ATC210609: Report of the Select Committee on Appropriations on the Appropriation Bill [B4b– 2021] [National Assembly (Section 77)], Dated 09 June 2021

NCOP Appropriations

Report of the Select Committee on Appropriations on the Appropriation Bill [B4b– 2021] [National Assembly (Section 77)], Dated 09 June 2021

 

1. Introduction

The Appropriation Bill [B4B– 2021] was referred to the Committee, for concurrence, on 04 June 2021. In order to streamline the processing of the Bill, the Committee received a presentation on the Bill, as tabled by the Minister of Finance on 24 February 2021, on 02 June 2021.

 

1. Technical amendments proposed by Minister of Finance

On 25 March 2021, the Minister of Finance wrote to the Chairperson of the National Council of Provinces requesting Parliament to consider amendments to the names of certain votes in the Schedule to the Appropriation Bill [B4 – 2021]. The names of votes in the Bill were in accordance with the names of the departments as they existed when the Bill was introduced. The amendments were necessary and technical corrections to accurately reflect the names of votes to correspond with the names of the relevant departments in Schedule 1 to the Public Service Act of 1994.

 

The Minister, therefore, requested that the Bill be amended interms of section 14 of the Money Bills and Related Matters Act of 2009 (as amended), to align with Schedule 1 to the Public Service Act, by amending the name of –

1. Vote 32 in column 2 of the Schedule, by the substitution for the phrase “Environment, Forestry and Fisheries” of the phrase “Forestry, Fisheries and the Environment”; and
2. Vote 37 in column 2 of the Schedule, by the substitution for the phrase “Sports, Arts and Culture” of the phrase “Sport, Arts and Culture”.

 

The renaming of the vote names in the Schedule to the Bill would constitute technical corrections and would have no implication for the proposed appropriations. The Chairperson of the National Council of Provinces referred the matter to the Committee for consideration on 29 April 2021; and the proposed amendments and technical corrections were agreed to by the Standing Committee on Appropriations and the National Assembly and were incorporated in the Appropriation Bill [B4B – 2021] that was referred to the NCOP.

1. Overview of the Bill

The Bill provides for the appropriation of money by Parliament from the National Revenue Fund (NRF) in terms of section 213 of the Constitution of the Republic of South Africa and section 26 of the Public Finance Management Act (PFMA). Spending is subject to the PFMA and the provisions of the Appropriation Act. The Bill deals with proposed national appropriations. In order to effect spending on conditional grant allocations from national government’s equitable share to provincial and local government, the Division of Revenue Act sets out specific provisions on spending conditions.

 

The 2021 Budget is centred on government’s two medium term policy priorities, namely to promote economic recovery and to return public finances to a sustainable path, as alluded to in the 2020 Medium Term Budget Policy Statement (MTBPS). These objectives will be achieved through the stabilisation of the public debt-to-gross domestic product (GDP) ratio, reducing the budget deficit and, by moderating spending as a share of GDP and reducing the public sector wage bill as a share of overall spending. The Committee is considering the Bill at a time when the South African economy is showing some signs of recovery, albeit at a slower rate than before theCOVID-19 pandemic. The 2021 Budget funds a massive and free COVID-19 vaccination programme. While the budget exercises continued restraint on spending growth, over the medium term nearly R3 trillion, or 56.6 percent of public funds are allocated to learning and culture, health and social development. Furthermore, the 2021 proposed allocations aim to shift the composition of spending from consumption to investments, whilst also withdrawing the tax increases which were previously announced, worth R40 billion in order to avoid over-burdening tax payers. The Budget focuses on narrowing the budget deficit whilst stabilising the debt to GDP ratio, and proposes adjustments to government spending plans affecting the expenditure ceiling as follows:

 

• Relative to the 2020 Budget, main budget non‐interest spending is reduced by R27.675 billion in the 2021/22, R87.259 billion in the 2022/23 and R149.978 billion in the 2023/24 financial years, respectively. The largest share of these reductions falls on compensation of employees. Other non‐interest spending items are also reduced, while funding for buildings and other fixed structures, provincial and local capital grants, and the Infrastructure Fund is protected.
• The 2021 Budget proposes an additional R11 billion to the spending framework in 2021/22 forpublic employment initiatives. This forms part of government efforts to promote economic recovery.
• An extension of the unemployment insurance benefit through the Unemployment Insurance Fund, increasing the employer/employee benefit to R73.6 billion.
• A recapitalisation of the Land Bank of R5 billion in 2021/22, R 1billion in 2022/23 and R1 billion 2023/24, to be funded through reprioritisation.
• A total of R18.3 billion is added over the 2021 Medium Term Expenditure Framework (MTEF) to manage further waves of COVID-19.
• A total of R11 billion over the MTEF is added for payments to the New Development Bank and public entities.

