond to future waves of infection and continue the vaccination programme in 2022/23, including for younger groups and with booster doses if necessary.

 

• Social development: This function includes programmes aimed at income protection and social welfare, and for women, youth and persons with disabilities. Three main priorities are being considered for the 2022 MTEF period: addressing shortfalls in social grants, introducing the extended child support grant for children who have lost both parents (double orphans), and researching possible new social support options once the special Covid-19 social relief of distress grant ends in March 2022. However, given that all three have significant financial implications, a final decision must still be made on what is affordable given the current fiscal context. To continue mitigating food insecurity and poverty in 2021/22, an additional R26.7 billion is allocated to the Department of Social Development to reinstate and administer the special Covid-19 social relief of distress grant for eight months from August 2021 to March 2022, and enable coverage of eligible child support grant caregivers. In total, social grant-based relief of distress will amount to R28.3 billion in 2021/22. During the year, more than 9.5 million recipients will receive this short-term income protection. Excluding the special Covid-19 social relief of distress grant, 18.3 million South Africans receive one or another form of social grant. In April 2022, the early childhood development programme will be transferred from the Department of Social Development to the education sector.

 

• Community development: the main priority of this function group is to provide basic services to poor households. As a result, the local government equitable share accounts for the largest portion of expenditure and grows faster than other items in the function over the MTEF period. A range of conditional grants is allocated to local government to enable it fulfil its mandate. To provide for a more systematic response to improve water and wastewater management in municipalities, from 2022/23 conditional grants will include conditions that are aimed at incentivising improved asset management and performance. National departments are expected to improve monitoring and regulatory compliance through periodic reporting and building capacity.

 

• Economic development: this function group supports job creation, industrial development, and inclusive and sustainable economic growth. Over the medium term, about 80 per cent of this function group’s allocation will provide transfers and subsidies to departmental agencies, public corporations and private enterprises. The baseline is expected to grow by 5.4 per cent over the next three years. Medium-term priorities include reindustrialising through implementation of the master plans; growing exports through the African Continental Free Trade Area; implementing the Tourism Sector Recovery Plan; supporting township and rural economies; and promoting localisation, inclusive economic growth and job creation. In response to the third wave of the Covid-19 pandemic and the destruction of infrastructure in Gauteng and KwaZulu-Natal, R2.3 billion is allocated in 2021/22 to help businesses rebuild. Of this amount, R1 billion is reprioritised from the departments of Trade, Industry and Competition (R700 million) and Small Business Development (R300 million).

 

The Department of Science and Innovation will implement its recently approved decadal plan on science, technology and innovation for 2021–2031. The plan aims to rejuvenate sectors such as mining, agriculture and manufacturing, while improving research and innovation across government. In addition, the department has reprioritised funds over the MTEF period to support technology localisation, beneficiation, advanced manufacturing and research by the National Research Foundation. The Department of Tourism has also reprioritised funds to support short-term public jobs in the tourism sector and transform the sector through the rollout of the Tourism Equity Fund.

 

To support critical climate forecasting and improve infrastructure capacity, the Department of Forestry, Fisheries and the Environment has reprioritised funds for the South African Weather Service. The department has also reprioritised funds to support operations and address the budget shortfall of South African National Parks.

 

• Peace and security: over the 2022 MTEF, this function group expects to spend an average of R218 billion per year, of which 60 per cent is allocated towards compensation of employees. Over the medium term, the function will reprioritise funds to enhance capacity in institutions combating crime and corruption, and upgrade information and communications technology infrastructure for greater efficiency. Over the next few years, the Department of Defence will reprioritise funds to set up a rapid response unit. It will also implement reforms to manage longstanding pressure on compensation that is resulting in irregular spending.

 

• General public services: this function focuses on building a state that can play a developmental and transformative role. It has reprioritised R2.4 billion over the medium term from goods and services to cover key policy initiatives, as well as information and communications technology upgrades in departments. Over the medium term, the function will reprioritise funds to enhance the governance of state-owned companies, facilitate the population census in February 2022, implement the Integrated Financial Management System and support recapitalisation of the World Bank and the African Development Bank in line with South Africa’s shareholding duties in these institutions. The Department of Public Service and Administration will continue reviewing personnel spending to reduce unsustainable growth in the public-service wage bill.

