ATC230324: Report of the Select Committee on Appropriations on the Second Adjustments Appropriation (2022/23 Financial Year) Bill [B4 – 2023] [National Assemby (Section 77)], Dated 24 March 2023

NCOP Appropriations

Report of the Select Committee on Appropriations on the Second Adjustments Appropriation (2022/23 Financial Year) Bill [B4 – 2023] [National Assemby (Section 77)], Dated 24 March 2023.

 

1. Introduction

The Minister of Finance tabled the 2023 Budget on 22 February 2023, together with a number of instruments. Among them was the Second Adjustments Appropriation (2022/23 financial year) Bill [B4 – 2023]. Section 12 (15A) of the Money Bills and Related Matters Act No. 9 of 2009 (as amended) provides that, “after the National Assembly (NA) passed the Adjustments Appropriation Bill, the Bill must be referred to the National Council of Provinces (NCOP) and referred to the Select Committee on Appropriations.” Accordingly, the NA passed and transmitted this Bill, for concurrence, to the NCOP on 23 March 2023. The NCOP referred the Bill to the Select Committee on Appropriations for consideration and report.

 

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 on the website of Parliament and social media accounts inviting the general public and all interested stakeholders to make written submissions and comments on the Bill. In addition to the National Treasury briefing the Committee on the contents of the Bill, the Committee was also briefed by the Financial and Fiscal Commission (FFC) and the Parliamentary Budget Office (PBO) on 15 March 2023. During a public hearing, held jointly with the Standing Committee on Appropriations on 14 March 2023, an oral submission was made by the Congress of South African Trade Unions (COSATU).

 

1. National Treasury

According to the National Treasury, the Bill proposes additional revenue to enable government to respond to some immediate spending pressures while continuing to stabilise the public finances. The Bill proposes changes to in-year main budget non-interest expenditure since the 2022 main Budget; increasing it by a net R23.billion, as upward adjustments were partially offset by declared unspent funds, projected under-spending, shifting of funds between votes and draw-downs of the contingency reserve and provisional allocations not assigned to votes.

The Bill proposes the following adjustments:

• R14.6 billion to assist national departments with the carry-through costs associated with the 2022/23 public service wage increase.
• R2.4 billion for the South African Post Office (SAPO), on the following conditions: (a) the accounting authority and management of SAPO must be held accountable for the decisions taken to withhold statutory and other payments deducted from employees’ salaries and not paid over to the relevant authorities; (b) given SAPO’s weak track record with implementing its turn-around plans, the Minister of Communications and Digital Technologies should consider placing SAPO under administration before further funding is considered to implement the new strategy. At the least, an oversight committee should be established by the National Treasury and the Department of Communications and Digital Technologies; (c) the future of SAPO must be aligned with the results of a market study and the policy objectives set out in the ICT White Paper; and (d) SAPO must begin selling all its non-core assets, including properties, at market rates. 
• R5 billion for the Land Bank, on the following conditions: (a) the Bank will provide assurance of compliance with section 38(1)(j) of the Public Finance Management Act. If such confirmation cannot be provided, the funds will be transferred on condition that remedial measures are put in place to ensure the Bank can establish effective financial management and internal controls; (b) the Bank must provide evidence that it will be able to ring-fence or safeguard the R5 billion from any legal action by the lenders; (c) National Treasury and the Bank must enter into an agreement regarding the business plan and operationalisation of the blended finance portion of the R5 billion; (d) the Bank must provide written confirmation that neither the initial equity allocation for blended financing, nor any future cash flow from this programme will form part of the cash sweep to repay the amortizing note issued to unguaranteed lenders; (e) the Bank must use a minimum of R3 billion for the blended finance programme and a maximum of R2 billion to cure its default position; and (f) the Board must ensure that the R5 billion is utilised only as specified and approved by the Minister as stated in these conditions.
• R1 billion for the South African Airways (SAA), on the following conditions: (a) that all government guarantees to SAA will be cancelled; (b) Takatso consortium must provide proof of funds for the Strategic Equity Partner (SEP) transaction; and (c) National Treasury will review the SEP agreement, to ensure it does not give rise to future fiscal obligations.
• R300 million for the Represented Political Parties Fund.
• R3.8 billion reduction of unspent Social Relief of Distress (SRD) Grant funds within the Social Development Vote.