 

1. National Treasury briefing

National Treasury outlined the legislative process governing the processing of the Bill as outlined in the Money Bills and Related Matters Act of 2009 (as amended). Furthermore, National Treasury outlined the provisions made in section 29 of the PFMA, for spending of government funds before the Bill is passed; and gave an overview of the Bill relative to the 2020 Budget estimates.

 

National Treasury summarised the implications of the Bill as follows:

• Filling of vacant posts and operational budgets will be affected.
• In the peace and security cluster there will be a worsening custodial staff to inmate ratio, to 1:7 (the norm is 1:5) and a worsening police to population ratio to above 1:400 against a norm of 1:220. Furthermore, there will be limited recruitment of young and physically active force, as well as an increased case backlog.
• There will be lesser transfers to public entities.
• Membership fees to international organisations will be affected.
• Information and Communication Technology and other infrastructure projects will be affected (through infrastructure grants), including road maintenance.
• Funding for new, old and poverty surveys will be affected.
• The Expanded Public Works Programme (EPWP), community works programmes and business incentives and support will be lowered.
• Compensation of employees, transfers to the National Student Financial Aid Scheme (NSFAS), university subsidies, infrastructure grants and subsidies to TVET colleges will be affected.
• Below inflation increases in social grants will be implemented.
• The Funza Lushaka Bursary Programme will be affected.
• There will be reductions in all other programmes and conditional grants (around R4 billion in total), with the largest reduction, of R1.7 billion, in the HIV/AIDS grant component.
• The Bill provides for funding for the Land Bank and Eskom. The Land Bank, which defaulted on its debt in April 2020, will receive R7 billion to be funded through reprioritisation (R5 billion in 2021/22 for recapitalisation; R1 billion in 2022/23; and R1 billion in 2023/24) over the medium term period to put it on a stable and sustainable development path.

 

1. Parliamentary Budget Office (PBO) comments

The Parliamentary Budget Office (PBO)indicated that the 2020 Budget had proposed a significant reduction in expenditure growth to reduce the budget deficit and level of debt by -

• Reducing the public wage bill;
• Reforming state-owned entities (SOEs) and the Road Accident Fund; and
• Across-the-board cuts to core government programmes.

 

The PBO reported that, notwithstanding the negative socio-economic impact of COVID-19, the 2021 Budget continued to constrain government expenditure by -

• Curtailing non‐interest expenditure growth;
• Providing only temporary support for social relief and public health 
  services by supporting low‐income households for only part of 2021 and only increasing funding for Health to respond to the COVID-19 pandemic.
• Adjusting the composition of spending through freezing growth and reducing compensation of employees (COE) while maintaining capital investment mainly through the implementation of the Economic Reconstruction and Recovery Plan.

 

The PBO further highlighted that, although government tried to reduce spending on COE, Parliament should be aware that departments chose to use consultants instead of staff and this had caused their goods and services spending to increase from the previous financial year. The PBO explained that a number of departments transferred funds to other institutions to deliver services, and that it was important to monitor this closely to ensure that value for money was achieved in such instances.

 

6. Findings and Observations

 

During consideration of the Appropriation Bill [B4B – 2021], the Select Committee on Appropriations made the following findings and observations:

 

6.1 The Committee notes that the Minister of Finance is proposing that the Bill be amended in terms of section 14 of the Money Bills and Related Matters Act of 2009 (as amended), to align with Schedule 1 of the Public Service Act, by correcting the names of Vote 32 and Vote 37 and the Committee understands that this constitutes a technical amendment to the Bill with no bearing on the allocated funds.

 

6.2 Despite the prevailing economic challenges and revenue collection decline, the Committee welcomes the efforts by government to table an Appropriation Bill with a proposed allocation amounting to R980.6 billion in line with section 213(2)(a) of the Constitution, which is appropriated to the 41 Budget Votes from the National Revenue Fund (NRF). However, the Committee is concerned about the R36.8 billion decrease in the allocation from the 2020/21 revised appropriation of R1.017 trillion.

