Government mandates & budget allocation; PSC promotion of constitutional values in public service; Election of Chairperson; with Minister

Meeting report

Opening remarks

Ms D Van der Walt (DA) welcomed the new Chairperson, and commented that he might be the third or fourth Chairperson since January 2017 - and hopefully the last before the fifth Parliament wrapped up. Given the huge amount of work ahead, including wage negotiations, fighting against over-spending and stopping public servants doing business with the state, she expressed the hope that the DPSA would finally be taken seriously.

Ms W Newhoudt-Druchen (ANC) also congratulated the new Chairperson and conveyed her gratitude to his predecessor, Ms R Lesoma (ANC), who had played a sterling role as acting Chairperson.

The Chairperson thanked his colleagues and the Committee staff for the warm welcome he had received and said he was privileged to have been deployed by the ANC to serve in the Committee. He would continue from where his predecessor had left off and would ensure that decisions taken before him were fully implemented.

A sharp exchange of words ensued between the new Chairperson and a DA Committee member, with the latter objecting strongly to being addressed as “Comrade” and insisting that the proper term be simply “Honourable Member”. After a brief stand-off, the Chairperson assured the Member that the offending term would not be used when addressing him, and the meeting resumed without further incident.

The Chairperson acknowledged the presence of Ms Ayanda Dlodlo, Minister of DPSA, and invited the first of the day’s briefings to begin.

Constitutional values: Public Service Commission (PSC) briefing

Prof Pearl Sithole, Commissioner: KwaZulu-Natal, PSC, led the briefing on the promotion of constitutional values in the public service. According to Chapter 10 of the Constitution, which dealt with public service values and principles, a high standard of professional ethics had to be promoted and maintained. This entailed:

• Efficient economic and effective use of resources;
• A public administration that is development oriented and accountable;
• Transparency fostered by providing the public with timely, accessible and accurate information;
• Good human resource management and career development practices to maximize human potential;
• A public administration broadly representative of the South African people, with employment and personnel management practices based on ability, objectivity, fairness and the need to redress the imbalances of the past;
• Services provided impartially, fairly, equitably and without bias;
• People’s needs being responded to and the public encouraged to participate in policy making.

Out of need, the PSC had embarked in 2015 on an exploration and revitalisation journey of its work around these constitutional values and principles (CVPs). The focus of this venture was both on the promotion of the CVPs, and an evaluation of whether departments adhered to the principles as contained in the Constitution. It was important for the PSC to ensure that there was a shared and common understanding of the CVPs in the public service - what they hoped to achieve, and how they would be evaluated. The disjuncture between institutional compliance and citizen satisfaction was worrying, with the PSC citing several alleged incidents in the press, such as hospital patients being told to find their own medical files, or nurses beating up elderly patients.

Its progress thus far had included the PSC developing a promotional framework which identified various promotional activities for the CVPs. The following had been some of the promotional activities undertaken:

• Engagements with stakeholders such as heads of departments (HODs) and Portfolio Committees;
• Consultation with government officials at the departmental level;
• Consultation with institutions supporting democracy, such as Chapter 9 institutions and academia;.
• Engagement with media houses, such as the South African Broadcast Corporation (SABC).

Extensive work had gone into the development of a theoretical framework document, which provided the theory and understanding of the CVPs. The theoretical framework defined each principle, set out the scope and content, and proposed a number of performance indicators for each principle. Based on the framework, an indicator-based tool -- also referred to as the institutional evaluation tool -- had been developed to conduct evaluations of public service departments against the CVPs. The tool contained evaluation standards, rating scales, data sources, data collection methods, data tables and evaluation methodology.

To refine the tool, departments had been classified according to the logic of their mandates, under the following headings:

Citizen Development and Social Logistics:

Departments of Social Development, Health, Education

Governance/oversight:

Departments of Planning, Monitoring & Evaluation, Public Service & Administration, Justice & Constitutional Development.

Diplomacy and International Interest:

Departments of International Relations, State Security Agency, Defence and Military Veterans.

Economic:

Departments of Trade & Industry, Economic Development, Small Business Development

Environmental:

Departments of Environmental Affairs, Energy

Infrastructural:

Departments of Public Works, Transport.