In order to ensure sustainability, accountability and transparency, funds will not be transferred to the mentioned SOEs if the above-stated conditions are not met or adhered to

 

1. Financial and Fiscal Commission (FFC)

With regard to the allocation of R14.6 billion to national departments to assist with the carry-through costs associated with the 2022/23 public service wage increase, the Financial and Fiscal Commission (FFC) warned that unaffordable wage bill settlements remained a key risk to the fiscus; and welcomed the work being spearheaded by the Department of Public Service and Administration and National Treasury to devise a single remuneration framework for the public sector. With regard to the R8.4 billion in bailouts for the South African Airways (SAA); the South African Post Office (SAPO); and the Land Bank, the FFC warned that continued bailouts for under-performing state-owned entities (SOEs) created perverse incentives and were fiscally unsound. The FFC further noted the R3.8 billion of unspent Social Relief of Distress (SRD) Grant funds within the Department of Social Development, reportedly due to improved means testing; and expressed concern over the progressive erosion in the number of people accessing this Grant, in light of persistent unemployment and worsening socio-economic conditions, disproportionately affecting poor households.

The FFC made the following recommendations:

• As recommended previously, government must devise systems of accountability and measures of control to prevent SOEs from indulging in moral hazard behaviour. Pre-conditions and conditions required for bailouts, including financial and operational reporting, have been implemented, however, positive outcomes have been limited.
• In the spirit of greater transparency and accountability, future bills must be accompanied by more information and an explanation of the rationale for proposed adjustments.

 

1. Parliamentary Budget Office

The Parliamentary Budget Office (PBO) commented that the Bill was necessary to address certain challenges in national government and SOEs. The revenue contained in the Bill had been raised through downward expenditure adjustments totalling R54 billion, with R19.4 billion being raised from projected under-expenditure within government and R34.6 billion from other downward adjustments.

 

The PBO reported that the increases for the public service wage bill would be between R3 million and R1.9 billion per national department, depending on its size. The R1 billion allocation to the SAA was due to historical outstanding debt. National Treasury would review the Strategic Equity Partner (SEP) agreement to prevent future fiscal obligations. The conditions attached to the financial injection of R2.4 billion for the SAPO, included the placement of the entity under administration. Of the R5 billion allocated to the Land Bank, R3 billion was for the blended finance programme and R2 billion to remedy its default position.

 

1. Congress of South African Trade Unions (COSATU)

The Congress of South African Trade Unions (COSATU) welcomed the additional allocations in the Bill to departments and SOEs; as well as the allocation of R300 million to the Represented Political Party Fund to support political parties. However, it felt that the R300 million needed to be increased to R1 billion in the next budget. COSATU indicated that, while it had initially been sceptical, it had become convinced that it was better for the State to fund political parties; as it would protect democracy and help minimise corruption. As part of the constitutional dispensation, political parties would be required to undertake expensive election campaigns over the next year, and R300 million would not be sufficient to do so.

 

COSATU welcomed the R5 billion allocation to the Land Bank, submitting that this needed to be accompanied by the necessary management interventions to ensure that the entity was well run and could play its intended role in the economy. It further welcomed the R1 billion allocation to settle outstanding SAA debts, as well as the beginning of the entity’s turnaround in a very difficult sector; and proposed that, as SAA rebuilt, it prioritised the employment of its former employees, where possible.

While COSATU welcomed the extension of the Social Relief of Distress (SRD) Grant, as it had provided relief to about 8 million people; it emphasised that the amount needed to be increased to the food poverty line of R624; or at the very least be adjusted for the inflationary erosion since its introduction in 2020. However, COSATU expressed concern over the reduction of R3.7 billion from the SRD Grant funds and the R81 million from the South African Social Security Agency (SASSA) administrative support; indicating that National Treasury had failed to pay attention to the Grant’s administrative challenges, leading to the significant under-spending. This was important if this programme was to be used as a foundation for a basic income grant (BIG). COSATU recommended that SRD Grant recipients be paid electronically instead of being made to stand in endless queues; and that beneficiaries be included, where possible, in skills training and employment placement programmes.

COSATU welcomed the R2.4 billion allocated to the SAPO, but emphasised that it needed to be accompanied by a turnaround plan that was not based on the retrenchment of 4 000 employees and slashing the wages of the remaining 9 000 workers. The plan further needed to include support to re-pivot the entity to expand its services; catch up with a rapidly evolving sector and become a site for accessing government services in rural and disadvantaged communities. This needed to include a fully-fledged Postbank and COSATU argued that the Post Office and Postbank Amendment Bills needed to be expedited by government and Parliament.

