Provincial Treasury on: Municipal Economic Review and Outlook (MERO); 2021 Medium-Term Budget Policy Statements (MTBPS) and Adjustments Budget

Meeting report

The Chairperson welcomed everyone and informed Members of the day’s agenda. Members were asked to introduce themselves.

Opening Remarks

The Provincial Minister of Finance and Economic Development, Mr David Maynier, said since he spent time earlier on in the day setting the scene in the Medium-Term Budget Statement Policy Statements (MTBPS), so there was not much for him to add. It had to be noted that the meeting was a slight outlier because earlier the 2021 MERO was tabled and would be presented to the Committee and deliberated. He handed over to Mr David Savage, Head of Department, Western Cape Provincial Treasury, who led the presentation. Mr Savage introduced the delegation and outlined how the presentation would be approached.

MERO, 2021 MTBPS and 2021 Adjustments Budget Presentation

The Provincial Minister tabled the outcome of extensive engagements that made up the second phase of the three-stage budget process that was followed every year. The first phase was framed by the Medium-Term Budget Policy Committee meetings and the tabling of the Provincial Economic Review and Outlook (PERO) which was tabled in the legislature in September. This MTBPS and Adjustments Budget was phase two which followed extensive technical and executive engagements in the Medium-Term Expenditure Policy Committee that led to 2021 adjusted budget allocations and preliminary allocation for 2022 MTEF. The province would return to the legislature in March 2022 with detailed proposals for the 2022 Medium Term Expenditure Committee (MTEC) and more extensive documentation around the spending plan of the new MTEF.

The MTBPS laid out the core headline objectives and intentions of the 2022 MTEF and the details would be filled in between now and March 2022. The MTBPS enables the province to be ‘Ready to Reopen and Recover’ from the consequences of the pandemic with a clear plan for long-run fiscal sustainability. The key message from the Provincial Minister was around the fiscal constraints currently faced, the 'budget crunch', and the significant fiscal risks over the medium term. Several uncertainties existed in the fiscal framework, which was not unusual in the development of the Medium-Term Framework.

The sudden emergence of the Omicron variant had negatively impacted the tourism industry which had started to materialise. He outlined the Medium-Term Budget objectives and stated the MTBPS had four chapters. He handed over the presentation to Mr Roy Havemann, DDG: Fiscal and Economic Services, Western Cape Provincial Treasury, who went through the economic and fiscal context of the presentation.

Economics and Fiscal Context

Mr Havemann said the South African economic growth remains constrained and explained a graph that showed recovery in  Gross Domestic Profit (GDP) and employment levels to pre-pandemic levels (1st quarter 2020-2nd quarter 2021). Employment had not recovered at the same rate as the GDP, with the substantial rise of unemployment in the 3rd quarter. This was a result of the ongoing developments in the COVID-19 pandemic including the discovery of new variants but vaccinations were the way forward. 4.2 million Vaccinations were administered in the province.

He explained the policy implications of the 2021 MERO which comprised of population growth, infrastructure investment, household income, unemployment rates and the strong comparative advantage the province had in the food and beverage industry. One of the innovations in the current year was a more detailed risk statement that categorised global, national, and provincial risks and identified ways of responding to each category. He briefly explained the national fiscal risk framework that entailed the macroeconomic risks, expenditure risks, contingent and accrued liabilities, and sustainability of social expenditure. The National fiscal risks directly impacted the Western Cape fiscal framework as the province was dependent national government for 93.5% of its revenue.

The 2022 MTEF objective had four principles which are: protecting basic services outcomes in line with the recovery plan, strengthening allocative efficiency, enhancing productive efficiency, and enabling long-run fiscal sustainability. The budget spending plans and priorities were centered on jobs, safety, the well-being of the citizens with the enabler being integrated service delivery and governance transformation among other factors. The biggest outcome had been the need to manage wage ratios and the compensation of employees.  He handed over to Ms Analiese Pick, Chief Director: Provincial Government, Public Finance, who would present the implemented approaches.

Ms Pick said the province had been prudent in its decision-making regarding Compensation of Employees (CoEs). This was done by maintaining pressure on the CoE to avoid crowding out service delivery and sustainability to respond to other risks. The objective was not always about controlling the wage bill but building capacity within the province and making sure that the staff were capable of productivity. This was also done by maintaining sustainability through a differentiated funding approach that protected frontline services. In terms of baselines, she said the province would not allocate wage component increases.