 

 

 

 

1. Presidential employment interventions

 

The 2021 budget made a provisional allocation of R11 billion towards the Presidential employment initiatives and these fund have since been allocated to support the creation of more than 440 000 short-term jobs until March 2022, as shown in Table 3, and other interventions that are expected to catalyse growth and job creation. The allocation for livelihood support covers income support for self-employed people in areas such as subsistence farming and micro- enterprises, shown in Table 4.

 

Table 3: Employment programmes

Department	Programme description	Budget (R’000)	Short-term jobs
Basic Education	Basic education employment initiatives	6 000 000	287 000
National Treasury	Innovation in post-exposure prophylaxis for metros	841 000	35 000
Trade, Industry and Competition	Social employment fund	800 000	50 000
Women, Youth and Persons with Disabilities	Presidential youth employment interventions/National youth services	400 000	35 000
Cooperative Governance	Municipal Infrastructure Support Agent: Waste separation and treatment solutions	248 000	11 818
Forestry, Fisheries and the Environment	Environmental programmes	318 000	8 150
Higher Education and Training	Presidential youth employment intervention/National skills fund pay for performance model for digital skills	100 000	4 500
	University graduate assistance	90 000	3 000
Social Development	Social Workers and National Development Agency programme	150 000	3 880
Tourism	Support to 40 provincial tourism attraction sites and tourism monitors	108 000	1 064
Health	Staff and assistant nurses, port health screening	365 000	2 568
Science and Innovation	Enviro-champs, water graduates, and other	67 000	1 650
Sports, Arts and Culture	District Six, Hip Hop and Phanzi museums	15 000	914
Employment and Labour	Employment counselling at labour centres	20 000	250
Total		9 558 000	444 794

Source: National Treasury (2021) Medium Term Budget Policy Statement

 

 

Table 3: Livelihood support programmes

Department	Programme description	Budget (R’000)	Livelihoods
Agriculture, Land Reform and Rural Development	Support to subsistence farmers	750 000	67 378
Social Development	Early childhood development employment initiatives	178 000	42 718
Women, Youth and Persons with Disabilities	Presidential youth employment intervention/ Youth enterprise support fund	30 000	2 000
Total		958 000	112 096

Source: National Treasury (2021) Medium Term Budget Policy Statement

 

1. Fiscal Risks

 

In engaging with government’s proposed spending over the MTEF, the Committee notes the following medium to long-term risks to public finances and outlook as reported in the 2021 fiscal risk statement:

• Macroeconomic risks: these risks include declining economic growth, interest and exchange rates, and debt trajectory;
• Expenditure risks: these risks include the government compensation of employees costs, the national health insurance, and subnational government activities like the provincial unpaid invoices,  the medico-legal claims and the financial position of municipalities;
• Contingent and accrued liabilities risks: these risks include government guarantees to SOEs, the Renewable Energy Independent Power Producer Programme, public-private partnership, obligations to the Road Accident Fund and other social security fund,  and the financial position of state owned entities; and
• Sustainability of social expenditure risks: these risks includes the effects of pricing and demographic changes, and the effects of lower long-run growth.

 

1. Submissions on the 2021 MTBPS

 

This section provides an overview and summary of all the submissions from identified and interested stakeholders on the 2021 MTBPS.

 

 

1. Financial and Fiscal Commission

 

The Financial and Fiscal Commission (FFC) submitted that it welcomed the 2021 MTBPS tabled by the Minister of Finance, especially given the context of declining investor confidence compounded by the recent nationwide civil unrest - atop of a prolonged precarious country fiscal position. In particular, the FFC noted the government's efforts to maintain a modest expenditure growth while making sure that core spending areas were preserved. The FFC made the below comments and recommendations with regard to the 2021 MTBPS.

South African Economy

With regards to the economy, the FFC submitted that the long-term growth prospects of the country required addressing structural constraints. Government should implement economic reforms that can help unlock private sector investment and create more jobs. Such reforms should promote economic transformation, support labour-intensive growth, and create a competitive economy. The FFC noted the reforms outlined in the MTBPS which focused mainly on SOEs restructuring and encouraged other crucial dimensions of structural transformation through fiscal and public finance management for greater productivity and value within the public sector - not cost.

Fiscal Outlook

The FFC supported the economic reforms tabled by the Minister of Finance, focusing on improving competitiveness through lowering the barriers to entry and developing logistics infrastructure to create employment, over bailing out state-owned companies that have been tested and failed for many years.