The roll out of the evaluation was envisaged as a two-pronged approach:

• Year 1 assessment: – objective indicators/quantitative;
• Year 2 assessment: – qualitative tool, based on key questions related to values.

The PSC was exploring the placement of departmental reports on adherence to CVPs within departmental annual reports, and thus in the public arena. The project aimed to achieve the type of public administration that South Africans aspired to have, as espoused in the Constitution.

Discussion

Minister Dlodlo kicked off the discussion by announcing that her Department, by way of making a contribution to the work of the PSC, was in the process of establishing what she called an “Office of Standards”, which had been in the pipeline for some time. Although not exactly the same as the one envisaged before - due to budgetary constraints - the office would be set up within the current staffing component of the Department.

The Ethics, Integrity and Anti-corruption Unit, which had been launched in the past but had failed to gain traction, would be looked into again. In addition, the DPSA was reviewing the implementation of the Batho Pele principles, in line with the socio-political imperatives of a maturing South African democracy. To strengthen collaboration with civil society, the DPSA, as a member of the multilateral Open Government Partnership, would be renewing its ties with the African Peer Review Mechanism (APRM). Linked to that was the idea of an Open Government Portal, where all government information regarding services, offerings, statistics, etc. could be accessed at a single point by any member of the public.

Ms Van der Walt highlighted some of the practical shortcomings of the approach used when monitoring and evaluating service standards at government centres, She cited the latest Local Government Management Improvement Model report by the Department of Planning, Monitoring and Evaluation (DPME). According to the report, it was the politicians who decided which province would be visited - including which area in that province. Why not the other way round – as in ordinary citizens themselves making the decision? It was as if the government had something to hide. She commended the PSC for the good work it was doing, but expressed the feeling that it was not receiving the amount of financial support it deserved. She also decried the fact that some government employees were still doing business with the state, despite a legal injunction against this practice. Instead of “a thousand things going”, she urged the Department to “just get one big thing done”, especially something that robbed the state of millions of rands in taxpayers’ money.  

Mr D Khosa (ANC) asked the Commissioner about the impact of the new reforms on the ground. Could a visit to the nearest Home Affairs office show that these reforms had made a difference? Referring to the recent decision by national government to take over the administration of the North West Province, he wanted to know whether the PSC in that province had issued any state-of-the-province reports prior to the takeover, something which could have set the alarm bells ringing well ahead of time to avert the crisis.

Mr S Motau (DA) said the briefing had been a breath of fresh air, and that it had been a pleasure to hear someone from the public service for once being “spot-on” about how public servants treated citizens. Many public servants behaved as if citizens were out to personally bother them. He was also happy that the Minister was present at the briefing, and hoped that the PSC would be getting all the support it needed from her. His only concern was that the PSC needed to have “a bit of bite”. Just as the Auditor-General was now being given more power to enforce compliance with the rules, the PSC also needed to be similarly empowered in order to achieve more impact in ensuring that Departments took professional public service standards seriously.

Ms Newhoudt-Druchen wanted clarity on who exactly was responsible for reviewing professional conduct in the public service, and when the code of conduct booklet had last been reviewed. She asked if workshops were held when the new reforms were rolled out to provinces, and who was responsible for monitoring and evaluation to ensure that the principles were actually adhered to. Pointing out that the Western Cape had no Commissioner, she asked how the PSC was dealing with that situation. She was especially grateful for the briefing, as it also had a bearing on the schooling system, which had been a pet subject of hers for a long time. How would the new dispensation impact on the education system -- for instance, teachers who impregnated children or otherwise abused or deprived children of an education? She said sometimes there were no teachers in special schools for up to three months at a time.

PSC’s response

Prof Sithole said the PSC had issued several reports on the issue of public servants doing business with the state. It was now possible, where this had been picked up, for the PSC to ask management what had been done about it. Regarding the impact of the new dispensation, unlike the old Batho Pele approach, which had been aimed more at the front desk level of service, the CVP methodology could now go as far as holding to account the Director-General of a non-complying department.

Regarding the roll-out of the CVP tool to the provincial sphere of government, she admitted that the provincial Commissioners had a desperate need for human resources to facilitate the process, including investigation and following up on incidents. Several reports had been sent to the Chairperson of the PSC on this matter. Particular challenges had emerged regarding the PSC’s role at the local government level, where questions were now being asked about its independence. This had given rise to debates about the nature and scope of the PSC and whether it had the resources to extend itself across the entire landscape of government.

