Second Adjustments Appropriation Bill: public hearing; Appropriation Bill: response to submissions; with Deputy Miniser

Meeting report

COSATU submission on Second Adjustments Appropriation Bill
Mr Matthew Parks, COSATU Deputy Parliamentary Coordinator, said that COSATU welcomes and supports the Second Adjustments Appropriation Bill. The R18.1 billion appropriated for SASRIA was required as it provided critical relief to thousands of workers, families and businesses who suffered losses during the July 2021 violence and vandalism that engulfed KwaZulu-Natal and Gauteng. The R500 million to support the Covid-19 vaccine programme was key to saving thousands of lives and livelihoods.

R18.1 billion SASRIA Appropriation
SASRIA has helped thousands of companies who suffered damages to restock and reopen. This helped to prevent thousands of workers from losing their jobs. This relief has helped many to rebuild their lives. The R18.1 billion appropriation is in line with the state’s mandate to support SASRIA and to ensure South Africans are covered in the event of riots and violence.

COSATU was however disappointed with the speed at which SASRIA and government dispensed payments and relief. Whilst the difficulties of managing such a crisis are understandable, the delays for ordinary families were unbearable. SASRIA and government need to consider faster response times, clearer communication and appeal mechanisms for the future. Delays resulted in people sleeping on the street, in community halls, being exposed to violence and crime and their remaining assets being lost.

R500 million Covid-19 Vaccine Programme
Covid-19 vaccines have proven highly effective and have helped save thousands of workers’ lives and enabled their families to be cared for. They are key to ensuring that whilst the fourth and fifth waves gathered pace and infection rates rose, serious illness, hospitalisation and death rates remained under control. This helped ease the burden on health workers and health care institutions overwhelmed by Covid-19. It has enabled the economy to reopen, companies to rehire and workers to go back to earning a salary. It has been a critical injection in the local pharmaceutical manufacturing industry which needs further such investments so that South Africa can avoid being dependent upon global vaccine supplies in future and rather be a source of such exports to Africa.

COSATU is deeply worried by the complacency that most South Africans now show towards vaccination and receiving booster shots. They are key to maintaining immunity and avoiding further unsustainable economic lockdowns. COSATU and its affiliates have done extensive work to mobilise workers and their families to vaccinate. As a result, many sectors such as clothing, textiles, police, education and health care have high vaccination rates. We will be reviving these campaigns to mobilise those who have not been vaccinated or gone for their booster shots to do so.

Discussion
Mr O Mathafa (ANC) said he agrees with COSATU that there is a concern that needs addressing on vaccine hesitancy and appreciated COSATU’s efforts on this. In the numerous efforts by government to motivate the public to vaccinate, from COSATU’s view, what are the gaps government has failed to identify and close?

Mr D Ryder (DA, Gauteng) said that as we appropriate money we also need to consider how it is being spent. One of the big disappointments with the health departments in the pandemic has been the additional funding pushed towards health however it did not get spent properly. Much of the funding had to do with vaccine procurement but less than 30% of the population is vaccinated. The health funding could not have been taken up entirely on procuring vaccines.

It seems as if the money appropriated has been spent on quick fixes by the health department without long-term benefits from the substantial spending. As money is being appropriated, it should be spent in the best way possible to ensure long term benefits. As much as money should be appropriated in the Special Appropriation Bill, we must look into how that will be spent.

Mr M Moletsane (EFF, Free State) asked if COSATU followed up to ensure that Covid-19 funds for workers were spent as planned.

Mr Y Carrim (ANC, KZN) said that he is surprised that COSATU has done so much work on vaccination and such a high percentage of its union members have been vaccinated as he has not seen that covered in the media. COSATU should perhaps advertise this more.There are many reasons people do not want to vaccinate. One reason is the public does not trust government and COSATU might be able to influence some people to get vaccinated. Perhaps it would be helpful if the union members and the federation did more in their families and neighbourhoo to get them to vaccinate. What does COSATU think government should do to get more people to vaccinate?

Ms D Mahlangu (ANC, Mpumalanga) asked COSATU for recommendations to help government and businesses in disbursing the R18.1 billion to help those in need. Its submission stated that there has to be a strategy to ensure that the money is spent as intended. Any advice would be appreciated. What can government do differently to encouraging the public to get vaccinated and what is COSATU’s view on the allegations of the private sector having mandatory vaccination?