During the Second Special Appropriation Bill, the FFC noted the additional spending needed to counter the economic consequence of the pandemic and social unrest. The FFC remained firm on its stance that the need to exercise financial restraint to achieve fiscal prudence must not come at a net cost for the socio-economic conditions of our people to regress. South Africa can and must seek to avoid withdrawing its fiscal support too early and still signal to the public that its debt level is sustainable in the long run by eliminating leakages and executing reprioritisations that are productive and constructive.

Fiscal Risk Statement

The FFC encouraged the government to continue promoting a growth-friendly, fiscal consolidation geared towards stabilising and reducing government debt by reforming the evaluation criteria for granting government guarantees to SOEs. The first step would be to establish an SOE governance framework with public reporting criteria that clearly defines detailed and precise profitability and non-financial objectives for transparency.

Public Sector Wage Bill

The FFC recommended that the government should develop a long-term plan in an incremental manner to address unsustainable public sector wage bill and that the plan should seek to improve public sector productivity at a lower cost.

Provincial and Local Government Allocations

The FFC noted the R20 billion upward adjustment made to the provincial equitable share and the projected negative growth rate in local government allocations over the 2022 MTEF. While agreeing that expenditure moderation was necessary for public finances and debt stabilisation, the FFC proposed that executive must keep Parliament updated on its impact on access to and quality of basic services. The FFC further reiterated its stance on the need for the executive to report timeously on how social services were affected by slow budget growth and historical budget cuts.

State-Owned Entities

The FFC submitted that SOEs continued to pose a serious risk to fiscal sustainability. It noted the equity injection/ recapitalisation of R3 billion to Denel in the 2021 MTBPS and the nearly exhausted drawdowns on Eskom's credit guarantee facility. SOE recapitalisation continues despite the government's commitment to end the fruitless bailouts. The FFC appreciated the difficult position under which the government found itself concerning SOEs however, bailouts undermined the fiscal integrity of the budget and exacerbated sovereign credit risks for the country. The FFC stated that there was a need to find a lasting solution to the SOE governance and performance crises by dealing with the underlying accountability failures, capacity inadequacies, and corruption.

 

1. Parliamentary Budget Office       

 

The Parliamentary Budget Office (PBO) submitted that whilst the Covid-19 pandemic continued, its health, social and economic effects will continue to unfold over the medium term. The reports of an imminent fourth wave created even more uncertainty with regard to the forecasts in the 2021 MTBPS. At the same time, there remained a global consensus that public sector action in the form of fiscal and monetary stimulus remained vital to avert further economic collapse. However, the PBO submitted that the 2021 MTBPS proposed to impose tough fiscal consolidation, including lowering of social expenditure (Heath, Basic Education and Social Protection) in real terms over the medium term.

 

The PBO submitted that the efficiency, effectiveness and performance of government’s key plans have been poor and targets were unlikely to be met. Furthermore, supply-side structural reforms were unlikely to have an impact adequate to enhance growth in the medium term, therefore, these have to be complemented by measures to stimulate demand in the economy. The PBO, as in previous years, expressed concerns about the credibility of the fiscal framework. It stated that revenue collection for 2021 has been better than expected and has improved the fiscal framework but this revenue increase was not expected to continue. According to the PBO, the question of where relief and recovery for the poorest households and businesses will come from is an important question that the 2021 MTBPS left unanswered.

 

The PBO made reference to government’s medium to long term policies such as the National Development Plan’s Vision 2030, the seven priorities of the 2019-2024 Medium Term Strategic Framework (MTSF), the Presidential Employment Stimulus and the Economic Reconstruction and Recovery Plan (ERRP). It submitted that an analysis of progress made with the implementation of these plans showed that in most instances government was unlikely to achieve most of the targets that have been set. Government’s actions to address the slow implementation have mainly been the reprioritisation of budgets in the short term. The PBO stated that the reprioritisation of budgets has not yielded required results, therefore government may have to reconsider the adopted approach.

 

Reference to the Fiscal Risk Statement and the PBO submitted that it failed to mention the high risks associated with social, political and economic unrest and instability due to the unbelievably high levels of inequality in South Africa. Also, it does not examine the consequences of the extraordinarily high levels of poverty, inequality and unemployment in South Africa on society, business confidence and the prospects for short-term growth and long-term development.

