DEL 2020/21 Special Adjustments Budget; with Minister and Deputy Minister

Meeting report

The Chairperson said the Minister of Finance had tabled an adjustment budget which affected all Portfolio Committees either positively or negatively. The Committee had therefore requested that the Department of Employment and Labour (DEL) table its revised plans and budgets to reflect on how it had been affected, and how it was going to move forward. The meeting was supposed to be a joint meeting with the National Council of Provinces’ (NCOP’s) Select Committee on Employment and Labour, but unfortunately they had a session and would not be able to join the meeting.

Mr M Dangor (ANC, Gauteng) indicated that he had joined on behalf of the NCOP.

Minister’s overview

Mr Thulas Nxesi, Minister of Employment and Labour, said the Department would be presenting the adjusted budget allocation and revised Annual Performance Plan (APP) for 2020/21. The Committee would be given a snapshot of the impact of the dual crisis of health and economic issues faced by the country, and the impact on government services. The Department would provide details of the adjustment after he had provided an overview and reflected on the challenges being faced as a Department.

It was common cause that the pre-pandemic South African economy was already in negative territory, with a falling gross domestic product and rising unemployment, resulting in reduced government revenue, an increased deficit and negative findings by the rating agencies. The onset of the Covid-19 pandemic and the attempt of government to slow down the spread of the virus had intensified the economic pain. National Treasury and the South African Revenue Service (SARS) had focused on a 7% economic contraction by the end of 2020, resulting in up to 1.7 million job losses. All of this meant hardship for individuals and their families, and reduced government’s revenue and budget allocations. This was why the Department was presenting -- to announce the 7.2% suspension of the Department’s funds for 2020/21.

On top of this cut, the point had been made that the projected increase in employment would increase the demand for the Department’s services – particularly Public Employment Services (PES), labour policies and industrial relations (LP & IR), including the Commission for Conciliation, Mediation and Administration (CCMA), whose caseload had greatly increased with the retrenchment applications and disputes arising out of the lockdown, as well as the National Economic Development and Labour Council (Nedlac), whose workload had increased with managing engagements between parties to regulate the lockdown, and who would be expected to take the lead in hammering out a social compact to address the economic and unemployment crisis in the months to come. The National Treasury had agreed with the Department’s assessment, and had reduced cutting in respect of the CCMA and Nedlac.

The Department was requesting information from Nedlac about those who had given section 189 notices, from the Department of Justice on the companies which were saying that they were going under, and from Statistics South Africa (Stats SA). Once this was consolidated, the Department would be able to say which figures were being spoken of. These were the issues that the Unemployment Insurance Fund (UIF) had been struggling with over the past three months in providing short-term relief to the six million laid off workers at a cost of R30 billion. This was while keeping one eye on the long-term financial sustainability of the Fund, as there was knowledge that there would be a greater increase in claims for ordinary UIF in the months ahead, as well as a demand for the labour activation programmes to provide support to companies in distress. There was an increased demand for the services of labour inspectors during the pandemic and lockdown, as they shifted the focus to enforce the new health and safety regulations to protect workers in the workplace from the virus.

Amidst the downward budget provision, there was one positive change in the APP with the addition of one output for Programme 1, focusing on campaigns to change behaviour in relation to gender-based violence (GBV) in line with government priorities. The budget reallocations and the impact of the budget and lockdown had meant that the Department had to move funds around. There were financial savings on meetings in terms of travel, accommodation and time. However, the new conditions of work required increased expenditure on electronic devices and data, to allow more people to work from home. Moreover, the pandemic had caused major expenditure on personal protective equipment (PPE), deep cleansing, sanitisers etc. for staff and clients. There was also the cost of introducing social distancing in offices and labour centres. As people were getting infected, the Department was having a lot of “stop-and-go” in having to close the offices to clean them.

