Department of Home Affairs funding pressures: National Treasury briefing; with Minister present

Meeting report

Chairperson’s introduction

The Chairperson said the purpose of the meeting was to be briefed by the National Treasury on the funding pressures of the DHA. It had to be established whether Treasury understood the situation at Home Affairs and the consequences that resulted from big cuts in the DHA budget. The Director General (DG) of Home Affairs had had an engagement with the DG of National Treasury to find a way forward that would assist the DHA to come out of its current crisis. The Committee needed proposals from Treasury that indicated what they could do to assist the DHA to enhance its security. Treasury needed to know how central the DHA was to the security of the country in terms passports, identity documents, and so on. The issue of capacity was important in dealing with such issues, particularly in ensuring the personnel who were appointed to do the job were qualified in this regard. The Committee had not received the presentation on time, and Members were seeing it for the first time, but he urged them not to postpone the meeting.

Mr D Gumede (ANC) said there had been an interaction between the Department and Treasury, and it was very important that Members hear that information and proceed with the meeting even though they had just received the presentation.

Mr M Hoosen (DA) said he was happy to proceed with the meeting and did not have a problem with the presentation put before the Committee, as it contained important items.

The Chairperson requested the DG to speak on issues that were relevant to Home Affairs and avoid the theoretical issues. They should start with the presentation slide on the Parliamentary process