Mr Havemann continued the presentation and went through the 2022 preliminary Budget and explained major uncertainties. He said the National Treasury was following an approach of significant fiscal consolidation where the idea was to reduce the GDP percentage in terms of no interest expenditure. There had been a significant increase in spending the GDP from 24% to 26% GDP in the past few years. It was mainly caused by the pandemic in the previous financial year but the province is hopeful that the pandemic will eventually go away. There has been a long-run upper trend of spend GDP, partly because of compensation pressures but the hope is that revenue GDP will bounce back over time. The fiscal consolidation would be a combination of bringing no interest expenditure down and rising the revenue which would allow debt to GDP to stabilise.

On provincial equitable share changes, Mr Havemann said there had been adjustments to the baseline for two reasons. The new data update in the provincial equitable share formula had been positive.

There was faster population growth, an increase in learner numbers, and there had been an allocation increase for the province for 2022 and 2023. There has been an increase in the wage bill for the province in the current and next financial year. The impact on the province was an additional R1.4 billion in 2022/23 and there is no money allocated for wages for the years 2023, 2024, and 2025. These were the indications that National's view was to wait and understand more about the wage agreement. There were uncertainties about the amount of money the province would be allocated in 2023/24/25. The national department with the National Treasury still had to finalise conditional grant allocations per province and there was fiscal uncertainty for the province as allocations would only be received after it has been finalised. He said there were also uncertainties about the grant in healthcare but a meeting with National was scheduled for the following day to discuss the matter. The province had to be careful that National did not unnecessarily reduce the healthcare grant allocation for the CoE.

The province had to ensure sufficient reserves for unforeseen and unavoidable expenditure considering all the changes. The most important of these was the COVID-19 reserve of R800 million which remained in reserve in preparation for the possible fourth wave. He went through the provincial funding envelope and the provincial social wage per policy area. He defined the provincial social wage as a cornerstone of the Western Cape government's efforts to improve the lives of the most vulnerable families and communities in the province.

Ms Pick took over the presentation and went through the 2021 Adjustments Budget. The Adjustments Budget for 2021 had principles on which the budget was based, and it follows from the objectives articulated over the 2022 MTEF as in the MTBPS. There was a big section on risks and the biggest challenge was to ensure that in year- risks were managed and mitigated within the baselines. The budget had enabled departments to prepare for the 2022 MTEF and the opportunity was given in the adjustments budget to realign and reallocate funding from the 2021/22 financial year to the 2022 MTEF. This is to facilitate delivery of policy priorities including infrastructure and to ensure the province is prepared for implementation from 1 April 2022. A differentiated funding approach was applied to the 2021 wage agreement after considering the ability of votes to accommodate the costs in the current budget allocation. The headcount within department was also taken into consideration because the wage agreement was driven by the headcount.

She went through additional funding to be voted in the 2021/22 adjusted budget, the 2021 wage agreement and the realigning of the 2021 Budget to 2022 MTEF and the summary of the 2021 adjusted budget per vote from slides 27-30 of the presentation. Funds allocated from National amounted to R1. 739 billion which is made up of R1.7 billion from the provincial equitable share and that is for the Presidential Youth Employment Initiative of which about R604 million was allocated for education and health. She also presented the summary of the adjusted provincial infrastructure by category together with the total provincial and municipal infrastructure estimates for 2021/22.

In conclusion Mr Savage said fiscal risks had been identified and lots of uncertainties remained. The province is trying to proactively manage both adjustment estimates and the MTBPS was to ensure sure these were mitigated. The Department was also trying to make sure that the allocation of resources was aligned with the priorities of government. It is important to note that this was not about more money, but emphasis had to be placed on expenditure effectiveness on development impact and non-fiscal measures that can help in achieving results. The money must not be spent for the sake of spending but to maximise development impact. Over the medium term, the budget would ensure the effective response to COVID-19, support the recovery plan priorities of jobs, safety and well-being, support frontline service delivery efforts, drive infrastructure delivery program, strengthen municipal support and oversight, ensure value for money and strengthen procurement practices and transparency to ensure effective risk mitigation.

The Provincial Minister did not have concluding remarks but stated that the team would handle the engagement with the Committee.

The Chairperson opened a discussion platform.

