MTBPS and Division of Revenue Amendment Bill: SALGA and COSATU input

NCOP Appropriations

30 November 2021
Chairperson: Ms D Mahlangu (ANC, Mpumalanga)
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Meeting Summary


The Select Committee on Appropriations was convened in a virtual meeting for presentations by the South African Local Government Association (SALGA) and the Congress of South African Trade Unions (COSATU) regarding the medium-term budget policy statement (MTBPS) and the Division of Revenue Amendment Bill.

SALGA said the COVID-19 pandemic had exacerbated the South African economic crisis, impacting particularly on social spending. SALGA predicted that real gross domestic product (GDP) would grow by 5.1% in 2021. Household consumption had improved, but had not fully recovered from the pandemic. In line with government’s commitment to support vulnerable households, additional resources for social protection would be considered if the fiscal situation improved by February 2022.

COSATU proposed that in 2022, government create plans to stimulate the economy and support job creation. This included providing relief to the unemployed, as voters were losing faith in government policies and commitments. It suggested that there needed to be sufficient monitoring and consequence management to deal with corruption and wasteful expenditure.

Members directed many of their concerns to SALGA, including insufficient capacity in the financial departments of the municipalities; water and electricity losses in municipalities; the capacity and ethics of newly-elected councillors; ring-fencing of grants to local governments to ensure spending on the specified projects; and the lack of spending of grants due to poor planning, procurement and service delivery.

Members questioned COSATU on issues such as collective bargaining; an increased headcount of public servants to ensure service delivery; a single online procurement system to ensure transparency; blacklisting delinquent companies involved in procurement procurement; lifestyle audits of government and state-owned entities management; and the uptake of community healthcare workers and teachers.

National Treasury said that substantive written responses would be provided to the Committee at a later point, especially concerning E-tolls. It acknowledged the less-than-optimal performance on grant expenditures. It was looking into how to incentivise municipalities to carry out entire programmes from planning through to implementation. The NT planned to present a report on a diagnostic study that was conducted on service delivery and the lack of effective functioning of local government in 2021/22, and recommendations on how to build capacity in this sector.

Meeting report

SALGA'S response to 2021 MTBPS
Mr Bongani Baloyi, National Executive committee member, South African Local Government Association (SALGA), introduced the presentation.
Ms Khomotso Letsatsi, Chief Officer: Municipal Finance, Fiscal Policy and Economic Growth, SALGA, took the Committee through the presentation on its response to the 2021 medium-term budget policy statement (MTBPS) and the Division of Revenue Bill (DoRB).
Referring to the macroeconomic outlook of 2021, she said that the economy was hit very hard due to COVID-19. This had resulted in a projected 5.1% growth in the economy this year, and 1.8% in 2022. It was projected that in 2022 the economy would return to the projected pre-pandemic levels of growth
due to global demand, higher commodity prices and the easing of COVID-19 lockdown restrictions.

The fiscal deficit was expected to narrow from 7.8% of the gross domestic product (GDP) in 2021/22, to 4.9% in 2024/25, based on the fiscal consolidation approach that National Treasury (NT) had undertaken. Requests from rating agencies and investors were aiming to place the country on a path to sustainability through fiscal reforms.
Government's gross loan debt would increase from 69.9% of GDP in 2021/22, to 77.8% of GDP by 2024/25. Ms Letsatsi explained that a large portion of the allocation would go into servicing costs, which would propagate reform to free up funding towards providing service delivery. Debt was projected to peak at 78.1% to GDP by 2025/26.
There had been an increase in the population reliant on social grants due to rising unemployment rates. Local governments could expect to suffer a shortage of funding. Under the Municipal Finance Management Act (MFMA), the local government sector was completely reliant on customers, households and businesses to provide funding through paying for the services that they consume. Due to households feeling overstressed generally, the financial sustainability of the sector was at risk, which would impact the government’s ability to deliver services.
When comparing the MTBPS to the 2021 budget, the local and provincial spheres were highlighted as being impacted significantly. Local government’s budget allocation dropped from 9% to 8.5%, provincial government's decreased from 41.5% to 40.9%, and national government's budget allocation increased from 49.5% to 50.6%.
On vertical allocations, SALGA and the Department of Cooperative Governance and Traditional Affairs (CoGTA) had reviewed the allocations given to local government and the equitable share.
Ms Letsatsi noted a slight drop in the adjusted budget for local government in 2020/21, from R138.1 billion to R137.6 billion. There was a marginal increase for the outer years. Despite these reductions, organised local government acknowledged the need to reduce the deficit and provide additional short-term support for health, social protection, job creation, and peace and security.The 2021 MTBPS anticipates a primary budget surplus by 2024/25, thereby bringing the period of fiscal consolidation to an end.