 

6.3Whilst the Committee welcomes the National Treasury’s efforts toimplement important measures to assist government in achieving its growth estimates, such as fast-tracking certain economic reforms through Operation Vulindlela; looking at the multipliers between taxes and the economy and not increasing certain taxes; and ensuring that current spending is reduced while infrastructure investment is maintained, the Committee questions whether government’s economic recovery plan will succeed in bringingaboutsufficient recovery within the next three years.

 

6.4 The Committee is concerned about the effects of the reductions in funds earmarked for the Extended Public Works Programme (EPWP) and the Community Works Programme (CWP);the Funza Lushaka Bursary Programme; Information and Communication Technology, road maintenance and many other programmes and projects that will be affected by reprioritisation. The Committee views this as unfortunate at a time when many people are desperate for jobs and training opportunities, and a lot of infrastructure needs maintenance and repairs.

 

6.5 The Committee is very concerned over the impact of bail-outs for state-owned entities (SOEs) on the poor and vulnerable, and in particular those in rural communities. The Committee is of the view that the R5 billion allocated to the Land Bank will negatively affect the service delivery in departments where allocations have been reduced. Whilst the Committee understands and appreciates the contribution that SOEs are supposed to make towards the country’s developmental agenda, the Committee is very concerned about the continuous movement of funds from service delivery departments to bail out SOEs, a result of their deteriorating financial positions; noting thatbetween 2009/10 and 2022/23, an amount R329 billion would have been given to SOEs. The fact that most of the SOEs have government guarantees, totalling about R400 billion, which forces government to help service their debt in order to protect the fiscus, is a major concern.

 

6.6 The Committee is concerned about the possible impact of the delayin the wage negotiation processbetween government and labour; given the fact that Parliament has already passed the fiscal framework which creates a budget ceiling. The inability to reach common ground this late in the financial year, is a cause of concern for the Committee.

 

6.7 Whilst the Committee notes the fact that there is some restructuring and reorganisationtaking place in the South African Police Service (SAPS) and the South African National Defence Force (SANDF) to mitigate compensation budget challenges; the Committee remains concerned about budget cuts in these Departments given the high crime statistics and the instability in the region. These cuts will worsen the police to population ratio to above 1:400 (against a norm of 1:220); and lead to limited recruitment of young and physically active force and an increased case backlog.

 

6.8 The Committee notes that an amount of R6 billion is earmarked for the procurement of COVID-19 vaccines and that a further R7 billion is provided for in the contingency reserve. However, the Committee noted the fact that the Department of Health has not been able to spend all the allocations for vaccine procurement effectivelyand efficiently thus far.

 

6.9The Committee notes that Statistics South Africa (StatsSA) planned a census pilot project for 2020, which was not implemented as a result of the COVID-19 pandemic, and that the allocation earmarked for this purpose has been rolled over to the current financial year. Both the pilot project and the census are now planned for 2021. If both these projects are not implemented this year, the budget deficit will be reduced, but there will be more spending pressure in the next financial year to again find funds to implement a census.

 

6.10Whilst the Committee commends the steps towards fiscal consolidationwhere the compensation of employees (COE) budget is being reduced, it is concerned about the impact of budget reprioritisation on the National Student Financial Aid Scheme (NSFAS), universities and TVET colleges; in light of the importance of investing in human resources to promote growth and the high number of unemployed youth across the country. The Committee also noted the reported interaction between the National Treasury and the Department of Higher Education (DHE), which led to some reprioritisation within the sector, enabling the DHE to provide funding for NSFAS by taking away funds from projects at universities and TVET colleges.

 

6.11 The Committee remains concerned about the continuous failure to pay service providers within 30 days, as required by the Public Finance Management Act(PFMA) and cost escalations in government projects, including accruals, as well as the continuous lack of governance and accountability systems in most government departments to safeguard the 2021 proposed budget allocations. The Committee is of the view that the lack of such systems hampers the implementation of consequence management and accountability where there is wrongdoing. 

 

6.12 The Committee notes the reported under-expenditure in the Department of Cooperative Governance and Traditional Affairs, which is due to the withholding of local government equitable share funds as a result of unspent conditional grant funds, not approved for roll-overs, not being returned to the National Revenue Fund (NRF) by municipalities.