National Treasury on DHA funding pressures

Mr Dondo Mogajane, Acting Director-General: National Treasury, apologised to the Committee for the late issuing of the presentation. In terms of the Parliamentary process, individual portfolio committees consider the budget and strategic plan for each department. The budget is considered by standing committees on finance and appropriations, comprising Members of both houses. The fiscal framework is approved or amended, followed by the Division of Revenue and Appropriation Bill. With the Medium Term Budget Policy Statement (MTBPS), reports are issued by Parliament on the medium term expenditure framework’s fiscal framework and division of revenue, before the executive finalises the budget. Parliamentary Committees table Budgetary Review and Recommendation Reports (BRRRs). The National Budget tabled includes responses to BRRRs, the MTBPS fiscal framework and Division of Revenue. National Treasury briefs Parliamentary Committees on the documents and bills tabled at different points in the Budget cycle. National Treasury provides quarterly expenditure reports to Parliamentary Committees. The Public Accounts committee deals with post-facto issues raised by the Auditor General.
Key Cabinet decisions on fiscal consolidation had been approved on 12 January 2016. These had involved additions to tax revenue through policy measures amounting to R18 billion in 2016/17, and R15 billion in the subsequent two fiscal years. Reductions in the expenditure ceiling of R10 billion in 2017/18, and R15 billion in 2018/19, had been targeted at compensation of employee (CoE) budgets.
These measures had been tabled in Parliament in the 2016 Budget in February. On 29 September, Cabinet had approved the fiscal framework, the Division of Revenue for the 2017 medium term expenditure framework (MTEF), and major changes to conditional grants. There were further reductions to expenditure, of R10bn in 2017/18 and R16bn in 2018/19. There were also further additions to tax revenue of R13 billion in 2017/18. In addition, Cabinet had agreed on the need to provide additional funding to universities, amounting to more than R17 billion over the MTEF, which would need to be funded by further cuts in other baseline expenditures. These measures had been tabled in Parliament in the 2016 MTBPS and in the 2017 Budget.
In line with the Cabinet decisions on compensation budgets, on 13 Jan 2016 Cabinet had approved CoE baseline reductions of R10bn in 17/18 and R15bn in 18/19. These reductions had been distributed across all national and provincial departments, with a larger portion of the reduction made to national budgets. Proportionally larger reductions were to be implemented for centre of government -- administrative and policy departments -- as the reductions were focused on reducing CoE in administrative functions of government. This was effected through a first round 1% cut on the CoE ceiling of such departments, like the Treasury, the Department of Performance Monitoring and Evaluation (DPME), and the Department of Trade and Industry (DTI), etc. Adjustments should be made to ensure that Occupation Specific Dispensation (OSD) intensive departments were excluded from the reductions in relation to all OSD positions. The total national compensation baseline was consequently reduced by R5.2bn in 2017/18 and R8.2bn in 2018/19. On average, the compensation baselines of national departments were reduced by 6.7% in 2017/18 and 10% in 2018/19 in the 2016Budget.
In preparation for Budget 2016, an analysis of CoE budgets had revealed that a number of national departments had provisions for the filling of vacancies within baselines. During the 2016 Medium Term Expenditure Committee (MTEC) process, these reserves were identified and ring-fenced as a compensation reserve, to be allocated only if required by departments. These reserves amounted to R1.8bn in 2017/18 and R1.6bn in 2018/19, R3.4bn in total. In January 2016, Cabinet decided that these reserves were to be entirely rescinded in order to partially fund the R25bn in reductions required for university subsidies and the National Student Financial Aid Scheme (NSFAS) in the 2016 Budget. In a number of national departments -- for example, Departments of Defence, Corrections and Police -- a large portion of the reductions was financed through the compensation reserve -- in other words through existing vacancies.
The 2016 MTBPS introduced further reductions to compensation budgets, due to adverse economic conditions and further resource requirements in the post-school education sector. Cabinet approved further baseline reductions of 1.1% to the compensation baselines of national departments. These reductions were implemented in Budget 2017 and amounted to R437.2 million for 2017/18, R470.9 million for 2018/19 and R497.3m in 2019/20, a total of R1.4 billion over the MTEF. These reductions were focused on departments that had absorbed lower proportions of reductions in the previous process. So, for example, departments that had existing budget pressures, like the Departments of Defence, Police and International Relations and Cooperation (DIRCO), were excluded from the process.
The DG said on compensation pressures which were acute, provincial governments continued to reduce headcounts, mainly through attrition. Many national departments had not adjusted their operations to reflect their budgets. Some had continued recruitment, which would result in even larger shortfalls in 2017/18. As a result, many national departments would face great difficulty in sustaining headcounts in the next three years. The Department of Public Service and Administration (DPSA) was working on a revised approach, to give managers more flexibility in managing this problem. The current three-year agreement with labour expired in 2017/18. If a consumer price index (CPI) related wage settlement (or less) could be agreed thereafter, significant pressure would be taken off the budget.