 

The PBO submitted that it was insufficient to rely on supply-side structural reforms to grow the economy while ignoring low aggregate demand and instability of household finances. The country suffered from a severe demand problem that will be exacerbated by inadequate increases in the social wage as proposed in the 2021 MTBPS. The PBO emphasised that it was important to note that the ‘social wage’ declined in real terms over the medium term and real per capita expenditure on other social wage decline. The lack of an announcement on the extension to the Relief of Social Distress Grant created uncertainty and added to the insecurity of millions of households in South Africa. The PBO argued that access to services was unequal between formal and informal settlements, the rich and poor and rural and urban households. To this end, the PBO suggested that a considered Basic Income Grant will support the kind of growth the economy required and will increase stability of households and reduce poverty and inequality.

 

In conclusion, the PBO submitted that the 2021 MTBPS was consistent with the policy direction of the 2021 State of the Nation Address and the 2021 national budget with regard to economic recovery through structural reform. However, increased government expenditure will be necessary to crowd-in investment from the private sector into the economy.

 

1. Congress of South African Trade Unions

 

The Congress of South African Trade Unions (COSATU) expressed its disappointment at the tepid 2021 MTBPS that was tabled by government. COSATU submitted that the MTBPS provided few new ideas or interventions to grow the economy with no new measures provided to increase the badly needed state revenue, nor to deal with the ballooning levels of corruption and wasteful expenditure. Furthermore, COSATU submitted that the essence of the MTBPS as with the previous budgets of the past few years has been to shift the blame to the public service wage bill. According to COSATU, this approach is tantamount to outsourcing the MTBPS for corruption, state capture and mismanagement to nurses and teachers as it fails to address the real causes of the economic and fiscal crises.

 

COSATU viewed the 2021 MTBPS as a missed opportunity by government and made the below comments and proposals.

 

Mass Stimulus Package	A mass stimulus programme is needed to kick start economic growth, in particular key growth sectors.  This needs to include funding from the Developmental Finance Institutions and the private sector.
Presidential Employment Stimulus Programme	The Presidential Employment Stimulus Programme should be expanded further over the Medium-Term Expenditure Framework.
Economic and Social Relief	Government interventions in the Unemployment Insurance Fund is needed to modernise its systems to ensure that workers and companies receive the relief due to them timeously. A package of support for embattled businesses and sectors of the economy is needed from both the state and the banks.
Pension Fund Withdrawals	The pension funds’ emergency relief and two-pots regime policy paper of National Treasury should be released by mid-November 2021. The Pension and Government Employment Pension Fund Amendment Bill should be released by December 2021 for public comment and be tabled in Parliament with the 2022/23 Budget.
R350 Social Relief of Distressed Grant	The R350 SRD Grant should be extended beyond March 2022.  A road map to raise the food poverty line should be developed. The R350 SRD Grant payments must be moved from physical to electronic for all recipients. It should be used as the foundation for basic income grant for those with no source of income.
Infrastructure Programme	The infrastructure programme should be accelerated. The amendment of Regulation 28 of the Pension Fund Act should be finalized by the end of 2021.
Corruption and Wasteful Expenditure	The ban on Ministers doing business with the state should be extended to include the office bearers of ruling parties at a national, provincial and regional level, as well as the spouses and children of such Executive members and politicians. The appropriations for the NPA, SAPS and Courts should be increased for the tackling of corruption cases. SARS should be empowered to instigate lifestyle audits of members of the executive, leadership of ruling political parties, their spouses and adult children, executive management across the state and supply chain management. The blacklisting of delinquent companies from public tenders should be implemented.
Public Procurement	A single, online, transparent public procurement system should be established for the entire state, e.g. public service, entities, SOEs and local government. Expanded designation of key locally produced goods across the state. Procurement of certain large-scale items e.g. medicines, textbooks, and vehicles should be centralized. 30-day payment rule across the state should be enforced and offending officials must be held accountable. The Public Procurement Bill should be enhanced to meet these objectives. The Public Procurement Bill should be tabled at Nedlac by the end of 2021 and in Parliament by April 2022.
Revenue	Further appropriations are needed to provide SARS with the necessary capacity to tackle tax evasion in the 2022/23 Budget. A comprehensive plan to enforce 100 per cent customs duties collection must be developed by SARS for implementation with the 2022/23 Budget. SARS should be empowered to implement lifestyle audits for politically influential persons and the wealthy. National Treasury should further reduce tax loopholes. Taxes on the wealthy should be increased in the 2022/23 budget through income taxes for those earning above R1.5 million per annum, inheritance and estate duties for the wealthy, and import duties on luxury imports that can be manufactured locally.
State-Owned Enterprises	Measures to stabilise Eskom and bring additional generational capacity to the grid should be accelerated. Clear stabilisation, recovery and repositioning plans are needed for embattled SOEs, including jobs plans for workers whose jobs are at risk, in particular, Transnet, PRASA, DENEL, SABC, Post Office, SAA and Mango. The RAF and RABS Bills should be tabled in Parliament by February 2022. The fuel price regime paper should be released as promised by Government in January 2019 and the development of an alternative and more affordable fuel price regime is needed for the economy.