Ms D Peters (ANC) appreciated COSATU’s response to vaccination and how well it has done in encouraging its members to get vaccinated. It is important the public is encouraged to get vaccinated as government is spending a lot of money on vaccines. Many people do not know that they can protect themselves in the event of suffering losses due political or social unrest through the SASRIA reinsurance initiative that is supported by government. It is also important to encourage SASRIA to open up to households as well, as it is still targeting mainly companies.

The Chairperson asked what COSATU thinks should be done should to ensure that SASRIA reaches township and rural businesses. It became very clear that even though there was a lot of damage in townships and rural areas, SASRIA was not reaching those places. SASRIA was not properly capitalised to deal with the claims of its clients as it was unable to pay all the claims. What is COSATU’s take on that? He also asked for a comment on the rumour that SASRIA went into panic mode and imposed an exponential increase in its premiums as a result.

Covid-19 has shown that there is capacity to manufacture vaccines locally. What other drugs are being imported which could be manufactured locally as there are many benefits to localising rather than importing.

COSATU response
Mr Parks replied that COSATU’s position has been to support vaccination, science and health as well as to emphasize the principle of solidarity. Vaccination hesitancy was not expected to be this much. This points to the need for education at university and school level, as well as organised labour and public broadcasters to contribute to educating people on vaccination. As society, we fail to mobilise people efficiently when government has provided the resources for the public to get vaccinated. For example, there is a mass vaccination site in Cape Town which had the capacity to do 4000 people a day but it never reached above 15% usage per day.

As much as there has been a fair amount of public relations work on vaccination, a lot more could have been done. COSATU acknowledges the support from the religious sector in getting people to vaccinate. For instance, the ZCC leaders publicly came out and took the vaccination and urged members to do likewise. COSATU noted that vaccination rates were higher among unionized workers than those who were not. Vaccination centres have been set up at some shopping centres and very few people went to vaccinate. A lot of work has been done by COSATU on vaccination, as the leadership would publicly vaccinate and encourage people to vaccinate.

COSATU’s view on mandatory vaccination in the private sector has been that vaccinating should be voluntary. It fears that mandatory vaccination in the workplace brings about distraction and an unnecessary political element where the focus should be on health and solidarity. COSATU supports the idea of local manufacturing as it is the foundation pillar of the Economic Reconstruction and Recovery Plan. COSATU has done a lot of work with colleagues in government, business and different trade unions on the medical supply front as there were challenges with medical textiles, protective shoe wear, PPE, syringes and sanitisers. In 2020 when several work streams were set up, it was found that a lot of supply blockages were solved as a result and that shows the value of the social compact between business, labour and government.

COSATU has had discussions with public health on sourcing ARVs as locally produced medication and there is significant scope to ramp up local production in a significant way. COSATU agrees that there are worrying infrastructure, personnel and supply gaps in the Department of Health. On ensuring money goes where it is intended, COSATU leadership has done a fair amount of work in ensuring that it holds government accountable for the spending of appropriated funds.

We need to do much better in future on communication about SASRIA ensuring that simple actions such as applications for SASRIA are communicated better. There should be a rapid response capacity to ensure significant education on insurance. The businesses in townships and rural areas were indeed left behind in insuring themselves against social and political unrest. There is a need for mass consumer education. In future, there should be door-to-door engagements in affected areas. COSATU has been dismayed at seeing many insurance companies routinely hike premiums and this is immoral.

National Treasury responses about SASRIA
Mr Ravesh Rajlal, Chief Director: Sector Oversight, National Treasury, gave responses to the Committee's questions on SASRIA.

Question: Why was SASRIA underfunded, considering it is meant to cover nationwide claims for civil commotion, riots, strikes and terrorism (not just claims for rioting in KZN and Gauteng)?