On the North West Province take-over, Prof Sithole said reports detailing the crisis had been compiled and disseminated to all relevant forums even before the Cabinet decision, and these could easily be obtained from the PSC’s website. The PSC also had an annual report called the Section 196 (4) (e) report, which analysed and summarised all issues which had come before it during the year in question. The report was presented at various legislatures and at the National Assembly. All this went to show that the PSC had indeed put up red flags well before the Cabinet had invoked section 100 to put the North West under administration.

The PSC’s Code of Conduct for public servants had been revisited, with the intention of strengthening particularly the working relationship with Offices of the Premier (OTPs), for translation purposes and also to customise the language for the various sectors of government.

The lack of a Commissioner for the Western Cape was acknowledged, but a caretaker Commissioner was in place while a permanent one was being sought.

Regarding Ms Newhoudt-Druchen’s comments on the education system, Prof Sithole the PSC had over the years done research specific to basic education, especially in relation to sanitation, discipline and the general functionality of schools. In the current year, instead of producing yet another report on schools, the PSC would pull together all previous reports into one comprehensive longitudinal study, providing a clear view of the condition of schooling from the recent past, right up to the present. She had no doubt that a consolidated report like that could well reflect the state of special schools in the country.

Ms Irene Mathenjwa, Deputy Director General: Monitoring and Evaluation, PSC, went into further detail regarding the role played by the PSC in the North West in January 2018, months before the Section 100 intervention by Cabinet. The PSC had carried out a number of investigations at the Departments of Health and Social Services -- which had now completely collapsed, with employees not even reporting for work -- including visits to clinics, hospitals, medical depots and meetings with officials and the management of those departments. Reports had been generated and disseminated to Members of the Executive Council (MECs) and provincial HODs, but the reports had been escalated further to the national Ministers of Health and Social Development respectively, as it had become obvious that no steps were being taken regarding what the PSC saw as a dire situation in the province. Ms Mathenjwa asserted that the reports had in fact come in handy when constitutional decisions were being made regarding the two Departments, following the Section 100 intervention in the North West.

Minister Dlodlo also made a few comments on the North West issue, saying that it was unfortunate that the DPSA should now be sitting with the problems in the province, as information on what had been happening had indeed been available. This was part of the DPSA’s mandate -- to monitor, evaluate and report on all transgressions within the governance sphere of the entire public service in accordance with the Public Service Act. The Act was also clear on the responsibilities of Ministers and HODs with regard to those transgressions. She admitted, however, that she had never seen a Minister submit a report of that nature at Cabinet level. The Act required such reporting, but her colleagues “just don’t do it.”

The main problem was not lack of information, but that information was not compiled or processed in such a way that the Minister could look into it and approach matters of intervention much more effectively. She argued that the problems in the North West were not unique to the province, but also existed in parts of Gauteng, the Western Cape and the Northern Cape, and other places. The challenge was how information on these challenges was compiled and processed for better intervention. For the Minister, however, the current challenges and crises were an opportunity to generate new ideas and fashion better working tools in the journey to a public service that delivered and fulfilled the values, principles and promises of the South African Constitution.

Impact of budget cuts: National Treasury (NT) Briefing

Mr Ian Stuart, Acting DDG: Budget Office, NT, took the Committee through a presentation on the rationality behind the budget cuts made by the NT on government, and the impact those cuts would have on service delivery.

H e started off by asserting that budgeting was a political exercise which began with political choices regarding priorities, and ended with political choices about which programmes and projects got funded.

Over the past decade, South African fiscal policy has focused on closing the gap between revenue

and expenditure that emerged after the financial crisis in 2009/10. The persistence of the gap reflected both policy decisions, such as high wage settlements, and declining growth through revenue shortfalls. Despite years of spending reductions and tax increases, government still expected to borrow around R200 billion per year over the Medium Term Expenditure Framework (METF). These borrowings were adding to gross national debt, which was now projected to reach R3.3 trillion by 2020/21. Currently, debt-service costs were the second fastest growing area of spending.

