Quarter 4 2018/19 Provincial Performance; Provincial Money Bills Amendment Procedure Bill

Meeting report

The Chairperson welcomed all to the first meeting of the Standing Committee on Budget of the Sixth Parliament. She requested the Department send the documentation well in advance of meetings. This allows Members to gain understanding of the documents and engage the Department effectively.

MEC Opening Remarks
Mr David Maynier, MEC for Finance and Economic Opportunities, led the delegation from the Provincial Treasury and the Department of the Premier. He congratulated the Chairperson on her election as Committee Chairperson. He promised timeous submission of documents to the Committee in future meetings and hoped to have fruitful engagements with the Committee over the next five years.

Introduction to Budget Process: Provincial Treasury (PT) briefing
Ms Taryn Van de Rheede, Acting Director: Provincial Government (PG) Budget Office: Provincial Treasury said that the PT operates within the Broader Integrated Policy Plan of the budget implementation cycle. Budget integration involves a coordinated approach to policy planning, budget implementation across all departments and the three spheres of government. The Department of Local Government (DLG), the PT and the Department of the Premier (as the centre of the Governance Cluster) are jointly responsible for the integrated approach. Engagements are led or supported by these departments. Engagements cut across various areas including the Executive Council interface, municipality and provincial interfaces, key provincial interventions, national government forums and the planning processes. The PT leads in key interventions including the Provincial Economic Review and Outlook (PERO) and Municipality Economic Review and Outlook (MERO) in September 2019, PG Medium Term Expenditure Committee (MTEC) 1 in October 2019, National Medium Term Budget Policy Statement (MTBPS) in October 2019, Fiscal Policy Seminar in November 2019, Western Cape MTBPS and Adjusted Estimates in November 2019, PG MTEC 2 in January 2020 and 2020 Budget/Strategic Plans and Annual Performance Plans (APPs) in March 2020.

The Provincial Cycle allows the PT to have a more coherent and coordinated approach as well as ensures continuity between various engagements. It allows the PT to develop a more responsive budget that links the policy environment and local government. PT’s engagements with the Budget Committee kick off in March with the tabling of the Budget. This allows the Committee to review the Budget and provide recommendations to the Provincial Parliament in line with the tabled Budget. This potentially improves spending effectiveness and spending plans contained in the overview of Provincial Revenue and Expenditure. The PT, on a quarterly basis, reviews the quarterly performance outcomes including non-financial, financial information and relevant risks. This empowers the Budget Committee for further investigation. The PT presents both MERO and PERO in September. The economic intelligence gathered from MERO and PERO can be used to enhance the Budget Process. The PT also tables the Annual Performance Plans (APPs) and guidelines on APPs, which prepares Members for Standing Committee and SCOPA meetings. The PT tables MTBPS and Adjusted Estimates in November. The MTBPS is a process where the PT evaluates the Budget and the Budget Committee is able to review and provide recommendations to the Provincial Parliament.

Treasury 2018/19 Quarter 4 Performance
Ms Julinda Gantana, Acting Head: Provincial Treasury, said the In-Year Monitoring (IYM) serves to allow oversight of expenditure and revenue management in line with the requirements of the Public Finance Management Act (PFMA). The PT uses the information of previous and current financial years to influence the budget planning for subsequent years. It provides the PT with information on revenue, expenditure and actual amount spent either quarterly or monthly. The IYM also provides the PT with the foundation for fiscal discipline in that the revenue and expenditure are usually balanced within the Budget. The IYM allows the PT to comply with relevant PFMA and Treasury Regulations.

Section 44C of the PFMA mandates every Accounting Officer to report revenue and expenditure as well as material variance in revenue and expenditure to the relevant Treasuries and Executive Authority on the 15th of every month. The PT consolidates all inputs from the Accounting Officer on the 22nd of every month and reports to National Treasury. The PT can reject the submissions of the Accounting Officer if they conflict with fiscal policies. National Treasury, in line with Section 32 of the PFMA, publishes their statements for every Province in the country.

The PT also reports to the Provincial Cabinet, Audit Committees, Budget Committees, and National Council of Provinces on a scheduled basis. This has a positive influence on the Medium Term Budget Policy Statement and adjustments estimate budget, which is also presented to the Budget Committee.