In recognition of the pressures, Treasury had introduced “Human Resource Budget Plan (HRBP)” tools, with guidance into the 2017 budget process. The idea was to get a grip on the numbers, encourage departments to plan accordingly, and provide a basis for further engagement and discussion with a view to solving problems. In terms of compliance with HRBP requirements, most departments had submitted HRBPs very late in the process. In many cases, there was poor involvement of the HR function, with the tool populated unilaterally by finance staff. In other cases, there was lack of top management and executive buy-in and signoff. Some departments complied with the requirements nominally, while others did not. HRBP implementation was being monitored on a monthly basis, and departmental engagements would happen in relation to key risks identified.
National Treasury had been working with the DPSA to develop guidance for departments on the management of headcounts. Enhancements to exit mechanisms were being explored to improve take-up rates. Engagements were under way with relevant parties to minimise the loss of critical skills though purposeful targeting. On the funding of exits from the public service, some exit mechanisms involved upfront costs for the fiscus, and a decision had to be taken on funding modalities. Costs associated with exits could be recouped within a three year period if those exiting were not replaced.
The DG referred to public sector wage negotiations, and said that on the earnings growth in the public service, non-senior management service (non-SMS) personnel salaries had increased by 7.8% per year on average since 2008/09. Inflation had posted an average increase of 6.0% per year over same period. Salaries had increased faster than inflation by 1.8 percentage points per year, excluding the effect of progression, promotions and the introduction of OSD. The increases were not sustainable and crowded out other productive areas of expenditure.
The 2015 salary agreement would expire on 31 March 2018, and the 2017 round of salary negotiations would commence in October 2017. A review of outstanding matters, as well as pre-negotiation processes, would be conducted between May and October 2017. A less favourable wage settlement would impose further pressures on departments. Departments would be expected to manage within available budgets.
In terms of the negotiation protocol, the Ministry of Public Service and Administration (MPSA) was due to table a proposal on intergovernmental structures to the Mandate Committee. Consultation with provinces would begin after Mandate Committee approved the proposal.
Mr Mogajane said the summary was that in order to achieve the government’s fiscal objectives, Cabinet had agreed to a path of fiscal consolidation that included cuts to compensation budgets. The core problem was that although Cabinet had taken clear and explicit decisions in respect of CoE budgets more than a year ago, some departments had not taken action to implement these decisions or taken responsibility to ensure they were adhered to. Head counts continued to grow.  As Cabinet prepared for the MTBPS, a critical question would be the path of fiscal consolidation, which Cabinet was at liberty to adjust. Treasury would continue to present options in this regard and give advice to Cabinet on the likely consequences of pursuing one option or another. Until clear decisions were finalised, Treasury would continue to implement its mandate.
Accounting Officers (AOs) had a legal obligation to operate within the budget limits appropriated by Parliament. This included specific and exclusive appropriations in terms of the currently proposed Appropriation Act, which Parliament was in the process of adopting. AOs that did not take action to ensure that they remained within the appropriate budgets were guilty of serious financial misconduct. Variations to the current Appropriations Act could be considered only in terms of the Adjustments Appropriation Bill. Consideration of such adjustments would take account of the efforts of the AO to meet the limits set in the budget and other objective factors. It was only in exceptional circumstances that overall departmental expenditure limits would be raised.
This meant that any departments that were unable to function within their departmental expenditure limits would need to find additional resources within their votes. Such additional resources found within the department’s baseline could not include conditional grants to other spheres of government. Under no circumstances would the overall national expenditure limit -- set by the Division of Revenue Act (DORA) -- be breached. If a national department’s overall expenditure limit was to be adjusted, this would necessitate cuts to the expenditure limits of all other national departments. In general, budgets over the MTEF period, from 2018/19 onwards, would not change even if in-year budgets were adjusted. In such cases, AOs would have time to adjust their headcounts, but the medium-term ceiling would remain in place.
Discussion
The Chairperson thanked the DG for the presentation, but said the Committee would still have a real meeting sometime in the future because they had not started the meeting they had wanted. It was just unfortunate that what the DG had presented had been presented to the Committee many times. They were very clear about the economic outlook on financials and budgeting processes. These were the things they went through almost every quarter. In terms of this presentation, they had not gone three steps forward but rather taken four steps back, because if one looked at the last sentence at the end of the presentation, it meant that the Department had to comply. However, what they were saying was that Home Affairs was key to rational budgeting. There were causal factors to all the Department’s challenges, and if more staff needed to be employed, then they should be employed. Rational thinking should apply to the Department in order to solve these problems. They were not saving by not employing more officials at DHA, because the result of not having those officials was payment in other areas. People were taking the Department to court every day, and they had to spend on these legal challenges. The private legal sector in the country was enjoying these challenges, because business was coming to them. What they were expecting as a Committee was what Home Affairs was doing to ensure that the country was secured.