Complex factors had shaped fiscal choices in the 2018 Budget. In light of the economic slowdown in early 2017, the Medium Term Budget Policy Statement (MTBPS) had revised the 2017/18 revenue estimate down by R50.8 billion, resulting in reduced revenue projections over the MTEF. Risks at several state-owned companies had materialised, resulting in government transfers totalling R13.7 billion in 2017/18.

The deteriorating outlook had triggered credit rating downgrades in April and Nov 2017. Taking no fiscal action and allowing an increase in borrowing, would have led to a further ratings downgrade, raising future borrowing and debt-service costs. In November 2017, in response to the deteriorating fiscal outlook, a Cabinet sub-committee had identified medium-term spending cuts amounting to R85 billion. In December, the then-President had announced fully-subsidised higher education and training for poor and working-class students. As increasing debt was not an option, the fiscal measures which were required to balance the fiscal framework over the 2018 MTEF could be found only from a combination of large-scale spending reallocations and tax increases.

The NT and the DPME had been asked to conduct the technical exercise and present proposals to the committee of Ministers, after which the proposals had been presented to Cabinet for approval. To achieve the required amount of budget reductions of R85.7 billion over the MTEF -- R26.4 billion in 2018/19, R28.8 billion in 2019/20 and R30.5 billion in 2020/21 -- different options had been considered:

Option one was that an across the board cut covering all three spheres of government be made. This would have implied nearly a 2.5% reduction in all programmes. The NT and DPME had rejected this approach, as that would have included reductions in the budgets of key programmes like social grants, the HIV and Aids Grant, as well as the Local Government Equitable Share. Hence, this option was not considered.

Option two was that a different methodology was called for so that any reductions would minimise the negative impact on service delivery. The following programmes / items were excluded from budget reductions:

• Programmes focusing on delivery to the poor:;
• Social grants;
• Local government equitable share, to protect the provision of free basic services;
• Key programmes in education (like the school nutrition programme) and health (like the HIV/Aids grant);
• Compensation of employees, as reductions of R25 billion (R10 billion in 2017/18 and R15 billion in  2018/19) had already been instituted in the 2016 Budget;
• Direct charges (like judges salaries), transfers to international organisations and payments for financial assets (like contributions to the New Development Bank) were excluded, as these

were legal obligations that could not be reduced

Given that programmes excluded from reductions meant that those that were included would need to have their budgets reduced by more than the 2.5%, so in identifying programmes to be reduced, the NT and DPME’s focus had been on large programmes and grants, where such programmes had been under-spending in previous financial years, or where implementation of capital programmes could be postponed. These had included:

• Large programmes with budgets of more than R1 billion in 2018/19. A general reduction of 5% had been applied, excluding conditional grants, provincial and local government equitable shares, and public entity transfers;
• Administration: an across the board 2% reduction on programme administration for all national and provincial departments;
• Public entities: a 5% reduction on transfers to all entities receiving more than R300 million in 2018/19. However, research councils, health entities and the Water Trading Entity were excluded from the cuts. In some instances, the cuts had been increased to more than the proposed 5% as in the case of the Special Defence Account and the South African National Roads Agency Limited (SANRAL);
• Conditional Grants: a 5% reduction on most provincial and local infrastructure conditional grants. In a number of instances, cuts of more than 5% had been introduced for slow spending grants like the Human Settlements Development Grant, and the Municipal Infrastructure Grant.

In the national sphere, accounting officers who had more detailed knowledge of the programmes of their departments suggested changes to the initially proposed budget reductions. For example, in the Department of Transport, the original budget reduction was meant to be on the Public Transport Operations Grant, but this had been changed to increase the reduction on the Provincial Roads Maintenance Grant. For some programme reductions, there was no immediate impact as the programme had been under-spending for many years and the reduction had brought the spending in line with the departmental capacity to spend.

Examples included:

• The Department of Telecommunications and Postal Services, which had had allocations for SA Connect for three years, with zero spending against the programme;
• The School Infrastructure Backlogs Indirect Grant in the department of Basic Education, which had been under-spending since it’s inception in 2011/12;
• Public entity transfers had been reduced for entities that had surpluses or had capital projects that could be rescheduled, such as the South African Revenue Service (SARS), the Special Defence Account, and SANRAL,

Discussion

Ms Van der Walt wanted to know what the Minister of Finance had meant recently when he said the budgeted VAT increase would be looked at again. Did that mean that VAT might go back to 14%? She also asked if NT had a programme in place to assist under-spending departments or municipalities. Instead of taking back the under-spent funds, was there a plan to improve the capacity of these entities to spend their allocations? This obviously had positive implications for service delivery, especially with regard to school pit latrines and leaking classroom roofs, for instance. She said the infrastructure cuts made at local government level were “terrible”.