 

1. Amandla.Mobi

 

Amandla.mobi made a submission on behalf of members of the amandla.mobi community who have tried to engage the new Minister of Finance, Mr E Godongwana, and National Treasury ahead of the tabling of the 2021 MTBPS, through the platform: https://act.amandla.mobi/campaigns/godongwana_mtbps. Amandla.mobi highlighted the content of the proposals sent to the Minister of Finance for consideration by the Committee.

 

Amandla.mobi made the following proposals:

 

• Increase and keep the R350 Social Relief of Distress grant until it is turned into permanent Basic Income Support, valued at the upper-bound poverty line (currently R1 335 per person per month) for people aged 18 to 59 with little to no income.
• Caregivers receiving the Child Support Grant should receive Basic Income Support, as well as refugees, permanent residents, asylum seekers and migrant workers. These campaign demands were part of a petition that Amandla.Mobi is running with Black Sash, who have been working for years on this issue.
• Increase the Child Support Grant to R950 per child.
• Increase the Old Age grant to R 2 150 per month.
• Expand Child Support Grant to include pregnant mothers.
• Increase all other grants by no less than R300.
• Increase Personal Income Tax for those earning over R1 million annually.
• Commit to introducing an annual net wealth tax at a higher rate of 3 per cent for those with a wealth of more than R3.8 million, 7 per cent for those with a wealth of more than R30 million and 9 per cent for those with a wealth of more than R146 million.
• Pro-poor interventions and commitments such as dramatically reducing the medical aid rebate and eliminating retirement fund contributions or rebates for those earning over R1 million a year.
• Increase the Health Promotions Levy (HPL) to 20 per cent, as well as significant tax increases on tobacco, alcohol and especially carbon.
• With regard to public participation, ensure the majority of people are aware that National Treasury is accepting public comments that will inform budget priorities. This requires advertising the public comment period and process widely and in multiple languages.
• Ensure that anyone anywhere can submit public comments for free. To implement this, National Treasury should provide a toll-free number that does not require or use airtime, and a process where people can call in, learn more about the budget decisions and have their public comment captured by National Treasury staff. At the very least, National Treasury should provide a cell phone number by mid-January 2022, that members of the public can send public comments to through either a phone call, SMS or WhatsApp message. Amandla.Mobi submitted that currently, National Treasury only provided a landline that costs airtime to call and excludes the majority, whereas a cell phone number would make submitting public comments slightly more accessible.

 

1.       Committee observations and findings on the 2021 MTBPS

 

The Standing Committee on Appropriations, having considered the 2021 Medium Term Budget Policy Statement, and having engaged with the various stakeholders, makes the following findings and observations:

 

1. The Committee notes and welcomes that the 2021 MTBPS emphasises the continued government commitments of accelerating structural reforms to promote growth, while keeping fiscal consolidation on course to narrow the deficit and stabilise the public debt; with a purpose of achieving a primary budget surplus by 2024/25, ending the fiscal consolidation policy. The Committee has always been of the view that even though there is a need for government to spend, particularly on social services and health, the stock of government debt should remain at sustainable and manageable levels.

 

1. The Committee notes and welcomes that the 2021 MTBPS emphasises government’s commitment to maximise the value of spending through cost containment, prudent and compliant financial management, and the eradication wasteful expenditure of public funds and resources.