The MTBPS proposed to allocate 48.4% to national departments, 42% to provinces and 9.6% to local governments over the next three years. SALGA maintained that the proposal would actualise the promises made in the White Paper.
SALGA noted no adjustment to the equitable share allocation for the 2021/22 financial year. At the time the numbers were finalised, a court proceeding had occurred to produce estimates concerning the increase in electricity rates. It was raised as a risk in the budget forum, that what was projected in the numbers would not align with the actual outcome, based on the court proceedings. Relevant adjustments must be made to ensure the sector is not underfunded in that regard.
Local Government Allocations
The local government equitable share formula had been updated to account for projected household growth, inflation and estimated increases in bulk water and electricity costs over the medium-term economic framework (MTEF) period.
SALGA reported that total investment in public infrastructure would be at nearly 30% of gross fixed capital formation by 2030. Over R100 billion would be allocated over the next decade, compared to what was previously committed. R841 million would be added to municipalities and the Neighbourhood Development Partnership Grant to drive employment.
R1.3 billion had been returned by the City of Cape Town because of under-expenditure on the rollout of the Bus Rapid Transport (BRT) system and this project. R81 million had been added to the direct regional bulk infrastructure grant (RBIG) for George Local Municipality for the implementation of potable water security and its remedial works project.
(See slide 19 for the structure of the local government fiscal framework.)
The Auditor-General (AG) had flagged issues of insufficient capacity and overreliance on external financial consultants. SALGA had reached out to municipalities and mayors to ensure audit plans respond to issues constantly flagged, and the application of appropriate consequence management.
Growing electricity/energy bulk water resources
SALGA welcomed the policy changes that saw municipalities diversifying their energy mix. SALGA was currently at a juncture where local government could participate as they finalised issues within the sector.
It welcomed the National Water Resources Infrastructure Agency, which was responsible for improving the management of bulk water resources.
The COVID-19 pandemic had exacerbated the South African economic crisis, particularly hitting social spending. SALGA predicted that although the real GDP would grow by 5.1% in 2021 and household consumption had improved, the economy had not fully recovered from the pandemic.
In line with government’s commitment to support vulnerable households, particularly given the impact of COVID-19, additional resources for social protection should be considered if the fiscal situation improved by February 2022.
COSATU on Division of Revenue Amendment Bill
Mr Matthew Parks, Deputy Parliamentary Coordinator, Congress of South African Trade Unions (COSATU), said that the South Africa was in a deep recession with an economy that was badly in need of stimuli. The unemployment rate was currently at 44% and was rising, with 27 million people dependent on state social grants and relief. Thousands of companies had closed during this time.
The fiscus had lost billions of rands to corruption, wasteful and fruitless expenditure, tax evasion and mismanagement of state-owned entities (SOEs) and municipalities. Collapsing SOEs had resulted in unreliable energy sources. The debt trajectory was approaching dangerous levels.
COSATU disagreed with National Treasury’s (NT's) approach to the budget. It felt there was a need for a mass stimulus plan that was focused on budget cuts through a mass wage bill freeze and departmental cuts across the board.
Public service wage bill
COSATU agreed with the R19 billion adjusted budget allocations from the Public Service wage bill. Mr The 2021 wage agreement was significantly below inflation, and many parts of it were once-off contributions to public servants.
COSATU proposed:
Respecting the collective bargaining, and engaging bargaining councils on matters of collective bargaining;
Establishing a single collective bargaining and wage regime for the entire state, including SOEs;
Introducing wage caps for senior managers in SOEs and entities;
A 25% package and headcount cut for executive office bearers and senior management across the state.
Slashing the Ministerial Handbook’s excessive perks; and
Introducing reverse headcount cuts for the South African Police Service (SAPS) and teachers.
Presidential Employment Stimulus Programme (PESP)
COSATU supported the R11 billion given to the PESP, which had helped to create 550 000 jobs and provided the youth with salaries and experience. COSATU also welcomed the fact that the MTEF had been doubled to R74 billion, which should be expanded further in February 2022.
Basic Education
COSATU was concerned about the budget cuts to the Department of Basic Education (DBE),where the allocations were below inflation rates. However, it welcomed the R113 million allocation to school infrastructure for sanitation and water.