 

1. Findings and observations

The Select Committee on Appropriations, having considered the inputs from the above stakeholders on the Second Adjustments Appropriation (2022/23 financial year) Bill [B4 – 2023], makes the following findings:

 

1. The Committee noted the R23 billion net adjustment proposed for in-year non-interest expenditure for the 2022/23 main Budget, which were partially offset by declared unspent funds, projected under-spending, shifting of funds between votes and draw-downs of the contingency reserve and provisional allocations not assigned to votes; and which had been allocated as follows:

•  R14.6 billion to assist national departments with the carry-through costs associated with the public service wage increase.
• R2.4 billion for the South African Post Office (SAPO) with stringent conditions.
• R5 billion for the Land Bank with stringent conditions.
• R1 billion for the South African Airways (SAA) with stringent conditions.
• R300 million for the Represented Political Parties Fund.
•  R3.8 billion reduction of unspent Social Relief of Distress (SRD) Grant funds within the Social Development Vote.

 

1. Whilst noting the timing of this Bill, the Committee questioned whether it could not have been tabled together with the 2022 Medium Term Budget Policy Statement (MTBPS), or included in the 2023 Appropriation Bill; and was further concerned about the utmost urgency with which it had to be processed, which left limited time for the Committee processes.
2. The Committee noted the Financial and Fiscal Commission’s (FFC’s) view that unaffordable wage bill settlements, together with the financially unsound state-owned entities (SOEs) remained a key risk to the fiscus; and welcomed the work being spearheaded by the Department of Public Service and Administration and National Treasury to devise a single remuneration framework for the public sector. 

 

1. The Committee noted the FFC’s concern that the unspent R3.8 billion of the Social Relief of Distress (SRD) Grant funds within the Department of Social Development, due to improved means testing, had led to the progressive erosion in the number of people accessing this Grant, in the midst of persistent unemployment and worsening socio-economic conditions, disproportionately affecting mostly the poor and vulnerable.

 

1. Whilst the Committee welcomed the savings from the efficiency gains as a result of measures to address corruption and maladministration in the SRD Grant implementation, it was concerned about the negative effect of this on the most vulnerable and needy potential beneficiaries of the Grant.

 

1. Whist the Committee had concerns over the absence of a progress report with respect to the issue of the South African Airways (SAA) Strategic Equity Partner (SEP), it noted that the R1 billion allocation was for historical outstanding debt; and that there was a plan to review the SEP agreement to prevent future fiscal obligations. The Committee remained concerned that this was one of the entities that had previously received numerous bailout packages, yet its financial position continued to be a risk to the fiscus.  

 

1. The Committee was concerned that the South African Post Office (SAPO), despite receiving a total of R7.3 billion between 2016/17 and 2018/19, had not managed to implement its turnaround strategy to date and was still experiencing further financial problems. The Committee remained concerned that, as stated above, this entity too had previously received numerous bailout packages, but its financial position continued to be a risk to the fiscus.    

 

1. The Committee remained concerned about the lack of innovation in SAPO’s business model, given the decline in the demand for postal services; whether the non-core assets to be sold by SAPO were not going to be needed in future developments; as well as the impact of this decision with regards to the distribution of social grants.  
2. The Committee was concerned that the National Treasury, as the custodian of South African public finances, may have not done enough to ensure that all funds disbursed for bailouts were fully accounted for and conditions were fully complied with; and instead expected the shareholder departments to be the only role players holding public entities accountable and ensuring that turnaround strategies were effectively implemented. 

 

1. Whilst welcoming conditions attached to bailouts, the Committee felt that conditions should not veer toward privatisation without having been discussed properly. While the private sector played a crucial role in society in general, there was a variety of forms of private participation that did not include completely handing over an entity to the private sector, whose main objective was to maximise profits.

 

1. The Committee noted that the National Treasury had appointed an independent team of skilled people to do an assessment of Eskom’s operations, maintenance and performance, to assist in determining what conditions should be attached to the debt relief, and further noted the fact that Eskom would not be able to borrow funds while still under the debt relief programme.

 

1. The Committee remained concerned with regards to the mandate of the Land Bank, whether it was a development finance institution (DFI) or a proper commercial entity. Furthermore, the Committee was concerned that the overall government exposure from SOE debts was almost R400 billion, and that each successive bailout increased the debt service costs, crowding out funds for service delivery programmes; and that this might lead to intergenerational debt effects.