The pandemic had also had an impact on the Department’s capacity to deliver services, and it was facing a number of problems nationally. 240 members of the Department were quarantined, 64 members had tested positive, and more than two had died. These figures needed to be updated in terms of what was happening in the entities on a daily basis. There were knock-on effects of the outbreak, as the Department had to close offices and labour centres for deep cleansing. The crisis which was being experienced in 2020 also provided an opportunity to review the way that the Department had operated in the past, and to work smarter with fewer resources in the future.

DEL: Adjustment Budget & Revised Annual Performance Plan

Vote: 31 Adjusted Allocation 2020/21

Mr Thobile Lamati, Director-General: DEL, presented the adjusted budget allocation and the amended APP for 2020/21, touching on the Department’s five programmes -- Administration, Inspection and Enforcement Services (IES), Public Employment Services (PES), LP & IR, Supported Employment Enterprises (SEE), and transversal factors.

The main budget appropriation for 2020/21 had been R3 637 749 000. With the 7.2% suspension, the budget had been reduced by R261 920 000, bringing the adjustment appropriation down to R3 375 829 000.

In terms of the economic classification, the main appropriation for current payments had been R2 177 557 000. The reduction of R192 067 000 had resulted in an adjustment appropriation of R1 985 490 000.  The main appropriation for transfers and subsidies had been R1 391 362 000, which had been reduced by R63 511 000 to an adjustment appropriation of R1 327 853 000. The main appropriation for payments for capital assets had been R68 828 000. The suspension of R6 342 000 had reduced the adjustment appropriation of R62 486 000.

In the current payments, the compensation of employees (CoE) had been reduced by R96 639 000 to R1 393 837, and goods and services had been cut by R95 428 000 to R591 653 000.

Programme 1-- Administration:

The total main appropriation had been reduced by R72 838 000 (7.2%) to an adjustment appropriation of R938 814 000.

Programme 2 -- IES:

The total main appropriation had been cut by R48 444 000 to an adjustment appropriation of R628 449 000.

Programme 3 -- PES:

The total main appropriation had been reduced by R50 508 000 (7.8%), amounting to an adjustment appropriation of R592 959 000.

Programme 4 -- Labour LP & IR:

The total main appropriation had been reduced by R90 130 000 (6.9%), amounting to an adjustment appropriation of R1 215 607 000. This programme was responsible for the CCMA and Nedlac, and transferred money to both entities. The main appropriation for the CCMA had been R1.026 billion, but this had been cut to R970.5 million. The main appropriation for Nedlac was R57 114 000, after suffering a R5 million reduction.

Referring to the implications for Programme 1 resulting from the suspended funding, Mr Lamati said the APP outcomes would change only with the addition of one output focussing on outreach initiatives to change behaviour in relation to GBV. This would be done by awareness campaigns, and the amendment of the Department’s sexual harassment policy by 31 March 2021.

For Programme 2, the proposed APP 2020/21 had been revised and took into consideration many aspects, such as the time that had been lost from 1 April to 30 May 2020, with only occupational health and safety (OHS) inspectors working during the Level 4 & 5 lockdown. The letter issued by the Employment Equity (EE) Commission to all designated employers to revise their employment equity plans, would have an adverse effect on the EE targets for the Branch. The EE Act Inspectors would have to wait for that process to unfold, which had been set for 31 July 2020.

There was quite a sizable number of workplaces that had been closed and would be closed, or partially operating, during the lockdown period. This would require a revision of the programme’s inspection targets. There had been limited operation of the courts due to Covid-19. These factors had necessitated the programme to re-focus its priorities in terms of the APP and associated budget. As a result, the programme was proposing a reduction in its targets for 2020/21 in two indicators -- the number of employers inspected per year to determine compliance with employment law decreased from 220 692 to 188 323, and the percentage of non-compliant employers received by statutory services referred for prosecution within 30 calendar days decreased from 65% to 50%.