Mr Khosa echoed the concern about under-spent budgets, and asked what help was available for poor municipalities who had little capacity to spend their allocations. Was the VAT increase really helpful, given the potential impact on the poor? Was there absolutely no other way to raise revenue?

Mr Motau’s main concern was with the current national debt to gross national product (GDP) ratio. He understood that the NT’s official forecast was that it would stabilise in the next decade. However, this was not reassuring at all because at almost 50% of the entire GDP, the national debt amount was still substantial. He wanted to know, following the VAT hike, what the NT proposed to do next. In his view, the key was economic growth, and since the economy was not growing, did that mean more VAT?

Under-spending again came to the fore, as Ms Newhoudt-Druchen asked for the NT’s opinion on what the underlying causes of this troubling phenomenon were.  

NT’s response

Mr Stuart confirmed that the outlook going forward was that the national debt was sustainable, but he agreed with Mr Motau that concerns still persisted about the country’s level of debt despite years of tight budgeting and tax increases. The worry was that the higher the amount of debt, the more vulnerable one became to economic and financial shocks. This meant that the only viable way to get out of such a position was to increase economic growth. His view was that currently, with the improvement in business confidence in the country, a good opportunity had presented itself to turn things around, although other interventions were still essential.

However, these interventions had to be made very carefully by striking a balance between enabling economic growth through fiscal consolidation on the one hand, while spending on national social priorities on the other. This was what trade-offs in the budget meant. The VAT increase could therefore be seen against this background. On the one hand, of all the other taxes, VAT was more efficient in that it had the least distortionary impact on GDP and economic decision-making, and therefore had a lower impact on GDP growth over time.

It was also important to consider that tax policy in South Africa in the last five years had been mainly about substantially increasing revenue from personal income tax(PIT), partly by not giving full inflationary relief each year. As people’s incomes rose through inflation, this resulted in more people moving up the tax bracket, resulting in steep tax increases. A 1% marginal rate increase for everyone else but the lowest bracket, coupled with a further 45% tax for the highest bracket, had hardly helped the situation - it had made it worse. Despite all that, tax collection in the last fiscal year had still registered a R20 billion shortfall in personal income tax, meaning there was a limit to how much one could raise revenue through certain parts of the tax system.

Corporate income tax (CIT) had been another instrument, but evidence showed that it had been one of the worst performing taxes in the last few years. In fact, at a headline rate of 28%, South Africa was at odds with what was happening globally with regard to CIT - the trend was to lower CIT in order to attract foreign direct investment, which grows the economy and creates jobs.

Responding to Ms Van der Walt’s question on what the Minister meant by a re-look at VAT, Mr Stuart said the issue had come up at a meeting between the Minister of Finance, civil society organisations and the labour sector, where the latter had proposed that the basket of goods zero-rated by NT be increased. The Minister had agreed that a panel of experts would have a look into the matter.

Regarding under-spending on infrastructure, Mr Stuart maintained that state bodies had become better with time. However he agreed that it was a matter of some concern, as it appeared that many departments still lacked the capacity to plan and implement large infrastructure projects. The key was in the planning, so that by the time “the money starts to flow”, hurdles had been overcome in terms of what the long term and operational costs and the risks could be. The budget facility for infrastructure (BFI) was a NT intervention to improve the quality of the project before the money was handed over. The aim was to prevent high levels of under-spending, large cost escalations and long delays.

Policy and budget alignment: Briefing by DPME

Ms Edeshri Moodley, Acting DDG: Planning Coordination Services, DPME, accompanied by Mr John Kruger, Acting Chief Director: Resource Management, DPME made a presentation on the alignment between policies plans and budgets in government. The presentation posed the following questions: Were government policy and mandates adequately catered for in the budget? Was a new approach in allocation feasible?