Mr Hoosen said it felt as if they were sitting in a Finance Portfolio Committee, rather than a Home Affairs Committee. He appreciated the attempts by the DG in trying to explain how things were at the moment. However, Treasury should wonder what it was like outside there, in the public, where people were even more depressed. The Committee understood the conditions under which Treasury was operating when they could not create miracles to produce money. It was the actions of the Members of Parliament (MPs) as politicians that actually generated the kind of outcomes they wanted to see, by their own conduct and the decisions they made. So while Treasury did the allocation of revenue through whatever processes, how they got that money was dependent on MPs own conduct as leaders and politicians of government.

The reality was that for as long as politicians were doing things and spending money in a way that did not justify what they were supposed to do, they would always end up with this kind of situation. It could not be right that in spite of the situation the country found itself in, they still had a Government that took decisions that were extremely irresponsible, which was why they found themselves in this situation. They spent more money on protecting the politicians than protecting the South African people. There was no sense when they spent money for security upgrades at the house of the President, but at the same time there was no money for securing the country’s borders. Therefore, it was not just about the economic situation that the Treasury found themselves in, but about the political situation they find themselves in, and the irresponsible conduct of political leaders of the country who spent money haphazardly. If they as politicians did not spend money properly, the people out there were going to turn on them.

Mr Hoosen asked where they were going to find money for the Border Management Authority (BMA) if currently they could not employ immigration officers. How much would it cost the country to fund the BMA, and could they afford it?
  
Ms T Kenye (ANC) asked about the DHA’s head count management, what sources of funding within the current expenditure had been considered and transferred to fill these critical posts. On the issue of compliance by the departments, she asked whether there were any budget proposal submissions from the DHA for the immigration branch functions needed for the BMA, because they needed the BMA to function and it was an issue that was hanging over all of them.

Ms D Raphuti (ANC) said what was presented had been very scary. In the case of Home Affairs, the projected shortfalls were too high. Home Affairs was a very critical sector, because when a person was born it was Home Affairs which was involved, when a person died it was also Home Affairs that was responsible, and for people travelling around the world, it was also Home Affairs. Was there any way that the DHA could be assisted? National Treasury really needed to assist Home Affairs because it was the security of the country they were talking about. They needed a good control of the borders of the country, because people were complaining that the borders were porous. Therefore, Treasury needed to come to party and assist the Department.

Mr A Figlan (DA) said he was concerned that they were busy trying to restructure Home Affairs, especially the BMA, and they had been downgraded just recently. He asked was there any way out of this, especially with the budget having been cut. He asked what was happening with the money that was sitting at the DIRCO, because the DG had mentioned that Home Affairs could bring in its own finances that could be approved. Why did Treasury not want to be part of the team, because there had been a proposal for Treasury and Home Affairs to work together on the BMA.

Ms B Dambuza (ANC) asked Treasury to explain how many funded posts there were in the DHA in this current financial year, because there had been a partial lifting of the moratorium on the DHA. She wanted to know what the future funding was of the programmes where there had not been spending, because this provided an opportunity for the Department to make virements.  Were there any discrepancies in the Estimates of National Expenditure (ENE) for 2016/17, because there was not the same allocation that had been allocated in the previous year in terms of the MTEF.

Ms H Hlophe (EFF) agreed with the Chairperson that they needed to have another meeting because the presentation had been very broad, and had not covered the issues expected by Members. She also agreed with Mr Hoosen that after the presentation, they had been depressed because coming to the meeting they had thought they would get solutions to the challenges of the Department. However, the DG had opted to make a presentation which was an eye opener, and she wished to thank him for that. What was needed was a platform to talk the real issues which required them to borrow money in order to fund the Department. As a Committee they were interested in service delivery, especially for Home Affairs, because it was involved with people on the ground.

Ms Hlophe said the AG had indicated that irregular expenditure for 2016/17 had amounted to R31bn, and Treasury had been silent about indicating that the real problem in this country was corruption. Out of that R31bn, it should be recalled that there had been an SAA bail out, and a jet for the President which did not serve the purposes of the people of this country. While they were sitting there as a Committee, struggling to get money, struggling to convince Treasury that they were talking about ordinary people, the illicit financial outflows were leaving the country. The EFF was also writing to Treasury to say there must be correct policies, because those funds leaving the shores of South Africa could be used for service delivery, but Treasury was not focusing on these matters.

Mr G Cachalia (DA) said that the DA’s position was very clear -- that the Department needed to ensure the responsible reprioritisation of resources within the existing budget because of the fact of the fiscal deficit. They needed to work within the budget and use the reprioritisation that accrued, not irresponsibly like the BMA. They needed to be circumspect in terms of how they delivered for the people of the country.

