Division of Revenue Second Amendment Bill & Second Adjustments Appropriation Bill: National Treasury briefing

Meeting report

The Chairperson opened the virtual meeting and welcomed everyone in attendance. It was an important meeting that was dealing with the Medium-Term Budget Policy Statement (MTBPS).

The Committee Secretary announced the apologies.

Briefing on the 2020 Division of Revenue Second Amendment Bill
Ms Malijeng Ngqaleni, Deputy Director-General (DDG): Intergovernmental Relations, National Treasury (NT), said that the Bill would cover changes to provincial allocations, changes to local government allocations and changes to gazetted conditional grant frameworks and allocations. She informed the Committee on how to read the new schedules which allowed for transparency.

Ms Olorato Tlhoaele, Senior Economist: Intergovernmental Policy and Planning, National Treasury, presented on the changes to provincial allocations:
- R25.3 million was reduced from the 2020 baseline as part of the reduction of R160 billion to the growth of the public service bill.
- R500 million was added for food relief in response to COVID-19.
- R7 billion was added to the baseline to employ education assistants.
- A provisional allocation was set aside in response to increased unemployment due to COVID-19.
- R1.5 billion was added to direct conditional grants for job-creation purposes.
- Provincial conditional grants were reduced by R1.3 billion to cater for the R10.5 billion South African Airways (SAA) rescue plan.
- R475 million was rolled over from the school infrastructure backlogs grant for the completion of projects in Eastern Cape, KwaZulu-Natal and Limpopo.

Mr Bongani Daka, Intergovernmental Policy and Planning, NT, presented on the changes to the local government allocations:
- R613 million was reduced from the local government conditional grants towards the R10.5 billion SAA rescue plan.
- R390 million was rolled over in the urban settlements development grant for bulk infrastructure related projects in Nelson Mandela Bay Metropolitan Municipality.
- R98 million was rolled over in the public transport network grant for public and non-motorised infrastructure in Nelson Mandela Bay Metropolitan Municipality.
- R307 million was rolled over in the regional bulk infrastructure grant for drought and COVID-19 water and sanitation interventions nation-wide.
- R12 million was reprioritised from the Department’s budget into the indirect component of the water services infrastructure grant to Lekwa Local Municipality.

Ms Zethu Ncube, DDG: Local Government and Budget Framework, NT, presented on the changes to the gazetted conditionals grant frameworks and allocations. The NT was required to consult Parliament on any proposed changes to a conditional grant framework for the purposes of correcting an error or omission. Parliament was then requested to consider and approve the corrections. Once the Bill was enacted, National Treasury would gazette:
- The corrected frameworks.
- The amended allocations per municipality.
- The changes per province for indirect grants set out.

The framework corrections presented were:
- Correction of omission of the Presidential Employment Initiative conditions;
- Correction of errors to the Statutory Human Resources, Training and Development Grant where allocations to Mpumalanga and North West were corrected to R2 million and R3 million, respectively;
- Correction of errors to the National Health Insurance Indirect Grant where allocations for the Limpopo Academic Hospital were corrected from R653 million to R454 million;
- Correction of errors to the Rural Roads Asset Management System Grant where the submission date for road condition data was corrected from 31 September 2020 to 30 September 2020;
- Correction to gazetted allocations for ring-fenced sport projects in the municipal infrastructure grant where R25 million was shifted from Musina Local Municipality to Polokwane Local Municipality and R9 million was shifted from Swellendam Local Municipality to Mossel Bay Local Municipality;

Ms Wendy Fanoe, Chief Director of Inter-Governmental Policy and Planning, NT, presented on the 2021 division of revenue in the MTBPS, which was indicative of the next budget tabled in February 2021. The Committee was to give feedback on the proposed budget.

Over the 2021 Medium-Term Expenditure Framework (MTEF):
- National government resources declined at an annual average of 3%, provincial resources increased by 0.9% and local government resources increased by 2.1%.
- The provincial equitable share would be reduced by R60 billion in 2021/22, R85.6 billion in 2022/23 and R64.1 billion in 2023/24.
- Provincial conditional grants would be reduced by R2.6 billion in 2021/22, R3.4 billion in 2022/23 and R6.1 billion in 2023/24.
- Transfers to local government would be reduced by R17.7 billion, R14.5 billion from the local government equitable share, R2.7 billion from the general fuel levy, R569 million in direct conditional grants.