She noted that R33.8 billion of the R63.3 billion adjusted budget for 2018/19 was spent on Compensation of Employees (CoE), while R13.6 billion was spent on Goods and Services. Some debts were written off for 2018/19 and total expenditure amounted to R62.9 billion, which constituted 99.1% of the Budget. Underspending in 2018/19 was R315 million compared to R527 million in 2017/18. The PT reduced underspending on CoE to R110 million by implementation of a fiscal consolidation strategy. The PT mandates departments to refund 80% of unspent funds and a department can keep only a maximum reallocation of 20%. This incentivises departments to use their funds effectively.

The departments that contributed to the R315 million underspending include:
▪ Department of Human Settlements (DHS), which received a Provincial Emergency Housing Fund (R83.7 million) from National Treasury in March 2019. The PT had to approach National Treasury for the fund due to fire outbreaks in Khayelitsha and Philippi in October 2018.
▪ Department of Health (DoH) recorded an underspending of R56 million. The Global Fund of R12 million allocated to AIDS programme was not spent on filling of vacant positions. There were some outstanding invoices unpaid at the end of the financial year and R16 million allocated to Programme 8 of the DoH was not spent. DoH also underspent on scheduled maintenance project due to delays. Funds allocated to the training of nurses at the Cape Peninsula University of Technology (CPUT) were not spent due to the failure of DoH and CPUT to finalise an agreement on the training.
▪ Department of the Premier saved R46 million on CoE as well as machines and equipment, which were not delivered on time.
▪ Department of Education (DoE) underspent R25 million out of the R37 million infrastructure grant due to savings. The PT made a grant application to National Treasury and the money is available for DoE to spend. ▪ Department of Social Development had a R15 million saving from CoE due to internal promotions and resignation of employees.
▪ Department of Transport and Public Works (DTPW) had R14 million underspent as a result of fewer building construction assessment reports, which occurred earlier than anticipated. This impacted further spending. DTPW spent more on CoE and spent less on capacity building.
▪ Department of Environmental Affairs and Developmental Planning underspending resulted from Cape Nature, which received funds for the Kogelberg Nature Reserve project and fire disaster in some parts of the Saldanha Bay Industrial Development Zone (SBIDZ).
▪ Transnet National Port Authority lease had R11 million underspending. Public entities operate on a different accounting system using the Accrual System, while PT uses the Modified Cash Standard (MCS) system.
▪ Cape Agency for Sustainable Integrated Development in Rural Areas (Casidra) underspent R5 million out of the allocated R41 million due to savings on CoE.
▪ Western Cape Gambling and Racing Board (WCGRB) unspent R3.7 million of which R1.8 million was as a result from the relocation of the Board’s Office.

The PT encourages departments to consider generation of revenue, which allows them to supplement their budgets. This incentivizes departments to optimise revenue collection. DTPW generates revenue from the sale of motor vehicle licences. DoH collects revenues from patients’ fees. The PT generates revenue from gambling taxes and other levies on the WCGRB. The Department of Community Safety (DCS) generates revenue from liquor licensing. The PT estimated departments would have a projected combined revenue of R3 billion. Provincial own revenue at the end of March 2019 amounted to R3.5 billion or 119%. The PT realised R554 million and R70 million for casino taxes and horse-racing taxes, respectively. All departments, with the exception of the PT, are allowed to keep and spend their revenues. Revenues collected by the PT are pumped back into the fiscus and other departments. The over-collection of revenues in DHS resulted from the refund of unspent funds by municipalities, to the PT and the sale of land property worth R81 million to the Airport Company. Not all returned revenue went into the Provincial Revenue Fund. Some of the revenue was re-appropriated for 2019/20. For instance, DHS is spending its revenue already.

Mr J Barnard, Director: Directorate Provincial Programme and Project Performance, Department of the Premier, said performance data is generated for all thirteen departments and ten entities against set performance targets. Non-performance monitoring is done with the electronic Quarterly Performance Report System (eQPRS). Monitoring occurs quarterly and annually. QPR data is formally reported to the provincial top management and cabinet and shared with relevant stakeholders. The Accounting Officer must comply with relevant legislation including Section 5.3.1 of Treasury Regulations and National Treasury Instruction Note No. 33 of 2011.