On water and sanitation, COSATU raised concerns surrounding the inability to allocate R149 million to schools when thousands of schools lack adequate sanitation. Shifting R97 million of the sanitation budget to mathematics teachers showed an incapacity of management. 80% of sanitation standards in schools had not been met by the DBE. COSATU urged that the Minister and DBE should be held accountable.
COSATU welcomed the R6 billion allocated to the employment of 310000 teaching assistants.  It asked that the DBE provide a clear plan by February 2022 on how the water and sanitation goals would be met.
COSATU felt concerned about the 0.6% cuts at the Department of Health (DoH) over the next three years, but welcomed the R167 million allocated to community health outreach, specifically towards mental health and oncology.
It was concerned about cuts of R560 million to the National Health Insurance (NHI) grant’s Health Facility Revitalisation programme. The cuts undermined the protection of workers, failed to support dilapidated public healthcare infrastructure, and did not lay a foundation for the NHI. COSATU proposed that cuts to the DoH be reversed.
Social Development
COSATU worried about impact of cuts over next three years to social security by 16.9%, with the potential ending of the Covid-19 social relief of distress (SRD) R350 grant. It welcomed the allocation of R178 million for early childhood development (ECD) grants, including the employment of 70 000 ECD workers.
It proposed that the R350 grant should be extended and increased.
Neighbourhood Development Partnership Grant
COSATU welcomed the adjusted allocation of R751 million for the Neighbourhood Development Partnership Grant, which had seen the employment of 32 663 persons in neighbourhood cleaning programmes. It was felt that this programme should be extended.
Local Government
There were no plans in the MTBPS indicating how local government aimed to address issues of dysfunctionality. COSATU was disappointed that the City of Cape Town had been unable to spend the R1.3 billion allocated to the MyCiti bus programme in the financial year, while the Metro Rail system was failing.
COSATU proposed that municipalities have clear stabilisation and recovery plans.
Corruption and Wasteful Expenditure
COSATU proposed that the ban on Ministers doing business with the state be extended to office bearers of ruling parties, including their spouses and children. There must be increased consequence management, and the South African Revenue Service (SARS) must be empowered to conduct lifestyle audits. The blacklisting of delinquent companies from public tenders must be implemented.
Public Procurement
COSATU proposed that the government establish a single, online, transparent public procurement system for the entire state.
Mr D Ryder (DA, Gauteng) welcomed the increase in the national fiscus from 9% to 9.6% over the MTEF. He appreciated the advancement in the right direction, though he felt SALGA could do more. He asked what SALGA’s position was on unfunded mandates and "mandate creep," which he described as the biggest issue in terms of government funding. He had particular concern for the protection of land, and the knock-on effect caused by land invasions on local government and municipalities. He referred to the high costs associated with seeking court orders, carrying out evictions and providing alternative housing. The City of Johannesburg had reported an outstanding bill to the Red Ants which was too costly to be covered by the available budget.
Regarding ring-fencing grant funding, he noticed a shift of direct grants becoming indirect grants through the centralisation of spending. National government offered budget allocations for local government spending, yet in effect national government tended to keep the money and spend it on behalf of local government. He asked whether this was a good and effective use of money.
On the insufficient capacity of municipalities to perform their financial obligations, he said that local governments were unwilling to report effectively on their spending and failure to spend the money responsibly. The Municipal Standard Chart of Accounts (mSCOA) was a good example of this, as some municipalities had failed to implement the project effectively within the deadline and had not faced consequences for this. He asked why there were insufficient capacity constraints when there was sufficient funding to fulfil the organogram of the required skills in staff.
He said 39% of graduates were looking to build their futures outside of South Africa. These skilled graduates should be offered employment within municipalities.
Regarding water losses in municipalities, he asked for an updated figure of non-revenue water.
Concerning COSATU, he said that collective bargaining should be done in good faith by all parties concerned, and not done by people trying to disadvantage the country.
He agreed with COSATU concerning issues of headcount cuts in SAPS and among teachers, though this should happen at the right level. Headcount cuts should be done from the top of the hierarchy in SAPS, as there were more generals than in the entire United States Army. He emphasised that the country needed more police officers on the ground and teachers in the classrooms.
