2008 Budget: National Treasury briefing

Meeting report

National Treasury Briefing on 2008 Budget
The Chairperson welcomed the opportunity to interact with National Treasury on spending and explained the oversight role of the Committee and the value of the engagement to both parties.

Mr Andrew Donaldson, Deputy Director General: Public Finance, National Treasury, led the briefing. He indicated that the 2008 Estimates of National Expenditure (ENE) included updated programme objectives and measures and selected performance indicators. He alluded to the fact that there were improved tools for analysis and oversight, but that these still required further refinement. Questions could be asked around the alignment around real priorities, the distinction between objectives and specific outputs, and targets to measure progress.

The 2008 budget added R115.6 billion to forward estimates; this was demonstrated by the increased public spending over the Medium Term Expenditure Framework (MTEF), further investments in economic and social infrastructure, emphasis on investment in programmes that improved the productive capacity of the economy, and increased spending on social services, including education and health, support for poverty reduction programmes and investment in long-term income security and protection of the vulnerable.

He outlined that the child support grant would be extended from 14 to 15 years. The qualifying age for the old-age grant was being lowered in phased steps to men of 60 years of age. Consideration was being given to raising of the means tests for disability and old age grants and reforms of the South African Social Security Agency were under way. Cash transfers would continue to play an important poverty reduction role. Grants to the poor from general revenue would remain at around 3.3% of gross domestic product. The social assistance programme would continue to provide minimum benefits.

The basic design and benefits of the second social security pillar were described. It was noted that the contribution rate and division between savings, unemployment insurance, disability and survivor benefits and administration costs were still to be determined. Further consultation would be required with labour, business and the community.

There was further research on wage subsidy for workers below the tax threshold, and the estimated total annual cost was around R25 billion. The likely impact would be a poverty head-count reduction of 20%, and 350 000 new jobs. Other subsidies targeted at school leavers would be considered.

Under the topic of collective administration, there was a standard administrative infrastructure under consideration. The new system would aim at economies of scale in administration, simplicity and accessibility.

Mr Donaldson summarised the key spending areas of education and health, stepping up of anti poverty initiatives, enhancement of job creation and productive capacity of the economy, speeding up the pace of land and agrarian reform, investment in infrastructure and enhancement of state machinery for improved civic and immigration services, and to address crime.

The allocations were fully detailed, under the headings of economic services and infrastructure, improving productive capacity, social services, justice and protection, public administration and international relations. Provincial priorities were listed, and it was noted that R45.7 billion was added to the provincial share. Local government allocations were to increase the equitable share in acknowledgment of increased service delivery costs, and increased demand following the rollout of basic infrastructure to the poor. There was support to poorer municipalities and step of the Municipal Infrastructure Grants (MIG). Capital transfers would address enhanced funding for capacity building initiatives in financial management and ensuring readiness of the host cities for 2010 World Cup.

Discussion
Ms A Mchunu (IFP) sought clarification on whether Treasury knew of the impact of the wage subsidy to poverty.

Mr Donaldson indicated that the study that had been conducted indicated that poverty would be reduced by 20% and there would be a general impact on growth through creation of more than 300 000 jobs in the economy. The wage subsidy would focus on the low wage income bracket. There was a recommendation presented by the international panel to National Treasury, which indicated that that the South African government should focus on the school leavers so that they could be assisted with managing the transition between school and joining the labour market.

Mr M Swart (DA) sought information on whether it was true that a certain sector of young to qualify for a child grant. He wondered if National Treasury had considered providing incentives for young girls who did not fall pregnant before the age of 18 years.

Mr Donaldson indicated that the current study undertaken by Treasury indicated a different picture, because a lot of applications for child grants were in respect of children above the age of 18 months. Even though this study was still at an initial stage the results indicated that the motivation for pregnancy was not the child support grant. If that was so, then Department of Social Development would be inundated with applications in respect of newly born children. There was simply nothing to support the contentions. Treasury had not thought about offering the incentives suggested, but there was an incentive for the youth to proceed with further education, through the National Student Fund (NASF).

Mr Y Wang (ANC) enquired whether there was an IT infrastructural strategy across the departments who in particular were providing direct public services – such as Departments of Home Affairs, Social Development and Health.