Response: Prior to the July 2021 unrest, SASRIA was adequately capitalised as of 31 March 2021 with a solvency capital ratio (SCR) of 323% (which was above the Prudential Authority’s minimum SCR of 100) and available capital of R 8.5 billion. There was no need for government to provide funding as SASRIA was financially sustainable, with a strong balance sheet. Following the July 2021 unrest, SASRIA was recapitalised to maintain a SCR in line with Prudential Authority requirements and settle valid claims, of which the magnitude thereof (R32 billion) was the highest ever received since SASRIA’s inception.

Question: With some SASRIA increases reaching 1 736%, did SASRIA have credible premiums previously and were the new premiums sufficient to handle a similar situation in future?

Response: According to SASRIA, while the premium increases were driven by its analysis of claims versus exposure, a portion of the increase dealt with a fundamental change in SASRIA loadings - specifically the reinsurance premium charged to SASRIA. After the July 2021 event, the reinsurance premium quoted increased significantly, which was incorporated into the SASRIA increases. Hence, the increase is not related to a correction in how SASRIA views its risks. In addition, the quoted 1 736% increase related to a relatively new class of business. The new M8 class (heavy commercial vehicles) was separated out from M2 (commercial vehicles), since there were significantly higher losses from M8 type policies. However, sufficient evidence (in the form of a sustained period of higher losses) was required to ensure the premium increase was appropriate

To the second part of the question, the SASRIA premium should not be priced to fully cover situations similar to the July 2021 catastrophic event. Pricing for events of such large magnitude would make the SASRIA premium unaffordable and defeat the purpose of SASRIA’s existence. Instead, there should be other means to cover such large severity, low frequency events such as insurance for example. Hence, it should not be expected that the premium alone will be sufficient to cover SASRIA in the event of another catastrophic event. Therefore National Treasury will embark on a journey with SASRIA and relevant stakeholders to explore inherent shortcomings and
find a long-term solution mutually beneficial to all relevant parties

Treasury response to submissions on Appropriation Bill
Ms Gillian Wilson, Treasury Chief Director: Administrative Services, spoke to these concerns:

• COSATU raised concern about the reduction of 4% in the 2022/23 baseline of the Department of Home Affairs and the impact it would have on front-line service delivery that is already in distress.

Response: The DHA operational baseline was not reduced. The percentage decrease is due to the self-financing added to the budget through the Adjusted Appropriation Bill on an annual basis This amount is utilized for the production cost of civic documents. In the current Appropriation Bill, an additional R266.953 million is allocated in 22/23 FY to DHA for capacitation to fill vacant positions to improve front-line service delivery.

• On the SAICA concern that the South African Revenue Service (SARS) has insufficient funds to meet its April 2022 deadline for implementation of Generally Recognised Accounting Practice (GRAP). Also, SARS cannot successfully fulfill its mandate as SAICA has seen an increase in taxpayer dissatisfaction with SARS services as evidenced by the number of operational queries received from SAICA members. This was affirmed by the Office of the Tax Ombud where enquiries are up from 5904 (2015) to 12147 (2021) and complaints from 2134 (2015) to 2967 (2021).

Response: An additional R1 billion was allocated to SARS in 22/23 FY which will be utilized to address GRAP. Treasury will continue to engage SARS on its funding challenges in light of its important work.

• SAICA noted the financial sustainability of the Independent Regulatory Board for Auditors (IRBA) is in jeopardy due to a High Court judgment, which if not successfully appealed, will require it to repay auditors over R60 million (almost half its budget) and IRBA will have to increase its reliance on government to ensure its sustainability

Response: The judgment deals with fee increases prescribed by IRBA in 2019/20 and 2020/21 with credits (not cash) to be passed by 1 April 2023. The notice of appeal against the judgement was lodged by IRBA on 6 May and this has the effect of suspending the judgement. Of concern will be the impact on the Assurance Fees income stream from this case and how IRBA intends to devise new income-generating activity within the prescribed legislation. Treasury will engage IRBA on the shortfall in the operational budget.

Dr Rendani Randela, Chief Director: Public Finance, National Treasury, gave the responses to Justice and Protection Services concerns.

• SAICA concern about reduction of the National Prosecuting Authority (NPA) budget by R400 million.