All departments combined had achieved 750 targets (84% target achieved) out of 898 indicator targets. The DotP (94%), PT (98%), DLG (96%), DHS (88%), DOCS (99%), DCAS (97%), DEDAT (89%) and DEA&DP (92%) achieved greater than the Provincial average of 84%. The WCED (54%), DoH (77%), DSD (70%), DoA (81%) and DTPW (56%) achieved less than the provincial average of 84%. 118 targets (13%) were partially achieved and 30 targets (3%) were not achieved.

Cluster-wise, the departments in the Governance cluster achieved 96% of target indicators, Social (82%) and Economic (78%). All departments within the Governance Cluster achieved more than the Western Cape Government (WCG) average. Three departments within the Social Cluster achieved more than the WCG average (Human Settlements, Cultural Affairs and Sport and Community Safety), while two departments in the Economic Cluster achieved more than the WCG average (Economic Development and Tourism and Environmental Affairs and Development Planning). Three departments in the Social Cluster achieved less than the WCG average, (Health, Social Development and Education). Two departments in the Economic Cluster achieved less than the WCG average (DTPW and DoA).

The analysis of the preliminary and validated non-financial performance reporting for Quarter 4 revealed that two departments, Department of Agriculture (DoA) and Department of Environmental Affairs and Development Planning (DEA&DP) reported a lower validated performance achieved than their initial preliminary performance, while four departments, DotP, Department of Cultural Affairs and Sport (DCAS), DoH and Department of Economic Development and Tourism (DEDAT), reported higher validated performance than their initial preliminary performance. The DLG, PT, DHS, Department of Community Safety (DoCS), Department of Social Development (DSD), Western Cape Education Department (WCED) and DTPW had the same preliminary and validated performances. There is a significant improvement on the performance reporting of preliminary and validated achievements by the majority of departments.

Preliminary Performance Information for Quarter 4 revealed that that all Public Entities combined achieved 140 target indicators (87%) out of a total of 161. Western Cape Gambling and Racing Board (WCGRB) (88%), Western Cape Liquor Authority (WCLA) (89%), Heritage Western Cape (HWC) (100%), Western Cape Language Committee (WCLC) (100%), Western Cape Cultural Commission (WCCC) (100%), Western Cape Tourism, Trade and Investment Promotion Agency (Wesgro) (93%), SBIDZ (92%) and CapeNature (100%) achieved greater that the Western Cape Government (WCG) average of 87%. Only Casidra achieved less than the WCG average of 87%. Thirteen targets (8%) have been partially achieved. 8 targets (5% cent) were not achieved. Public entities in the Governance, Social and Economic Clusters achieved 88%, 91% and 85% respectively.

WCGRB within the Governance Cluster achieved more than the WCG average. All four entities within the Social Cluster achieved more than the WCG average (WCLA, WCCC, WCLC and HWC). Three of the four public entities in the Economic Cluster achieved more than the WCG average (Wesgro, SBIDZ, CapeNature). However, Casidra within the Economic Cluster achieved less than the WCG average.

Analysis of the preliminary and validated non-financial performance reporting for Quarter 4 revealed that Casidra had a lower validated performance achieved than its initial preliminary performance. SBDIZ and Wesgro had higher validated performance than their initial preliminary performance. WCGRB; HWC; WCCC; WCLA; WCLC and CapeNature had the same preliminary and validated performance. There is a significant improvement in the performance reporting by the majority of public entities.

Discussion
Ms M Maseko (DA) sought clarity on the R83.7 million underspent by the DHS on the Provincial Emergency Housing Grant received from National Treasury for the fire outbreaks in Khayelitsha and Philippi. She asked the Department to explain underspending in the DoH and DTPW. Government authorities must ensure that projects are implemented within acceptable timeframes through effective monitoring at all levels. The Accounting Officer must develop effective risk management strategies. She asked what steps the PT took to reduce underspending in departments. The PT and the departments must have effective risk management strategies. Departments must fill vacant positions to facilitate effective service delivery.

Mr P Marais (FF+) lamented the underperformance recorded in the DoH and DoA. He complained about the massive backlog in academic tertiary hospitals, especially renal failure. He wondered why there is high prevalence of HIV in the country despite huge funding from international donors. What are the reasons for underperformance in these departments? Were expectations too high or were those in positions of authority unskilled and unqualified? Will departments reduce targets to improve performance going forward? He sought clarity on the 5% of targets in DoH, 7% in DoA and 11% in DTPW that were not achieved. Casidra in the agricultural sector should be able to encourage young entrepreneurs in agro businesses. DTPW should be able to provide jobs to unskilled workers through the Extended Public Works Programme (EPWP).