Mr Donaldson indicated that in broad terms departments were undertaking collective administrative reforms to reduce paperwork and increase the use of shared IT platforms. This would enable the departments to reduce fraud, and, once compatibility of IT systems had been completed, this would also increase delivery. He acknowledged that it would not be easy because of certain red tape – for instance the SA Revenue Services would not share its information with other departments although it did provide information to the public. The other limitations were that the units that were combating fraud would not share their IT platforms very easily. There had indeed been discussions starting between departments, and there was in principle an agreement that the Department should share common platforms, because the benefits were tangible, and National Treasury was facilitating the engagement.

Mr Schneeman (ANC) enquired whether children benefited directly through the child support grant at a family level. He also asked if National Treasury had the accurate number of men who were likely to go on pension at 60 years, as pronounced in the State of the Nation address.

Mr Donaldson indicated that in terms of the studies undertaken by the Department, the early indications were that the children were benefiting directly from the child support grant. This was validated by the number of children taken to clinics for daily feeds, meaning that mothers could afford to pay for nutritional food for children and spend their time doing things other than wait in hospital for daily food. Regarding the pension age limit for man, he said that the estimated percentage of man who would apply or take up the offer was about 40% and the current number of people who qualified for the old age pension was 480 000.

Ms D Robinson (DA, W Cape) sought more information on whether there were incentives for people who did not fall pregnant before 18 years and proceeded to tertiary education afterwards.  

Mr Donaldson indicated there were no incentives for people who were not pregnant before they were 18 years of age and reiterated that this incentive had not been considered before. He explained that the incentive to study further came from the National Student Fund (NASF).

Ms Mchunu enquired whether men above 60 years of age who were on disability grants would automatically qualify for the old age pension so that they could reduce the costs of their general medical practitioners. 

Mr Donaldson indicated that they would automatically qualify and they would need to fill in paper work to indicate that they were transferring from the disability grant to the old age pension.

Ms R Mashigo (ANC) enquired whether funds could be transferred to another fund if there was an under expenditure on that fund  - she asked, for example, if funds from the work injury fund could be transferred to the Road Accident Fund if there was more demand from the latter.

Mr Donaldson indicated that it was illegal to transfer money from one fund to another, either by reason of under expenditure or based on demand. If there was a surplus from a fund it could be invested for future claims, or the Minister would have to gazette the usage of the surplus. There were set processes.

Mr Schneeman enquired about the extent of IT infrastructure at Home Affairs.

Mr Donaldson indicated that the Home Affairs IT infrastructure had been undergoing an upgrade and the investment in such an upgrade should not be underestimated, because the Department had almost all its system set up digitally. This made it easier to apprehend fraudulent employees. The South African Social Security Agency had a lot of interest in the Home Affairs system due to its special features.

The Chairperson pleaded with Committee Members not to ask departmental-specific questions.

Ms B Dambuza (ANC) sought clarification on the actual programmes that the Treasury would undertake to ensure an improved productive capacity of the economy. She also enquired whether the Department had any mitigating instruments to ensure that other countries, apart from China, did not bring their textiles to South Africa. She sought information on the financial allocation of the planning and co-ordination and asked whether the cost would be incurred by the Presidency. She also enquired on the accountability of the funds that would be spent on building the Pan African Parliament.

Mr Donaldson indicated that the improvement of the productive capacity of the economy was the prime mandate and although he was unable to dwell in detail on the plans, this would include the monitoring of various imports to ensure that countries were not opportunistic of the fact that South Africa and China had signed a voluntary import trade agreement which limited the textile products imported from China. The Presidency had undertaken intensive research on the developmental needs of South Africa, and the National Development Priorities was driven by the policy unit in the Presidency. The policy unit drove planning and co-ordination in the Departments, and the Treasury had a minimal role. The entity with the role of monitoring Departmental expenditure was the Auditor General. The Department of Foreign Affairs was accountable for the expenditure of Pan African Parliament, and this was part of its Programme One. 

Ms Robinson enquired whether the Treasury was anticipating more spending on agriculture because there was a serious food security problem in South Africa and the economy seemed to be dependent on subsistence farming.

Mr Donaldson indicated that agricultural growth or investment was the APEX priority, and government has increased its allocation in the 2008 budget. The issue of agriculture also involved the land restitution programme, support for subsistence farmers and linked items.

The meeting was adjourned.