Dr C Mulder (FF+) said the discussion in the presentation saddened him, and Members should not be surprised, because this situation had not happened overnight, it had been developing for many years. When one looked at the country’s budget, it did not differ from one’s personal budget – it was basically the same. If one spends more than one earns, one gets into trouble. In the presentation, it had been stated that Department had not curtailed numbers in the last three years, and that had been expected. In the past years, the government had said they should create jobs. It was not the task of government to create jobs, and they should have a discussion on that. They should grow the economy so that the private sector could create jobs.

Department’s response

Mr Mkhuseli Apleni, DG: DHA, said that as Treasury Acting DG Mogajane had indicated, they had indeed met. However, the presentation had made it clear: “Accounting Officers (AOs) have a legal obligation to operate within the budget limits appropriated by Parliament. AOs that do not take action to ensure that they remain within the appropriate budgets were guilty of serious financial misconduct”. This was very important, so that when the Department came to the Committee they were able to say that Home Affairs had not been able to fill a position in 2016/17. The Department had to comply, which was why in 2016/17 they had not filled a single position in the DHA.

Mr Apleni said going forward, the DHA was within the budget ceiling for this year. In 2017/18 the ceiling was R3.98bn, and they could fill the vacant positions and still remain within that amount. However, the challenge was that in the following year the increase was only R110m, or 3.43%, while the salary increase was not going to be 3.43%. Once the salary increase was more than that, the Department would have a shortfall of about R105m. This meant that around September they would have to stop filling positions again. Therefore, if people resigned, that would be a problem because as the accounting officer, he could not exceed the budget. So if Members of the Committee went to the DHA’s offices and did not find people, it was because of this problem -- he could not exceed the ceiling.

The current situation was that the Home Affairs budget had been cut last year and dropped towards the ceiling. However, their major critical area was information technology (IT). They could not have a Department which had been using paper and then automated, while they were still operating with the same skills and structure. That was why the DHA sat with the issue of the security of the systems, because in IT the Department did not have even one security expert who could look at the vulnerability of the systems. As a result, the DHA was running an automated system based on manual processes. The people they had were able to buy paper, and knew how to file, and so on. Now the system they were using was moving more towards automation, and that was the reason for the challenge.

The second issue involved consideration of the inspectorate function within the BMA. At the last meeting with the Committee, the DHA had pointed out the City of Johannesburg had announced it would appoint 1 500 metro police, but Home Affairs had only 750 immigration officials for the whole country. The question that had been asked was, how would the DHA manage that?

Another issue was payment for Saturday work. From 6 June, the Department would have a problem of staff which would not work on Saturdays without being paid overtime. The implication of that was not to open Home Affairs offices on Saturdays, and that would be detrimental to the citizens of the country.

Mr Apleni the BMA issue was like a farmer deciding that to fence his farm was too expensive, and trusting that even if cattle came in to eat his harvest, he would at least get five tons of produce. It was a choice to say that rather than protecting this country, one should better leave it because if there was still money to fund police, there was still money to fund health, there was still money to fund education, and if it was not enough, that was fine! However, one would think if one was a farmer, he should fence his farm. And once it was fenced, the farmer would spend money, which was why there was a principle of opportunity cost which the Chairperson had alluded to. A principle of opportunity cost was whether one spends this in order to get that, which was a simple arithmetic, so to speak. Therefore, they had a choice, but as a Department they believed they should put the BMA in place but did not need money for it.

Currently, the DHA had immigration officers at OR Tambo Airport processing over 12 million people per annum. Those officials would not vanish because of the BMA. However, it was being said that Home Affairs at OR Tambo Airport had about 320 immigration officers working in a 24-hour shift, and the police had 800 officers at this airport alone, and they were visible. If those resources were combined, maybe there would be a need for about 300 police officers, and the difference should be at the counters. What was needed was not new money, but rather combining that money and doing something better with it.