For Programme 3, the review of the PES APP considered that the number of new employment opportunities in a depressed economy were likely to remain very low, a large number of businesses were closed permanently, and many continued to retrench workers; The economy was characterised by low economic growth; The Reserve Bank saw the economy contracting by 7% this year; and figures from Stats SA showed that the economy had shrunk by 2% in the first quarter of 2020, prior the impact of Covid-19. The programme proposed the following changes to three of the APP indicators:

• The number of work and learning opportunities registered decreases from 95 000 to 50 000;
• The number of registered work and learning opportunities filled by registered work seekers per year decreased from 47 500 to 15 000; and
• The number of partnership agreements concluded with various stakeholders decreased from 30 to 15.

For Programme 4, the amendments to the APP had been influenced by the delays in publication of reports due to the closure of the Government Printer as a result of the Covid-19 lockdown, and the lockdown had delayed the finalisation of both qualitative and quantitative research. The proposed amendments included the 2019/2020 annual EE report and public register to be published by 30 September 2020, and not 30 June 2020, and the National Minimum Wage (NMW) investigation report published by 30 September 2020, and not 30 June 2020.

The achievement of the SEE APP for 2020/2021 was dependent on securing additional funding from National Treasury to sustain the establishment, and to securing a special dispensation from National Treasury in relation to the procurement of raw material and sales to government departments. The SEE APP indicators had been revised from 100 additional persons with disabilities employed by the end of March 2021, to 25, and the 15% annual increase in sales revenue by the end of March 2021 had been revised to 5%.

In transversal factors, the budget cuts would impact on the availability of airtime, data and the procurement of devices for officials working from home.  The cut of R96 million in CoE would result in 214 vacant posts that the Department would not be able to fill. These posts would impact predominantly on service delivery in IES and PES.

Discussion

The Chairperson reminded Members that the presentation was focused on the budget adjustments, so their focus should primarily be on the areas where the Department had been affected by the adjustments.

Mr M Bagraim (DA) mentioned that the body that was to protect the rights of the workforce of South Africa was the CCMA, which was at 100% of its budget. It could not expand, could not appoint more commissioners, and was bursting at the seams. With the retrenchments that would take place, one could expect anything from three to seven million retrenchments in South Africa. He suspected that at least 10% of these people would not be assisted and would never be able to get a hearing at the CCMA when there was no extra budget, never mind a reduction. Could the Department comment on this? It was an absolute tragedy that was unfolding.

Dr M Cardo (DA) asked about the inconsistent reduction of CoE across the programmes. When looking at Programme 1 (Administration), the CoE was going to be reduced by 1.1%, but under Programme 2 (IES), there was a 7.2% reduction, under Programme 3 (PES) there was a 9.3% reduction, and under Programme 4 (LP & IR) there was also a 9% reduction. Why did Programme 1 come away relatively unscathed compared to the other programmes? The Committee had been going on for a long time about the importance of Programme 2 and the need for labour inspectors, yet the CoE was going to be cut by 7%. In Programme 3, there was a 50% reduction for the payment of capital assets, which was the biggest reduction in percentage terms by far. Could the Director-General explain exactly what this entailed under Programme 3?

Mr S Mdabe (ANC) referred to the issue of the inspectorate and enforcement. It seemed as if the 500 new additional inspectors would be affected by the suspension of funds. How was the Department going to cope with the high rate of retrenchments that was going to take place? On the issue of the APPs that had been reduced as a result of the budget cuts, there was a programme that would face a reduction from 40 000 to 15 000 workers. How would the Department cope with this?

Ms N Ntlangwini (EFF) wanted to know what research had gone into, and influenced, the reductions. For example, what had influenced the reduction on the CCMA, knowing that a lot of people would be retrenched? On the CoE across all of the programmes, was the money going to be cut from vacant positions or existing staff? What would the influence on staffing and the statistics be since, for example, a lot of staff would be required to work from home?

Dr N Nkabane (ANC) asked the Minister or Deputy Minister to respond to the matter related to issues of performance management, as well as governance. She believed that the revised APP and adjusted budget would have an impact on the performance contract of the Director-General. She understood that another department was perhaps responsible for this, but she felt that the employment and labour sector needed to be proactive in trying to address the cut so that it would not affect them as time went by. Had the process of amending the performance contract of the Director-General, which required adjustment according to the revised APP and adjustment budget, commenced? If not, when was the responsible department going to start processing or attending to the issue of amending the contract of the Director-General, to be in line with the revised APP and adjustment budget?