 

1. The Committee notes and welcomes the proposed additional allocation of R59.4billion in 2021/22 mainly to reinstate the special Covid-19 social relief of distress grant, the costs associated with the implementation of the 2021 public-service wage agreement, and the outbreak of the public violence in July 2021. However, the Committee is of the view that given the uncertainties around the Covid-19 pandemic, government should explore various ways of assisting the poor and unemployed beyond March 2022.  

 

1. The Committee notes that due to the negative impact of Covid-19 pandemic and its associated lockdowns, the South African economy is projected to grow by 5.1 per cent in 2021, decreasing to 1.8 per cent and 1.6 per cent in 2022 and 2023 respectively. However, the Committee is concerned about the STATSSA report that as at the end of the third quarter of 2021, the official unemployment rate had increased from 34.4 per cent in the second quarter of 2021 to 34.9 per cent in the third quarter of 2021, the highest since the start of the QLFS in 2008. The Committee implores government to accelerate the implementation of the government adopted Economic Reconstruction and Recovery Plan (ERRP) and other reforms in order to accelerate economic growth and job creation. The Committee is still of the view that this government-led plan, agreed between government, business, labour and civil society will take South Africa back to the economic growth trajectory that is needed to eradicate unemployment, poverty and inequality, which has been worsened by the Covid-19 pandemic and its restriction on economic activities.

 

1. The Committee notes and welcomes the proposed allocation of R11billion earmarked in the 2021 budget to fund the Presidential Youth Employment Initiative. The Committee understands the impact that Covid-19 has had, particularly on the levels of unemployment amongst the youth. The Committee is of the view that a framework or standard guideline on the types of jobs to be created with a benchmark remuneration standard for each job category is necessary to avoid inconsistences and potential abuse of these funds. Given the recent experience on the distribution of food parcels, the Committee is of the view that National Treasury and the Presidency should have a well-defined approach to the implementation of this scheme, to ensure uniformity across all departments.

 

1. The Committee notes and welcomes the 5.5 per cent annual average increase on the allocation towards community development over the 2022 MTEF. Local government is at the centre of service delivery, and the committee is in support of additional allocations towards local government due to its close proximity to those who are in need of services provided by government.

 

1. The Committee notes and welcomes government’s continued support of the poor and vulnerable groups by continuing to mitigate food insecurity and poverty by allocating an additional R26.7 billion to the Department of Social Development to reinstate and administer the special Covid-19 social relief of distress grant for eight months from August 2021 to March 2022. However, given the uncertainties around the Covid-19 pandemic, the Committee implores government to continue supporting the poor beyond March 2022 when the social relief of distress grant is ending.

 

1. The Committee notes and supports the recommendation by the FFC that that government should develop a long-term plan in an incremental manner to address unsustainable public sector wage bill and ensure the achievement of an improved public sector productivity at a lower cost.

 

1. The Committee remains concerned about the overall fiscal risks, particularly those that relate to state owned companies’ guarantee exposure, the financial position of the Road Accident Fund and non-payment of invoices within 30 days by provinces. The Committee urges government to speed-up reforms and interventions in SOE’s so that these institutions begin to deliver on their respective mandates in an efficient and economic manner, thereby allowing government to refocus government finances on other urgent needs of the country. Furthermore, the Committee argues that government must ensure compliance with the payment of invoices within the government set regulations of 30 days.

 

 

 

1. Recommendations

 

The Standing Committee on Appropriations having considered the 2021 Medium Term Budget Policy Statement, recommends as follows:

 

1. That the Minister of Finance and the Project Management Office at the Presidency ensure that the funds allocated towards the Presidential Youth Initiatives are spent within the required guidelines and frameworks in order to avoid potential abuse and corruption.

 

1. On the declared unspent funds of R1.3 billion on the public transport network grant for the City of Cape Town, the Minister of Transport and the City of Cape Town must provide a detailed report to Parliament on the reasons and implications for the delays in implementing the MyCiti phase 2A. The Committee wants to understand why there are delays in the implementation of this project and the remedial action taken to correct this problem. This will assist the Committee to avoid recommending the appropriation of funds that will not be spent and possible future reduction of this grant

 

1. Conclusion

 

The responses and implementation plans by the relevant Executive Authorities to the recommendations, as set out in section 10 above, must be sent to Parliament before the tabling of the 2022 national budget by the Minister of Finance.

 

 

 

Report to be considered.