Mr L Mvimbi (ANC) asked if the R83.7 million was exclusively allocated to emergency housing units in Khayelitsha and Philippi. This fund is sufficient to build 500 housing units. What was the reason for non-transfer of funds to the CPUT training programme? Why were bursaries not paid? He expressed concern about the conflicting figures reported in DoE. It was not clear if the Department underspent or overspent. He asked what “partially achieved” target indicators meant. He expressed concern about the huge difference in the actual and adjusted budget for Wesgro. The increase was greater than 100%.

Mr R MacKenzie (DA) asked about the value of grant given to DHS. He cautioned departments against saving on CoE at the expense of effective service delivery. He lamented the R20 million underspending in the DotP due to delayed delivery of machines and equipment. Was the equipment ordered in time? Did the Accounting Officer perform In-Year Monitoring? In what quarter during the financial year did it become obvious that targets will not be achieved? He urged the PT to evaluate budget allocation to the various departments. Funds should be allocated based on the capacity of departments to spend so that certain departments do not have excess funds at the expense of other departments. He asked the Department to explain the 0.5% underspent on Goods and Services, as this amount is significant. In reaction to the over-collection of revenues, he urged the PT to persuade departments to increase their target revenue to optimize the potential of revenue streams.

Mr D Smith (ANC) sought clarity on PT policies about project continuity. Does the PT have an appeal body that municipalities can approach if a new MEC uses funds for unintended purposes? Does the PT have measure to ensure public entities such as SBDIZ contribute to the development of SMMEs as well as local and black-owned businesses?

Mr D Mitchell (DA) asked how the Provincial Parliament generates funds.

Mr P Marran (ANC) noted that there was 5% cut in the DoH budget, which amounted to R1.03 billion. He decried the underperformance of Casidra as it should function effectively to support black-owned agricultural businesses. He asked why the budget adjusted. The Department should ensure complete and adequate use of funds as this is the only way to have effective service delivery.

Response
In response to Mr Mackenzie's question on underspending and budget adjustments, Ms Gantana said that budgets are adjusted to allow reallocation of funds to departments and entities that need money.

She explained that Parliament can generate revenue through sales of goods and services such as promotional and corporate gifts. Staff debt repayments and recovery of previous year expenditure are other sources of revenue. 

The DoE underspending resulted from debt write offs, which resulted in increased revenue. The PT usually encourages departments to have a credible amount of write offs. The DHS over-collection of revenue resulted from the money municipalities returned to the PT. Municipalities can approach the PT for a roll over, which can be used to provide bulk services in such areas. DTPW over-collection of revenue resulted from increased motor vehicle licences and tariffs. She noted that the motor vehicle population in the Province has increased significantly.

On In-Year Monitoring, Ms Gantana replied that the PT usually asks departments to submit cash flow projections at the beginning of every financial year in line with Section 40(4) of the PFMA. Departments are sometimes forced to adjust projections due to emerging risks. DHS could not spend the R83.7 million for emergency housing as the money was received late in the financial year. The money was rolled over and DHS has access to the grant in this financial year and it will be used to build housing units in Khayelitsha and Philippi. The funds came with conditions that they cannot be diverted to other purposes. Over-collection in DoH resulted mainly from the money returned from the Cape Peninsula University of Technology. DoH and the University had an agreement for CPUT to train nurses. However, the fund transfer, related to the agreement, never occurred. DoH is in a better position to comment on the finalisation of that agreement. The PT has effective risk management strategies and remedial interventions in place. Between January and March every year, the PT evaluates the strategic plans of each department and tries to identify areas of concern that might impact the plans. Effective mitigation strategies are developed and departments are expected to demonstrate sound financial and performance management strategies. Funds are reallocated if a department does not comply with the PT recommendations. She promised to provide the Committee with detailed amounts of both main and adjusted budgets for each department. The PT was not responsible for the increase in Wesgro's budget. Public entities can get funds from sources other than the PT.