She referred to the cut of R96 million which would result in 214 vacant posts not being able to be filled in this financial year. She believed that, as per the report presented to the Committee by the Director-General, the Department’s services rendered were going to be performed remotely. It was currently the era of the fourth industrial revolution. Government was advancing, and research was saying that there was going to be a change in the world of work. Was there any possibility for the Department to explore modernising some of the services that they rendered? For example, could it ensure that the information communications technology (ICT) unit filled its vacant positions in order to close the gaps where there could be a shortage of human capital?

DEL’s response

Mr Lamati responded to the question on the budget cuts for the CCMA. The Department would have preferred that the CCMA’s budget was left untouched. When looking at the budget and the proportion of the cuts across the organisation, it would be seen that the CCMA had got the lowest reduction. This was how the Department had tried to cushion the CCMA so that they were not badly affected by the cuts. The Department understood that this may have an impact on the work of the CCMA insofar as intervening in issues relating to retrenchments, strikes, and their proactiveness in dealing with disputes in the labour market.

The Department always tried to assist all of its entities. In the event that an entity experienced challenges and it was able to assist, it would definitely do so and had been doing so all along. The Department would go to National Treasury and say that they wanted to make a virement, which was the process followed. The Department would watch how the entities spent their budgets and would assist wherever they ran into trouble. However, there was no way that an entity would be left untouched. Regarding how to cope with the retrenchments, this was related to the CCMA budget cuts. The Department would do whatever it could to make sure that it coped and would try and plan its work better. If the entity was running into some trouble, the Department would see where they could assist, as they had always done over the years.

On the targets that had been reduced, it was not necessarily that a number of the reduced targets were part of the budget cuts, as the Department was going to review its APP anyway and reallocate its targets. This was because of the time that it had lost as a Department. The Minster had indicated that thus far the Department had about 64 officials who had tested positive for Covid-19.  Of this, 211 had been put into quarantine. This had had an impact on service delivery, as a large number of the officials who had tested positive and needed to be quarantined were client service officials. These were the people who interfaced with clients on a daily basis, and were the first port of call in dealing with clients.  As inspectors went out and did inspections, they were exposed to Covid-19, so a number of them had tested positive and needed to be quarantined. With the quarantine of people and the closing of offices, time was also lost, which impacted on targets and productivity levels. This was the reality that the Department was being faced with.

The impact of the budget would be felt only in the new financial year if the Department did not get its money back. The Minister had used the correct language of National Treasury, which was “budget suspension,” which meant there was an intention to give the money back to the Department in the new financial year. For now, the only serious impact on service delivery was Covid-19. This was the reason why, to a greater extent, the Department had had to revise their targets downward.

On the issue of vacant positions, the CoE suspension was related to the vacancies that the Department had. This was why the Department had quantified the figure to be 214. However, if the Department were to fill the vacancies, they would not be able to fill 214 vacancies, but would be able to fill the vacancies that they had. Given the fact that the Department practised social distancing, there were a limited number of officials who were allowed to come to the offices. Even if the vacancies were to be filled, a number of the officials would have to work from home. The Department was trying to promote the concept that those officials who were not interfacing with clients should try and work productively from home, as they had no reason to come into the office. The fewer people that there were in the offices and the fewer people coming in to work, the better. This reduced the possibility of a number of people being exposed to, or at risk of contracting, the virus at work. It would not influence staffing negatively, because a number of the vacancies were client service officers and inspectors and employment service practitioners. When appointing an inspector, the inspector had six months to be trained before being able to go out and do an inspection, so they would be productive only six months after being appointed. This was why the Department would not really feel the pinch with regard to the cut in the CoE. This would be felt only in the next financial year if the money was not paid into the Department’s budget.