Changes to the structure of provincial allocation included:
- The title deeds restoration grant would end in 2020/21 and shifted to the human settlements development grant.
- The introduction of a new informal settlements upgrading partnership grant;
- Updates to the provincial equitable share formula to reflect demographic changes and an on-going collaborative review of the formula.

Changes to the structure of the local government allocations included:
- The introduction of a new informal settlements upgrading partnership grant;
- The introduction of an indirect component of the municipal infrastructure grant;
- Suspension of underperforming cities from the public transport network grant.
- Local government equitable share formula is updated to account for projected household growth, inflation and estimated increases in bulk water and electricity costs over the MTEF period.

The implications of all these changes would be set out in detail in the 2021 budget review.

Briefing on the 2020 Adjustments Appropriation Bill
Dr Mampho Modise, DDG: Public Finance, National Treasury, reminded the Committee of the different role-players in the budget process. The Adjustments Appropriation Bill provided for increases or decreases to allocations set out in the main Appropriation Act, including shifts in the anticipated economic classification of this spending. She discussed:
- Allocation of funds for the implementation of the SAA rescue plan
- Reprioritisation of funds between and within votes
- Unforeseeable and unavoidable expenditure in terms of section 6(1)(a) of the App Act
- Expenditure earmarked in the 2020 Budget speech
- Roll-overs
- Self-financing expenditure
- Declared unspent funds
- Virements to be approved by legislature
- Revised National Budget Expenditure 2020/21

Summary of the revised national budget expenditure 2020/21

Adjustments to vote appropriations increased by R37.7 billion:
Roll-overs R1.602 billion
Unforeseeable and unavoidable expenditure - R12.932 billion
Expenditure earmarked in the 2020 Budget speech - R22.066 billion
Self-financing expenditure - R1.499 billion
Declared unspent funds (reductions to vote allocations) - R187.096 million
Suspension of funds for section 70 of the PFMA payments (reductions to vote allocations) - R217.761 million

Adjustments to estimates of direct charges against the NRF declined by R22.2 billion:
President and Deputy President salaries (reductions) - R0.083 million
Members’ remuneration (reduction) - R30.683 million
Debt service costs (reduction) - R3 416.639 million
Provincial equitable share (reduction) - R17 754.507 million
National Revenue Fund payments - R66.284 million
Section 70 of the PFMA payments - R217.761 million
Skills levy and sector education and training authorities (reduction) - R1 115.905 million
Magistrates’ salaries (reduction) - R107.768 million
Judges’ salaries (reduction) - R73.006 million

Discussion
Mr D Ryder (DA, Gauteng) felt physically sick to see the effects of COVID and the bail-out on the FSCAs. Treasury was sent out without political guidance. Some questions were of a political nature and would require a political answer. There was no Minister or Deputy Minister online to respond which was a concern. There were no apologies from the Minister or Deputy Minister.

He said that the cost of taking money away from certain areas in the provisional sphere was concerning. Taking money away from the title deed restoration grant sent a bad political message. It showed a skewed political focus which required a political answer. In addition, there was money being taken away from infrastructure projects, both in provincial and local governments. This was after the President had promised South Africa that the economic recovery was premised on putting money into infrastructure projects and it would be an infrastructure-led recovery. Treasury was taking the opposite direction by removing money from infrastructure projects. There was a disconnection between what the President said and what Treasury delivered.

He welcomed the reduction in National Health Insurance (NHI) funding which was already an unaffordable project more so due to COVID-19. He asked for more detail on the informal settlement grant because one size did not fit all. Treasury should not put down a set of regulations that would make it difficult for local government to deal with its informal settlement requirements. Some would require resettlement, movement or re-blocking. He welcomed the move to use the Municipality Infrastructure Grant (MIG) for maintenance and update of the equitable share of formula.

He asked about the R25.5 billion reduction in employee compensation presented by Dr Modise. Was there any science behind this number? It would be important to understand. How much of it was dependent on the Labour Court ruling? Would the country find itself having another adjustment budget this year depending on the Labour Court’s ruling?  