Mr Ryder noted the alarming backlog in sanitation within schools. He said that this was a recurring issue that threw the entire infrastructure budget of the DBE into question. This needed to be investigated. Schools in Gauteng had asbestos that had not been replaced to this day.
Mr Ryder apologised to NT regarding his incorrect reading of the movement of money to oncology and mental health. He had indicated the plus as a minus. He appreciated that money was going towards oncology and mental health from the NHI.
He said single online procurement could have the opposite effect of what the NT was trying to achieve. Single online procurement would get rid of many small, local suppliers, which would centralise power. This could encourage connected people to receive the majority of the procurement tenders. He said that the NT must present a refined model of the system to ensure that it would not negatively affect small businesses.
The Committee must receive a response from NT on E-tolls. Minister Fikile Mbalula had announced in the February 2022 budget that E-toll systems would be removed, though NT must still find a way to obtain the funding. He asked for a comment on this, considering the adjustment in appropriation going forward.
Mr F Du Toit (FF+, North West) referred to the capacity of municipalities, and said that SALGA and the newly elected councillors were facing the challenge of getting cooperation from municipal employees to do their work. The Committee had observed years of cadre deployment that was rotting the municipalities from the inside out. This posed a threat to effective service delivery in municipalities across the country. Funds and equitable shares provisioned to municipalities must be dealt with correctly to prevent maladministration from taking place.
Concerning increased taxes on the wealthy, Mr Du Toit urged COSATU to keep in mind that top earning individuals had started to leave the country in large numbers. This group of people were often the job creators and investors in the economy to ensure economic stability. He asked that caution be taken when addressing the matter.
The R350 grants were currently important in South Africa, as poverty was expected to increase within the next year. However, this was not sustainable. COSATU had threatened the Committee with allegations of the social unrest that had occurred in July 2021, which was unnecessary. The unrest had been politically motivated, rather than due to economic circumstances. The threat of unrest was an opportunistic way to approach the situation.
He asked if the R751 million for neighbourhood development partnership grants would yield the results expected, when this was combined with the R11 billion presidential employment stimulus programme that was estimated to create over 550 000 temporary jobs and increase over the MTEF. He asked if someone would be monitoring whether the workers would be obtaining permanent skills, and whether the expected results would be achieved.
Mr S Aucamp (DA, Northern Cape) said that the Committee wished SALGA the best in assisting newly elected councillors to fulfil their duties. This bore an element of risk where newly elected councillors would be exposed to "tenderpreneurs." He asked what SALGA planned to do to assist councillors when they were exposed to lucrative offers of corruption.
He noted the lack of consequence management that occurred on a yearly basis, and asked how SALGA proposed to improve consequence management systems in order to set an example. There would never be adequate financial management at the municipal level if proper consequence and line management plans were not implemented.
He emphasised that people in positions of authority should have the skills of the people they were managing, to be equipped to know whether the relevant skills were being applied in the particular positions.
Regarding financial management and ring-fencing, Mr Aucamp commented that many municipalities received money to pay entities, but this money was often used to pay wages, hold functions and settle other projects where there was over-expenditure. He asked what SALGA’s opinion was of ring-fencing grants to ensure they were spent where intended.
He emphasised that there must be a ban on government officials and their families from doing business with the state.
He asked for an opinion from COSATU on the lifestyle audit of all senior members of government, Members of Parliament and executive mayors in municipalities. He said this audit would act as a check on these individuals, and where lifestyles were not congruent with salaries, investigations should take place.
Mr Aucamp said that the public service wage bill and number of people working for government at all levels were inflated, which was unsustainable over the coming years. He asked if COSATU agreed that it was not the main priority of government to be a service provider and to give jobs internally. He said government should create environments that were conducive for economic growth that attracted investments within the private sector.