On the 214 vacant posts, and whether there was a possibility that the Department could modify its business, this process had taught the Department a number of lessons. One was that it could modify its business and make sure that it leveraged technology to improve the way in which it worked. One of the areas where the Department had been doing good work was in processing claims within 24 to 48 hours if it was given a competent application. In the past, it could be seen that one of the indicators said that claims were processed within 15 days. With the disbursement of the Covid-19 test benefit, the process had taught the Department that it could configure a system that would allow it to pay benefits within 24 to 48 hours if one had a competent application. There was no reason for the Department not to do this.

The Department was required to have ICT capacity, and he was happy that Dr Nkabane had said that the Department had to fill the vacancies that they had in the IT unit. It was in the process of filling all of its ICT vacancies because it wanted to leverage this technology. The Department would also save a lot of money, because the feeling was that those employees who could work from home were to be provided with the tools of trade and whatever they needed, so that they could work from home. It should be the norm that officials would be working from home and had to be monitored and managed in a manner that would be able to report that they were being productive and paid for the hours that they worked.   

Mr Bheki Maduna, Chief Financial Officer: DEL, said that the question regarding the research into the reduction, or its rationale, could be best explained by the background on how it had unfolded. There had first been an instruction from National Treasury to say that there would be a budget reduction of 20%, except for the four departments that had been spared. Therefore, all of the other departments were to cut their budgets by 20%. The Department had protested, saying that most of the 20% had already been contracted in the form of the CoE and transfers and subsidies. This was an issue of the Department having to put something on the table in terms of the reduction, as they were not one of the four departments that had been spared. The percentage of 7.2% had been worked out. The 20% was meant to cover the R150 billion out of the R500 billion that the government required. It was perhaps not a rationale of the Department to go this way, but a matter of putting something on the table in terms of the budget reduction.

Regarding the unevenness of the percentage budget cuts per programme, it was a matter of what amount was available to suspend in the particular programme. The Department did not go into the cutting the actual posts, as there were people already occupying most of the positions, and the Department thus had contractual commitments.

The CoE was further informed by the Department’s history of surrendering money to the fiscus. In the previous years, the Department had on average surrendered R110 million annually. In a way, the suspension was an advanced surrendering of the funds. The surrendering of R96 million on CoE was a matter of saying that the Department was very slow in filling the vacancies. Without the cut, the Department normally surrendered an amount of up to R110 million – which they had done for the past three years at least. The R96 million had come about by the Department looking at the vacancies in various programmes and what the current CoE amount was that the Department could put on the table to make the 7.2% budget cut. This also applied to the 50% reduction. The idea of government departments putting money on the table was to suspend whatever projects they had because of Covid-19, and the fact that they would not be able to carry out those projects anyway. It was thus a matter of being able to suspend a project until a later time, when the project could be undertaken again. The history outlined answered all of the budgets in respect of the process the Department had gone through.

Mr Lamati added that the Department had tried its level best not to have any budget cuts. In fact, it had wanted to be included as part of the four departments that had been spared. When it became clear that the Department needed to make the cuts, they had had to look at how much they had been surrendering in the previous years, which amounted to just over 6.78%. This was the amount that the Department was comfortable with, if there was a need for National Treasury to cut or suspend the budget. This was the rationale behind the reduction percentages, so that all of the Department’s processes and programmes were not adversely affected.

Ms Boitumelo Moloi, Deputy Minister of Employment and Labour, thought the report on the revised plans and budget indicated the severity of the impact that the adjustments imposed on some of the Department’s entities’ inspections and enforcement services. At this point in time, the cuts affected service delivery, and the Department needed to deal with their impact. There needed to be a discussion, if it were possible, to assess the current revenue raising functions as a Department. This was for the future sustainability of programmes, especially with the new mandate for employment that had been included in the portfolio. It was common knowledge that the Department received its allocations from National Treasury and the Division of Revenue Act.