A PT official commended the excellent performance of DTPW. It could not achieve 100% performance due to risks like climate change, natural disasters, community unrest and financial pressure within most construction companies. DTPW had to change contractors in certain cases and this led to delay in project completion. This is particularly true of the Ashton Bridge project, which is the largest infrastructural project in the Province. The R19.5 million underspent in the previous year had been rolled over to the current financial year. Departments are allowed to reallocate funds to cater for other projects.

Acting Chief Director: Provincial Government: Public Finance, Ms Analiese Pick, said that all departments in the Province, except the PT, are allowed to spend their revenue on expenditure. Any department that under-collects revenue, must spend less on expenditure. This model encourages departments to collect revenue effectively, which in turn leads to effective service delivery. The Province tries to stabilise CoE in order to make the system more effective.

DTPW had an underspending of R20 million. R40 million of the R109 million underspending came from DoH. The PT employed staff with its funds with the hope that National Treasury will refund the money. However, the PT only received the money in March 2019. The underspending in the current financial year, R109 million, is lower than the R300 million in the previous financial year. She agreed with Members that the Province needs to increase spending on CoE to enhance effective service delivery. 

Mr Barnard said that departments could not achieve all their targets due to challenges including persistent drought, community unrest, delayed procurement, lack of funding, amongst others.

More questions
Ms N Nkondlo (ANC) asked about the tools the PT uses to integrate with national and local governments during budgeting and planning processes. Who coordinates the integration process and how does the Committee access information on the integration process? How do departments intend to implement their strategic plans for the current financial year? Effective strategic plans can help to project outcomes for the next five years from a budgeting perspective.

She asked about on the PT policy on rollovers. She noted that rollovers may have an adverse effect on service delivery. She sought updates on the dispute between the Auditor General and the DoA. The dispute resulted from variation in the definition of some reporting requirements. The PT should intervene in the matter to improve the audit outcome in the current financial year. She asked about the PT policy on revenue collection by departments. She expressed concern about debt write offs. Who is responsible for the write offs? She asked about preliminary and validated performance as indicated on the graph presented.

Ms M Wenger (DA) asked about the bodies that have oversight of the Police, Ombudsman and Children Commissioner. She noted that the entities receive funding from government but are not classified under conventional public entities. Where are these entities reflected? Are they controlled by any department?

Mr Marais urged the PT to use over-collected revenue in DoH to subsidise the fees for indigents. Money underspent and over collected in gambling activities should be used to eradicate poverty in the Province. Unemployment in the Western Cape, though among the lowest in the country, remains high.

Mr Mackenzie noted that procurement challenges, mentioned by the PT, majorly affect DoH and DTPW. He asked about on the specific procurement challenges the departments face.

Ms D Baartman (DA) expressed concern about the proposed 5% cut in budget by National Treasury over the next five years. What is the reason for the cuts? She asked about the tools the eQPR system uses to determine outcomes. She asked about the 202% overspending on financial assets. Are there conditions to the grants the PT receives from National Treasury? What is the PT policy on such grants?

MEC Maynier noted that the Department of the Premier evaluates the strategic plans of each department at the start and end of each financial year. The outcomes of the reviews can be given to the relevant Committees. On subsidization of patient's fees for indigents, he would consult with DoH on possible means to reduce hospital fees paid by indigents.

On the proposed 5% budget cut, MEC Maynier replied that National Treasury has instructed all PTs in the country to project the economic outlook based on a 5-7% cut in budget over the Medium Term Expenditure Framework (MTEF) period. He said the PT is prepared to oppose the proposal at the National level and promised to avail the Committee with relevant information. 

Ms Gantana replied that casino tax revenue does not go to National Treasury. It remains within the Province and is distributed amongst the departments. Most of the R622 million casino and horseracing revenue goes to departments in the Social Cluster such as DoE and DoH. 

Ms Van de Rheede replied the Joint Public Participation programme is coordinated by the Department of the Premier, DLG and the PT. The purpose of the programme is to ensure effective participation at the local level. In response to the Chairperson's question on the tools of the eQPR, she said that the system is not a tool. It is an approach that the PT uses to co-plan, co-budget and co-implement at the time of limited resources. This helps to avoid wasteful and fruitless expenditure. This measure is further supported at the national level by various forums including sectoral budgeting and functional groups in each sector. 

Mr Mvimbi expressed concern about the eQPR system. How does the PT intend to measure the success of the system if it is not based on tools?