 

 

7. Recommendations

 

Having considered the Appropriation Bill [B4B – 2021], the Select Committee on Appropriations recommends as follows:

 

7.1 The Minister of Finance should effect the proposed technical amendments by correcting the names of Vote 32 and 37 to align with Schedule 1 of the Public Service Act in accordance with section 14 of the Money Bills and Related Matters Act of 2009 (as amended), as this is a technical amendment to the Bill with no bearing in the allocated funds of the affected departments.

 

7.2 Given the prevailing economic situation with declining revenue, the Minister of Finance, together withCabinet,should ensure that any budget leakages such as irregular, unauthorised, fruitless and wasteful expenditures are eliminated. It is the Committee’s view that wherever there is wrongdoing by any individual, consequence management must be implemented with immediate effect. In order to achieve value for money, the Committee is of the view that all proper governance and accountability structures and frameworks need to be in place and function effectively; independent audit committees need to be appointed; functional internal audit unitsmust be put in place; monitoring and evaluation units must be functional; and each accounting officer needs to spend the allocated budget according to the provisions of the financial management prescripts.

 

7.3The Minister of Finance and Cabinet need to ensure that the implementation of important measures, such as fast-tracking economic reforms through Operation Vulindlela; looking at the multipliers between taxes and the economy and not increasing certain taxes; and ensuring that current spending is reduced while infrastructure investment is maintained,to assist government in achieving its growth estimates,areexpedited in order to realise results in the short, medium and long term.

 

7.4Budget cuts which will affect frontline service delivery should be avoided at all costs and a government policy intervention is required to protect some of the pro-poor programmes,such asthe Extended Public Works Programme (EPWP),the Community Works Programme (CWP), the Funza Lushaka Bursary Programme, the National Student Financial Aid Scheme (NSFAS), Information and Communication Technology, and road maintenance, that are meant to support the poor, vulnerable and rural communities.In light of the Committee’s view that the movement of funds to bail out SOEs and guarantee repayments to service their debt is increasingly out of control, it urges both the Minister of Finance and the Minister of Public Enterprises to ensure that SOE balance sheets and other financial statements are fixed and equity partners are found where possible, and any form of SOE financing is obtained without compromising the mandate of the entity or the poor and vulnerable.

 

7.5The Committee urges both parties involved in the wage negotiations between government and public sector unions to respect the rules of engagement in relation to the Bargaining Council and make every effort to find an amicable solution without distracting from service delivery to the poor and vulnerable.

 

7.6The Minister of Finance, together with the Ministers within the Peace and Security Cluster, should ensure that clear plans and programmes are developed and implemented to mitigate the negative impact of budget reductions, especially in the South African Police Service (SAPS), Correctional Services and the South African National Defence Force (SANDF).

 

7.7 The Minister of Finance and the Minister of Health should ensure that the R6 billion earmarked for the procurement of COVID-19 vaccines and the R7 billionprovided for in the contingency reserve, are spent efficiently and effectively without compromising the vaccination process; and that clear report frameworks and procedures are developed to publish vaccine budget expenditure for accountability and transparency purposes.

 

7.8 The Minister of Finance and the Minister of Planning, Monitoring and Evaluation should do everything possible to ensure that both the pilot project and the census are implemented by Statistics South Africa in the current financial year, as planned, in order to reduce spending pressures in the next budget period;and to ensure that the working environment for the field workers complies with COVID-19 protocols.

7.9 The Minister of Finance, together with Cabinet, should take steps to investigate the reasons for failure to pay invoices within 30 days and the cost escalations in government projects; and further take steps to address the matter as required by the Public Finance Management Act and Treasury Regulations. Where there is a failure to comply, consequence management must be implemented as the failure to pay within 30 days prevents small and medium enterprises from contributing to much needed economic growth and job creation.

 

7.10The Minister of Finance, together with the Minister of Cooperative Governance and Traditional Affairs, should ensure that any unspent conditional grant funds that are not approved for roll-over, are returned to the fiscus by the relevant municipalities, and that the withheld local government equitable share is allocated and transferred accordingly; to guard against the impact of withholding funds on the poor, vulnerable and rural communities. 

 

8. Committee Resolution on the Bill

 

The Select Committee on Appropriations, having considered the Appropriation Bill [B4B– 2021], referred to it for concurrence, and classified by the Joint Tagging Mechanism as a section 77 Bill, reports that it has agreed to the Bill without any proposed amendments.

 

The Democratic Alliance (DA), the Economic Freedom Fighters (EFF) and the Freedom Front Plus (FF+) reserved their positions on this Report.

 

 

Report to be considered.