Discussion

Mr D America (ANC) said one of the principles that were identified at the start of the presentation relates to long-run financial sustainability. He asked how sustainability would be achieved if both allocations came from the National Department. It was stated that one of the ways to achieve sustainability was a reorientation of spending priorities as well as achieving great efficiency in operations. He was concerned that service delivery would end up being compromised and asked for more clarification.

His second question was on the repurposing of conditional grants from national government. In aligning the allocation of grants in the context of what is perceived as the Joint District Model as opposed to the familiar Metro District Model, he asked how the two models would align with each other in the allocation of grants to municipalities. Local government departments had a reduction of about R6 million as drought support that would not be allocated in the current year. Drought remained a significant risk in certain areas of the province. The Provincial Minister outlined risk mitigation allocations yet there was no mention of drought in the presentation. He asked for an in-depth explanation.

Mr P Marais (FF+) said the budget covered most of the angles that were expected, especially risk management. He asked what could be done to ensure the equitable share sufficiently covered infrastructure. He questioned if the additional money spent on jobs and housing was for citizens. The building of infrastructure was key for of job creation. He asked the Department if it had an opinion or an answer to that. He also asked how it was possible that unemployment was declining when a lot of people were always at the traffic lights looking for work. He asked if the Department had budgeted for poverty alleviation or whether there was a policy on poverty eradication or were these matters left for National. A lot of money was spent on education, however, people were educated to join the unemployment queue. Skilled people were sitting at home with their degrees and jobs had to be created for unskilled people. He asked if the allocated funds for employment creation were targeted at the skilled or unskilled market.

Ms N Nkondlo (ANC) said in the notion ‘a budget back up you’ assumed ‘you’ is business households. She asked if the Department conducted public participation with the government sector to integrate their input in affirming the theme of the budget. She also asked for an explanation with an example from the Department of how the PERO and MERO integrated planning point of view will be carried out by the province together with the relevant municipalities now that the municipalities were starting public participation on Integrated Development Plans (IDPs). She asked how the Department was assisting the youths in the informal economy, besides the Presidential Youth Employment Initiative budget. She asked Ms Pick to further explain in layman’s language what the differentiated approach on CoEs and frontline services entailed, given population increase which was a result of interprovincial migration. She also asked if there was any formula that would be justified as sufficient in defining the quantity of personnel versus the population in the frontline service departments. She concluded by asking for an explanation of why there was more social and less economic infrastructure. The Premier and the Provincial Minister have always talked about balancing livelihoods versus lives and the province has been very vocal in trying to keep the economy open.

Responses

Mr Savage said there was a multi-pronged strategy for long-run fiscal sustainability. It was important to understand the medium-term current situation and beyond for greater foresight of the situation the province is facing. It is very critical in terms of expenditure and prevents overcommitment to the resource envelope. During the COVID-19 response, the Department appropriately used the resources that have been saved by the province as a buffer against the impact of the pandemic. There was a need for a healthy and powerful response. However, the buffer needs to be rebuilt and the question is whether immediately or incrementally over time. The later strategy is more effective, and the Department acknowledges the extreme pressure on service delivery and accruing money to savings would currently not be appropriate. As of last year, the Department introduced a fiscal transition support facility which was providing support to departments that were looking at restructuring the expenditure profile to reduce baseline expenditure commitment while expanding the output of what is produced.

The final proposals for conditional grants related to the District Development Model (DDM) were not yet available and the information available on conditional grants for the 2022 MTEF was still quite tentative. The DDM and the Joint District and Metro Approach (JDMA) were closely aligned, different language was used, but the intent was the same. It was about better leveraging and coordinating the capacity of district municipalities to improve productive relationships between local and district municipalities. The Department was also making sure that there was disaster response capability available in all unforeseen and unavoidable expenditure right across the 2022 MTEF. This has been a priority because the province was prone to disasters. The Department was putting forward proactive disaster risks to avoid fiscal pressure. Growing population from inter-province migration was also a current risk. It was seasonal and high is the urban areas of the province. There had been demographic volatility because of the pandemic and impacts across the sub region and other provinces in the country.

The provincial equitable share formula lagged behind because it used data on population movements and was disrupted by the pandemic. One of the variables in the formula was around the utilisation of health facilities. These technical dynamics are discussed extensively with national government, and there are robust debates about the formula shifting to data update because of the pressure on service delivery in the province. There had been a growing demand for services and before the pandemic, there were measures in place to reduce unemployment. The recent development with the new variant was likely to entrench the economic recovery plans in the short term. There was an extensive skill program to train school leavers for work, the social wage program, public employment programs, which were part and an addition to national programs.