 

1. The Committee welcomed the Parliamentary Budget Office’s (PBO’s) proactive initiative to undertake more research on all SOEs with regard to contingent liabilities; funding needs and whether the Public Finance Management Act (PFMA) requirements were still realistic within the current framework; and believed that this would assist to strengthen its future recommendations to the executive.

 

8. Recommendations

The Select Committee on Appropriations, having engaged with the above stakeholders on the Second Adjustments Appropriation (2022/23 financial year) Bill [B4 – 2023] recommends as follows:

1. The Department of Public Enterprises and the Department of Communications and Digital Technologies, together with National Treasury, should ensure that the R23 billion allocated in the Bill is utilised for its intended purpose and that a proper internal control environment is created to ensure that these funds are utilised effectively to enhance the implementation of turnaround strategies of ailing entities, once approved and gazetted. Further, shareholder departments should ensure that the set of conditions prescribed for the bailouts are fully complied with, and that clear penalties or steps for consequence management are explicitly outlined as part of conditions so that, should non-compliance be identified, clear and appropriate action is taken.

 

1. The Committee is of the view that, given the level of fiscal risk posed by the state-owned entities (SOEs) in the already constrained government budget and the fact that each bailout increases debt service costs to the detriment of social service delivery programmes; government should take decisive action to re-invent, restructure, remodel or even terminate some of the entities; bearing in mind the sectoral nature, role and function these play in the larger economy. Business models of SOEs should be positioned in such a manner that they adapt to the ever-changing patterns of technology and innovations to keep up with the demand.    

 

1. The Committee implores the Department of Public Service and Administration, together with the National Treasury, to expedite the work to devise a single remuneration framework for the public sector. A progress report in this regard should be presented in the next budget cycle and Parliament will continue to monitor progress through relevant sector committees.   

 

1. Whilst the Committee welcomed the improved means test for better disbursement of the Social Relief of Distress Grant to eliminate corruption and maladministration, the Committee is of the view that the Department of Social Development, the South African Social Security Agency (SASSA) and National Treasury should ensure that such measures are not taken at the expense of the most vulnerable and needy beneficiaries. Furthermore, the Committee believes that the discussion around the Basic Income Grant (BIG) should continue amongst all the relevant stakeholders to find a permanent solution in the midst of growing unemployment and poverty.

 

1. The National Treasury and the Department of Public Enterprises should expedite the process to review the South African Airways’ (SAA’s) Strategic Equity Partner (SEP) agreement to prevent future fiscal obligations for government, assisting government’s effort to minimise fiscal risks. The shareholder department should ensure that the set of conditions prescribed for the R1 billion bailout are fully complied with. Parliament will continue to monitor the progress.    

 

1. The National Treasury should ensure that the appointed independent team fast-tracks the assessment on Eskom’s operations, maintenance and performance to assist in determining the nature of conditions that should be attached to the Eskom debt relief.

 

1. The Committee calls on the Department of Public Enterprises, National Treasury and Eskom to ensure that all measures announced by the executive to address the ongoing energy crisis are implemented with speed, given the negative impact of load shedding on the economy and service delivery; and that this does not negatively impact on local government’s ability to raise revenue through electricity tariffs.   

 

1. The Parliamentary Budget Office (PBO) should expedite its research project on all state-owned entities (SOEs) with regard to contingent liabilities; funding needs and whether the Public Finance Management Act (PFMA) requirements are still realistic within the current framework.   

 

1. Whilst the Committee welcomed and appreciated the submission made by the Congress of South African Trade Unions (COSATU) during the public hearing on the Bill, it wishes to encourage all other civil society organisations to continue participating in parliamentary public hearings to ensure that their meaningful inputs are placed before committees.  

 

1. With regards to the South African Post Office (SAPO), the Committee reiterates its previous recommendation that the Department of Communications and Digital Technologies and SAPO must address all challenges facing the entity and ensure that a clear plan is developed and implemented to address the issue of SAPO workers; and that the issues of statutory payments, medical aid schemes and pension funds are addressed. A progress report should be submitted to Parliament within 60 days after the adoption of this Report by the House. Parliament will continue to monitor this through its relevant sector committees. 

 

9. 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 Second Adjustments Appropriation (2022/23 Financial Year) Bill [B4 – 2023], referred to it, and classified by the Joint Tagging Mechanism as a section 77 Bill, reports that it has agreed to the Bill, without proposed amendments.  

 

The Democratic Alliance (DA) and the Freedom Front Plus (FF+) rejected the Report and the Economic Freedom Fighters (EFF) reserved its position on the Report.

 

Report to be considered.