It was problematic to take money from education and training when people needed skills so they could uplift themselves through jobs from the police when there was a crime problem and from health. These all sent the wrong political message. Taking money from the contingency reserve, R3.5 million was illegal. Clarity was needed because the contingency reserve was to be used for unforeseen expenditure. The SAA problem was foreseen and spoken about for years.

The roll-over environment was a shocking reflection of priorities.  Sanitation in schools was a massive problem. Laboratories for the police were also a problem yet money was being away from these projects when it was not spent on time. He asked for a report after a year on self-financing to see how many got realised. The Defence was not recovering the full amount back. This was partly due to equipment not being well maintained. The United Nations was not happy to pay South Africa.

Mr M Moletsane (EFF, Limpopo) said that history had opened our eyes and we needed to make sure history did not repeat itself. R1.5 billion had been added to the direct conditional grants for provinces for job-creation purposes. Has there been proper planning demonstrated by provinces for these allocations? How will it be monitored to ensure full compliance with the requirements of the Division of Revenue Amendment Bill framework?
 
Mr Z Mkiva (ANC, Eastern Cape) said that the leader of National Treasury is not the “Holy Spirit” because he could not be present everywhere at the same time. The leadership, along with the Ministry, did send their apologies for not being able to attend the meeting. Mr Ryder is therefore mistaken because the delegates present were meant to represent the entire leadership; the Committee could still convey its concerns and suggestions to the absent leadership through the present delegation.

He said that he planned to communicate his questions and comments in his mother tongue but because there was a minority of people who would not understand him, he would have to unwillingly incorporate a bit of English. This would be at the expense of several South African citizens who would then not be able to understand him, despite the fact that he was representing them as a Member of Parliament.

The Chairperson interrupted Mr Mkiva but noted that he was making a valid point. The question of interpretation needed to be addressed. It is one shortcoming that needed to be dealt with. It should not be assumed that everyone understood English. There were many people who would like to hear the Committee’s engagement in their language. This matter needed to be taken up with the leadership of Parliament.

Mr Mkiva said that translation facilities would be advantageous to millions listening to the deliberations as they dealt with issues of money and their livelihood. They could understand what the Committee was doing for their interests and the interests of the country.

The reductions are unprecedented. However, it was known they had happen due the effects of the Coronavirus.

Bulk infrastructure grants such as the urban settlements development grant and urban integrated development grants were dedicated to urban and peri-urban areas. There was dead silence when it came to rural communities in the country. This was a travesty of justice. As a new country there was need to show it could to maintain what was inherited. It was necessary to go beyond this and come up with a way of ensuring we moved away from the colonial spatial planning and ensured that we turned around the rural communities of the country. He believed that democracy was a balance between listening and speaking.

The coronavirus has surely opened the government’s eyes on planning going forward. Matters of re-planning and reprioritisation spoke to how the state should focus and pay attention, with the outlook of the liberation movement being quite unequivocally biased towards the poor and working class of South Africa. Majority of the poor and the working class resonated with the rural communities because it was their ancestral land and was where the bulk of the little wealth they have resided. Property owned without owing anyone was in the rural community. “Our families own these properties which were assets with value. We will not seem to be doing anything when grants were only dedicated to urban spaces and not to ensure that there was much needed infrastructure investment and development in the rural areas. Going forward, Treasury had to be balanced in terms of these grants. If there was an urban integrated grant there should equally be a rural integrated grant. There should be an integrated system to ensure the rural communities were considered in the development and investment of infrastructure plans of the country. The spaces in rural areas were our spaces and we should pride ourselves in them. All of us who happened to stay in the cities, from time to time, would go back to their place of comfort where their ancestors lie and parents live.”

From 1994 when government embarked on the electrification of the country, the work was done very well. There were lights in majority of the communities in the country. What stopped the same spirit being carried over to the rolling out of running water and tarring all the roads in the rural communities? There was urgency for this to be done. Once the basic needs such as infrastructure, roads, water and others were dealt with, investments would be attracted to these communities. Otherwise, rural communities would forever be referred to as dead economies. There was a need to have an African approach to issues. The African approach to issues meant that it was necessary to have a Treasury that clearly pointed out what the game changer was in its presentation.