There was a process post tabling of dissemination, and the province is very keen to take the MERO into individual districts. Separate booklets have been produced for the targeted audience and that is complemented with the socioeconomic profile at municipalities. Beyond dissemination, the province engages technically and strategically with municipalities and in the JDMA process, the documents are treated as inputs to IDPs in the Medium-Term Revenue and Expenditure Framework of municipalities. It is not clear whether all municipalities will opt to replace their IDPs in the current cycle or wait for another year.

He defined social and economic infrastructure. Social infrastructure included schools and clinics though economists could argue that this was economic infrastructure because it was built to develop skills that have a deep economic impact. Economic infrastructure was public works, roads, and agricultural and ecological infrastructure. The core function of the provincial government around health education, social development was classified as social. He emphasised that one must avoid falling into a trap of saying social infrastructure has no implications for the economy as it was very fundamental.

Mr Havemann said the youth unemployment rate was obviously higher than older ages, which was very common in the country. There were measures in place to curb unemployment which included maintenance of infrastructure at education facilities and training and placement of youth in business services and infrastructure restoration. These absorbed many unemployed youths, and the Department is looking at ways to expand that. There was an estimate of an additional 66 000 employment opportunities per year through the same projects. A large amount of the Presidential Youth Employment Initiative Funds went to the educational department in the province and there was an estimate of creating 20 00 employment opportunities in 2022 and 11 000 in 2023.

Ms Pick said in the current main budget, the Department had allocated more that R6 million for different kinds of support in terms of drought. Funding had been allocated to support geo-hydrologists to assist engineers in response to the drought. The Department had failed to meet the target of filling posts for hydrologists but here had been contract and permanent employment positions would be filled in support of drought and permanent employment commencing on 1 April 2022. These were the reasons for the realignment of the funding around the drought support. The presentation did not indicate the total for drought funding.

To define the different approach of CoE, she said the generic approach for funding of CoE would be the funding of wage agreement. There was a calculation done by the national department to see if the R1.4 billion equates to the number of staff that qualified for the wage agreement. The province does not dispute the amount but, it considered the current fiscal position, overall performance, budget of the Department and if there was any reprioritisation available and an analysis of adjustments at a technical level in every department. When all these factors had been considered, the current performance and the pressure indicated by the votes around wage agreement, it was frontline services department, education and health, social development that qualified. It must be understood that the social sector comprises about 91% of the CoE headcount and the process is extremely headcount driven as it is different every year.

In the previous year's wage agreement was calculated on a percentage of salaries and this year an amount was negotiated per headcount, therefore the more headcount a department had the bigger the pressure on the wage agreement. This was the differentiated approach. The pressure on the votes indicated by votes themselves and calculations by Treasury in finding funds to cover CoE, the three social services departments showed more pressure therefore the R1.1 billion was allocated in the current adjustment budget to fund the wage agreement. It was not one funding approach as everyone was funded differently because the situation of the Department was taken into consideration. Each department would have to look at the CoEs composition and then respond accordingly. This includes service delivery needs, staff at retirement age and the impact on the budget and the excess personnel.

Mr Malcom Booysen, Acting Chief Director: Public Policy Services, Western Cape Provincial Treasury, said the process of IDPs essentially requires municipalities to work with an assessment of existing level of development and identify communities that do not have access to basic needs and support services. The MERO provides the social-economic realities in chapters 1,2 and 4 and that enable municipalities to take the critical information on board and further and test the responsiveness of the budget. The information contained in the MERO was used by the private sector and presented an opportunity for investment in a particular area.

The Provincial Minister said many Members raised questions about provincial equitable share. Members should be aware that the finance team mounted a very robust position on the reduction of the provincial equitable share, which was set out in the MTBPS book. The team was not able to succeed in resisting the adjustments but was able to ensure that the reduction was phased over time than anticipated. As a result, there was a reduction of R1.2 billion in the medium-term which left a net reduction of about R540 million. An additional R50 million was allocated for public employment programs which was announced in the main budget, which is now distributed to municipalities in the form of local government public employment support grant. The purpose of those funds was to allow municipalities to implement public employment programs that will provide opportunities to young people in the province.

Further discussion

Mr G Brinkhuis (Al Jama-ah) asked if there was an allocation for additional educational infrastructure as there were about six thousand unplaced learners in the Western Cape. January was around the corner and parents were becoming anxious.