Mr Y Carrim (ANC, KZN) said that the presentation of COSATU was reasonable, aside from matters concerning the Public Wage Bill. He said it was unjustifiable that water and sanitation in schools was not being provisioned for. Within his own constituency, a high school had asked for a fence and toilets for the pupils. Matters were resolved at the school within nine months of voicing concerns. Two years later, the fence was broken, and the toilets were non-functional. After this, he had acquired public and private funding to address these issues. Five years later, the school once again did not have a fence or toilets. He said this exemplified that the state could not always be solely responsible for the maintenance of infrastructure provided.

He asked if workers at the unions accepted a single bargaining council for SOEs and public employees, as they could obtain a better deal outside of the normal public sector bargaining chamber.

Concerning the NHI, he said that the upsurge of COVID-19 reinforced the need to invest more in the healthcare sector.

He said the Committee had already agreed on the COVID-19 social relief of distress grant matter.

He asked whether Mr Ryder was serious in his statement that there were more SAPS generals than in the United States Army.

Mr M Moletsane (EFF, Free State) said that COSATU had welcomed the R6 billion to be spent on the employment of 310000 teaching assistants. He asked what was in place to monitor that the budget would be used for what it had been allocated.

He asked what COSATU was doing to protect ECD educators and ensure they were given the same benefits of wages, medical aid, maternity leave and a 13th cheque like other employees.

He asked SALGA if they still believed in the distribution model for the allocation of funds to the three spheres of government. Did it provide local government with what they deserved when considering their responsibilities?

Mr J Mpisi (ANC, Gauteng Legislature) said that it was important for Members from all provinces to be present in the meeting so that they could be representative of views across South Africa.

Regarding teaching assistants, government had employed many assistant educators in the country. He said that the basic conditions of their employment should be upgraded.

On vacant funded posts, he said that during discussions with other departments it was apparent that there was a way of thinking that the Public Wage Bill should be kept at a certain level. The posts approved in the organogram of the Department had roughly 10% of vacant funded posts. He asked what COSATU planned to do to put pressure on government and the Committee to fill the vacant posts.

Commenting on Mr Ryder's point of several schools in Gauteng with asbestos, he said that Gauteng had achieved far more than other provinces in this regard. Previously there were 36 asbestos schools in the province, while today it was fewer than ten. There was a programme addressing the issue, though it had suffered delays when building schools due to COVID-19.

He emphasised that the language used by Members should be regulated to ensure that there was cohesion amongst themselves, to avoid undermining one another.

On municipalities not spending grants provisioned, he asked what SALGA plans to do to ensure money was spent on programmes. What was SALGA doing to monitor and evaluate the work done in municipalities that were not providing the required services?

The Chairperson said that provinces must be represented in meetings and given the opportunity to engage. He agreed that the Committee must work as a team and avoid provocative language that could undermine each other or instigate debates away from the matters at hand.

Ms A Randall (DA, Gauteng Legislature) referred to local government and the illegal invasion of land, and said that private owners with smallholdings, due to the downturn of the economy, had started to sell stands without any township developments in place. This placed an additional burden on the municipalities regarding removing illegal connections. Although there was a blanket court order in the City of Tshwane to prevent illegal occupation, there was no recourse for private owners selling stands illegally.

She said the Standing Committee on Public Accounts (SCOPA) had noticed that officials had resigned or been redeployed without the government being able to recover any lost funds. In the past financial year, 56 cases of financial misconduct were detected without any chance of recovering the money. This was a critical issue, and SALGA had to assist SCOPA with regard to local and provincial government.

On the under-performance of grants, she said the NT may have been borrowing money, on which interest was payable, to provide provisional grants to provinces which ended up being under-spent. It became an issue when provinces needed to return the funds and the debt servicing costs of the NT had also escalated.

She said that the MTBPS had failed to speak to the fourth industrial revolution. She referred to a call from a whistle-blower who claimed that a printing tender in the City of Ekurhuleni. where employee booklets were printed, had cost R1.9 million. She said that online services should be prioritised to prevent over-expenditure and corruption.

SALGA's response

Mr Baloyi said SALGA’s position on the unfunded mandates had not changed, as they were dealing with it and the consequential effect on local municipalities. It had placed an extra burden on the fiscus of municipalities. This included museums, healthcare, libraries and roads.

Insufficient capacity in the finance departments of the municipalities was a great concern. This had been highlighted and flagged by the Auditor General (AG), who had informed SALGA that nearly R1 billion had been used to acquire external service providers to prepare financial statements. Many of the financial statements obtained had material misstatements. This pointed to a greater question of what the role of leadership was in these appointments in municipalities. SALGA had urged the executives of municipalities to ensure that people were suitably qualified for their positions and have the relevant leadership capabilities. It did not make sense to have a finance department when the services were outsourced to external service providers to do their primary work.