He wanted to see money going to all the 882 traditional council areas of the country, citing that this would be a game changer. The way to see money going to these areas was to have all the roads leading to these areas. These areas would be areas of convergence where social services and service delivery were received by our people. If R10.5 billion can be used to bail-out a state-owned enterprise (SOE), this amount of money could make a mark in ensuring that the roads were done.  

Ms F Rhoda (DA, Northern Cape Provincial Legislature) raised a concern which was partly covered by Mr Ryder. She was concerned by the baseline information in terms of informing the adjustment budget, especially the baseline information as it directly related to the consequences of COVID-19 and its impact on the economy. Taking money away from infrastructure projects was telling foreign direct investment (FDI) investors that the Government had no confidence in rebuilding the economy after it suffered during COVID-19. Infrastructure projects were the backbone and build the backbone of any economic activity. This was a red flag.

It was the duty of Members of Legislature and National Government to have oversight and accountability. National Treasury also played a role in accountability. There is no evidence of consequence management from which a lot of money could be recovered. This was money that was not appropriated or spent within the confines of the law. She was worried about what had been presented.

Mr E Njadu (ANC, Western Cape) expressed that he was in full agreement with Mr Mkiva’s views on the way forward.

He appreciated Dr Modise for the clarity she gave. In a previous meeting it was identified that Parliamentary Budget Office (PBO) and Financial and Fiscal Commission (FFC) played an advisory role. The clarity on budgetary questions had to come from National Treasury. Dr Modise provided clarity on the why and why-nots of the cuts at certain departments. The criteria used by the MTBPS was understood and explained why certain departments such as Education would receive more allocation in the February budget. The Committee could then keep departments accountable and prevent the issue of roll-overs. He understood that the allocation of funds was based on the nature of budget and spending patterns.

Mr X Qayiso (ANC) heard Mr Ryder requesting that the Minister of the ANC go and account to him, which was impossible. As the Whip of Committee, it could inform Mr Ryder that this would not happen. He told Mr Ryder to host a party which would have people who could account to him.

Mr Ryder called a point of order, saying that Ministers were accountable to the Parliament not a party.

Mr Qayiso said the Committee received advice from the PBO and FFC during the week. The performance data on the R500 billion was said to be unobtainable. The way the issue was being received created a lot of distortion. He asked Treasury to offer clarity on the matter. What is the issue around performance data? This would allow for PBO and FFC to offer proper advice.

A matter regarding the Wage Bill had been taken to court by the unions. Was there a contingency plan in Treasury to avoid chaos if the unions won? How will the pilot zero-rating budget proposed in the 2020 MTBPS be implemented? Will new people be hired or will staff be sourced from within the Department? Where will be budget come from?

He agreed with Mr Mkiva that the rural working class needed to be cared for. This did not emerge, from time to time, in the budgeting issues. Treasury needed to address this area in the budget. The most disadvantaged lived in rural areas and needed the attention of the budget.

He welcomed the inputs on the issues of title deed restoration grant, re-managing the issue of asset management and informal settlement upgrading grant. These are interesting moves that would assist with the process.

Mr D Joseph (DA) was concerned about frontline services. Auxiliary money had been set aside for auxiliary staff. He hoped these were not temporary jobs but permanent jobs on the frontline. When will Government put more money in Early Childhood Development (ECDs), not within schools but in the communities? This would be important for a better education system.

He asked if the unused money from the conditional grants to provinces went back to the provinces or local government. Ms Fanoe’s presentation had some contradictions. On one hand, there was a reduction of R60 billion from provinces and R17.7 billion form local government then she later spoke of an 0.9% increase in provincial resources and 2.1% increase in local government resources. He asked for clarity on this.

He reminded the Committee of a project started in 2019 on the re-education of latrine toilets, water sanitation and human dignity. How can Treasury support the Committee to eradicate this by the end of the term? The R3.5 billion to the business rescue plan was for consultants, who are being eradicated with time. How much money will be paid out and to whom? How much money has been paid out thus far? He asked if the R10.5 billion was an agreed amount or an amount requested by the Cabinet Minister. Did they ask for more, but this was the amount Treasury was able to give?