Mr A Van der Westhuizen (DA) said there was no doubt that the Department would have researched the options to invest in Golden Arrow Bus service. It was a very important and safe public transport in the province. There were challenges and incidents that were presented to the Standing Committee on Transport and Public Works about the horrible attacks on the buses. He asked how the Department would support the bus company and if there was an option that might be beneficial to other public entities that would like to invest in initiatives in the private sector.

Mr Marais said he heard from the MEC that every year the province received less money and in the coming years it might receive R450 million less. The equitable provincial share in the presentation had increased in figures from R54 million in the next financial year, R55million and R57million. The baseline adjustments over the last two years of the three-year cycle have more money compared to the previous years. There are no figures in percentage to show whether it was a decrease or increase. He asked for an explanation on why figures increase yet the MEC said otherwise.

The CoEs funds were surrendered to the Provincial Treasury in the last two years and in some cases, it was because of vacant posts. This was discussed in the Committee and the feedback was that young people were leaving for work opportunities with the municipalities because compensation was higher.

He asked why money was surrendered instead of keeping the expertise within the provincial government because the young and experienced personnel left due to money issues.

He said he did not understand the explanation on the reduction of the disaster fund. Last year when he visited the disaster-affected areas, the Garden Route Mayor explained the water challenges the municipal faced due to the drought and that some farmers left farms and workers had to fend for themselves. The surrender of funds was problematic especially when there were social challenges and livelihoods to save.

The Chairperson notified Members that if there were questions after the responses from the Department, these could be raised with their respective committees due to time constraints.

Responses

The Provincial Minister said he also saw more money on the presentation until the Provincial Treasury pointed out that they are increases were below inflation. He said in his morning presentation, he tried to achieve a balanced approach to express disappointments that there was a R540.5 million net decrease in the provincial equitable share but welcomed and acknowledged that the province received R1.4 billion in 2022/23 financial year for CoE and a R600 million additional allocation in the adjustments budget of the Presidential Employment Initiative which should result in about 20 000 work opportunities for young people.

On the issue of unplaced learners, Mr Savage said the Department fully supported the Department of Education. It was an extremely complicated process but a strategy was in place to ensure that learners were placed and that resources are available. The Department of Education would be in a better position to provide details on the strategy. The pressure arose particularly for placements of grades 1 and 8. The strategy responds in terms of teachers’ availability, facilities, and transport system. There had been a significant consideration given to the issue by the Department. He was confident that these measures make sure the problem was eliminated in the next academic year and going forward. It was not a risk that could be eliminated entirely at the start of every academic year, despite the efforts made as learners would just arrive at certain schools unanticipated. The challenge was to wither the problem to a bare minimum by the start of the academic year and be able to place learners in the first weeks of the year.

In terms of investing in the safety of Golden Arrow Buses, the Department of Transport and Public Works would be in a better position to provide a precise specification of the program. The Department was of aware of alarming and recurring incidents of robberies on buses. The buses were largely funded through the Public Transport Operations Grant. There is a shared contribution between Golden Arrow and the Department of Transport in terms of safety measures that are put in place. The mechanism was not problematic as it is a long-standing partnership in contractual commitments.

On page 54 of the MTBPS, table 3.1 reflected the average annual growth rate in nominal terms of the provincial equitable share with about 1.5% inflation rise. The National Treasury projections were around 4.5% per year. In real terms, resources are diminishing quite sharply over the medium term. Treasury was always resistant to the surrender of funds and created incentives for the Department to simply spend, rather than for the initial intention. There were lots of complexities regarding the compensation of employees in the employment environment some of which could be more volatile such as the great resignation in the workforce. The province was trying to address this through a multi-pronged strategy to keep young, experienced workers in the provincial government within the public service. The Department of the Premier would be in a better position to comment on a range of initiatives underway.

The underspending on CoEs as a result of delays in hiring by a month or two and the replacement of personnel with a lower salary compared to employees who leave. Departments were asked to closely analyse specific levels to individualise their own different compensation of employee’s strategy to fit different skills profile, dynamics and needs for each vote.

On underspending in other categories, the specific dynamics that lead to this varied significantly on infrastructure programs.

