Adjustments Appropriation Bill [B16-2019]: briefing

Meeting report

2019 Adjustments Appropriation Bill
Dr Mampho Modise, Department of National Treasury: Deputy Director-General for Public Finance, explained that  Section 30(2) of the Public Finance Management Act (PFMA), provides for changes to the current year budget allocations. It is done as follows:
• The Adjustments Appropriation Bill provides for increases or decreases to allocations set out in the main Appropriation Act, including shifts in the economic classification of this spending.
• Adjustments to allocations to provinces and municipalities are in the Division of Revenue Amendment Bill
• The Adjusted Estimates of National Expenditure document explains national changes in detail, together with midyear performance and expenditure information.
• Shifts of allocated expenditure and other adjustments are subject to the PFMA and its regulations as well as section 5 of the Appropriation Act 2019
•The adjustments budget serves both to effect necessary changes and to contribute to in-year oversight and management.

Adjustments Appropriation Bill enables this additional expenditure:
The Minister of Finance noted these in the 2019 Budget Speech enabled by Section 30(2)(d) of the PFMA:
• SABC 3.2 billion
• Eskom 5.348 billion
• South African Airways 5.5 billion
• Denel 1.8 billion
• South African Express 300 million
• Infrastructure 629.8m (Small harbours programme100m; Student housing 429.8m; Treasury infrastructure planning/appraisal R100m)

Funds shifted between department budget votes:
• Cooperative Governance and Traditional Affairs: conditional grant to local government (60.7m) to Transport: Provincial Roads Maintenance Grant: Disaster relief component
• Health: Transfers and subsidies: Higher Education Institutions (8.8m) to Higher Education and Training: University of Witwatersrand
• Police: Goods & Services (64.4m) to Justice & Constitutional Development: National Prosecuting Authority.

Virements
Reductions under one programme of a Department’s budget can be used to offset excess spending in another programme in that department, subject to certain conditions. This was covered by Section 30(2)(f) and Section 43 of the PFMA. No virement can exceed 8% of the appropriated amount in a particular programme. The Finance Minister may not approve the use of unspent funds for the compensation of employees. The sum of the unspent funds in a main division of a national department approved for defrayment to another main division may not exceed eight per cent of the amount under that main division for the financial year. However, the Minister may approve unspent funds for:
• compensation of employees, be used within the same national department for the payment of severance or exit packages;
• transfers and subsidies to other institutions, be used elsewhere within the same main division; or
• payments for capital assets, be used elsewhere in any main division within the same national department.

Virements over R100 million
Seven national departments were listed for approval: Public Enterprises, Health, Social Development, Correctional Services, Justice & Constitutional Development, Tourism, Rural Development & Land Reform).

Virements to be approved only by the legislature
There were 16 national departments listed for approval. These include Presidency, Communications, Cooperative Governance and Traditional Affairs, Public Enterprises. The Department of Social Development will have R60m reallocated from South African Social Security Agency to Welfare Services programme for the government priority of gender-based violence (see document for details).

Rollovers
Requests for unspent funds from previous year for rollover into the current year is restricted as follows:
- compensation of employees funding may not be rolled over;
- a maximum of 5 per cent of a department’s budget for goods and services may be rolled over;
- funding for transfers and subsidies may not be rolled other than for purposed originally allocated for; 
- unspent funds on payments for capital assets may be rolled over only to finalise projects or the acquisition of assets already in progress
Four departments were permitted to rollover a total of R345m funds: Health; Correctional Services; Agriculture, Forestry and Fisheries. The final one is R242m for Department of Water and Sanitation  for the Emergency Vaal River system pollution remediation intervention project in the Emfuleni municipality, Gauteng.

Self-financing expenditure
Revenue from the department’s specific activities is paid into the National Revenue Fund. If self-financing expenditure is approved, these funds may be allocated to the department. Six department received permission.

Declared unspent funds
Nearly R4 billion in unspent funds were surrendered by 28 departments. General reasons for declared unspent funds change in scope of projects; savings from compensation of employees; lower or delayed claims; phasing out of projects; slower than projected drawdowns.
 

Dr Mampho Modise took the Committee through the Revised National Budget Expenditure 2019/20 and noted the direct charges reductions (R120m for magistrates’ salaries and R182.2m in skills levy and SETAs would be main contributors underspend). The total budget expenditure level is expected to increase from R1658.7 billion to R1683.4 billion.

Discussion
Mr D Ryder (DA; Gauteng) raised a point of order. Pages 24-35 were printed as classified as they each stated “Secret”. He asked for clarity on the secret nature of the presentation.

In response Dr Modise said that it was an error.

Ms D Mahlangu (ANC; Mpumalanga), Co-Chairperson, asked why this occurred.

Dr Modise admitted that the presentation was compiled from a template. She apologized for the discrepancy and would remove the error and resend it to the Committee.