On water losses, SALGA had several training courses and partnerships with various other entities on issues of water and electricity. It was looking into innovative ways to deal with water and electricity losses in municipalities. It all depended on whether members implemented and effectively carried out these innovations.

On the cooperation of municipalities with the new executives, SALGA believed that as part of professionalising public services, leadership should ensure professionalism to ensure that the work was done. SALGA had observed peaceful relationships in municipalities, and hoped for it to continue.

SALGA said that once the Neighbourhood Development Partnership Grant had been appropriated to the relevant municipalities, there must be successful spending in order to derive the value and impact needed from it. Although the required legal mechanisms were in place, SALGA required a different approach from local governments to monitor capital expenditure better.

SALGA said the newly elected councillors were candidates from political parties. Parties placed an emphasis on institutional capacity and memory to ensure there was a level of experience. SALGA appealed to members to consult their parties on this when campaigning. As common cause, SALGA runs several training courses looking into the ethics.

On consequence management, SALGA took a resolution to attract a higher level of accountability of executives regarding negative performance, delays in concluding financial statements and fruitless and wasteful irregular expenditure. It reported that few municipalities had acknowledged communication from SALGA to them regarding this. It believed that this was due to SALGA not having the legal capacity to demand or extract any accountability, or enforce consequence management. The legal burden lay with the executives in municipalities.

Concerning ring-fencing and financial management, SALGA said that local governments had to raise revenue sources in order to pay expenses linked to service delivery. Local governments were struggling under economic constraints and high levels of unemployment. The problem lay with people finding the rates unaffordable, or where local government failed to deliver services such as water and electricity.

SALGA felt that the distribution model was an improvement, but SALGA was still fighting for a larger share of the fiscus.

The lack of spending of grants generally involved issues of poor planning, procurement and community concerns from labour forums. The annual performance plan (APP) had enabled engagements and assistance to be offered to overcome challenges in the valuation of procurement and the delivery of projects.

Mr Baloyi said that SALGA could not evaluate the delivery of successful services. The Department of Cooperative Governance and the treasury in all the provinces bear the legal duty to receive reports on this throughout the financial year. SALGA was not empowered to enforce accountability in these areas. It could monitor the budget strength of municipalities.

All three spheres of government had to prevent land invasions and private farms selling portions for dwellings illegally. Municipalities must utilise bylaws to prevent such actions.

Ms Letsatsi referred to unfunded mandates, and said that in December there was a special budget from NT, CoGTA and SALGA focusing on unfunded and under-funded mandates. The resolution was that CoGTA would use the recommendations to deal with the overall aspects of unfunded mandates. In terms of the division of revenue, money followed function, as allocated by the Constitution. This was exacerbated by the COVID-19 impact, which had focused more attention on unfunded mandates.

Responding to the question about water losses, she said that currently water losses were at 41%.

Referring to consequence management, she said that in the previous year, mayors, municipal managers and SALGA had ensured that repeat findings would be addressed. Partnerships were entered into with various professional bodies, such as the South African Institute of Government Auditors, and critical infrastructure programmes were introduced to build capacity and ensure members of professional bodies adhered to ethical standards. It was required that these members in local government must be held accountable. The professional bodies had also insisted that departments with authority in certain sectors had to ensure that those who faltered were held accountable.

The National Executive Committee (NEC), through various meetings with the AG, had resolved that issues of material irregularities must be referred to the Special Investigating Unit (SIU). After that, the SIU must report back to the NEC.

Mr Nceba Mqoqi, Chief Financial Officer (CFO), SALGA, referring to the capacity of newly elected councillors, said SALGA was currently involved with the rollout of an integrated councillor induction programme, which had started in Limpopo, until early next year. This would be followed by a portfolio-based councillor induction programme. In the councillor induction programme, aspects of ethical conduct were incorporated, which requires councillors to sign a code of conduct.

Newly elected councillors were empowered by the political parties that employ them. Once they were elected, SALGA was responsible for their training.

COSATU’s response

Mr Parks said that when the previous Minister of Finance had walked away from the 2020 wage agreement, collective bargaining had been greatly set back in the public sector, and it would take time to rebuild it. He appreciated the new Minister of Finance’s commitment in the budget speech to respect collective bargaining. A win/win agreement must be found to protect lower to middle income workers from inflation. He commented that many public servants were highly indebted.