For example, one of the challenges was global chain supply disruption when importing components for capital programs. Components were simply not available which slowed down spending significantly. Other challenges included community unrest, the process of reaching contractual closure to allow work to start and the lockdown which had slowed down work. In goods and services, underspending could be influenced by border supplier chain management delays. The province encourages the execution of spending programs as timeously as possible. It is an ongoing challenge, but it is closely monitored.

The Chairperson reminded Members to forward any available questions to the specific departments or be put in writing at the resolution stage. She asked the Department to move on to the next presentation because of time constraints.

Mr Savage said the next presentation was the MERO. The interest of the Members in the previous presentations kept inspiring the team. There may not be enough time to fully unpack all the aspects of the MERO to the Committee. It was a significant document, and he informed the Chairperson that the Department was more than welcome to engage further with the Committee in any format it prefers. The Department valued the questions and guidance from the Committee. This has helped shape the document as it evolves.

The Chairperson said she was aware that the Committee would also need to engage in Financial and Non-Financial Performance. She asked Members to postpone one of the document's presentations and engagement for the following Budget meeting. She would negotiate with the programming Chairperson to get an extra hour in the following meeting. This was to allow the Committee to engage with the MERO and the second document which was not urgent later in the week. There were extra documents in this year’s meeting compared to previous years.

There was no response from Members.

She regarded silence as concurrence to negotiate with the Programming Chairperson to move the presentation of the Second Quarter Financial and Non-Financial Performance to the next meeting.

The Procedural Officer said the next meeting was scheduled for an hour and the solution was to ask for an extra hour from Treasury.

Mr America said the next meeting was scheduled for 14:15 on Wednesday and that it was impossible to add an extra hour after the meeting.

The Chairperson said she was hoping to add an extra hour before the meeting.

She asked Members again for their input and there was no response.

She regarded the silence as concurrence.

She asked the Department to go ahead with the MERO presentation and thanked the Department of the Premier for staying in the meeting whilst waiting for the Committee to engage with respective presentations. She said Members were already in possession of the presentation and could go through the documentation before the next meeting.

MERO presentation

Mr Booysen thanked everyone for the opportunity to present. It was the tenth edition of the MERO and different chapters made it easier for IDP officials and municipalities to engage with the document. He showed a slide of infographics to make it easier for the Committee to engage with the document. The document had two sections. Section A deals with transversal issues that deal with each district and have been extracted from the PERO. He engaged with Section B which deals with various regions within various chapters.  He explained the slide with Gross Domestic Profit per Region (GDPR) and employment contribution and mentioned that the Cape Metro was the top contributor of the GDPR in the province. The economic contribution declined marginally from 72%-71.5% between 2019 and 2020. It was important to note that the Cape Metro employment contribution was relatively smaller compared to the economic contribution.  He explained the real GDPR growth trend per municipality from 2015-2020 and the GDPR forecast. He also went through the GDPR and employment performance and sectoral contributions per region with the forecast period from 2012-2022. He said it is fundamental to note the impact of the drought in the province.

He also went through unemployment profiles per municipality and mentioned that unemployment was a huge concern throughout the country. He went through international trade in the province and explained the destination of exported products and products that are imported. Both international and domestic tourism in the province was severely impacted by the pandemic. International arrival was reduced to zero between April and October 2020. Job losses were incurred especially in the tourism sector.

He went through a slide on comparative advantage and explained the figures providing the definition. He explained comparative advantage saying it happens when the region has a score of one or above in terms of its output, relative to the rest of the country.

On socio-economic indicators, health and education sectors were affected by the pandemic and the matric pass rate declined in all regions in 2020. Crime also declined due to the curfew restrictions and reduction in alcohol sales. He asked Mr Dian Cronje, Director: Local Government Budget Office, to present on policy implications.

Mr Cronje went through key implications for policy planning and budgeting listed on the last two slides of the presentation. He said that population figures influenced all planning and budgeting efforts in terms of service delivery, considering quality and quantity. The unemployment rate improved but the labor force participation rate decline. At face value, it appeared that unemployment was improving but more people resorted to self-employment amid the pandemic. This increased the informal activities and encourages the government to support SMMEs and small business owners in local and rural municipalities. The demand for skilled labor was outpacing the demand for semi-skilled and unskilled labor. This meant that lower-skilled workers needed to upskill to absorb into the labor market. Infrastructure had always been a catalyst in economic growth, general development as well as job creation.

The Chairperson opened for discussion and said she would engage with the programming authority to determine if some of the respective topics could be unpacked at the beginning of following year. There were some topics from the previous MERO that Members would like to explore.

