2019 Appropriation Bill: Parliamentary Budget Office briefing

Meeting report

2019 Appropriations Bill: briefing by Parliamentary Budget Office
Ms Nelia Orlandi, PBO Policy Analyst, said the Bill was tabled by the Minister of Finance along with the 2019 Budget. It provided for the appropriation of money for state departments to be approved by Parliament. It set out the purpose of the spending and classified the types of spending. This included compensation of employees, social grants and conditional grants.

The Fiscal Framework approved by Parliament earlier in the year provided for total spending of R1 826.6 trillion this year. This was 33.7% of Gross Domestic Product (GDP). The budget deficit was R242.7 billion, amounting to 4.5% of GDP. Over the medium term, expenditure was estimated to be R2 089.0 trillion with a deficit of R252.4 billion, or 4.0% of GDP.

The Appropriations Committees of the National Assembly and the National Council of Provinces had to report on the Appropriations Bill after Parliament had passed the Division of Revenue Bill. Any amendments to the Appropriations Bill had to be consistent with the Division of Revenue Bill and the Fiscal Framework adopted by Parliament. Other parliamentary oversight Committees could advise the Appropriations Committees that certain amounts should be appropriated conditionally or exclusively for certain purposes. Parliament had to pass the Appropriations Bill, with or without amendments, or reject it, within four months after the start of the fiscal year on 1 April.

The Division of Revenue Bill this year allocated 48.1% of revenue to national government departments, 43.0% to provincial governments and 8.9% to local government.

The allocations per budget function group were: Learning and culture - 22%; Health -12%; Social development - 15%; Social protection - 11%; Community development - 12%; Economic Development - 12%; Peace and security -12%; General public services - 4%.

Ms Orlandi said that almost 70% of the budget went to transfers and subsidies to other spheres of government, government agencies, international organisations, public corporations, non-profit institutions, social benefits, social grants and the National Student Financial Aid Scheme.

The remaining 30% was appropriated to the national government. The challenge for the Committees was to oversee the 70% that was transferred.

Previous recommendations
Mr Orlandi suggested a key consideration for the Committees was whether the recommendations made during the previous appropriations process had been acted upon. These were:

▪ The National Treasury should ensure that the objectives of the Employment Creation Facilitation Fund were being achieved.

▪ The Department of Transport should fill critical vacant posts and support the Passenger Rail Agency (PRASA) in dealing with procurement challenges.

▪ The Department of Water and Sanitation should resolve issues related to the War on Leaks Programme.

▪ The Department of Public Enterprises should implement a turnaround strategy at SA Express and appoint permanent executives at the airline.

Baseline reductions
Mr Orlandi suggested that the Committees consider the impact on service delivery of the government proposals to reduce baseline expenditure by R50.3 billion over three years, with R8.3 billion being cut this year.

 At the Department of Transport, PRASA would see the largest baseline reduction of R4.2 billion in the 2019 appropriation. The passenger rail system largely served low income households,so the reduction was likely to affect service delivery to the poor.

There would be a collective baseline reduction of R2.1 billion in votes for Health, Social Development and Human Settlements. This expenditure was meant to support low income households. The government should inform Parliament of measures to protect service delivery to the poor.

Grants in the economic cluster were being reduced by R1.8 billion.

The government had indicated that a reduction in the baseline was targeted at the compensation of employees. It should submit a detailed plan showing how this would be done without affecting service delivery.

Discussion
Mr A Sarupen (DA) asked if the PBO could supply figures on the total value of government guarantees to state owned enterprises (SOEs). He asked what the impact on the fiscus would be if any of them defaulted on their loans.

Mr Z Mlenzana (ANC) said the Committees would have to consider how they could best perform their work in overseeing 40 budget votes and keeping track of the 70% of revenue which was transferred to other entities. He said an urgent decision was needed on what should be done at PRASA.

Mr O Mathafa (ANC) said monitoring and evaluation of government programmes was a big challenge. He asked if the appropriation for the Department of Planning, Monitoring and Evaluation was sufficient. He said the 12% allocation to economic development was low. Spending on social grants was increasing rapidly.  What interventions could be made to employ more young people and reduce the demand for social grants?

Mr D Ryder (DA) said while there appeared to be a focus on PRASA, it should be remembered that many poor people in rural areas lived far from railway lines. The development of a road could be a catalytic event that changed the lives of millions of people by opening up economic development. He asked what impact, if any, the hearings and debates on Budget votes currently taking place in Parliament could have on the Appropriations Bill.

Mr Y Carrim (ANC) said the 12% allocation to economic development was too little. The Appropriations Committees had a challenging task in monitoring what money went to whom. However, they should guard against taking over the role of the Portfolio Committees with oversight of specific government departments and rather take note of what those committees were saying. He said the Appropriations Committees could not close their eyes to what was happening at the SABC and they should liaise with the Portfolio Committee on Communications to see what was being done to prevent the SABC’s collapse.

Ms E Peters (ANC) said compensation of employees was a recurring challenge. Treasury should clamp down on departments which treat unused allocations as a piggy bank for compensation of employees and transferring funds for other purposes. She raised concern about further spending on the Gauteng Freeway Project while non-toll roads were decaying.

Response
Ms Orlandi replied that the PBO would include a summary of government guarantees for SOE debts when it made a presentation ahead of the Medium Term Budget Policy Statement.

She acknowledged the difficulty of monitoring the 70% of the Budget that was transferred to other departments, agencies and levels of government. Questions should be raised on whether government processes for managing public finances were effective. Many of the concerns raised by Members were related to the decentralisation of service delivery to smaller units of government which made it difficult to keep track of spending and outcomes. 

Research had shown that monitoring was more effective when monitoring, evaluation and planning units were grouped together with budgeting unit. At the moment these were split between the Office of the President and National Treasury.

Ms Orlandi directed the Committees’ attention to the virements, or spending shifts, which were recorded in the Adjustments Budget presented to Parliament later in the year. While the original spending proposals in the Appropriations Bill were approved by Parliament, the shifts were approved by National Treasury. Clarity was needed on if this was legal.  In one case, money allocated to compensation of employees was used to buy motor vehicles. If such funds were to be shifted they should be used for the welfare of households.

On baseline reductions in the Budget, Ms Orlandi directed attention to the South African Social
Security Agency (SASSA). Every year SASSA returned unspent funds to the National Revenue Fund. The Committees should look into the model that SASSA used to determine its budget.

On failures in road maintenance, Ms Orlandi replied that there was a complicated system of dedicated grants and rules on spending on roads and infrastructure, but the system appeared not to be working. She suggested that National Treasury should be asked to explain how it was meant to operate.

In her closing remarks as Co-chairperson, Ms D Mahlangu (ANC) said there was a need for “consequence management” to deal with officials who ignored spending rules. The Committees should support National Treasury’s efforts to enforce regulations.

Mr N Buthelezi (ANC) cautioned against demanding too much of National Treasury. The Government was bigger than Treasury. Departments should be held to account by the portfolio committees in Parliament. There needed to be a greater focus on the “opportunity cost” of departments failing to spend funds which could have been better used by other departments. The Appropriations Committees should work with the parliamentary oversight committees because they could raise red flags about departmental spending.

Meeting adjourned.