Mr O Mathafa (ANC) apologised for repeating any questions that may have been previously asked. He was experiencing issues with connectivity and missed some questions previously asked by Members. He agreed with Mr Mkiva that the answer to Mr Ryder’s questions about the reasons for the adjustments was known and was obvious to the country.
 
Focus needed to be given to rural communities. Slide 25 spoke to R28 million being taken away from the school backlog grant which was worrying. This may affect the eradication of pit latrines. National Treasury could advise on how the eventuality would be mitigated.

R5 million was being moved from protective clothing and accessories in the Department of Health. The health sector unions were threatening to go on strike because they were not being supplied with adequate personal protective equipment (PPE). Will this have an impact in this regard? What is the rationale for this amount being moved out of such an important area? Considering that the country is still confronted with the fight against COVID-19, are we putting the lives of frontline health workers at risk?

He asked for clarity on the R100 million that was being moved away from the Special Defence Account (SDA). What is the likely impact of this move? What informed the movement of this amount of funds? The previous fund was called a Special Defence Account and the funds were being moved to the Department of Defence. He asked for clarity on the mitigation measures that had been put in place. He was concerned about the movement of funds from the conditional grants and infrastructure programmes. The President had already made pronouncements. Was this not in contradiction with the President?

Ms D Peters (ANC) thanked National Treasury for the presentations. Her questions were on the R10.5 billion given to SAA for the business rescue plan. It was indicated that the money would be spent on consultancy yet there was a decision to reduce the cost on consultancy. What criteria were used by National Treasury to decide on the amount of each vote to be contributed towards the SAA business rescue plan? What is the message that National Treasury is sending to the public of South Africa when funds are moved from higher education and police? There are challenges such as student accommodation and the general tertiary study cost for the poor in South Africa. There was the move of more than R1 billion from the police when crime was a serious challenge in the communities. There was information that the police did not have vans to respond to calls. There were serious challenges of other essential resources for fighting crime. Looking at budgets for Human Settlement, Water, Transport and Roads and the school backlog grant, is such a large bailout allocation not sending the wrong message? This would push back the chances of service delivery in these sectors.

She was worried about the reduction in the Departments of Rural Development and Land Reform and Cooperative Governance and Traditional Affairs (COGTA), the latter having capacity challenges. The Committee should go deeper and engage with the departments affected by the reprioritisation of funds. It could hear why the departments gave into the idea of shifting funds and the impact it has had. The Committee could then decide whether it agreed with the National Treasury. National Treasury may be informed by slow spending, lack of spending or the lack of planning by departments. Are these the factors that informed the shift? The departments should explain to the Committee and to South Africans on why money was shifted from them.

Mr Ryder reiterated that Ministers were accountable to Parliament and should be present for meetings to give an account. The changes needed to be interrogated more deeply to understand the motivation for the reallocation of these funds. Treasury presented little motivation of why funds are being moved. Political answers were needed.

Mr Mkiva said that amount of money from roll-overs would make a difference if it was used as a bailout for rural communities. The poor of the poorest have suffered most due to the coronavirus outbreak. Reductions could be been made from all budget votes and a reasonable figure found for the bailout. The ANC, the ruling party, needed to establish a state bank. The state bank would play a critical role given the economy was not doing well. It would offer a lever that would help turn the economy around allowing majority of the population to play a proper role in money exchanges within the country. The political leaders of the country could also take up strategic decisions about the finance system of the Republic. At what point will the National Treasury come up with funding, as a starting point? This would be a sign that resources were being set aside to ensure a roadmap towards the establishing a state bank. Treasury must educate the Committee on any dangers of starting a state bank. A state bank would bring a dynamic instrument at play in the economy. Dr Modise could give an indication on the progress of the state bank and why it may not be an opportune period to start a roadmap toward the realisation of this dream.

Mr Njadu emphasised that as Members of Parliament involved in budget oversight, they needed to ensure all obligations and service deliveries to communities were being achieved.