Response: The NPA baseline allocation was reduced byR400 million in 2020/21. No cuts were made in the NPA baseline budget in 2021/22 and 2022/23. An additional R262.2 million was allocated to NPA in 2022/23 for recruitment of aspirant prosecutors and rebuilding critical capacity in units such as Asset Forfeiture, Investigating Directorate, Sexual Offences, and Priority Crimes Litigation to strengthen the state's capacity to prosecute allegations of crime and corruption.

• SAPS and DPCI concerns – see response document.

Mr Mark Blecher, Chief Director: Health and Social Development, National Treasury, spoke to Health and Social Development submissions.

• There were many submissions on the R350 SRD grant.

Response: In its detailed response to the various concerns about the SRD grant, Treasury stated that a Basic Income Grant (BIG) is unaffordable in the current economic climate and would further crowd-out spending on existing basic services, pension and child grants, health and education.

• No provision for contingent liabilities as to legal claims/litigation costs which the Auditor General has flagged as an emergency risk. The majority of claims are for Health.

Response: Treasury agreed that medico-legal claims pose a massive financial threat to the health sector. The sector needs to improve management of this. Treasury has allocated funds to the National Department of Health (NDOH) to support provinces, but provinces must also build their own capacity. Treasury is in discussion with NDOH and SA Law Reform Commission on legal reform.

• COSATU welcomed R8bn for NHI over the MTEF, R3.3bn for interns and Community Service and R15.6bn for Covid-19. However, 0.2% growth in the Health budget over the MTEF will weaken an already overstretched healthcare system. Response: Treasury is aware of pressure and will work closely with NDOH to monitor spending and performance patterns. Spending reviews identified areas of potential savings for provincial consideration. Provinces are encouraged to conduct their own spending reviews to inform budgets. 63% of the sector is compensation of employees, need to prioritise critical posts and limit growth unit costs

• Learning and Culture, Economic Services, Urban Development and Infrastructure concerns – see document

Discussion
Ms Peters said Treasury should be able to project how much and how long it would take the Department of Basic Education to address the building of schools backlog. There are schools built years ago which were deemed not fit for learning and some of those schools could be converted into accommodation for people during natural disasters. As there are serious climate change challenges in South Africa, is Treasury engaging with the Department of Environment, Forestry and Fisheries on South Africa’s status on climate change? How is Treasury preparing itself for future climate change effects on communities given the recent KZN floods?

Mr S du Toit (FF+) said that it is notable the majority of support to farmers from National Treasury and government initiatives are race-based and that is concerning. On the disaster funding, does Treasury have the capacity to avail funds to the tune of R25 billion which is said to be needed to assist the areas affected by the floods? On the South African National Defence Force assisting in the disaster-struck areas, were funds availed to assist the SANDF with procurement for the bridge-building programme?

Mr Ryder asked the Deputy Minister about the impact of the extension of the R1.50 per litre fuel levy reduction on the budget. There was a comment that there will have to be some sort of adjustment as a result of that. He also remarked that National Treasury’s responses were directed at the submissions only and not to the Committee deliberations from the 31 May meeting.

Mr S Aucamp (DA) agreed that the Treasury response focused on the public submissions and not on the deliberations that the Committee had with them yesterday. There were several matters that Members brought up yesterday that were not responded to today. Members suggested yesterday that the fuel levy government is charging has to go down or be scrapped and there are ways in which it can be done. The fuel price increases will eventually lead to riots. There are many ways in which the fuel price increases can be avoided as mentioned yesterday.

National Treasury gave an inappropriate response to the concern raised about the VIP Protection budget compared to the NPA budget.

Nothing was said today about the concerns about government payments of invoices within 30 days. Can Treasury give a response on that? It is totally unacceptable that suppliers must wait months to be paid. In the 31 May meeting, ring fencing of revenue was brought up. Treasury should look into ring fencing revenue so municipalities are forced to pay for electricity from the money they get from citizens.

Ms M Dikgale (ANC) said that the recent disasters in South Africa should make Treasury aware that it needs to change its way of assisting SASRIA and not just look at the balance sheet of SASRIA and assume it is sustainable. It would be better for Treasury to ensure that the SANDF is taken care of as it is often not given the resources to assist the country during disasters. It is concerning that some departments are allocated money which they constantly return to Treasury as they did not use all that money. Therefore there is a need for monitoring allocated money to departments to ensure that it is used for what it is meant.