He explained that when a trade union agreed to an agreement and sold the compromises to the workers, they had confidence that the government would honour that agreement. Workers could not afford to have the state collapse. Unions sold a below inflation increase to public workers in the past year, which was a once-off gratuity payment.

Regarding the headcount, Mr Parks said that in 1994 that there were almost a million public servants out of 34 million South Africans. Currently, with a population of 60 million, there were about 1.3 million public servants. The headcount of public servants had decreased in relation to population growth. There were roughly 100 000 vacancies in government at any given time. The frontline service departments had suffered from vacancies, affecting service delivery.

He used police as an example of the need to redeploy personnel to priority areas. Two-thirds of the provincial departments were on desk duty, and this had to shift to visible policing in communities and specialised units.

He agreed with the Members regarding the school sanitation project. It was unacceptable and should be seen as a priority next year, especially as COVID-19 had surged again.

Regarding procurement, Mr Parks said that there must be a multiplicity of public procurement systems across the state, including entities, local government and SOEs. Local government was often open to corruption and abuse. A single online procurement system that was transparent would allow members to be monitored for accountability. Small businesses would be able to see it, opening it up to competition.

It would be easier for the Department of Trade Industry and Competition (DTIC) and NT to monitor local procurement, heighten savings and minimise corruption. Certain large items could be procured to save significant amounts. Excellent work had been done in this regard by the Chief Procurement Officer, which had resulted in significant savings for the fiscus.

NT had previously made a commitment to blacklist companies that fell foul of the procurement requirements, including tax and legal requirements, but this had not been effected, thus allowing these companies to still receive tenders.

He was pleased with Minister Mbalula’s commitment on introducing a new approach to E-tolls. Further information would be detailed in the speech in February 2022.

Mr Parks said that capacitation of the South African Revenue Service (SARS) was the easiest way to generate more tax revenue for the state. SARS must be capacitated to handle appropriations and create a more robust programme to tackle customs evasions. Loopholes that the rich exploit must be plugged through a lifestyle audit of the rich.

There had been an increase in tax on the working middle class in the past five years, such as Value-Added Tax and not adjusting the tax brackets for inflation for the lower bracket groups. This should be shifted more to the wealthy through inheritance estate duties, etc. NT was currently looking into it. The real solution would be to stop government fiscal matters that leak into corruption.

Regarding the NDPG, Mr Parks agreed that the violence in KZN was orchestrated by criminal elements for political reasons. This fed into a sea of poverty, hopelessness and despair, where many people looting were doing so out of frustration. It was unsustainable as a society to have eight million people with no source of income, though interventions should be of a short-term nature. Long term interventions would be providing jobs for individuals to provide for themselves.

The Public Presidential Employment Programme's impact should be monitored to avoid the lessons of the Expanded Public Works Program (EPWP) in the community works programmes. He had been pleased to see a positive response from the South African Teachers Union (SATU) and schools regarding the positive impact it had had. They were eager to see it expanded, and appreciated the support of government.

COSATU wanted to include the leadership of political parties at a national, provincial and regional level where they were the ruling parties. COSATU had to look at the spouses and children of ministers receiving tenders to avoid corruption. He said it went beyond politicians, as 5 000 Eskom staff were implicated in corruption, and several hundred had contracts through Eskom. He emphasised that lifestyle audits must be done across the board.

COSATU raised the issue of consolidating parts of the state, as many SOEs duplicated each other, and many municipalities were not sustainable from a rate generation perspective. Consolidation would help to prevent a collapse.

COSATU did not expect government to employ everyone. The real solution was for government to grow the economy to create jobs.

On teaching assistants, COSATU reported that the teacher’s union had been busy working to ensure teacher’s assistants were utilised properly. In KZN and the Eastern Cape, SATU and COSATU had dealt with issues where teaching assistants had not been paid.

Significant progress had been made to improve conditions of ECD and community health workers, and to ensure community health workers were made permanent. The MTBPS had noted the employment of 18000 health workers. COSATU welcomed the shift of the ECD programme from the Department of Social Development (DSD) to the DBE.