Mr Apleni said it was a known fact that one could not compare the IT systems of the SA Revenue Service (SARS) with any of the departments which were at the ports of entry, because SARS alone had 800 specialist staff within the IT environment, whereas Home Affairs had only 60. The DHA did not need new money -- they needed 100 IT specialists from SARS who would operate at the borders of the country. Therefore, it was not true that by establishing the BMA they would need new money, because the borders were operating as they speak. Currently, there was R3.8bn which was available for border management. The only issue was that the money was scattered around, and was not being used to the benefit of all. They would fund the BMA with the resources they currently had, but this process would take ten years if they placed no strain on the fiscus. Therefore, the BMA was not a reckless decision, and they would implement it for the benefit of the country.

The Chairperson said they would continue to persuade Mr Hoosen on the BMA, because currently there was nobody that accounted at the borders. When they wanted somebody to account at the borders, they called different departments like Defence, Police, Home Affairs, and Agriculture and so on. The aim of having a border management authority was to create an institution that would account in terms of what was happening on the country’s borders.

Ms Hlengiwe Mkhize, Minister of Home Affairs, thanked the officials from Treasury for honouring the meeting in order to engage and explain some of the issues faced by Home Affairs. She would like to agree with Treasury on some of the issues that had been raised. The situation that had developed as a result of the crisis in education was an environment whereby Treasury would come forward and say these were the decisions Treasury had made. Of course, their understanding then had been that there would have to be ongoing engagements on the budgeting going forward. When she heard of this meeting, she had appreciated it. What they needed to do was to review developments within Home Affairs -- what the challenges were, and what the priorities were, and be able to look at lines of action. Otherwise, if they generalised based on Health or other departments, they would not get any closer to the engagement they were expected to go through.

It was good that she had come to this Department, because she had been following it through Cabinet committees. Clearly there were quite number of decisions that had been taken around the mandate of Home Affairs. There was now an opportunity to look at whether these functions or responsibilities of Home Affairs had been budgeted for, because if they had a mandate as a department that was not budgeted for, they were in trouble. She even looked at what she had signed with the President and ensured what her mandate was.

The Minister said the Department accepted the economic outlook which was discussed everywhere. However, the action line of Home Affairs was done within the cohort of other departments, so it was a question of looking at those responsibilities in relation to other departments. If more responsibilities had been passed to Home Affairs, it was logical to look at how they handled it and to ensure they were not ridiculed because they had been given mandate and had not budgeted for it.

Everywhere people were saying there was a need to focus on the question of critical skills, because an investor would rather invest in a country with skills rather than one that lacked them. In terms of its mandate, Home Affairs had to be actively involved in facilitating this movement of the country towards acquiring critical skills for the economy. Again, it was a question of looking where the money was going to come from. For example, in 2009 the money for skills was with the Department of Labour, but it had been transferred to Higher Education because of the importance of education in not of being purely academic, but in producing skills. Therefore, the approach was not looking at the Department, but looking at the action lines which had to be met to help Government to honour the mandate of each and every department.

The DHA had to play an important role, starting with the National Identity System, which should be secure. It should be accurate and modernised, because investors would say they could not wait for six months to get a visa or permit. The DG of Home Affairs carried a huge mandate in taking the country forward and providing satisfaction to the countries’ citizens, as earlier alluded to by Ms Hlophe. So this was the start of an important conversation, but it should be looked at in terms of key priorities and action lines. This was not about Home Affairs, but rather about the mandate. If they made that a starting point, then they would have a conversation which was real.

The Chairperson thanked the Minister, the DGs and the officials from National Treasury and the DHA for availing themselves for the meeting. The Committee would continue to engage with the Department and Treasury in order to resolve all the challenges faced by Home Affairs.

Minutes of 8 March 2017

Mr Mulder moved the adoption of the minutes.

Ms Raphuti seconded the proposal.

The Committee adopted the minutes.

The meeting was adjourned.