Mr Joseph was happy to hear from Dr Modise that the Committee moved with speed. It was important to move in the right direction. “The sad thing is in spite the late Auditor-General and his team working hard to point the status of local government we were still moving in wrong direction.” He hoped that the state money being dealt with would help move in the right direction, in the interest of South African citizens.

Mr Mathafa said that due to the impact of COVID-19 funds were being moved. He asked about the medium- to long-term impact of this on the outlook of Government delivery. Were the key priorities of the National Development Plan (NDP) being achieved? He asked if there was a possibility for an NDP Two in terms of extending or reviewing its commitments in the given timeframe.

The Chairperson understood that the Minister was busy. It would have been important for the Deputy Minister to lead the team. He knew there were some questions that the team present in the meeting could not answer. They should convey that at least the Deputy Minister should be present for future meeting of this nature. The response of some questions may have to be sent back to the Committee after consultations with the political principals.
  
Responses
Ms Ngqaleni said that the difficult questions reflected the current difficult times. Some questions would be touched on by other colleagues. Mr Edgar Sishi, Acting Head of Budget Office, NT, was online, and could shed light on wage issues.

On the reduction of infrastructure grants, she explained that these reductions were made to the current year only due to the imperative to fund SAA. This was a decision made by Cabinet. Departments made the decision on the areas to cut and the magnitude of the cut within the programmes. When the agreement was made to bailout SAA, there was an understanding that each Department would contribute funds in proportion to the size of its budget. This is what the figures were reflecting. This would certainly have impact on delivery, but that was a trade-off for the choices.

There was a game changing initiative of addressing informal settlement. To date, it had been focused on building houses. The informal settlement upgrading was about in situ upgrading where the informal settlements were located. This upgrading would empower the community and build a stronger partnership with the active communities. It would help with the establishing capital in terms of skills and contributions to make their lives liveable in these settlements. It was aimed at strengthening partnership and focus on in situ upgrading.

A criterion for departments to receive grants from the Presidential employment initiative was its readiness to spend. Departments applied and engaged with its sectors on areas of spending. Treasury ensured that the money went through the already established channels in terms of grants and equitable share and there would be reporting. Treasury was requesting some of the grant terms be adjusted to allow for proper reporting on these initiatives. The plan included readiness as this was a criterion in evaluating and allocating funds to the departments.  

The urban settlement development settlement grant and integrated development grant were offshoots of MIG. This was a big grant which funded all municipalities. The opportunities and challenges faced by urban areas were different from those in rural areas. The grant was about a municipality’s share of MIG. It allowed municipalities to be able to leverage more as they had capacity to generate resources for infrastructure development. There was a lot of funding directed to rural areas. MIG was largely funding rural areas. Comprehensive Agriculture Support Programme (CASP) funded agriculture. There were water, roads and electrification grants. If all the grants allocated to rural areas were summed up, it would be a lot. The question was on how well the grants were coordinated. The challenge was on the capacity which led to the fragmentation because departments wanted to ensure they had more control over delivery in its sectors.

Ms Fanoe addressed the concern of money being taken away from title deed restoration. This was not the case. There was a separate grant for title deed restoration which specifically dealt with historical backlogs in title deeds. It was created for only three years. The money has been reabsorbed into the human settlement development grant. The money was still available for title deed restoration through this grant. The concern raised by Mr Ryder was not there because the money was still in the system; it was just in a different place which was important to note.

She added to Ms Ngqaleni respond on the reduction of the infrastructure grants for this year but growing over the MTEF. If it was compared to the original amount tabled for 2020 MTEF in February 2020, the growth rates were faster on these grants than what it currently was. It was still growing but not at the intended original rate. Both the provincial and local government infrastructure grants were growing over the MTEF. For example, provincial conditional grants were R107.6 billion in 2020/21, which then increased to R123 billion for following year. Local government grants amounted to R40.6 billion in 2020/21, which increased by R6 billion to R46.2 billion for 2021/22 and R48.2 billion for 2022/23. The infrastructure grants, both on the provincial and local government, were increasing; this was in support to the President’s call for increased investment and infrastructure.

Ms Ngqaleni said that the increase of ECDs and the creation of a state bank were not possible. Currently, there was no luxury of thinking about new things. The goal now was to live below the expenditure. These projects could not be contemplated for the next three years.