Discussion

Mr C Dugmore (ANC) said the ANC previously raised concerns on the analysis patterns in gender and race when PERO and MERO were presented. These documents require a huge amount of research and expenditure from the provincial government. Ownership patterns should be transformed, considering the state of the economy, position of different sectors in various regions including the Metro. These include the transport industry, agriculture. Once again, the document presented spoke to digital divides but mentioned absolutely nothing about race. The introduction and the list of abbreviations had nothing on black economic empowerment. He asked whether it was because of the official policy of the DA that was in racial denial. The document did not mention anything about the transformation of the economy. He asked whether the reason was political because the request that was raised last year had been ignored again this year.

The Chairperson said the Department was unable to comment on policies of a certain political party.

Mr Dugmore asked the Chairperson to point out the rules that stated that Members were not allowed to ask questions of political nature. It was known that the DA’s policy was against the minimum wage of R3500 and instead wanted it to be R1800. The Chairperson could not just make up the rules.

The Chairperson said there was a difference between questions of political nature and questions on party policies. Questions of a political nature were allowed and Members from different political parties who often attend the Budget meetings frequently ask questions of political nature but not questions about policies of a specific political party. A provincial government was not supposed to be biased and could not respond to such.

Mr Dugmore asked for a specific rule that supported the view of the Chairperson.

The Chairperson said she would ask the Procedural Officer to assist her because she believed that Mr Dugmore’s question went against the nature and mandate of independence of a provincial Parliament.

Mr Marais said he once raised the point raised by Mr Dugmore. The equity law specifically mentions who should be empowered and it mentions black as an umbrella name for Colored, Indian, and African people. It was important to know who was being empowered in job creation or benefits accruing to that policy of the equitable share of the economy. He asked to see specific figures in that regard. The wealthy people were futuristic, and the poor had no future but to concentrate on the present. They are worried about jobs, food, and education. When a fiscal analysis was done, it would be important to give the poor a futuristic outlook.  Economically speaking, the racial element should be included so that he can report back to his constituency.

Ms Nkondlo said she did not have a copy of the presentation nor the booklet of the MERO and in the spirit of transparency, she asked for the information to be shared. She asked what happened to the socio-economic profiles of the municipalities which had not been detailed, inclusive and exhaustive over the past couple of years. She agreed with the issues raised by Mr Dugmore and Mr Marais. Members needed to receive information to report back to their respective constituencies. There could not be high-level discussions where the technical information is with the technocrats and Members are dependent on that information. She asked if the information was in the booklet as she had not seen it and if it is as detailed as it was before.

Ms Nkondlo asked how the Gini coefficient of municipalities had been affected by the pandemic. Before the pandemic, Gini coefficient showed that high levels of inequality were increasing yearly. She asked about the inequality situation in the current MERO. She raised that concern in 2019 and it was further corroborated in the inequality report of Stats SA, particularly income inequality in the City of Cape Town. This information helps Members that are mandated by the constituencies to understand the empty MTBPS read by the Minister and the extent to which financial resources of the state reach the targeted group. Studies have shown that the pandemic severely affected communities that were already vulnerable. The MERO should give finer details about those households, education outcomes, and skills levels of the community to enable programs that were mentioned by Mr Havemann on youth unemployment. The information would also enable Members to ask the right questions in various Standing Committees. These issues were amplified during the local government elections by vulnerable communities and the middle class which was currently shrinking.

The Chairperson said Ms Nkondlo was one of the few Members of the Committee that was proactive and helpful in leading robust debates and getting solutions.

The Chairperson read s114 (2) (b) of the Constitution of the Republic of South Africa and requested Members that when asking questions, they must stick to the mandate of the powers of the provincial legislature.

Mr Dugmore said the Chairperson failed to provide the rule that supports her view, and the province was led by the DA whose policy informs what the executive does. He asked the Chairperson to refer the matter to the Speaker because the Chairperson was undermining the right to ask questions. It was the first time in the legislature that any Chairperson was ruling that a question about a political party is not allowed. Excluding a question about a political party policy that might impact the executive is simply a thumb suck and what the Chairperson read from the Constitution is irrelevant to the matter.

The Chairperson said she received advice from the Procedural Officer to use standing rule 76 and, that despite the absence of a specific rule in the WCPP, she is under the understanding that she has the discretion to rule on the matter. WCPP rules get authority from the Constitution which was the foundation.