Mr D Joseph (DA) wanted clarity on the R13 billion taken from Contingency Reserve on page 36.

Mr A Sarupen (DA) asked why the contingency reserve was used when its purpose was to help fund assistance during natural disasters. How will the high expenditure affect the debt-to-GDP ratio? Will Treasury be able to stabilize the debt? What strategies does Treasury have to ensure the allocations to SOEs will be used for what they are intended?

Ms R Komane (EFF; Northern Cape) expressed concern about the impact of the reallocation of funds from one programme to another within a department. The importance of certain programmes at the expense of others was questioned. The reasons for underspending were not convincing.

A committee member asked how much of the virement within Department of Trade and Industry for special economic zones (SEZ)  will be reallocated to Gauteng Investment SA one stop shops on page 23. On page 25, why were other parts of Gauteng that were also experiencing a water crisis not assisted? On page 6 how much of the Provincial Road Maintenance Grant was being allocated to Gauteng? On page 8, virements to Human Resource Capacity were taken from the National Health Insurance. What impact would this have on healthcare and what training would this entail. Would Gauteng be allocated any of these funds? On page 9, would the virement within Court Services for payments to provinces for psychiatric observation services be in collaboration with Department of Health? She questioned the success of the virement to the SABC for its turnaround agenda.

Mr Ryder (DA; Gauteng) commended Members on their participation on behalf of Gauteng. Concern was expressed for underspending and he attributed this to a lack of political will. On page 30, he noted the underspending of R157.2 million by National Treasury for the Jobs Fund. Departments have not fulfilled their mandate and there should be consequences for this.

Ms E Peters (ANC) expressed concern for unspent funds in the Jobs Fund. She noted the underspending in  Eskom’s Integrated National Electrification Programme (INEP) and said this affects rural areas and townships. Has this featured in the previous financial year and how has this been dealt with?

Ms Mahlangu referred to page 5, and asked about the conditions that need to be met for funding to be allocated to the SABC and Eskom. She wanted clarity on the infrastructural projects the R629.8 million has been allocated for. The Committee should have been informed about this. To her knowledge the Disaster Fund is mandated for a particular purpose. Should the Disaster Fund be used elsewhere, then would these events or areas be declared as disasters? How is this process overseen? On page 12, she wanted clarity on the process of approval for the virement. On page 29, how are the phasing out of projects determined?

Ms Mahlangu handed over chairing to Mr Buthelezi before leaving the meeting.

Mr S Buthelezi (ANC), Co-Chairperson, apologized for his late arrival. He requested Treasury return with a list of conditions associated with the aid provided to Public Enterprises. He noted poor project management as that which the Committee had previously approved was still being addressed. He noted the virement from the Jobs Fund and asked what was being done about this? Treasury was asked to report on the impact of the appropriations on the economy.

Response
Dr Modise responded that they try to capacitate Treasury to monitor and monitor and monitor entities. Treasury has to follow up constantly for explanations. The conditions set are there for the bailouts. The conditions to be met by Eskom are noted in the Special Appropriations Bill [B10-2019]. It is a big problem government has as this is non-sustainable. The need to use the Contingency Reserve was motivated by  much larger requests for funds. Treasury shall return to present the Second Quarter Report and focus on the underspending. A task team has assisted various departments to help with money spend for essential services. High underspending is considered when money is moved elsewhere. The rationalisation of vacant posts is meant not to affect critical posts. Treasury does not have information relating to provincial departments. A request will be made via IGR for the provincial department to provide feedback on the allocation of funds to Gauteng. She noted that the virement to Court Services for payments to provinces for psychiatric observation and services would be done by the Department of Justice.

Dr Modise explained that at first the SABC did not have a turnaround plan. The Department of Communications  contracted Government Technical Advisory Centre (GTAC) to assist with a turnaround plan before the bailout was received. Of the 15 conditions imposed by Treasury the SABC had met 11 conditions in the turnaround plan. One can have a wonderful turnaround plan, put one has to ensure it is implemented.

In response to a question about the consultants working on the new District Model, she said that a R5 million virement was moved from COGTA vacant posts as the work on the District Model needed completion. The provincial virement process is done by the provincial treasury. The Disaster Management Act governs how the Disaster Fund allocates funds. If this requires change, then the Act needs to be amended. The phasing out of projects refers to the phasing out of projects reaching completion. The underspending within the Jobs Fund is due to the nature of the application process. Projects have growth potential but take time to grow. The conditions given to SOEs will be followed up. The departments will be consulted on the information which could not be provided such as on INEP and the water projects in Gauteng. This will be forwarded to the Committee.

Mr Buthelezi thanked Treasury for the presentation and looked forward to future communication in the next meeting to be held in early 2020. He wished all Members a happy festive season.

The meeting was adjourned.