The Department should in future take cognisance of the fact that it had never looked into the new mandate of employment – it had been grossly overlooked. Entities had adequate revenue-raising capacity which could be sustainable, although they were currently overstretched. Perhaps the Department could quantify how much it was contributing to the national fiscus through some of its entities. The Department could come to a conclusion and might argue that it should have been exempted from the budget cuts like other social clusters because of its mandate and the work that it did for the county. She thought that the Department and the Committee could begin a process of discussion and engagement in the future as to how they could mitigate some of the issues. The Department had requested a diplomatic engagement with National Treasury.

Minister Nxesi responded to Deputy Minister Moloi, saying that there were no holy cows. Unfortunately, the Department was between a rock and a hard place, and had had to take the decision across the Department. Adding on to why Programme 1 was adjusted by only 1.1%, he said the total cut for the programme was 7.2%, which was equal to the average cut across all of the programmes.

On the need to digitise services, this was exactly what had been done with the UIF Covid-19 test benefits. The Department had moved from individual walk-ins to the labour centres, to online applications. This had allowed for a tenfold increase in the distribution of benefits, and maintained social distancing. However, the Department knew that there were weaknesses. Part of the problem was that some of the area’s network was still a problem. This was why people, especially the poor people who formed part of the real masses, did not have access to this, and were coming now. Given time and the extension of the particular technology, the Department might be able to improve some of the services.

The Director-General’s performance agreement would definitely be reviewed in light of the changes in the APP, and as part of the engagement between all of the Directors-General and the Executive Authority.

The Department was keeping a close eye on the UIF and Compensation Fund, to ensure the sustainability of the funds in expectation of the increased claims in the coming months. There would be regular engagements and regular reports with the actuaries. The reality was that the Department had to cut somewhere, and had to adopt a balanced approach. The Department was possibly lucky, as 20% was going to be too much and now it had gone down to 7.5%, which was better than the 20% that had been anticipated. 

Chairperson’s concluding comments

The Chairperson commented that it was always said that there was a “new normal,” and now a new normal was really being faced. The Minister was correct in saying that a balanced approach was needed. The unfortunate part of the new normal was that the working class would really feel the brunt in a number of areas. What made her panic were those people who were going to be retrenched. This meant that the UIF would have a loaded responsibility and that the CCMA, in terms of some of the employers, were perhaps cunning in not following the retrenchment processes as were set by law. What worried her most was the status of the trade unions. The unions had to ensure that they were vigilant when employers wanted to retrench, and that what was prescribed by law was being followed to the letter. She was not confident that this was going to happen.

As public representatives, the Department and Committee would have to ensure that before they were public representatives they were members of the community -- activists in their own right, and that trade unions were being empowered. As leaders and public representatives, they should not be afraid to say things that were not going to sound palatable. Whether they liked it or not, there were sectors and areas where retrenchment was going to be the last resort. Within this, employers had to do what the law said had to be done. Were trade unions ready and strong enough to challenge this?

Members had to be vigilant in their areas of work. The Committee would not be having many plenaries, but were going to be accorded the opportunity for questions and answers. The Committee would prepare the questions and would be asked to do this in the plenary, which the Minister and Deputy Minster had to ready themselves for. Members were in a very difficult situation, and their leadership was being challenged. It was always said that it was at difficult times when leadership had to be provided. Members should not always want to provide leadership only when it was nice or when things were running smoothly.

If Members had any questions that they would like to ask, or if there were areas that they thought the Department had not responded well to, they would have to do so in writing in the following week. The Committee would be meeting on 15 July, where they would be adopting their report. Between the now and then, Members should submit whatever questions they wanted more clarity on, so that the meeting on 15 July would not be difficult. The report needed to be adopted on 15 July so that it could be submitted on 17 July. The Committee would not be able to be involved in any processes if it had not adopted the report and submitted it.

She had two announcements to make. Mr M Nontsele (ANC) could unfortunately not join the meeting because he was at another meeting. He had lost his brother due to Covid-19. The advocate that facilitated the Committee’s training and workshop had also lost his father, who had been ill for some time, and would be laid to rest the following day.

The meeting was adjourned.