Ms Gantana replied that there is joint working relationship between the Department of Local Government and the PT. The PT incorporates inputs from the DLG during the formulation of the MTEF. This allows the Provincial Government to properly respond to challenges at the local level.

In response to Ms Nkondlo’s concern with the graph, Mr Barnard said that the preliminary data are generated immediately after each quarter. However, validated data, for a particular quarter, may be generated in the succeeding quarter. This allows inputs from regional offices and other sources to be incorporated into the performance data.

Ms Zeenat Ishmail, Chief Director Strategic Management Information: Department of the Premier, replied that procurement challenges are due to deviations in project management approach and details. She noted that untimely appointment of labourers and service providers, insufficient resources and community unrest, amongst others, can adversely affect the timeline and budget allocated to a project. The PT mandates departments to report any significant deviation during a project life cycle.

MEC Maynier thanked the Committee for active interaction and engagement with the Department. He promised timeous submission of documents to the Committee in subsequent meetings. He told Members that he does not have the authority to arbitrarily shift funds within projects.

Provincial Money Bills Amendment Procedure Bill: proposal
Four matters relating to the Provincial Money Bills Amendment Procedure Bill and the proposed resolutions were read out (see document).

The Chairperson said the Committee must research the possibility of this Bill in order to strengthen the ability of the Provincial Parliament to hold the executive to account, to maximize public participation, to ensure that the budget is used in the best interests of the Western Cape Province and to conduct oversight over the National departments, and to be able to amend a budget of the Province. No province currently has legislation on this. National Parliament has adopted the Money Bills Amendment Procedure Act at national level. She said there must be legislation to support the amendment of the budget at provincial level. She requested the Procedural Officer to provide the Committee with the two research documents generated in the Fifth Parliament. She disagreed with the proposal of the Fifth Parliament that required the Executive to introduce the Money Bill. Such a Bill must come from the Provincial Parliament and from the Budget Committee essentially because that is the Committee, through the authority of the Provincial Parliament, which conducts oversight of the budget. Therefore, it is inappropriate for the MEC of Finance, for example, to brief the Committee on the possibility of such legislation.

The Bill was sponsored by the Chairperson and seconded by Mr MacKenzie.

Discussion
Mr MacKenzie said the Bill will empower the Committee to amend budgets. The research team of the Committee should investigate the viability of the Bill so that Members can make informed decisions and get the Bill approved as soon as possible. He urged the Committee to assist the research team where necessary. The research team must have a timeframe for this.

Mr Mvimbi urged the Chairperson to title such documents in subsequent presentations. This will empower Members to make constructive contributions.

The Chairperson said she did not know of any format or guidelines for tabling such a resolution. The matter is of utmost importance and she felt it should be typed. She urged the Procedural Officer to inform the Committee, through her, about any guidelines for tabling of resolutions in subsequent meetings.

Provincial Money Bills Amendment Procedure Bill proposal: adoption
Ms W Philander (DA) expressed support for the proposed Bill. She agreed with Mr MacKenzie on a definite timeline for the research. She urged the Chairperson to be specific on the entity that will conduct the research on behalf of the Committee.

The Chairperson proposed that the Committee should add a sixth resolution to address the timeline for the research. She hoped that six weeks will suffice for the research.

The Chairperson promised to liaise with researchers to know the scope and the timeframe of the research and report back to the Committee. She proposed the inclusion of a resolution on the timeframe of the research. The proposed research is broad-based to accommodate both local and international perspectives. This will allow Members to have comprehensive briefings on various matters at local, regional and global levels. The research will be properly referenced and the Committee can interrogate the sources of the methodology of the research and other relevant matters.

Mr MacKenzie seconded the adoption of the committee resolutions on the Bill.

Other resolutions
It was proposed that the Committee either shift the meeting to 9:00-12:00 or 14:00 onwards on Fridays so that Members and staff of the Muslim faith can attend Jumu'ah. This resolution was also adopted.

Ms Nkondlo urged the Committee to collect the guidelines on revenue collection from the Department. The Minister said there is an end of term review and she requested the review.

The Chairperson requested this from the procedural officer.

The draft quarterly report and minutes of the 4 June 2019 committee meeting were considered and adopted.

The Chairperson thanked everyone in attendance. The meeting was adjourned.