Ms Moodley showed that there was significant alignment between government policy and mandates, and these were adequately catered for in the budget. In key areas there had been an improvement in delivery, impact and outcomes. However, gaps and risks were mounting in other areas. In some cases, these risks related not only to how much was being spent, but also to how that spending was distributed.

This alignment had resulted in some notable service delivery taking place, as in the following:

• 724 430 households (HHs) connected to the grid since 2014 (58% of the 2019 target of 1.25 million), and 52 778 HHs connected to non-grid (50% of the 2019 target of 105 000 HHs);
• Over 1 million HHs given access to refuse removal between 2013 and 2016, against the 2019 target of 1.3 million HHs;
• 1.12 million HHs given access to decent sanitation since 2014 (45% of 2019 target);
• 305 000 HHs given access to a reliable water service since 2014 (12% of 2019 target of 2.3 million). Overall only 69.9% of those with access to an operational infrastructure experienced a reliable service;
• The basic education system was on an upward trend, with the quality of matric passes improving;
• Trends in International Mathematics and Science Study(TIMSS) and the Southern Africa Consortium for Monitoring Educational Quality (SACMEQ) scores were also on the increase;
• Bachelor passes had increased to 162 374 in 2016, from 150 752 in 2014, and there were more from poor schools.

Overall, the health of South Africans was improving. Life expectancy had increased by six years and had reached 63.3 years in 2015. The population-based maternal mortality ratio had decreased from 158 deaths per 100 000 in 2015, to 154/100 000 live births in 2014. The institutional maternal mortality ratio had decreased to 119 per 100 000. The child mortality rate (under five) had improved from 41 deaths/1 000 live births in 2014, to 37/1 000 live births in 2016. Over 3.9 million people living with HIV were receiving lifelong antiretroviral therapy.

In spite of low growth and fiscal constraints, most spending areas were still growing in real terms.

Post-School Education and Training (PSET) showed the strongest real growth and increase in relative importance. Significant cuts in general public services over the MTEF pointed to the importance of improving the allocation process to strengthen other aspects of prioritisation. A broad comparison of National Development Plan (NDP) levers with the budget showed that at a high level, the NDP levers were in the budget. However, there were challenges:

• Too little impact on the central NDP targets. 2.8 million jobs were needed between 2011 and 2015, but only 2 million had been created and the unemployment rate was up;
• Only 2.1% growth per year had been achieved, against a required growth of 5.4%
• The most recent StatsSA poverty and inequality data showed that the level of poverty and the number of people in poverty had worsened, including inequality.

Mechanisms for strengthening/aligning planning included:

• Integrated Planning Framework Bill released for consultation;
• Evaluation and data systems;
• Strengthening the mandating/prioritisation process;
• A stronger role for forecasts (analysis and assessing key trends and expectations);
• More rigorous criteria for the review or assessment of sectors and departments in order to focus on core performing programmes;
• More consultation on priorities within government, organised groups and citizens.

Discussion

Mr Khosa remarked that most of the spending went to social services, and he wondered whether this was not creating a culture of dependency in South Africans. Was it possible to establish a programme whose aim was to ensure that in 15 or 20 years’ time, for instance, the number of people on social assistance should have been reduced to a certain target number or percentage?

Ms Newhoudt-Druchen said she was happy to see there were good stories to tell. It was a pity that people would not be hearing these stories, as the media had already left the meeting! She wanted to know whether the DPME also worked with provincial and local governments to ensure that complete alignment occurred across the entire government landscape. She also asked what kind of impact had been made by the NT’s budget cuts on the National Development Plan’s priorities. A sad instance of this was the Early Child Development (ECD) programme, where the NT had decided to make a budget cut.

Mr Motau wanted to know what the experts who had put together the NDP were doing now. Would it not be a good idea for them to come together again to figure out how to get the country out of the economic mess it was in?

DPME’s response

Mr Kruger responded to Mr Khosa’s comments on social services, and had a word of caution about the efficacy of the trade-off approach to economic development. GDP growth and social spending were not mutually exclusive, and could be made to complement each other.

Regarding the ECD he also felt it was unfortunate that a cut had been made, but said that at least the teachers still received their stipends. The sector was also a developmental interface between government and civil society, where a lot of innovation happened.

The meeting was adjourned.