Chairperson Mahlangu requested the Deputy Minister to assist with water concerns. The water shortage in parts of the country is concerning and has been going on for years. There are people who cannot afford to have boreholes and JoJo tanks and it is not right for communities to go for days and weeks without water when they have a right to access clean water.

Chairperson Buthelezi asked Treasury what it thought about the request from the Department of Defense (DoD) to own and maintain their buildings. With the unemployment crisis, Treasury should consider ring fencing payments for employment programmes and projects. There are many instances where money allocated to youth training projects does not bring about the expected results. Young people get training and receive certificates but are not given the opportunity to put those skills to use. He also asked Treasury to give clarity on KZN not receiving money despite commitments by the government?

National Treasury response
Ms Ulrike Britton, Chief Director: Urban Development Infrastructure, National Treasury, replied the question that should be asked on the capacity to avail funds is if there is capacity to spend the funds. For some municipalities, the annual capital budget would be three or four times the amount needed for repairs. Therefore the ability to spend large sums of money within a given financial year is what is being considered.

The Disaster Management Act is clear on the roles and responsibilities in managing disasters and from where money comes in the first instance. Section 57 of the Disaster Management Act is clear that before national government supports or assists through funding, the Minister Of Cooperative Governance may ask or set guidelines on what needs to be done to ensure that money is spent properly.

National Treasury has done a whole range of things to assist with coming up with immediate funds as a response to the floods. For example, the Department of Human Settlements has brought forward R733 million of the Human Settlement Development Grant which was transferred to the province earlier than what was expected.

The responsibility for bridge building lies with the provinces where those roads are. Treasury's understanding is that the provincial road departments have confirmed to the Department of Public Works that they do have the R243 million for the 23 bridges that need to be rebuilt.

Dr Randela replied that Members will recall that in the discussion on the Appropriation Bill, he made the statement that the additional funding for Defence is necessary but not sufficient. There are certain things that the Defence Department must do and the biggest challenge lies with compensation of employees. In the previous financial year, the Defence Department set aside almost R3 billion to be transferred to compensation of employees. This results in other items such as the buying of uniforms not being prioritised in order to deal with compensation of employees.

On devolution of function from the Department of Public Works to the Defence Department, Treasury supports this decision however there are challenges with DPW. It appears that DPW does not want to relinquish the power. By law, the Defence Department has to be the one that continues with this function by agreement with Public Works. Treasury fully supports the Defence Department wanting to run its own facilities.

Deputy Minister’s response
Dr David Masondo, Deputy Minister of Finance, replied that if the fuel levy reduction measure was not taken, the fuel price would have probably increased by R4 and this was going to affect ordinary people and businesses in a big way. The reduction impact is Treasury would lose an estimated R4.5 billion from the fuel levy revenue. Treasury will continue to assess the situation and it will present options in October 2022 and announce appropriate measures to ensure that the fiscal framework presented in February 2022 is still intact.

Poor performance in any sphere of government is a reflection on the entire government. In certain instances where the law allows, National Treasury has enforced good governance such as withholding cash transfers to a number of municipalities. Treasury has limits on the extent to which it can go to enforce good governance; therefore it is important that all spheres of government do the right thing. As much as Treasury can set the standards for the appointment of accounting officers and CFOs, it is limited as it does not conduct the interviews and do the hiring.

Members know that Treasury presents a budget, which is preceded by priorities set by government. It then goes to Parliament – therefore the final decision on the budget does not lie with Treasury. The accusations that Treasury is cutting budgets, particularly for Defence, are misguided and it is important to be aware that there are limited resources that Treasury has to allocate to priority areas but the final decision is not made by Treasury.

The water crisis in some municipalities is indeed a big issue that should be looked at and part of Operation Vulindlela is looking at this. Money is not the problem. If the municipalities and water authorities were spending well on the conditional grants they receive, there would not be under expenditure on those grants. Poor investment in water infrastructure is also another contributing factor in the water crisis and this is a result of the decisions taken by some municipalities. The team that Treasury has set up in some metros is looking into this service delivery challenge and Treasury is also looking at how to make the grants more effective.

The meeting was adjourned.