Ms M Wenger (DA) said rule 82 relates to Chairperson and s114 of the Constitution dealt with the powers of a provincial legislature and as a Chairperson, she had made a ruling to maintain order and the ruling was binding.

Mr Dugmore asked for the ruling to be communicated in writing.

The Chairperson said all rulings were noted in the minutes and should he believe that the Chairperson was making a wrong ruling, he was welcome to refer the matter to the Speaker.

Mr Dugmore said the ruling was ridiculous.

Mr Marais said he did not care whether the Minister or officials answered his questions. He asked for the Department to report on the number of jobs created in a certain sector especially the demographics that are affected by unemployment. He also asked if his question was allowed.

The Chairperson said there was nothing wrong with his and Ms Nkondlo’s line of question including 90% of Mr Dugmore’s questions. However, questioning political party policies was inappropriate and she would disallow this.

Mr G Bosman (DA) asked the Chairperson to remind Members to use the “raise the hand” function and wait to be acknowledged by the Chairperson. It was very disruptive when Mr Dugmore spoke over everyone and interrupts whenever it suits him. It was difficult to follow the debate when a Member interjected without observing the rules.

The Chairperson said she would ask the Procedural Officer for help in the future.

Mr Savage said that the Department tried to collect procurement and appointment data on BBBEE from municipalities to get a better insight into the ownership composition of the local economy and a circular was issued in that regard. Annual reports by municipalities have been very slow and it is not unusual for new measures to take time in acquiring required data. There was information available, but it was incomplete. Procurement disclosure reports on an annual and quarterly basis gave proxies for understanding ownership. The Department was aiming to expand BBBEE classification and other groupings that were participating in the supply chains. The data was not readily available but the next round of census data should assist.

The Department was extensively reporting on equality including Gini coefficiency. The Department gets the data from municipalities and as a district. It is one measure of inequality, and the Department is not limiting itself just to that measure. There are many different measures and those are discussed at some length in the report. The has been an expansion in that regard. Inequality had been rising across the board at a slightly different rate and available data is up to 2020. This does not fully accommodate the effects of the pandemic and the recession. The numbers were partial, and acceleration was expected and may reflect differently from various geographic areas because of the pandemic.  He hoped that the individual report made sense of why inequality may be deeper and faster in some areas as opposed to others. It is often related to some of the other measures of inequality for example access to education or qualification levels and access to services.

The Western Cape is still not reflecting as unequal in terms of the Gini data and is certainly normalizing. Mr Savage emphasised that the Department is certainly not stepping back down on the socio-economic profiles as they complement the MERO. Race-based data correlation in terms of service delivery was difficult to obtain at a local level. The Department can certainly look at how to present that better in the future as it always listens to comments and needs of the Committees, however, ownership data is less successful to obtain at this point.

Mr Marais said in terms of the Labor Equity Law, employers must report to the Commissioner on the progress made. He could not accept that it is difficult for the Department to compile a report. The Act says the report must be compiled and the National Minister and Commissioner must be updated on how far the province has gone in implementing equity, but he stood to be corrected.

The Chairperson said the question would be put into writing and referred to the Department because of time constraints.

Ms Nkondlo asked if putting questions in writing was the Chairperson ruling because she wanted to follow up on her question.

The Chairperson said Ms Nkondlo could also put her question in writing or wait for the next meeting.

Ms Nkondlo opted for the next session.

Mr Savage said he would be happy engaging with a written question or a follow-up session.

The Chairperson thanked the Minister and the Department for the presentation and engagement. She commended the Department for extensive research as it was not easy to compile a budget presentation. The Committee would refer the documentation to the respective Department's Committee for consideration as it is done annually.

The Department was excused from the meeting.

She asked Members to remain to deal with the reporting of the MERO given that there was no need to make decisions on the MERO. The Committee annually reports on deliberations on the MERO and the Procedural Officer will put a draft report to see if there is anything that needs to be edited. She asked Members to hold over the Committee minutes for the next Budget meeting.

Report of the Budget Committee, having considered the Municipal Economic Review and Outlook 2021

The report was duly adopted.

The Chairperson requested Members to submit resolutions in writing to the Procedural Officer. Respective budgetary documentation except for the summary of the MERO for the presentations was sent to Members via email at 10:58.

She thanked Members for their engagement.

The meeting adjourned.