Regarding a single bargaining council, the unions of COSATU had raised this issue, and NT was warming to the idea. He said it benefited unions to have a single negotiating process, while benefiting government through addressing disparities in payment. It would also benefit the state through having a single medical aid and pension fund. It would benefit workers by providing effective and sustainable funds. From a budgetary perspective, it would allow government to plan better, knowing that there was one wage agreement for the entire state.

On the NHI grant, COSATU agreed with Mr Carrim that more should be done to benefit the DoH.

Committee comments

Mr Carrim said that COSATU had become more temperate on the limitations of the state, given the state of the economy. It was difficult for any party to disagree with the issues presented by COSATU.

On the role of the state, he said that the state should create employment while also establishing the conditions for growth. South Africa was an emerging democracy that could not offer the same opportunities as more developed countries. By keeping people employed, the government was also circulating money and growing the economy. While the state could not absorb all unemployed people, where conditions were created to stimulate the economy, the private sector should play its part. There must be a balance between the polarisation of the public and private sectors.

The Chairperson appreciated the presentations and agreements between the parties. She requested that Members research the impact of the annual agreement negotiations and the difference of multi-year agreements. It had taken a lot for Members to agree that the multi-year agreement was a better option. There was no reason to justify changing the agreement at this point. Going forward, public servants should not always be the ones sacrificed.

Referring to the public wage bill, she said that to get quality healthcare services, there had to be sufficient personnel. This required an increase in funds to employ the required personnel in healthcare and other sectors. The public wage bill would increase as more human resources were hired to deliver better services.

The Chairperson agreed that issues of pit latrines and poor sanitation should have been dealt with long ago. She asked if there had been value for money where the budgets were spent. If there was not, had there been consequence management? If consequence management was not instituted, what should be done now to address these issues?

She felt that government and the President had done a lot of work through the recovery plan and recruiting foreign investors to invest in the South African economy. When the economy was performing well, government would be in a place to employ more people in the public sector.

National Treasury’s response

Mr Letsepa Pakkies, Senior Economist, NT, said that substantive written responses would be provided to the Committee at a later point, especially concerning E-tolls.

The NT acknowledged the less-than-optimal performance on grant performance, especially considering the reductions proposed. As municipalities planned projects and money was provided, they often failed to follow through. NT noted that it was far easier to conduct a roads project in municipal spaces than to provide water and sanitation.

The NT was looking into how to use leverage and grants to incentivise municipalities to carry out the entire programme, from planning through to implementation. The planning framework must ensure that municipalities were adequately prepared to take on the responsibilities. Indirect grants were not a permanent solution to the system. They were a short-term method of ensuring services were delivered to communities.

Regarding asset management, the NT had made proposals over the MTEF to be based on a need component, to support the rehabilitation of infrastructure. Municipalities often built new infrastructure rather than maintaining what already existed. Sector departments must play a key role in this regard. Indirect grants in the system should not last longer than three years, with the intention of existing for a specific purpose. The involved sector department should be able to capacitate the municipality to do the work.

The implementation readiness of sector departments was key to improving the parameters of performance. He observed that the national department had failed to deliver on water services functions. Local governments must be capacitated to do the work on behalf of the national department.

Regarding the MyCiti buses, the NT accepted accountability, stating that more money than required had been allocated to Cape Town. This indicated that the NT must review its appraisal processes and tighten budgets to ensure that this did not recur.

On service delivery and the lack of effective functioning of local government, the NT had conducted a diagnostic study of capacity building at the local government level. The study had investigated the root causes of capacity constraints, which would be further detailed in the main budget with a plan of action. Capacity building requirements were larger than anticipated by NT. Previously, a programme of R3 billion had been discussed, but this figure looked closer to being R9 billion to improve the capacity of local governments after conducting the study, which spanned across 40 sectors of government.

The diagnostic study had looked at issues pointed out by municipalities on areas of needing improvement, looking at international best practices and how they could be adapted to local realities. NT said this required a more collaborative approach to building capacity in local government. Government across the board must investigate how more value could be gained out of the available budgets.

The NT planned to report the findings of the review in the 2021/22 MTEF, as some overlaps were identified and needed to be addressed.

Chairperson's concluding comments

The Chairperson said that when preparations were made for the 2021/22 budget, the concerns of the public raised by the Committee should be taken into consideration by the NT. She requested that reports from all relevant role-players should be considered in preparation for the budget.

The meeting was adjourned.

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