Mr Sishi said that the decision on the wage bill was not new and was in the MTBPS. This decision was announced during the February budget that Treasury could not afford to implement the last leg of the Public Service Co-ordinating Bargaining Council (PSCBC) resolution of February 2018. It was important to remember there was nothing new in that regard. The only new thing is that in the MTBPS book, Treasury split the exact amount of money that was announced in February 2020 into the different function groups in Government. The amount was determined by the cost and the carry through cost of the resolution. It was split up according to departments because Treasury had the exact numbers of staff in the departments at the time at of the decision. Splitting the money was a simple process because it was based on a policy decision around the implementation of the actual agreement. Since February, Treasury has been open and clear that it sought to actively engage with labour unions on this matter and has been having engagements with these unions. As time has gone on one or two unions took the matter to the Labour Court. What happens if the case is lost? It was important for the Committee to be aware that Treasury did not see the issue as a binary choice between winning and not having to pay the money or losing the case and having to pay all the money.

Discussions were still ongoing with the Department of Labour. The Minister of Public Service and Administration, as the Minister of Finance indicated to the joint sitting of these Committees after tabling the MTBPS, was engaging in order to find a solution to the matter. The ultimate outcome would involve something that was a mixture of those lines. It would be difficult to discuss the specific proposals that were being discussed with Labour as this would contaminate the negotiation. The Minister of Public Service and Administration was actively engaging in order to find a solution. In February, when the amounts were identified, one thing that was said was the importance of addressing unit cost of wages because the alternative of not addressing the unit cost of wages given the fiscal problems would be addressing head count. Treasury did not want to do this because the number of civil servants was important.

With respect to the state bank, he indicated that the process was being run by the Deputy Minister of Finance. It was a political decision. The work done in this regard has confirmed that South Africa technically had at least one state bank such as Post Bank where the country has majority ownership, African Bank and other banks – particularly in the housing and agricultural sectors. Given that there was already activity of the state in the financial markets, in that regard, the question was on how to recalibrate into a way that was aligned to the political position of the state bank. The interpretation of the political position was to design a retail bank because as previously stated there were already state-owned banks. There would have to be a process where recommendations would be made to Cabinet. Cabinet would have to apply its mind to the recommendations and the matter would have to pass. Given that there were very severe fiscal constraints, there was the need to balance the decision with the fact that the financing for a financial institution was an important consideration. There were a lot of things being balanced on this regard.

Dr Modise spoke to self-financing and whether the amount would be realised. The money went into the National Revenue Fund. Only after it was deposited was it then allocated to the department. It would not be possible for the money to be unrealised.

On the spending reviews and how they work in the zero-based budgeting, Dr Modise said that Treasury had been working with G-tech, which was assisting with skills capacity to equip the Department of Finance and Treasury to do the spending reviews. It was a hybrid model towards dealing with zero-based budgeting. Work was still being done with regards to what was required and needed and the process in which it would be implemented. This was why the Minister announced that only two departments, Treasury and Public Enterprise, would be started with. Parliament would be given an update on the progress.

There were a lot of questions around the money for SAA which was a Cabinet decision. When Treasury presented to the Cabinet, it looked at the consequences of moving funds. One consequence was that for the Departments of Police, Defence and Health, the money that was allocated during the special budget would be reversed. Another consequence was that the moving of funds to SAA would lead to overspending in some departments, especially those from which funds were moved the special budget in June to fund the reprioritisation towards the other departments mentioned above. There would be some consequences, but it tried to ensure they are as minimal as possible. This was why the contingency reserve was used for part of the funding for SAA.

The NDP targets were broadly based on a specific growth amount and a specific revenue amount. Since these were not being achieved it would be very difficult to achieve these NDP targets. The Department of Performance, Monitoring and Evaluation was looking at revisiting the NDP targets.

She said that the virements of the funds were from the money that was moved from goods and services.

The Chairperson requested the National Treasury delegates to look at the questions posed and write back to the Committee. The departments identified areas to cut funds but Treasury should interact with the departments to understand what criteria were used and the impact of the cuts. This should be reported to the Committee.

The meeting was adjourned.